DIRECTIVE	:	UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 05-93
TO	:	ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM	:	BARBARA ANN FARMER Administrator for Regional Management
SUBJECT	:	Payment of Interest on Title XII Loans

1. Purpose. To provide States with current instructions for payment of interest due on Title XII advances at the end of each Federal fiscal year.

2. References. Social Security Act (SSA), Sections 1202(b) (3)(A), 1202 (b)(5), and 303(c)(3); Federal Unemployment Tax Act (FUTA), Section 3304 (a)(17); UIPL 30-86; UIPL 38-87; and UIPL 58-88.

3. Background. Public law 98-21 amended Section 1202(b)(3)(A) of the Social Security Act to require that the payment of interest due on Title XII advances must be made before the first day of the Federal fiscal year. Interest due and payable on advances made during the last 5 months of any fiscal year may be deferred until the last day of the succeeding calendar year. However, interest will accrue on the deferred interest until it is paid. No interest is due on advances made January 1 through September 30 and repaid in full prior to October 1 in the same calendar year provided no additional advances are obtained before the end of the calendar year. If an additional Title XII loan is obtained after September 30, and within the same calendar year, interest accruing through September 30 is due and payable the day after the day that first additional borrowing occurs, except that interest on loans made after May 1 may be deferred as previously mentioned.

   The rate of interest earned by the Unemployment Trust Fund for the fourth quarter of the previous calendar year is the rate of interest used for calculating interest due and payable for the entire calendar year. Any interest due from previous years will also be included in the amount due, based on the applicable rate of interest.

4. Source of Funds/Governor's Letter. Section 1202(b)(5) of the SSA provides that interest required to be paid under paragraph (1) shall not be paid (directly or indirectly) by a State from amounts in its unemployment fund. If the Secretary of Labor determines that any State action results in the paying of such interest directly or indirectly (by an equivalent reduction in State unemployment taxes or otherwise) from such unemployment fund, the Secretary of Labor shall not certify such State's unemployment compensation law under Section 3304 of the Federal Unemployment Tax Act. Such noncertification shall be made in accordance with Section 3304 (c), FUTA.

   Section 303(c)(3), SSA, and Section 3304(a)(17), FUTA, also prohibit paying interest directly or indirectly from the State's unemployment fund. To clarify what constitutes acceptable funding sources, UIPL 58-88 was issued on September 8, 1988. It stated that payment of interest on Title XII advances from any State fund other than the State unemployment fund is not prohibited by Federal law even if State law requires or permits excess amounts in that fund to be transferred to the unemployment fund. These funds include penalty and interest special funds which have been created solely for the payment of interest on Title XII advances.

   In accordance with Federal law, the Secretary of Labor must determine if the funds used for payment of interest were derived directly or indirectly from State unemployment funds. In order for the Secretary to make this determination, the official who is potentially liable for the payment of interest at the close of the fiscal year must provide a letter to the Secretary by September 30, identifying the funding source to be used for the payment of interest and the statutory basis for the establishment and use of such funds.

   If the Governor or the Mayor has delegated the authority to request advances or repayments of advances, the delegated official may submit the letter identifying the source of funds.

5. Interest Calculation, Billing Process, and Timely Payment of Interest. To expedite the interest calculation and billing process at the U.S. Treasury and to provide State Employment Security Agencies (SESAs) with more time to transmit interest amounts due, the following procedure was initiated in 1984 and will continue unless changed by the U.S. Treasury.

   1. Treasury Calculation and Billing of Interest Due. September 16 is generally the cut-off date for the calculation of interest due. Interest is calculated by Treasury on the outstanding balance of interest-bearing Title XII advances as of the close of business on that day and projected through September 30. This amount will be billed to the Sates as the amount of interest due and payable on or before September 30.

      Projection of interest by Treasury assumes no further advances or repayments after the cut-off date and through September 30. If a State receives additional advances or makes voluntary repayments after the cut-off date, the amount billed by the Treasury must be adjusted by the SESA in accordance with these procedures:

      1. Calculate the daily interest rate by dividing the annual rate of interest charged for Title XII loans by 365 (366 in a leap year).

      2. For each day after the cut-off date through September 30, calculate the amount by which the loan balance exceeds or falls below the loan balance on the cut-off date.

      3. From Step 2, add the amounts by which daily loan balances exceed the loan balance as of the cut-off date.

      4. From Step 2, add the amounts by which daily loan balances fall below the loan balance as of the cut-off date.

      5. Subtract the result of Step 4 from the result of Step 3 and multiply by the daily interest rate calculated in Step 1.

      6. The result of Step 5 should be added to the interest amount billed by Treasury to obtain the adjusted interest payment.

      Any adjustment to the amount billed by Treasury must be documented and substantiated in a letter to the Funds Accounting Branch. This letter must immediately follow the interest payment. Treasury will verify the calculations, transactions and adjustments and advise the State if further action is required. Accuracy in the calculation of adjustments by SESAs is essential.

   2. Discrepancy Notice. If a discrepancy occurs which results in a late payment, the sanctions provided in Section 3304(a)(17) of the Federal Unemployment Tax Act and Sections 303(c)(3) and 1202(b)(5) of the Social Security Act apply as applicable.

   3. Timely Payment of Interest. States must wire-transfer interest payments to the Federal Reserve Bank (FRB) of New York. The wire transfers must be received by the FRB of New York by 6:30 p.m. Eastern Daylight Time (EDT) for same-day credit to Treasury by the FRB. Any wire transfers received after the cut-off time will be considered as the next day's business.

   Whenever the last day of the Federal fiscal year falls on a Saturday or Sunday, any interest due and payable prior to October 1 must be received by the FRB of New York and credited to Treasury on or before the preceding Friday by 6:30 p.m. (EDT). Any interest received and credited to Treasury after 6:30 p.m. EDT in this instance will be a part of the next day's business and considered delinquent.

6. Treasury Contacts. 

   1. The billing notice to the States will include the name and telephone number of a contact person in the Funds Accounting Branch of the U.S. Treasury. Exact detailed instructions for SESAs to follow to pay the interest amount due and payable on or before September 30 will also be included in the billing letters prepared by Treasury.

   2. Treasury staff are available at (202)874-6739 for consultation with SESAs at any time to verify loans, repayments, and interest charges. Correspondence to the Treasury should be mailed to:

      Manager, Funds Accounting Branch
      U.S. Treasury Department
      Liberty Center
      401 14th Street, SW
      Washington, D.C. 20227

7. OMB Approval. State Governors' Requests for Advances or Repayment of Title XII advances have been approved in accordance with the Paperwork Reduction Act of 1980, OMB Approval No. 1205-0199, expiring October 31, 1993.

8. Action Required. SESA Administrators should:

   1. Assure that the responsible individuals are advised of this directive,

   2. Assure that any interest due and payable on or before September 30, (or at any later time) is paid timely and in accordance with instructions provided by the U.S. Treasury Department and Federal law requirements; and

   3. If the authority to request advances has not been delegated to the Agency, advise the Governor of each State and/or the Mayor of the District of Columbia, who are potentially liable for the payment of interest due on Title XII advances at the close of the fiscal year, that a letter over the signature of the Governor or Mayor (if there has been a delegation of authority, the letter may come from the delegatee) must be sent to the Secretary of Labor on or before September 30, containing the following information:

      1. Identification and description of the funding source to be used for the payment of interest which becomes due and payable prior to the beginning of the succeeding Federal fiscal year, and

      2. The statutory basis for the establishment and use of such funds.

         The letter is to be mailed to:

         U.S. Department of Labor
         Attention: Unemployment Insurance Service
         Room S4231
         200 Constitution Avenue, N.W.
         Washington, D.C. 20210

         The SESA should send a copy to the appropriate regional Office.

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