UI Outlook FY 2013 Budget Midsession Review

OVERVIEW

Twice each year, when the Office of Management and Budget issues economic assumptions for the federal budget, the Division of Fiscal and Actuarial Services (DFAS) of the Office of Unemployment Insurance (OUI) uses those assumptions to develop financial projections for the Unemployment Insurance (UI) system.

Using the economic assumptions, the paths of key program variables are projected for the following five years. It should be noted that the economic assumptions beyond the first two years are not intended to be forecasts but rather are based on long-term trends. Deviations from the assumed economic path could have a significant effect on the accuracy of the estimates shown here.

Highlights of the analysis for the FY 2013 Budget Midsession Review are detailed below. The total unemployment rate (TUR) is assumed to average 8.2% in FY 2012 and 7.8% in FY 2013. These rates are significantly lower than those assumed for the FY 2013 President's Budget, based on the decline in the unemployment rate since October 2011

Under these assumptions:

The insured unemployment rate (IUR) is projected to average 2.7% in FY 2012 and 2.6% in FY 2013, down significantly from President's Budget.

State UI regular benefit outlays are estimated at $44.3 billion in FY 2012 and $44.8 billion in FY 2013.

Revenues and interest income for state trust fund accounts are projected to exceed outlays in FY 2012 for the first time since 2007.

State trust fund account balances, net of loans, are projected to increase by $7.8 billion in FY 2012 and $8.8 billion in FY 2013. Net balances are projected to become positive again in FY 2015.

State borrowing from the Federal Unemployment Account (FUA) is expected to continue over the next few years, but the aggregate loan balance is projected to decline in FY 2012 and continue to decline after that.

FUA has started reducing its outstanding general fund advance balance this year and EUCA will begin doing so in FY 2013.

Proposed Legislation

The tables in this publication are based on current law. The FY 2013 President�s Budget included a solvency proposal which would return the net FUTA tax rate to 0.8% in 2013, then reduce it to 0.37% in 2015. The FUTA taxable wage base (which effectively provides a floor for state taxable wage bases) would be increased to $15,000 in 2015, then indexed to wage growth. The proposal would also provide near-term tax relief by allowing for a two-year moratorium on state loan interest and by delaying FUTA credit reductions for borrowing states for two years. These changes would first reduce, then increase, state loan repayments and repayment of FUA general fund advances as well as increasing repayments of EUCA general fund advances.

Questions and/or comments regarding this document are welcomed. Please contact Mike Miller at miller.michael@dol.gov or (202) 693-2930 or Kevin Stapleton at stapleton.kevin@dol.gov or (202) 693-3009 or write to:

Office of Unemployment Insurance
U.S. Department of Labor, Room S-4524
200 Constitution Ave., NW
Washington, DC 20210