DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 05-90
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	DONALD J. KULICK Administrator for Regional Management
SUBJECT	:	Title XII Advances and Reed Act Obligations

1. Purpose. To inform States that, under a revised interpretation, properly obligated Reed Act funds need not be expended for benefit payments prior to obtaining a Title XII advance and to provide procedures to identify and set aside such funds in State Unemployment Trust Fund (UTF) accounts.

2. Reference. Sections 303 (a) (5), 903(c) and 1201 (a) of the Social Security Act (SSA); Sections 3304 (a) (4) and 3306 (f) of the Federal Unemployment Tax Act (FUTA); Part IV, Sections 3000-3040, and Part V, Section 9326, of the Employment Security Manual.

3. Background. Section 303 (a) of the SSA specifies that "The Secretary of Labor shall make no certification for payment (of administrative grants) to any State unless he finds that the law of such State, approved by the Secretary of Labor under the Federal Unemployment Tax Act, includes provision for . . .(5) Expenditure of all money withdrawn from an unemployment fund of such State, in the payment of unemployment compensation, exclusive of expenses of administration,. . . Provided further, That the amounts specified by section 903 (c) (2) [relating to Reed Act funds] may, subject to the conditions prescribed in such section, be used for expenses incurred by the State for administration of its unemployment compensation law and public employment offices . . . ."

   Section 3304 (a) (4) of FUTA imposes the same requirements for approval of State unemployment compensation laws.

   In defining "unemployment fund", section 3306 (f) of FUTA further specifies that " . . . no sums paid out of the Unemployment Trust. Fund to such State agency shall cease to be a part of the unemployment fund of the State until expended by such State agency. An unemployment fund shall be deemed to be maintained . .. only if . . . no part of the moneys of such fund was expended for any purpose other than the payment of compensation (exclusive of expenses of administration) . . . ; except that . . . (2) the amounts specified by section 903 (c) (2) of the Social Security Act may, subject to the conditions prescribed in such section, be used for expenses incurred by the State for administration of its unemployment compensation law and public employment offices . . . ."

   Section 903 of the SSA describes-the conditions under which excess funds, commonly referred to as "Reed Act" money, may be transferred to State accounts in the Unemployment Trust Fund (UTF). These transferred amounts-become a part of the State's unemployment fund and subject to the withdrawal standard limiting the use of unemployment funds to the payment of benefits, except that such Reed Act funds may be used for expenses of SESA administration under the conditions prescribed in Section 903(c)(2) Section 903(c)(2) permits a State, "pursuant to a specific appropriation made by the legislative body of the State, [to] use [Reed Act] money withdrawn from its account in the payment of expenses incurred by it for the administration of its unemployment compensation law and public employment offices . . ." under specified conditions.

   Section 1201 of the Act provides a system of "Title XII" advances to States with temporarily depleted UC reserves.' Among the requirements for a State to qualify for a loan is a provision in subsection (a), paragraph (3) that "(B) the amount required by any State for the payment of compensation in any month shall be determined with due allowance for contingencies and taking into account all other amounts that will be available in the State's unemployment fund for the payment of compensation in such month . . . ".

   Under the SSA and FUTA as previously interpreted, unexpended, obligated Reed Act funds were considered available for payment of benefits and had to be expended for the payment of benefits prior to receipt of a Title XII advance. Accordingly. U.S. Department of Treasury procedures took into account a State's entire UTF account balance prior to calculating the actual amount of a Title XII advance. Consequently, States obtaining Title XII advances were forced to expend obligated Reed Act money for benefit payments prior to receipt of such advances and to either default on valid Reed Act obligations or find alternate sources of funding.

4. Revised Interpretation. Under the revised interpretation of these provisions, as set forth in this UIPL, properly appropriated and obligated Reed Act funds may be considered to be not available for benefit payments and, therefore, need not be taken into account in determining the amount of a Title XII advance.

   Federal appropriation law considers funds validly obligated pursuant to an appropriation to be unavailable for other purposes. State Reed Act appropriation authority and obligations merit similar recognition.. Therefore, valid Reed Act obligations may be considered to be unavailable for any other purpose, including the payment of benefits. Since only funds available for the payment of benefits are to be taken into account in determining the amount of a Title XII advance required (section 1201(a)(3)(B)), valid Reed Act obligations in a State's UTF account may be excluded in future Title XII determinations.

   This new interpretation recognizes and protects valid Reed Act obligations and provides a means to assure the availability of such funds for expenditure when obligations mature. The protection provided by this new interpretation does not apply to appropriated funds prior to actual obligation. (See ES Manual, Part-IV,. Section 3015.C.). Further, the opportunity afforded by this new interpretation will not be effective unless the the State takes-the affirmative steps to shelter properly obligated Reed Act funds in its Trust Fund sub-account under the following procedures.

5. Procedures. Procedures have been established to identify obligated Reed Act funds in individual State UTF accounts at the U. S. Treasury so that they may be excluded from State account balances in calculating future Title XII advances.

   Effective December 1, 1989, the Funds Accounting Branch will establish within each State's UTF account a Reed Act "sub-account" to account for Reed Act obligations. The initial credit to each State's Reed Act sub-account will be the amount of unexpended Reed Act obligations as of close of business November 30, 1989, as certified to ETA by the State. ETA will then certify the same to Treasury, subject to review of the State's documentation. As new obligations are made or as obligations are cancelled, the amounts obligated or deobligated will be certified in a similar manner and credited to or deducted from the State's Reed Act sub-account. Withdrawals to pay Reed Act obligations, as specified by State UTF requisition letters, will be charged against the Reed Act sub-account.

   Funds residing in the Reed Act sub-account will not be considered available for the payment of benefits, and will not be taken into account by ETA or Treasury for Title XII advance purposes, if they have been properly set aside in the State's Reed Act sub-account. This approach resolves the previous dilemma of States having to use obligated Reed Act funds for benefit payments prior to obtaining a Title XII advance.

   1. Start-up Procedures.  To assure the accuracy of initial Reed Act sub-account transactions. States with current Reed Act obligations must:

      1. Review each-Reed Act obligation under which there is an unexpended balance as of close of business November 30, 1989, and validate the:

         • Date of enactment of the enabling appropriation,

         • Date and amount of each obligation, and

         • Unexpended balance of each obligation as of close of business November 30, 1989;

      2. Prepare a letter certifying the amount of unexpended Reed Act obligations as of close of business November. 30, 1989. This amount must agree with transactions reported on Form ETA 8403, Title IX Funds ("Reed Act" Money) submitted for the month ending November 30,1989 (The total of column III (b) less the total of column Ma) must equal the amount of unexpended obligations.) As documentation, attach a summary sheet identifying each appropriation under which there is an unexpended obligation amount. For each appropriation, indicate the purpose, dollar amount, enactment date, legislative bill number, and the current total amount obligated.

      The letter and attachment should be addressed to:

      U.S. Department of. Labor
      Employment and Training Administration
      Attention: TEUMI
      200 Constitution Avenue, N.W. Rm. C-4512
      Washington, D.C. 20210

      Letter to be forwarded by December 12, 1989. A 'zero' balance of unexpended obligations as of November 30, 1989, will be assumed for States not forwarding letters by the above date.

   2. On-going Procedures. To assure the accuracy of all subsequent Reed Act sub-account transactions and to provide for on-going maintenance of such accounts, States with current Reed Act obligations and States subsequently incurring Reed Act obligations must:

      1. Certify to ETA by letter on a monthly basis all new obligation amounts and all deobliqated amounts. The letter must specify the effective date of each obligation or deobligation and identify the corresponding appropriation(s) and/or related obligation(s) by amount and effective date;

      2. On letters to Treasury requisitioning from the State's account in the UTF, specifically identify withdrawal amounts requested for Reed Act purposes;

      3. Include all Reed Act redeposits and withdrawals on each month's written confirmation letter to Treasury of UTF account activities; and

      4. Include all Reed Act sub-account transactions on Form ETA 8403, Title IX Funds ("Reed Act" Money) for the month in which the transactions) occurred.

6. Action Required. SESA Administrators are to:

   1. Inform the appropriate State agency staff of the revised interpretation and procedures regarding Title XII advances and Reed Act obligations;

   2. Certify the amount of unexpended Reed Act obligations as of close of business November 30, 1989; and

   3. Ensure that the on-going procedures for the maintenance of UTF accounts and Reed Act sub-accounts contained in this directive are adhered to.

7. Estimated Burden. Public reporting burden for this collection o information is estimated to average 1 (one) hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.

   Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to the Office of Information Management, Department of Labor, Room N-1301, 200 Constitution Avenue, N.W., Washington, D.C. 20210; and to the office of Management and Budget, Paperwork Reduction Project (1205-0280), Washington, D.C. 20503.

8. OMB Approval. These procedures have been approved under the Paperwork Reduction Act of 1980, .as amended, under OMB Approval Number 1205-0280, expiring March 31, 1992.

9. Inquiries. Direct inquiries to the appropriate Regional Office.