4. Repayment of Principal.. The Department's position is that the principal on a loan from any source that is used to pay UC may be repaid from unemployment fund money if the following conditions are met:

a. The loan is made for the purpose of paying UC under the state law, and the proceeds of the loan have either actually been used for the payment of UC or have been deposited in the state's account in the Unemployment Trust Fund from which they may be withdrawn only for the payment of UC. Because there is a direct relationship between the loan and the payment of UC, the withdrawal standard's requirement that money be withdrawn only for the payment of compensation is met.

If the loan is not limited to the payment of UC (for example, if a bond issuance also finances workers compensation or temporary disability payments), the amount that may be repaid from the state's unemployment fund is limited to the amount actually used for the payment of UC plus any amount deposited in the state's account in the Unemployment Trust Fund that is limited to the payment of UC.

b. The money used for the payment of UC is explicitly characterized as a loan for the payment of UC at the time it is dedicated to the payment of UC. If it is not so characterized, there is no loan for the payment of UC. To be permissible under the withdrawal standard, there must be a direct relationship between the payment of UC and any withdrawal from the unemployment fund. A withdrawal to "repay" money not initially characterized as a loan will not clearly be for the payment of UC, but instead could be for another purpose such as making up a shortfall in the fund from which the money came.

c. The loan and repayment are consistent with the state law as interpreted by competent state authority. This assures that the expenditure of the loan for UC was lawful and that repayment of the loan is a proper withdrawal from the unemployment fund.

5. Payment of Interest and Fees. Unemployment fund money may not be used to pay interest, loan/bond fees, or other administrative costs. However, a state may use Reed Act money, if appropriated by its state legislature, to pay any of these costs associated with the principal described in "a." above. Since these interest/administrative costs are related to obtaining sufficient funds to cover the costs of paying UC, they are costs of administering a state's UC law and permissible under the Reed Act. (See Unemployment Insurance Program Letter No. 39-87; and Training and Employment Guidance Letter Nos. 18-01 and 18-01, Change 1, for discussions of Reed Act money and their permissible uses.)

Note, however, that grants received from the Department of Labor for the administration of a state's UC law may not be used to pay interest. Unlike Reed Act money, UC grants are subject to 29 CFR 97.22, which provides that allowable costs will be determined under OMB Circular No. A-87. Item 26 of Attachment B of the Circular provides that "[c]osts incurred for interest . . . however represented, are unallowable" with certain exceptions related to real property and equipment.

6. Use of Title XII Advances.The Department will not approve requests for Title XII advances to pay outstanding loans/bonds. The intent of Title XII is to allow states to continue to pay UC even though their accounts in the Unemployment Trust Fund are at zero. Thus, to obtain these advances, there must be an immediate need for money to pay benefits directly to individuals. This immediate need is expressed in Section 1201(a)(1)(B), SSA, which limits the amount that may be requested to a "3-month period;" and Section 1201(a)(3)(B), SSA, which requires that, in requesting an advance, the state take "into account all other amounts that will be available in the State's unemployment fund for the payment of compensation in such month."

This reverses the position taken in Field Memorandum No. 64-83, a 1983 communication from the National to the Regional Offices, which apparently did not take this analysis into account.

7. Action Required. Administrators should provide this information to appropriate staff and assure that unemployment fund money is used consistent with this advisory.

8. Inquiries. Direct questions to the appropriate Regional Office.