Friday, 

September 17, 2010 

Part III 

Department of Labor 

Employment and Training Administration 

20 CFR Part 606 

Federal-State Unemployment 

Compensation Program; Funding Goals 

for Interest-Free Advances; Final Rule 


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DEPARTMENT OF LABOR 

Employment and Training 

Administration 

20 CFR Part 606 

RIN 1205–AB53 

Federal-State Unemployment 

Compensation Program; Funding 

Goals for Interest-Free Advances 

AGENCY: Employment and Training 

Administration, Labor. 

ACTION: Final rule. 

SUMMARY: The Employment and 

Training Administration (ETA) of the 

United States Department of Labor 

(Department) issues this final rule to 

implement Federal requirements 

conditioning a State’s receipt of interestfree advances from the Federal 

Government for the payment of 

unemployment compensation (UC) 

upon the State meeting ‘‘funding goals, 

established under regulations issued by 

the Secretary of Labor.’’ This final rule 

requires that States meet a solvency 

criterion in one of the 5 calendar years 

preceding the year in which advances 

are taken; and to meet two tax effort 

criteria for each calendar year after the 

solvency criterion is met up to the year 

in which an advance is taken. 

DATES: Effective date: This final rule is 

effective October 18, 2010. 

FOR FURTHER INFORMATION CONTACT: Ron 

Wilus, Chief, Division of Fiscal and 

Actuarial Services, Office of 

Unemployment Insurance, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Room S–4231, 

Washington, DC 20210; telephone 

(202) 693–3029 (this is not a toll-free 

number). 

Individuals with hearing or speech 

impairments may access the telephone 

number above via TTY by calling the 

toll-free Federal Information Relay 

Service at 1–800–877–8339. 

SUPPLEMENTARY INFORMATION: 

The preamble to this final rule is 

organized as follows: 

I. Background—provides a brief description 

of the development of the rule. 

II. General Discussion of the Rulemaking— 

summarizes and discusses comments on 

the funding goals regulations. 

III. Administrative Information—sets forth 

the applicable regulatory requirements. 

I. Background 

UC generally is funded by employer 

contributions (taxes) paid to a State. The 

State, in accordance with section 

303(a)(4) of the Social Security Act 

(SSA) (42 U.S.C. 503(a)(4)) and section 

3304(a)(3) of the Federal Unemployment 

Tax Act (FUTA) (26 U.S.C. 3304(a)(3)), 

deposits these contributions 

immediately upon receipt into its 

account in the Unemployment Trust 

Fund (UTF) maintained by the U.S. 

Treasury. Section 1202 of the SSA (42 

U.S.C. 1322) permits a State to obtain 

from the Federal Government repayable 

advances to this account to pay UC 

when the State account reaches a zero 

balance. These advances are interestbearing, except for certain short-term 

advances, which are called cash flow 

loans. Under section 1202(b)(2) of the 

SSA (42 U.S.C. 1322(b)(2)), these shortterm advances are interest-free if: 

(1) The advances made during a calendar 

year are repaid in full before the close of 

September 30 of the same calendar year; 

(2) No additional advance is made during 

the same calendar year and after September 

30; and, 

(3) The State meets funding goals relating 

to its account in the UTF, established under 

regulations issued by the Secretary of Labor 

(Secretary). 

The Balanced Budget Act of 1997 

(Pub. L. 105–33, section 5404) added the 

third requirement, that is, that the State 

meet funding goals established under 

regulations by the Secretary. This 

statutory requirement is implemented in 

this final rule. 

State UC programs, created in the 

1930s, were intended to be selffinancing social insurance programs that 

levied payroll taxes on covered 

employers and paid benefits to eligible 

unemployed workers. A primary goal of 

the program was to act as an automatic 

stabilizer for the economy, by 

automatically injecting needed income 

support during recessionary periods and 

delaying tax increases. This is 

accomplished by building trust fund 

reserves during expansionary periods 

and using the reserves as a cushion to 

finance benefit payments during 

recessions. However, to acquire and 

maintain levels of reserves that would 

guarantee all legitimate claims are paid 

can be prohibitively costly. In the case 

of the UC program, employers largely 

pay the taxes (employees may also pay 

in three States) and paying more in 

taxes means employers experience 

increased costs. As a result, employers 

may have less money available to grow 

their businesses and add jobs to the 

economy. Therefore, to satisfy financing 

needs and fulfill the primary goal of 

stabilizing the economy in recessions, 

the UC program is designed to build and 

maintain State UC reserves at a level 

that will ensure funds are available to 

pay benefits during average recessions 

while not building reserves so high as 

to impede economic growth. Report of 

the Committee on Economic Security: 

Hearings on S. 1130 Before the Senate 

Committee on Finance, 74th Cong., 1st 

Sess. (1935). 

States have wide latitude in 

determining how to provide for 

increases in UC benefits. Generally, 

there are three methods of doing this: (1) 

Forward funding, whereby the State 

builds up its fund balance in 

anticipation of increased outlays; (2) 

pay-as-you-go financing, whereby taxes 

are raised as needed to cover benefits; 

and (3) deficit financing where a State 

uses alternative funds to pay UC. Most 

States use a combination of these 

methods. 

This final rule encourages States to 

improve their level of forward funding. 

Forward funding as a method of 

financing UC began deteriorating in the 

early 1990s. A steady decline in UC tax 

rates since then resulted in a measurable 

deterioration in the level of State UTF 

account balances. Following a mild 

recession in 2001, nine States depleted 

their UC reserves and were forced to 

take advances to pay UC. At the end of 

2007, following more than 6 years of 

economic expansion, State UTF account 

balances, on average, stood at 

approximately 5 months of average 

recessionary benefits, a historically low 

level for that period in a cycle. 

Forward funding of State UC 

programs is desirable because taking 

large advances can result in undesirable 

State actions. Such actions might 

include lowering benefits, increasing 

taxes, or a combination of both, at a time 

when neither employers nor UC 

beneficiaries are best able to cope with 

the consequences. Obtaining advances 

can also create difficult political 

decisions for a State. For example, if the 

advance results in interest coming due, 

a State must finance the interest 

payment from a source other than the 

regular UC tax. Therefore, maintaining 

solvent State UTF accounts is in the best 

interest of all involved. This rulemaking 

will encourage each State to maintain 

solvent UTF accounts by conditioning 

interest-free advances upon the State 

having met funding goals established 

under section 1202(b)(2)(C) of the SSA. 

II. General Discussion of the 

Rulemaking 

On June 25, 2009, the Department 

published a notice of proposed 

rulemaking (NPRM, at 74 FR 30402, Jun. 

25, 2009) proposing, consistent with the 

statutory direction to the Department, 

regulations establishing ‘‘funding goals 

* * * relating to the accounts of the 

States in the [UTF],’’ that States must 

meet as a condition of an interest-free 

advance. The Department explained in 

the NPRM that the purpose of the 


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funding goals requirement added by the 

Balanced Budget Act of 1997 was to 

provide an incentive for States to build 

and maintain sufficient reserves in their 

UTF accounts by restricting an existing 

Federal subsidy, in the form of an 

interest-free advance, to only those 

States that meet a forward funding 

solvency goal. The NPRM also 

explained that by restricting the 

subsidy, Congress hoped to encourage 

States to build cash reserves in order to 

adequately prepare for economic 

downturns. To meet the statutory 

requirement and its purpose of 

encouraging States to maintain 

sufficient balances in their UTF 

accounts to cover UC benefits in the 

event of a recession, the NPRM outlined 

three possible solvency approaches. All 

three approaches encouraged 

maintenance of adequate reserves. 

The approach selected in the NPRM 

had two prongs. The first prong required 

a State to meet a measure of UTF 

account adequacy, recommended by the 

Advisory Council on Unemployment 

Compensation (Advisory Council) 

(created by the Emergency 

Unemployment Compensation Act of 

1991), in at least one of the 5 calendar 

years before the calendar year in which 

the advance was obtained. This prong 

assured that the State had made 

sufficient efforts to obtain solvency 

before the need for the advance. The 

second prong required that the State 

meet two tax effort criteria for each year 

after the solvency criterion is met up to 

the year in which the advance was 

obtained. This prong assured that the 

State made reasonable efforts through its 

taxing authority to maintain solvency, 

even though, despite these efforts, the 

State needed an advance to pay benefits. 

In short, a State must achieve fund 

solvency and have maintained its tax 

efforts, which satisfies the statutory 

direction to the Department to establish 

funding goals for a State’s UTF account 

as a condition of receiving the benefit of 

an interest-free advance. While not a 

mandate on the States, these funding 

goals, consistent with Congressional 

intent, encourage the States to build and 

maintain adequate solvency levels 

during economic expansions, and 

maintain tax effort, before obtaining an 

interest-free advance. 

The NPRM proposed amending 20 

CFR part 606. More specifically, the 

Department proposed amending 

§ 606.32 by re-designating existing 

paragraph (b) as paragraph (b)(1) and 

adding new paragraphs (b)(2) through 

(b)(5) to establish the funding goals 

required by the SSA. Paragraph (b)(2)(i) 

set forth the first prong of the 

requirement, that the State, as of 

December 31 of any of the 5 calendar 

years preceding the calendar year in 

which the advance was taken, had an 

average high cost multiple (AHCM) of at 

least 1.0. Paragraph (b)(2)(ii) set forth 

the second prong, requiring the State to 

maintain tax effort with respect to the 

years between the last year the State had 

an AHCM of at least 1.0 and the year in 

which the advance was taken. Paragraph 

(b)(3) explained the calculation of the 

AHCM, based, in part, upon the 

calculation of the average high cost rate, 

as provided by paragraph (b)(4). 

For any year, the AHCM consists of 

two ratios: 

(1) The ‘‘reserve ratio’’ — The balance 

in a State’s UTF account on December 

31 divided by total wages paid to UCcovered employees during the 12 

months ending on December 31; and, 

(2) The ‘‘average high cost rate 

(AHCR)’’ —The average of the three 

highest values of: Benefits paid during 

a calendar year divided by total wages 

paid to UC-covered employees during 

the same calendar year over whichever 

period is longer, either the most recent 

20 years or the period covering the most 

recent three recessions. 

The AHCM is computed by dividing 

the reserve ratio by the AHCR. The 

resulting AHCM represents the number 

of years a State could pay UC benefits 

at a rate equal to the AHCR, without 

collecting any additional UC taxes. 

Paragraph (b)(5) set forth the details of 

the maintenance of tax effort 

requirement: A State has maintained tax 

effort if, for every year between the last 

calendar year in which it attained an 

AHCM of 1.0 and the calendar year in 

which it obtained the advance, the 

State’s unemployment tax rate as 

defined in § 606.3 for each of the 

specified years was at least: 

1. Eighty percent of the prior year’s rate; 

and, 

2. Seventy-five percent of the average 

benefit-cost ratio over the preceding 5 

calendar years, where the benefit-cost ratio 

for a year is defined as the amount of benefits 

and interest paid in the year divided by the 

total covered wages paid in the year. 

The first criterion assures that the 

State maintained its tax effort by not 

allowing employer contributions, that 

is, tax revenue, to decline unduly. The 

second criterion assures that the State 

maintained its tax efforts by keeping 

employer contributions at a reasonable 

proportion of UC paid, which assures 

that the State’s tax structure is 

sufficiently functional to generate 

adequate revenue to cover a reasonable 

percentage of the 5-year average costs. 

Thus, the two criteria together assure 

that the State meets the maintenance of 

tax effort goal by both maintaining 

revenue and assuring that that revenue 

is reasonably adequate to finance 

benefits. 

In the NPRM, the Department also 

proposed amending the definition of 

benefit-cost ratio in § 606.3. Previously, 

this definition applied only for purposes 

of the cap on tax credit reductions 

under section 3302(f) of the FUTA (26 

U.S.C. 3302(f)). The Department 

proposed deleting the reference to the 

cap, thereby making the definition 

applicable to the funding goals as well. 

The Department similarly proposed 

amending the definition of ‘‘State 5-year 

average benefit-cost ratio’’ at § 606.21(d), 

so that it also applies to the funding 

goals as well as the cap. Determining 

whether a State has met the 

maintenance of tax effort criteria 

involves the application of both 

definitions. 

Finally, in the NPRM, the Department 

also solicited comments on its proposal 

to apply the funding goals 2 years after 

publication of the final rule to allow 

States time to adjust their financing 

systems. NPRM, at 74 FR 30406, Jun. 25, 

2009; See also http:// 

www.regulations.gov/search/Regs/ 

home.html#docketDetail?R=ETA-2009- 

0002, Docket ID: ETA–2009–0002 

(analysis of simulations applying 

solvency approaches discussed in 

NPRM). 

Overview of the Comments Received on 

the NPRM 

The Department received eleven 

unique comments in response to the 

NPRM; all but one were from State UC 

agencies. 

The issue most frequently raised in 

the comments concerned the 

Department’s proposal to apply the 

funding goals 2 years from publication 

of the final rule. Most commenters 

urged the Department to delay 

applicability due to the recession. In 

response to these comments, the 

Department has decided to delay and 

phase-in the funding goals requirement. 

Several commenters also addressed 

the details of the solvency and 

maintenance of tax effort criteria. Some 

commenters offered modest support of 

the Department’s proposed rulemaking 

objective. In addition, some commenters 

sought additional stakeholder 

collaboration before a final approach 

was determined. A few commenters 

suggested that the Department avoid 

‘‘penalizing’’ States that have 

demonstrated reasonable efforts to 

obtain solvency. One commenter 

challenged the Department’s authority 

to promulgate funding goals regulations. 

Some commenters requested that the 


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Department make available waivers 

from the funding goals requirement. 

The Department read and carefully 

considered all of the comments in the 

process of developing this final rule. 

The substantive issues raised by the 

comments that are germane to the rule 

are responded to below. Other than the 

changes related to the phase-in of the 

funding goals, the Department makes no 

substantive change from what it 

proposed in the NPRM. 

Timing of Rule Applicability 

The most significant change to the 

rulemaking relates to the Department’s 

intention to make the funding goals 

effective two years after publication of 

the final rule. In general, commenters 

argued that since the United States has 

experienced an economic downturn of 

historic proportion, now is not the time 

to require States to build and maintain 

sufficient reserves in their UTF 

accounts. Some of these commenters 

noted that the proposed 2-year 

timeframe for applicability was not 

sufficient for the States that have gone 

into debt due to the current recession. 

As one commenter stated, ‘‘[t]he 

majority of [S]tates are dealing with 

record high benefit levels and 

immediate or near-future insolvency 

* * *. Implementing this new 

requirement will seriously hamper 

[their recovery] process.’’ Another 

commenter contended that the solvency 

goal ‘‘is not reasonably attainable to a 

large number of [S]tates that currently 

have negative balances in their funds.’’ 

Several commenters requested that 

the Department delay implementation of 

the funding goals requirements, with 

one commenter suggesting that the new 

funding goal requirements be delayed 

indefinitely in light of the length and 

severity of the current recession. One 

commenter suggested a delay of 5 years 

after the end of the current recession in 

the rule implementation, while another 

commenter suggested the funding goals 

should be implemented in 2017. 

Commenters also noted that section 

2004 of the American Recovery and 

Reinvestment Act of 2009 (Pub. L. 111– 

5) (Recovery Act) waived all interest on 

advances during the period February 17, 

2009, through December 31, 2010, and 

provided that no interest accrues on any 

advance during this period. They argued 

that this Act recognizes the need for a 

delay in the timing of the funding goal 

requirement. One commenter urged an 

extension of the existing waiver of 

interest on UTF account advances until 

2011. Commenters also recommended 

that the solvency criterion, in particular, 

be phase-in over a period of time. 

The Department has carefully 

considered these comments and 

recognizes that the current recessionary 

environment has greatly stressed States’ 

ability to meet their UC funding 

obligations. While the Recovery Act’s 

interest provisions will help the States, 

the Department also recognizes that 

States needing access to interest-free 

advances after this statutory provision 

expires may not meet the measure of 

UTF account adequacy established by 

this rulemaking within the proposed 2- 

year timeframe. Therefore, the 

Department has decided to delay and 

phase-in implementation of the funding 

goals requirement. 

The Department has decided to delay 

application of the funding goals 

requirement until 2014, and to phase-in 

the solvency criterion thereafter. No 

funding goals requirement for an 

interest-free advance will apply through 

calendar year 2013. Starting in 2014, the 

maintenance of tax effort criteria will 

apply, as will a solvency criterion of 

0.50 AHCM. The AHCM requirement 

will then increase by one-tenth each 

year until it reaches the 1.00 

requirement in 2019. (As explained 

below, the NPRM proposed an AHCM of 

1.0, but the final rule adopts an AHCM 

of 1.00. The distinction is relevant for 

rounding.) 

In response to these comments, the 

Department chose to begin phasing in 

the funding goals requirement in 2014. 

Commencing application of the funding 

goals requirement in 2014 will give 

States more than a year of additional 

time to prepare for the requirement 

beyond what they would have under the 

2-year application timeframe proposed 

in the NPRM. The Department decided 

to delay the application of the funding 

goals requirement in recognition that 

there will be a continued period when 

States will attempt to recover from a 

recession in the midst of unusually high 

unemployment. The Department’s 

approach provides States additional 

time to repay advances and to build 

sufficient reserves to meet the 

requirement for an interest-free advance. 

Phasing in the solvency requirement 

will also make this goal reasonably 

attainable, thus addressing one 

commenter’s concern. Although the 

Department remains committed to the 

eventual application of the 1.00 AHCM 

solvency criterion, it recognizes that the 

effects of the current recession remain 

and so it will allow access to interestfree advances in 2014 to States with an 

AHCM of only 0.50 in at least one of the 

preceding 5 years. By then, the economy 

should be well into an expansionary 

period. Phasing in the AHCM also will 

provide States more severely impacted 

by the recession additional time to 

repay advances and build sufficient 

reserves to meet the requirement for an 

interest-free advance. Further, by 

increasing the solvency criterion by 0.10 

a year, the Department intends to 

continue to provide the benefit of 

interest-free advances to those States 

that are actively pursuing forward 

funding their UTF accounts but which 

cannot yet attain an AHCM of 1.00. By 

2019, the lingering effects of the current 

recession will have abated sufficiently 

to make it reasonable for the Department 

to apply the full solvency criterion. 

While the Department’s decision to 

delay implementation of the funding 

goals requirement provides States time 

to restore their finances, it also should 

encourage States to be more aware of the 

need to build cash reserves in order to 

adequately prepare for future economic 

downturns. Financing UC by the use of 

forward funding is a basic UC program 

goal. Forward funding allows a State to 

avoid the need to obtain advances as 

well the need to increase taxes or cut 

benefits when the economy is weak. 

Notably, several commenters supported 

the concept of a funding goal that builds 

UTF account solvency and tax effort 

maintenance goals into the UC system, 

with the caveat that sufficient time be 

provided for States to implement the 

proposed goals after the end of this 

current recession. 

While the UTF account solvency 

measure will be phased-in over a 5-year 

period, the maintenance of tax effort 

goal begins in 2014. As the Department 

explained in the NPRM, it is important 

to maintain an adequate UTF account 

balance over the length of a business 

cycle rather than at just one point in 

time, in order to reduce the need for 

States to obtain advances. If the 

maintenance of tax effort criteria were 

not included, a State might reduce taxes 

too sharply during a period of economic 

expansion, which would likely leave the 

State to rely on advances from the 

Federal government during a 

recessionary period. 

As States move away from a pay-asyou-go funding goal approach and 

toward forward funding their UC 

programs, the Department encourages 

States not to freeze, restrict eligibility, or 

precipitously lower UC benefits. These 

actions would reduce the UC program’s 

economic stabilization effect during 

recessionary periods and clearly would 

have a negative impact on the ability of 

unemployed workers to support 

themselves and their families. 

Many commenters acknowledged the 

need to maintain and restore solvency 

in their accounts to adequately prepare 

for the next economic downturn; to 


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avoid the negative consequences of 

obtaining advances; and to restore the 

UC program to its forward funding 

nature. The funding goals requirement 

will help satisfy the legislative goal (as 

described in House Report No. 105–149, 

June 24, 1997, on the original House 

bill) to ‘‘encourage States to maintain 

sufficient unemployment trust fund 

balances to cover the needs of 

unemployed workers in the event of a 

recession.’’ 

In reviewing these comments, the 

Department realized that denoting a 

solvency goal that is rounded to the 

nearest tenth (0.1) does not reflect the 

established procedures for rounding the 

Department has adhered to when 

measuring the AHCM to assess trust 

fund adequacy. The Department has 

historically adhered to an established 

policy that carries out final calculations 

for the AHCM to the nearest hundredth 

(0.01) as demonstrated in the simulation 

analysis discussed in the NPRM and 

included in the rulemaking docket. This 

policy and changes made to the 

definitions in § 606.3 to reflect the 

Department’s rounding procedures are 

explained in detail below. Accordingly, 

in this final rule and as appropriate in 

this preamble and as explained more 

fully below, references to the AHCM 

will be expressed in hundredths to 

reflect the Department’s established 

rounding procedures. In addition, the 

Department modified § 606.32(b) to 

reflect the delay and phase-in of the 

funding goals requirement. The 

Department added a sentence to what is 

now the permanent funding goals 

requirement at paragraph (b)(2), stating 

that the paragraph is effective January 1, 

2019. The Department also added a new 

paragraph (b)(3) to address the phase-in 

of the funding goals requirement. 

Paragraph (b)(3) states what AHCM will 

be required for each calendar year 

between 2014 and 2018. Paragraph 

(b)(3)(i) provides the phase-in of the 

solvency criterion. Paragraph (b)(3)(ii) 

covers the tax maintenance criteria, 

which become effective in 2014. The 

historical simulation analysis cited in 

the NPRM is still applicable for 

estimating the impact of the funding 

goals once the program is fully 

implemented. The phase-in of the 

solvency criterion does not change that 

analysis. 

Solvency and Maintenance of Tax Effort 

Criteria 

The Department received several 

comments about the solvency and tax 

maintenance criteria. 

Some commenters addressed the 

proposed solvency criterion of a 1.0 

AHCM; a few commenters suggested 

that this level was too high. One 

commenter suggested that, ‘‘as a 

practical matter, the requirement would 

foreclose the possibility of cash flow 

loans for many, if not all, of the largest 

[S]tates.’’ This commenter further 

contended that a 1.0 AHCM is a 

‘‘luxury’’ that many States will not be 

able to afford given the ‘‘virtually 

unlimited demands’’ facing State 

governments. Another commenter 

argued that a 1.0 AHCM would result in 

unnecessarily high reserves; 

maintaining that much money in the 

UTF account would be bad for local 

economies by diverting funds from 

those economies into a Federal account 

where the money is ‘‘not needed and not 

used, for decades.’’ 

The Advisory Council recommended 

using a 1.0 AHCM as a measure of 

solvency in its report to Congress in 

1996. The Advisory Council’s 

recommendation was made to 

encourage States to avoid obtaining 

large advances and incurring the risk of 

having to reduce benefits and raise taxes 

during the early years of a recovery. The 

Department conducted simulations to 

determine the effects of applying the 

funding goals on a State’s eligibility for 

an interest-free advance. The 

simulations were discussed in the 

NPRM. The analysis revealed that a 1.00 

AHCM (using the Department’s 

established rounding procedures) as a 

measure of trust fund adequacy best 

satisfied the legislative goal of 

encouraging States to maintain adequate 

reserves to pay benefits during 

recessionary time while being a realistic 

and obtainable measure for States. 

In the analysis discussed in the NPRM 

(NPRM, at 74 FR 30406, Jun. 25, 2009), 

the Department created a set of annual 

State data from 1967 through 2007, and 

then examined borrowing over the 

period 1972 through 2007. (http:// 

www.regulations.gov/search/Regs/ 

home.html#docketDetail?R=ETA-2009- 

0002, Docket ID: ETA–2009–0002). The 

results from the Department’s 

simulation analysis determined that any 

of the three funding goal approaches 

proposed in the NPRM would make it 

more difficult for States with 

problematic financing systems to 

receive an interest-free advance. Going 

into a recession with an AHCM of at 

least 1.00 does not guarantee that a state 

will not need advances at some point. 

However, the analysis concluded that 

States that achieved an AHCM of 1.00 

going into a moderate recession are less 

likely to need to obtain an advance 

during or after the recession than other 

States. For example, entering the 2001 

recession, 28 States had achieved an 

AHCM of 1.00 and only one of those 

States received an advance during or 

after the recession. Additionally, during 

the recessionary periods from 1974– 

2001, only 14 percent of States that 

entered the recession with an AHCM of 

1.00 received an advance during or after 

the recession whereas 60 percent of the 

States that entered those recessionary 

periods with an AHCM below 1.00 

received an advance. 

Before the current recession, nineteen 

States had already met the 1.00 AHCM 

criterion with an additional two States 

having AHCMs above 0.95 for which 

little or no action would have been 

necessary to meet the criterion. Some 

States with lower AHCMs perceive a 

low risk of borrowing either because 

they have responsive tax systems or low 

unemployment projections, while other 

States prefer keeping their UC taxes low 

to spur further economic growth and 

such States are not likely to take action 

to meet the solvency criterion. For the 

States that might take action, achieving 

the solvency criterion would involve 

varying degrees of tax changes 

depending on how quickly achievement 

of the criterion is desired. With proper 

adjustment to their funding 

mechanisms, tax increases would only 

be in place until appropriate UTF 

account balances reflecting the solvency 

criterion are met. Only a few States are 

likely to take action to achieve the 

solvency criterion and any action is 

likely to involve temporary, modest 

increases to a tax that is relatively low. 

Therefore, the Department will 

implement an AHCM solvency criterion 

of 1.00. 

Raising a related issue, one 

commenter suggested a ‘‘pay-as-you go’’ 

approach that would include a measure 

of solvency of 50 percent of a State’s 

average high cost of benefits. Using a 

solvency level of 50 percent of the 

average high cost of benefits would be 

similar to using a 0.50 AHCM. However, 

forward funding of State benefits is 

needed in order for the UC program to 

act as a stabilizer for the economy. The 

funding goals requirement was enacted 

by Congress in the Balanced Budget Act 

of 1997 to encourage States to 

adequately forward fund their UC 

program and not rely on a ‘‘pay-as-yougo’’ system. The Department does not 

consider a solvency criterion of a 0.50 

AHCM an adequate level of forward 

funding because, at this level of 

reserves, there is a high probability that 

the State will need to take advances 

during a recession. Historical data 

shows that on average 63 percent of the 

States that entered the last five 

recessions with an AHCM of 0.50 had to 

take advances to pay UC. However, of 

the States that entered those recessions 


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with a 1.00 AHCM, only 25 percent on 

average have taken advances. For these 

reasons, the Department will not adopt 

the commenter’s suggestion. 

The Department disagrees with the 

comment that it is difficult for large 

States to achieve the AHCM solvency 

goal; larger States will have the same 

relative degree of difficulty in meeting 

this goal as smaller States. Many large 

States do have smaller balances when 

considered in relation to the wages 

subject to UC taxes, but that is primarily 

due to deteriorating tax structures in 

those States rather than a result of the 

State’s size. While large States should 

obviously have higher dollar amounts in 

their UTF accounts than smaller States, 

when viewed in relation to the wages 

being taxed there is no correlation 

between the size of a UTF account 

balance and the size of a State. That is, 

the measure of an adequate UTF balance 

is based on the average level of past 

high payouts in the State. A larger State 

will have paid out more benefits, but 

will also have collected taxes on more 

wages. 

In a related point, a commenter 

suggested that rather than promulgating 

one solvency goal for all States, the 

Department should ‘‘set goals for 

individual [S]tates based on their 

existing status and showing improved 

solvency over a period of time.’’ The 

Department declines to adopt this 

suggestion, for several reasons. First, 

both the solvency and the maintenance 

of tax effort goals are structured and 

intended to prepare States to be able to 

pay the expected UC outlays required by 

a moderate recession. The Department 

wants every State to achieve that level 

of preparedness, and so it makes sense 

to uniformly apply the criteria to all 

States. Further, the solvency criterion is 

defined as a rate, so its very design 

accounts for variances among States. 

This is a balanced and fair approach and 

means that the goal is equally 

reasonable for any State to achieve. 

Finally, there are advantages to applying 

a uniform goal to every State. One 

advantage is administrative ease, but 

another is transparency; the factors that 

enable a State to obtain an interest-free 

advance will be known and uniform for 

all States and thus a State’s progress in 

meeting the funding goals can be easily 

tracked. 

In the NPRM, the Department 

proposed December 31 as the date on 

which to measure a State’s AHCM. One 

commenter recommended changing to a 

date after the collection of the first 

quarter tax revenues (May) because 

States have higher UTF balances at that 

time. However, selecting such a date 

would provide a false reading on the 

State’s financial health; States generally 

do not sustain that balance over the 

course of the year. End-of-calendar-year 

UTF account balances are neither a 

seasonal high nor low. Accordingly, the 

Department retains December 31 as the 

AHCM measuring point. 

In the NPRM, the Department 

proposed a solvency requirement based 

upon whether a State had an AHCM of 

1.0 on December 31 of any of the 5 

calendar years preceding the calendar 

year in which the advance was taken. 

The same commenter recommended 

using the last 7 years before the advance 

instead of the last 5 years for the time 

period used to determine achievement 

of the solvency criterion. The 

Department selected a period of 5 years 

because it is a reasonable balance 

between a lengthy period for 

deterioration in a State’s solvency level 

and allowing insufficient time for the 

unpredictable arrival of the next 

recession. Specifically, choosing a 

period longer than 5 years would allow 

a prolonged period of possible tax 

reductions, which might keep the State 

above the tax maintenance effort limits 

but would still contribute to a slowly 

diminishing trust fund solvency level 

that is inadequate for the next recession. 

Choosing a period of less than 5 years 

means less allowance for the normal 

swings between unexpected benefit 

payment levels and revenue flows that 

a state may experience. 

Other commenters addressed the 

maintenance of tax effort criteria. One 

commenter raised concerns about the 

second criterion for the maintenance of 

tax effort goal, which requires the 

average tax rate in each year after 

attaining the AHCM of at least 1.00 but 

before the year in which an advance is 

taken to be at least 75 percent of the 

average benefit-cost rate over the 

preceding 5 years. This commenter 

objected to this requirement, arguing 

that the methodology in the criterion is 

flawed because it is impossible to know 

in advance when benefit payments are 

going to spike. In other words, following 

a large increase in total benefits (due to 

an economic downturn), even if a State 

meets the solvency criterion, its average 

tax rate may still not meet the 75 

percent threshold compared to the 

State’s 5-year average benefit-cost ratio 

because of the increased benefit payout, 

or spike, during the downturn. 

In fact, the Department chose a 5-year 

period and a 75 percent rate to provide 

States a generous limit to account for 

unexpected changes in benefit levels. 

Using a 5-year average for the benefitcost ratio will mitigate any 1- or 2-year 

large increase, or spike, in benefits, 

making it much easier for the State’s tax 

system to respond. The last several 

recessions lasted on average about a 

year, and although unemployment may 

continue to rise for a short time 

following a recession, a 5-year average 

of benefits is still an exceptionally low 

level for a State’s average tax rate to 

meet. 

The Department ran historical 

simulations (available at http:// 

www.regulations.gov/search/Regs/

home.html#documentDetail?

R=09000064809ff0d2) going back to 

1967 assuming the funding goal 

requirements had been in effect, and 

found that in the vast majority of cases, 

the only States unable to meet the 75 

percent criterion were those that had 

implemented large tax cuts, not those 

that had experienced significantly 

increased benefit outlays. 

The same commenter also proposed 

amending the 80 percent and 75 percent 

tax rate thresholds in the maintenance 

of tax effort criteria so that a State 

would fail to achieve the criteria only if 

it failed to meet each requirement for 3 

consecutive years rather than every year 

between the last year for which the 

solvency goal was met and the year in 

which a potentially interest-free 

advance is taken, as proposed in the 

NPRM. The tax maintenance criteria 

were included in the funding goals 

requirement specifically to discourage 

States from implementing large tax cuts 

after achieving an adequate level of 

solvency. Historically, a number of 

States have implemented significant tax 

cuts for short periods of time, for 

example 1 or 2 years, which have 

resulted in significant reductions in 

their trust fund solvency level. In some 

instances, States assigned a zero-percent 

tax rate to a large majority of their 

employers for the entire year. The 80 

percent and 75 percent criteria would 

allow the States some latitude to reduce 

their tax effort, but allowing States to 

avoid the tax effort criteria altogether for 

1 or 2 years would undermine the 

funding goals because of the potential 

loss of solvency from large, temporary 

tax cuts. As a result, the Department has 

determined that it is appropriate to 

apply the tax effort criteria to every 

year, as originally proposed. 

In the NPRM, the Department 

described three possible approaches to 

funding goals. The first approach, the 

one selected, included the solvency 

criterion of a 1.0 AHCM and the two 

maintenance of tax effort criteria. The 

second possible approach eliminated 

the maintenance of tax effort criteria 

from Approach I. The third possible 

approach included a solvency criterion 

of a 1.7 reserve ratio and the two 

maintenance of tax effort criteria. One 


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commenter suggested that the 

Department chose the most burdensome 

of the possible approaches. While 

Approach I imposes obligations that the 

commenter considers burdensome, it is 

the best approach to funding goals. As 

explained in the NPRM, Approach III 

would have been roughly as stringent as 

Approach I. Simulations revealed that 

approximately the same number of 

States, though not necessarily the same 

States, would have qualified for an 

interest-free advance under Approach III 

during the period 1972–2007 as 

qualified using Approach I. The 

Department selected Approach I over 

Approach III because the AHCM is a 

better indicator of a State’s ability to pay 

UC benefits in an economic downturn 

than the reserve ratio. The Department 

selected Approach I over Approach II 

because Approach I included incentives 

for States to achieve an adequately 

financed system via the maintenance of 

tax effort criteria. 

Other Issues 

The comments raised a variety of 

other issues. 

One commenter suggested that the 

Department encourage States to amend 

their laws to achieve solvency in their 

UTF accounts by linking the FUTA tax 

credit employers receive to criteria 

designed to achieve solvency in their 

UTF accounts, noting that this approach 

would provide a strong incentive for 

State legislatures to enact responsible 

UC tax reforms. The Department cannot 

adopt this suggestion as it does not have 

the legal authority to link the FUTA tax 

credit to a solvency requirement for a 

State’s account in the UTF. Section 

3304(a) of the FUTA (26 U.S.C. 3304(a)) 

sets forth the requirements for approval 

of State UC laws, which are conditions 

for the tax credit under section 

3302(a)(1) of the FUTA (26 U.S.C. 

3302(a)(1)). No requirement in section 

3304(a) provides a basis for 

conditioning employer tax credits upon 

a State’s meeting a solvency 

requirement. 

That being said, the Department does 

have the authority to condition a State’s 

UC administrative grant upon the State 

meeting a solvency standard. Section 

303(a)(1) of the SSA (42 U.S.C. 

503(a)(1)) conditions a State’s grant 

upon its law including provision for 

‘‘[s]uch methods of administration 

* * * as are found by the Secretary of 

Labor to be reasonably calculated to 

insure full payment of unemployment 

compensation when due * * *.’’ Since 

an insolvent UTF account could 

jeopardize the ‘‘full payment of 

unemployment compensation when 

due,’’ the SSA certainly authorizes the 

Secretary to prescribe ‘‘methods of 

administration’’ for maintaining the 

solvency of that account. Nevertheless, 

since section 1202(b)(2)(C) of the SSA 

(42 U.S.C. 1322(b)(2)(C)) explicitly 

directs the Secretary to promulgate 

funding goals, that is the proper vehicle 

for addressing this matter. Accordingly, 

the Department makes no change in the 

final rule. 

One commenter took the position that 

mandating solvency goals as a 

requirement to obtain an interest-free 

advance may not be an effective 

mechanism to promote fund solvency. 

This commenter contended that States 

that do meet the solvency criterion will 

not need an advance, while some States 

cannot even meet the basic 

requirements for an interest-free 

advance (the advance is repaid in full by 

September 30 and no additional 

advance is made after that date) and so 

the funding goals requirement provides 

no real incentive to forward fund their 

UTF account because those States 

cannot get an interest-free advance 

anyway. 

The Department disagrees with these 

comments. Section 1202(b)(2)(C) of the 

SSA explicitly directs the Secretary to 

promulgate funding goals regulations as 

a condition for an interest-free advance, 

even though the commenter believes 

that this is not an effective mechanism 

for promoting solvency. The Department 

also disagrees with the commenter’s 

contention that this rule will provide 

insufficient incentive to affect the 

behavior of many States. During the 

2001 recession, all nine of the States 

that obtained advances took interest-free 

cash flow loans. The Department is 

confident that many States will 

continue to seek these interest-free 

advances and will be consequently 

motivated to meet the funding goal. 

Also, it is not true that States that do 

meet the solvency criterion will not 

need an advance, since a severe 

recession occurring after a State meets 

this criterion may result in the State’s 

UTF account becoming insolvent. 

Nevertheless, the solvency criterion will 

make it less likely that a State will need 

an advance, which, of course, is the 

purpose of this rule. 

One commenter recommended a 

‘‘waiver of the solvency goal when 

during a downturn or recession in 

which the benefits cost rates during the 

downturn are substantially higher than 

the AHCM standard.’’ The Department 

interprets this comment to refer to a 

situation in which benefit costs in the 

current recession are higher than the 

historical benefit costs used in 

calculating the AHCM. The Department 

believes that no waiver is necessary in 

this situation. Under the proposed 

funding goals, a State that builds up a 

fund balance sufficient to cover a 

recession equal to the average of past 

recessions, but then experiences a worse 

recession and is forced to take advances, 

would meet the solvency criterion. 

Another commenter suggested that 

‘‘[S]tates that continue to be the hardest 

hit by recessions’’ should be eligible for 

interest-free advances. First, to the 

extent that this comment is related to 

the current recession and the 2-year 

implementation date proposed in the 

NPRM, the delay and phase-in of the 

rule should mitigate the commenter’s 

concern. To the extent the commenter is 

considering future recessions, the 

funding goals requirement promulgated 

in this rule is intended to encourage 

States to prepare for economic 

downturns. The solvency and tax 

maintenance effort criteria are designed 

so that States that meet those criteria are 

adequately prepared for an average 

recession. 

Another commenter suggested 

providing a waiver for States that 

demonstrate reasonable efforts to obtain 

solvency through changes in State law. 

As this commenter, a State, detailed its 

recent actions to obtain solvency, this 

comment may also relate to the current 

recession and the 2-year 

implementation date proposed in the 

NPRM. To that extent, again, the delay 

and phase-in of the rule should mitigate 

the commenter’s concern. To the extent 

this comment relates to potential future 

efforts by States, such actions would be 

consistent with, and reflected in, the 

maintenance of tax effort criteria. This 

rule is intended to encourage States to 

make reasonable efforts toward solvency 

by forward funding their UTF accounts. 

The reward for doing so is access to 

interest-free terms for short-term 

advances, just as the commenter desires. 

One commenter argued that the 

Department’s proposed funding goals 

‘‘go well beyond the authority’’ of the 

‘Balanced Budget Act’ by prescribing 

‘‘standards that were never codified in 

statute’’ and ‘‘[i]n fact, the Congress by 

deciding in 1997 to drop the solvency 

standard and timeframe expressly 

rejected the idea of standards or 

sanctions.’’ This comment apparently 

refers to the fact that the original House 

bill (H.R. 2015, 105th Cong, section 

9404 (1997)) specified a solvency 

standard that was dropped from the 

enacted law. The commenter also 

maintained that this rulemaking 

overvalues the notion of building 

reserves as a solvency goal. The 

Department disagrees with both 

contentions. The Balanced Budget Act 

of 1997 added section 1202(b)(2)(C) to 


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the SSA, explicitly requiring the 

Secretary to issue regulations governing 

‘‘funding goals * * * relating to the 

accounts of the States in the [UTF].’’ 

Further, the SSA explicitly conditions 

an interest-free advance upon a State 

meeting these funding goals. That is 

exactly what this regulation does. It 

establishes funding goals that a State 

account in the UTF must meet as a 

condition of an interest-free advance. 

The original House bill required, for 

an interest-free advance, that the 

average daily balance of a State’s 

account ‘‘for each of 4 of the 5 calendar 

quarters preceding the calendar quarter 

in which such advances were made 

exceeds the funding goal of such State 

(as defined in subsection (d)).’’ 

Subsection (d) defined ‘‘funding goal’’ as 

meaning ‘‘for any State for any calendar 

quarter, the average of the 

unemployment insurance benefits paid 

by such State during each of the 3 years, 

in the 20-year period ending with the 

calendar year containing such calendar 

quarter, during which the State paid the 

greatest amount of unemployment 

benefits.’’ The report (H.R. Rep. No. 

105–149 (1997)) accompanying the 

original House bill made clear that the 

funding goal requirement was a 

‘‘provision [that] would encourage States 

to maintain sufficient unemployment 

trust fund balances to cover the needs 

of unemployed workers in the event of 

a recession.’’ Thus, that ‘‘funding goal’’ 

was clearly a ‘‘solvency’’ standard which 

a State’s account had to meet over a 

specified period in order for the State to 

qualify for an interest-free advance. 

The enacted legislation deleted the 

specified ‘‘funding goal,’’ but 

nevertheless required that a State meet 

‘‘funding goals, established under 

regulations issued by the Secretary of 

Labor * * *.’’ Accordingly, the final bill 

only deleted the particular ‘‘funding 

goal’’ specified in the House bill, which 

was a ‘‘solvency’’ requirement, and 

instead directed the Secretary of Labor 

to establish ‘‘funding goals,’’ that is, a 

solvency requirement. There is no 

indication that the House/Senate 

conference decided that a ‘‘funding goal’’ 

in the form of a solvency requirement 

was inappropriate, only that it should 

be the Secretary, rather than Congress, 

that determined the ‘‘funding goals.’’ As 

the House Conference Report (H.R. Rep. 

No. 105–217, at 950 (1997) (Conf. Rep.)) 

stated, ‘‘[t]he conference agreement 

follows the House bill, with the 

modification that the Secretary is to 

establish appropriate funding goals for 

States.’’ Thus, although the original 

House bill would have established the 

funding goal, Congress ultimately 

decided that the Secretary should select 

the specific level of reserves necessary. 

Congress, therefore, did not turn away 

from a ‘‘solvency’’ requirement; it only 

turned away from selecting the 

particular ‘‘solvency’’ requirement itself, 

and, instead, delegated to the Secretary 

the determination of the solvency 

standard. This is precisely what the 

NPRM proposed. 

Further, section 1202(b)(2)(C) of the 

SSA clearly makes the funding goal a 

condition of obtaining an interest free 

advance. The NPRM simply proposed 

incorporating this condition into the 

existing regulations setting forth the 

requirements for an interest-free 

advance. Accordingly, no change is 

made to the final rule. 

This same commenter also argued that 

there was no statutory basis for a 

requirement that a state maintain a 

specified level of tax effort in order to 

receive an interest-free advance. The 

Department again disagrees. Because the 

maintenance of tax effort criteria are 

essential components of sound funding 

goals, the statutory basis for these 

criteria is the statutory direction to the 

Secretary to ‘‘establish[] under 

regulations’’ funding goals ‘‘relating to 

the accounts of the States in the [UTF].’’ 

Merely requiring a State to achieve 

solvency at some point in time before 

receiving an advance would serve no 

purpose if the State could thereafter 

‘‘squander’’ that solvency by 

significantly reducing its tax effort. 

Thus, the maintenance of tax effort and 

solvency criteria work in tandem to 

encourage proper management of the 

State’s UTF account. 

In the NPRM, the Department stated 

that, ‘‘[t]o the extent States do react and 

interest-free borrowing is reduced, the 

policy goal of reducing the subsidy 

provided by interest-free advances will 

be achieved.’’ 74 FR 30406, Jun. 25, 

2009. One commenter argued that no 

such policy goal exists because Congress 

did not mention it in the Balanced 

Budget Act of 1997. Regardless of 

whether a reduction in the subsidy 

provided by interest-free advances was 

considered by Congress to be a policy 

goal, the Department is required to 

promulgate these funding goals 

regulations which encourage States to 

forward fund their UTF accounts. A 

reduction in advances is a likely 

consequence of improved forward 

funding. 

One commenter argued that the 

maintenance of tax effort criteria are 

effectively at odds with the experience 

rating aspect of the UC system. The 

Department disagrees. The tax 

maintenance criteria do not restrict a 

State’s ability to award reductions in tax 

rates based on an individual employer’s 

experience with layoffs. The criteria 

place a limit on the State’s overall tax 

rate reduction once a State has achieved 

an adequate trust fund balance. A State 

may still individually assign any 

distribution of rates it desires. In fact, 

the tax maintenance limits were made 

intentionally low to avoid the 

possibility that in any one year the 

movement of employers within the 

existing range of rates of any State’s 

effective tax schedule would affect the 

level of tax effort and cause a State to 

fall below the limit. 

A commenter also contended that, if 

States do not satisfy the criteria, they 

will be subject to sanctions without 

recourse. As an initial matter, the 

Department disagrees with 

characterizing the requirement that a 

State pay interest on an advance as a 

‘‘sanction,’’ when, in fact, paying interest 

is the norm. The SSA requires that 

interest be paid on all advances and 

then provides incentives for States to 

obtain interest-free advances, which is a 

significant benefit. Failure to meet the 

conditions under which this benefit is 

offered is not a sanction. Additionally, 

the SSA does not provide a process for 

a State to challenge the denial of an 

interest-free advance, which is why the 

Department did not create such a 

process through regulations. A State 

seeking recourse could challenge 

funding goals determinations through 

other legal processes. 

The same commenter suggested 

measuring each State’s solvency effort 

against its own history. The AHCM is 

calculated using State data to determine 

the adequacy of its UTF account. This 

measure takes the current balance of a 

State’s account in the UTF and 

compares it to its own benefit payout 

history in order to derive the length of 

time the current account balance would 

last under an average recession in that 

State. Thus, the rule accords with the 

suggestion, and the Department makes 

no change in the final rule. 

This commenter also suggested that 

the Department reward States that have 

made meaningful progress toward 

solvency with additional administrative 

grant funding. Congress thought that the 

way to promote solvency is to establish 

funding goals, as required by section 

1202(b)(2)(C) of the SSA, which 

established the mechanism for 

encouraging States to achieve funding 

goals. Accordingly, the Department does 

not adopt this suggestion. 

A commenter argued that placing any 

further conditions on obtaining interestfree advances might result in a State not 

qualifying for one, which would impose 

interest costs on the State. The 

commenter further argued that meeting 


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those costs might reduce the amount of 

money available for the payment of 

benefits. In fact, the funds in a State’s 

trust fund account may only, with 

exceptions not relevant here, be used to 

pay for UC (section 3304(a)(4) of the 

FUTA; section 303(a)(5) of the SSA), 

and may not, therefore, be used to pay 

interest costs, so the payment of interest 

would not, at least directly, reduce 

funds available for the payment of 

benefits. Nevertheless, the Department 

may not decline to impose funding goals 

because they might result in interest 

costs, since section 1202(b)(2)(C) of the 

SSA requires that the Secretary establish 

them by regulation. 

Some commenters sought more 

involvement in the development of a 

funding goal approach. The Department 

believes that it provided stakeholders 

ample opportunity through the 

rulemaking process to provide 

reasonable alternatives to the funding 

goal approach selected by the 

Department. These commenters did not 

provide an alternative solvency goal for 

the Department to consider; therefore, 

the Department will not further delay 

this rulemaking. 

A few commenters suggested that the 

Department’s proposed funding goals 

requirement failed to adequately 

account for or appreciate the action(s) 

that some States have taken to maintain 

solvency. To the extent that this 

comment relates to the effects of the 

current recession, the delay and phasein of this rule should mitigate the 

commenters’ concern. Viewed more 

globally, the Department agrees that the 

funding goals ought to take into account 

what actions a State has undertaken to 

achieve and/or maintain solvency; this 

rule has been designed to do exactly 

that. The solvency criterion indicates 

whether a State has put sufficient funds 

in its UTF account to cover expected 

outlays during a recession. The 

maintenance of tax effort criteria 

indicate the adequacy of a State’s tax 

structure. As both funding goals directly 

reflect State action(s), the Department 

has determined that the rule adequately 

accounts for State actions aimed at 

improving solvency. 

One commenter also took issue with 

the Department’s assertion, which the 

commenter found in the supporting and 

related materials (available at http:// 

www.regulations.gov/search/Regs/ 

home.html#docketDetail?R=ETA-2009- 

0002) that States have ‘‘misuse[d]’’ the 

system. The commenter appears to be 

referring to the sentence in the Impact 

Analysis that one advantage of this rule 

is ‘‘stemming the possibility of misuse of 

the current system by taking an interestfree advance and repaying it with funds 

from other sources, thereby avoiding the 

payment of interest on the use of federal 

funds.’’ The commenter argues that 

since this is permitted under Federal 

law, it is not a misuse. 

Although these actions are legally 

permissible, the SSA requires the 

Secretary to establish funding goals 

under regulations. To the extent that a 

State receives advances in the January to 

September period and repays by the 

September 30 deadline with funds from 

a non-UC source, but fails to actually 

improve its solvency, the system is not 

functioning in accordance with the 

obvious intent of section 1202(b)(2)(C) 

of the SSA. These funding goals will, of 

necessity, prevent a State from using the 

interest-free terms of the short-term 

advance to avoid confronting and 

addressing the underlying lack of 

solvency in the State’s UTF account. It 

is a benefit that this rule may deter such 

behavior in the future, because a State 

will have to have made real efforts to 

obtain solvency to avoid interest. 

Clarifying and Technical Corrections 

We made several clerical and 

technical corrections to the regulations. 

These changes are intended to add 

clarity and accuracy but do not change 

the meaning or intent of the regulation. 

We made several changes to § 606.3. 

Since the ‘‘Calculation of AHCM’’ and 

‘‘Calculation of the AHCR’’ are 

definitions, they were moved from 

§ 606.32(b)(3) and (4), where they 

respectively appeared in the NPRM, to 

§ 606.3, ‘‘Definitions.’’ The words, 

‘‘Calculation of’’ were removed from the 

headings of those paragraphs and 

acronyms for these terms spelled out. 

We added a definition for the reserve 

ratio to § 606.3. We also modified the 

definition of the AHCM to explain that 

it is calculated by dividing this reserve 

ratio by the AHCR and to include 

rounding to the nearest multiple of 0.01. 

Adding a definition for the ‘‘reserve 

ratio’’ to § 606.3 and using this term to 

describe the calculation of the AHCM is 

more accurate and consistent with the 

preamble discussion. In the NPRM, we 

described the AHCM as consisting of 

two ratios: The ‘‘reserve ratio’’ divided 

by the ‘‘average high cost rate (AHCR).’’ 

We described the ‘‘reserve ratio’’ as the 

balance in a State’s UTF account on 

December 31 divided by total wages 

paid to UC-covered employees during 

the 12 months ending on December 31. 

However in § 606.32(b)(3) of the NPRM, 

we defined the calculation of the AHCM 

as: ‘‘The State’s AHCM as of December 

31 of a calendar year is calculated by: 

(i) Dividing the balance in the State’s 

account in the Unemployment Trust 

Fund as of December 31 of such year by 

the total paid to UC covered workers 

during such year; and (ii) Dividing the 

amount so obtained by the State’s 

average high cost rate (AHCR) for the 

same year.’’ The first ratio defined in 

§ 606.32(b)(3)(i) was not identified as 

the ‘‘reserve ratio.’’ In the NPRM, we 

noted that this rulemaking would ‘‘be 

based on established concepts and 

measures such as the reserve ratio and 

the average high cost multiple that are 

commonly used by DOL, State offices, 

and researchers to assess trust fund 

account adequacy.’’ Adding a definition 

for the ‘‘reserve ratio’’ and referencing 

the ‘‘reserve ratio’’ as the first of the two 

ratios used to calculate the AHCM 

ensures that these established concepts 

and measures are reflected in this 

rulemaking. The reserve ratio is 

rounded to the nearest multiple of 0.01. 

The calculation of the AHCM remains 

unchanged. These revisions do not 

substantively change this rulemaking. 

We also changed the definition for the 

Average High Cost Rate to ensure 

consistency with the preamble language 

that uses the term ‘‘average’’ instead of 

‘‘mean’’ for the final calculation of the 

AHCR. In the NPRM, § 606.32(b)(4)(iii) 

read ‘‘calculate the mean of the three 

highest ratios from paragraph (b)(4)(ii) 

of this section and round to the nearest 

multiple of 0.01 percent.’’ This has been 

revised in § 606.3 to read ‘‘Average the 

three highest calendar year benefit cost 

ratios for the selected time period from 

paragraph (b) of this section. Final 

calculations are rounded to the nearest 

multiple of 0.01 percent.’’ The 

calculation of the AHCR remains 

unchanged. This is not a substantive 

change to the rulemaking. 

We removed the paragraph 

designations in § 606.3 (Definitions) and 

added, in alphabetical order, definitions 

for Average High Cost Multiple 

(AHCM), Average High Cost Rate 

(AHCR), and ‘‘Reserve Ratio’’. In 

subparts A and C of §§ 606.3 and 606.2 

through 606.22, we removed the 

references of § 606.3(c), (f), (j), (k), and 

(l) and added in their place references 

to § 606.3. 

In the NPRM, we changed the 

definition of ‘‘benefit-cost ratio’’ by 

removing the phrase ‘‘for cap purposes.’’ 

The existing part 606 regulations, in 

addition to setting forth the conditions 

for interest-free advances, implement 

Federal provisions governing the 

‘‘capping’’ of the reduction in the credits 

against the Federal unemployment tax 

where a State does not timely repay an 

advance. Eliminating this phrase makes 

clear that the definition applies to the 

funding goals provisions of part 606, in 

addition to the ‘‘cap purposes’’ of part 

606. The benefit-cost ratio is also 


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rounded to the nearest multiple of 0.01 

percent when calculated for funding 

goal purposes; however, for cap 

purposes, final calculations are rounded 

to the nearest multiple of 0.1 percent as 

required by FUTA section 3302(f)(5)(E). 

In the NPRM, we used the following 

heading for § 606.21(d), ‘‘State five-year 

benefit-cost ratio.’’ In keeping with 

conventions governing Government 

printing, the heading now reads, ‘‘State 

5-year average benefit-cost ratio.’’ 

Similarly, we changed the reference 

within that section from ‘‘five preceding 

calendar years’’ to ‘‘5 preceding calendar 

years.’’ We also added two hyphens to 

the section, each between ‘‘benefit’’ and 

‘‘cost.’’ 

We made several technical changes to 

§ 606.32. We moved the heading ‘‘Cash 

flow loans’’ from paragraph (b)(1)(i) to 

paragraph (b), and added the heading, 

‘‘Availability of interest-free advances’’ 

to paragraph (b)(1). We moved to 

paragraph (b)(1) the first word and last 

phrase of the sentence that appeared in 

the NPRM in paragraph (b)(1)(i) so that 

paragraph (b)(1) now reads, ‘‘[a]dvances 

are deemed cash flow loans and shall be 

free of interest provided that:’’. For 

clarity, paragraphs (b)(1)(i)–(iii) have 

become explicit conditions a State must 

meet to avoid interest on the cash flow 

loan; the language for those paragraphs 

is drawn from what appeared in the 

NPRM as the first half of the sentence 

in paragraph (b)(1)(i), paragraphs 

(b)(1)(i)(A) and (B), and paragraph 

(b)(1)(ii). 

We added the word ‘‘requirement’’ to 

paragraph (b)(2) of § 606.32, after the 

words, ‘‘funding goals,’’ for clarity. In 

paragraph (b)(2)(i), we moved the 

words, ‘‘[t]he State’’ from the middle to 

the beginning of the sentence for clarity 

and to be consistent with paragraph 

(b)(2)(ii). Also in paragraph (b)(2)(i), we 

added the word, ‘‘consecutive’’ between 

the ‘‘5’’ and ‘‘years,’’ again for clarity. In 

paragraph (b)(2)(ii), after the sentence 

begins with, ‘‘[t]he State maintained tax 

effort,’’ we deleted the phrase, ‘‘with 

respect to the years between the last 

year the State had an AHCM of 1.00 and 

the year in which the advance or 

advances are made,’’ because repeated 

information in the ‘‘maintenance of tax 

effort’’ paragraph (now paragraph (b)(4)). 

We added the word, ‘‘criteria’’ after 

‘‘[m]aintenance of tax effort’’ in the 

heading of what used to be paragraph 

(b)(5) but is now paragraph (b)(4). Also 

in paragraph (b)(4), we rephrased the 

opening sentence for clarity and 

accuracy. Most notably, we removed the 

word ‘‘not’’ which had appeared 

between ‘‘is’’ and ‘‘at least.’’ The 

preamble to the NPRM correctly 

described the maintenance of tax effort 

criteria but the word ‘‘not’’ was 

inadvertently used in the NPRM 

regulatory text. Also, in the NPRM, we 

mistakenly included the word ‘‘any’’ 

between the words, ‘‘for’’ and ‘‘year;’’ that 

is corrected to now read, ‘‘for every 

year,’’ which is consistent with how the 

preamble to the NPRM described the 

maintenance of tax effort criteria. 

Due to these changes, we have 

renumbered and re-lettered the affected 

paragraphs of the rule. We also adjusted 

references to all relocated provisions 

throughout this rule. 

Rounding Procedures 

As we noted earlier in this preamble, 

we have changed the way we denote the 

AHCM to reflect the actual level of 

precision used to examine the proposed 

solvency goal in the NPRM. The 

simulation analysis, included in the 

NPRM and the rulemaking docket, 

assessed the solvency goal using an 

AHCM that was computed to the nearest 

hundredth (0.01). The simulation 

analysis, which examined the three 

possible solvency approaches outlined 

in the NPRM, used a set of annual State 

data from 1967 through 2007, and then 

examined borrowing over the period 

1972 through 2007. The AHCM data 

used to determine eligibility for an 

interest-free advance in this analysis 

was calculated to the nearest hundredth 

(0.01). 

In addition, quarterly financial reports 

on State-reported unemployment 

insurance data, which have been 

published by the Department on its Web 

site for more than a decade, reported a 

State’s AHCM to the nearest multiple of 

0.01. These quarterly reports can be 

found at http://www.ows.doleta.gov/ 

unemploy/content/data.asp. 

The AHCM as a measure of solvency 

was recommended by the Advisory 

Council. The Advisory Council 

recommended that States accumulate 

reserves sufficient to pay at least one 

year of benefits. This level of reserves 

was commonly described in the 

Advisory Council’s 1996 report as an 

AHCM of 1.0. However, this description 

did not represent the level of precision 

the Advisory Council used to analyze 

the AHCM. The Advisory Council based 

its recommendation on a review of 

historical data that calculated the 

AHCM to the nearest hundredth (0.01). 

The Advisory Council used data 

provided by the Department to 

substantiate its AHCM recommendation 

and showed State AHCM data 

calculated to the nearest hundredth 

(0.01) in supporting tables in its 1996 

report to Congress. Thus, an AHCM 

calculated to the nearest hundredth 

(0.01) also reflects a level of precision 

used by the Advisory Council to arrive 

at its recommendation that a State 

accumulate reserves sufficient to pay at 

least one year of benefits. 

In addition, a majority of States that 

use an AHCM to assess trust fund 

solvency calculate the AHCM to the 

nearest hundredth (0.01). 

An AHCM calculated to the nearest 

hundredth (0.01) reflects the longstanding and established procedure 

used by the Department to assess trust 

fund solvency. We calculate the AHCM 

to the nearest hundredth (0.01) because 

this level of precision more accurately 

measures a State’s trust fund solvency 

than using an AHCM calculated to the 

nearest tenth (0.1). 

Based upon a further review of data 

over a 40-year period, the Department 

determined that the use of a 1.00 

AHCM, rather than a 1.0 AHCM, would 

have adversely affected only three 

States. Therefore, in § 606.3, we are 

revising the definition of the AHCM to 

include rounding it to the nearest 

multiple of 0.01. 

The reserve ratio is rounded to the 

nearest multiple of 0.01 percent to 

conform to the rounding procedure for 

the AHCM. Also, the practice among a 

majority of States is to round the reserve 

ratio to the nearest multiple of 0.01. 

The benefit-cost ratio is also rounded 

to the nearest multiple of 0.01 percent 

when calculated for funding goal 

purposes to conform to the procedures 

for rounding the AHCM and the reserve 

ratio; however, for cap purposes, final 

calculations are rounded to the nearest 

multiple of 0.1 percent as required by 

section 3302(f)(5)(E) of the FUTA. 

III. Administrative Information 

Executive Order 12866: Regulatory 

Planning and Review 

This final rule is not an economically 

significant rule. Under Executive Order 

12866, a rule is economically significant 

if it materially alters the budgetary 

impact of entitlements, grants, user fees, 

or loan programs; has an annual effect 

on the economy of $100 million or 

more; or adversely affects the economy, 

a sector of the economy, productivity, 

competition, jobs, the environment, 

public health or safety, or State, local, 

or tribal governments or communities in 

a material way. This final rule is not 

economically significant under the 

Executive Order because it will not have 

an economic impact of $100 million or 

more on the State agencies or the 

economy as explained above. However, 

the final rule is a significant regulatory 

action under Executive Order 12866 at 

section 3(f) because it raises novel legal 

or policy issues arising out of legal 


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mandates, the President’s priorities, or 

the principles set forth in the Executive 

Order. This final rule updates existing 

regulations in accordance with 

Congressional mandates. Therefore, the 

Department has submitted this final rule 

to the Office of Management and Budget 

(OMB) for review. 

Paperwork Reduction Act 

The purposes of the Paperwork 

Reduction Act of 1995 (PRA), 44 U.S.C. 

3501 et seq., include minimizing the 

paperwork burden on affected entities. 

The PRA requires certain actions before 

an agency can adopt or revise a 

collection of information, including 

publishing a summary of the collection 

of information and a brief description of 

the need for and proposed use of the 

information. 

A Federal agency may not conduct or 

sponsor a collection of information 

unless it is approved by OMB under the 

PRA, and displays a currently valid 

OMB control number, and the public is 

not required to respond to a collection 

of information unless it displays a 

currently valid OMB control number. 

Also, notwithstanding any other 

provisions of law, no person shall be 

subject to penalty for failing to comply 

with a collection of information if the 

collection of information does not 

display a currently valid OMB control 

number (44 U.S.C. 3512). 

The Department has determined that 

this rule does not contain new 

information collection requiring it to 

submit a paperwork package to OMB. 

Data to be used is covered by the 

following OMB approvals: OMB No. 

1220–0012 for the Quarterly Census of 

Employment and Wages report and 

OMB No. 1205–0456 for the ETA–2112 

report containing State account balances 

in the UTF and benefits paid data. 

Executive Order 13132: Federalism 

Section 6 of Executive Order 13132 

requires Federal agencies to consult 

with State entities when a regulation or 

policy may have a substantial direct 

effect on the States or the relationship 

between the National Government and 

the States, or the distribution of power 

and responsibilities among the various 

levels of government, within the 

meaning of the Executive Order. Section 

3(b) of the Executive Order further 

provides that Federal agencies must 

implement regulations that have a 

substantial direct effect only if statutory 

authority permits the regulation and it 

is of national significance. 

The Department received 11 unique 

comments during the public comment 

period for the NPRM. All but one of 

these comments were made by States. 

The Department’s implementation of a 

phased-in approach for the AHCM 

levels is in response to feedback 

received from the States’ through the 

NPRM. In addition, the Advisory 

Council’s recommendation of using a 

1.0 AHCM as a measure of solvency was 

developed through consultation with 

the States. 

Moreover, the rule does not have a 

substantial direct effect on the States or 

the relationship between the National 

Government and the States, or the 

distribution of power and 

responsibilities among the various 

levels of Government, within the 

meaning of the Executive Order. Any 

action taken by a State as a result of the 

rule would be at its own discretion as 

the rule imposes no requirements. 

Unfunded Mandates Reform Act of 1995 

This regulatory action has been 

reviewed in accordance with the 

Unfunded Mandates Reform Act of 

1995. Under the Act, a Federal agency 

must determine whether a regulation 

proposes a Federal mandate that would 

result in the increased expenditures by 

State, local, or tribal governments, in the 

aggregate, or by the private sector, of 

$100 million or more in any single year. 

The Department has determined this 

final rule does not include any Federal 

mandate that may result in increased 

expenditure by State, local, and Tribal 

governments in the aggregate of more 

than $100 million, or increased 

expenditures by the private sector of 

more than $100 million. 

One commenter argued that this rule 

constitutes an unfunded Federal 

mandate. However, this rule is not a 

Federal mandate because States are not 

required to comply; this rule provides 

an incentive (in the form of access to 

interest-free advances) to achieve the 

funding goals requirement. The effect of 

this rulemaking is to encourage, but not 

require, States to build and maintain 

adequate balances in their UTF 

accounts. 

Accordingly, it is unnecessary for the 

Department to prepare a budgetary 

impact statement. Further, as noted 

above, the impact is positive for State 

UTF accounts. 

Plain Language 

The Department drafted this rule in 

plain language. 

Effect on Family Life 

The Department certifies that this 

final rule has been assessed according to 

section 654 of the Treasury and General 

Government Appropriations Act, 

enacted as part of the Omnibus 

Consolidated and Emergency 

Supplemental Appropriations Act of 

1999 (Pub. L. 105–277, 112 Stat. 2681), 

for its effect on family well-being. This 

provision protects the stability of family 

life, including marital relationships, 

financial status of families, and parental 

rights by encouraging the States to 

maintain adequate funding of their UTF 

accounts. It will not adversely affect the 

well-being of the nation’s families. 

Therefore, the Department certifies that 

this final rule does not adversely impact 

family well-being. 

Regulatory Flexibility Act/SBREFA 

We have notified the Chief Counsel 

for Advocacy, Small Business 

Administration, and made the 

certification according to the Regulatory 

Flexibility Act (RFA) at 5 U.S.C. 605(b), 

that this final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Under the RFA, no regulatory flexibility 

analysis is required where the rule ‘‘will 

not * * * have a significant economic 

impact on a substantial number of small 

entities.’’ 5 U.S.C. 605(b). A small entity 

is defined as a small business, small 

not-for-profit organization, or small 

governmental jurisdiction. 5 U.S.C. 

601(3)–(5). This final rule would 

directly impact States. The definition of 

small entity does not include States. 

Therefore, no RFA analysis is required. 

In addition, this final rule is not a 

major rule as defined by the Small 

Business Regulatory Enforcement Act of 

1996 (SBREFA). The Department 

provides the following analysis to 

support this certification. 

This final rule encourages States to 

build and maintain adequate balances in 

their UC accounts but does not require 

that they do so. Before the current 

recession, nineteen States had already 

met the 1.00 AHCM criterion with an 

additional two States having AHCMs 

above 0.95 for which little or no action 

would have been necessary to meet the 

criterion. Some States with lower 

AHCMs perceive a low risk of 

borrowing either because they have 

responsive tax systems or low 

unemployment projections, while other 

States prefer keeping their UC taxes low 

to spur further economic growth and 

such States are not likely to take action 

to meet the solvency criterion. For the 

States that might take action, achieving 

the solvency criterion would involve 

varying degrees of tax changes 

depending on how quickly achievement 

of the criterion is desired. With proper 

adjustment to their funding 

mechanisms, tax increases would only 

be in place until appropriate UTF 

account balances reflecting the solvency 

criterion are met. Only a few States are 


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likely to take action to achieve the 

solvency criterion and any action is 

likely to involve temporary, modest 

increases to a tax that is relatively low. 

Under any of the alternatives, only a few 

States would take action which would 

translate to a minimal impact on all 

entities given the impact estimates and 

size of the UC tax. Although we cannot 

quantify the magnitude of any possible 

tax increases that might result from this 

final rule, we are confident that States 

would be unwilling to adopt tax 

increases of a size which would even 

approach $100 million in the aggregate 

as a condition for receiving interest-free 

advances. Therefore, the Department 

certifies that this final rule will not have 

a significant impact on a substantial 

number of small entities and, as a result, 

no regulatory flexibility analysis is 

required. 

List of Subjects in 20 CFR Part 606 

Employment and Training 

Administration, Labor, Unemployment 

compensation. 

■ For the reasons stated in the preamble, 

the Department amends 20 CFR part 606 

as set forth below: 

PART 606—TAX CREDITS UNDER THE 

FEDERAL UNEMPLOYMENT TAX ACT; 

ADVANCES UNDER TITLE XII OF THE 

SOCIAL SECURITY ACT 

■ 1. The authority citation for 20 CFR 

part 606 is revised to read as follows: 

Authority: 42 U.S.C. 1102; 42 U.S.C. 

1322(b)(2)(C); 26 U.S.C. 7805(a); Secretary’s 

Order No. 3–2007, April 3, 2007 (72 FR 

15907). 

■ 2. Amend § 606.3 as follows: 

■ a. Remove the paragraph designations 

and arrange definitions in alphabetical 

order; 

■ b. Add in alphabetical order 

definitions for ‘‘Average High Cost 

Multiple (AHCM)’’, ‘‘Average High Cost 

Rate (AHCR)’’, and ‘‘Reserve Ratio’’; 

■ c. Revise the introductory text and 

paragraph (2) and add a new paragraph 

(3) in the definition for ‘‘Benefit-cost 

ratio’’; 

■ d. Amend paragraph (2) in the 

definition of ‘‘Benefit-cost ratio’’ by 

removing the reference ‘‘§ 606.3(l)’’ and 

adding in its place, the reference 

‘‘§ 606.3’’; and 

■ e. Amend the definition of 

‘‘Unemployment tax rate’’ by removing 

the reference ‘‘§ 606.3(l)’’ and adding in 

its place, the reference ‘‘§ 606.3’’. 

The revisions and additions read as 

follows: 

§ 606.3 Definitions. 

* * * * * 

Average High Cost Multiple (AHCM) 

for a State as of December 31 of a 

calendar year is calculated by dividing 

the State’s reserve ratio, as defined in 

§ 606.3, by the State’s average high cost 

rate (AHCR), as defined in § 606.3, for 

the same year. Final calculations are 

rounded to the nearest multiple of 0.01. 

Average High Cost Rate (AHCR) for a 

State is calculated as follows: 

(1) Determine the time period over 

which calculations are to be made by 

selecting the longer of: 

(i) The 20-calendar year period that 

ends with the year for which the AHCR 

calculation is made; or 

(ii) The number of years beginning 

with the calendar year in which the first 

of the last three completed national 

recessions began, as determined by the 

National Bureau of Economic Research, 

and ending with the calendar year for 

which the AHCR is being calculated. 

(2) For each calendar year during the 

selected time period, calculate the 

benefit-cost ratio, as defined in § 606.3; 

and 

(3) Average the three highest calendar 

year benefit cost ratios for the selected 

time period from paragraph (2) of this 

definition. Final calculations are 

rounded to the nearest multiple of 0.01 

percent. 

* * * * * 

Benefit-cost ratio for a calendar year 

is the percentage obtained by dividing— 

(1) * * * 

(2) The total wages (as defined in 

§ 606.3) with respect to such calendar 

year. 

(3) For cap purposes, if any 

percentage determined by this 

computation for a calendar year is not 

a multiple of 0.1 percent, such 

percentage shall be reduced to the 

nearest multiple of 0.1 percent. For 

funding goal purposes, if any percentage 

determined by this computation for a 

calendar year is not a multiple of 0.01 

percent, such percentage is rounded to 

the nearest multiple of 0.01 percent. 

* * * * * 

Reserve Ratio is calculated by 

dividing the balance in the State’s 

account in the unemployment trust fund 

(UTF) as of December 31 of such year 

by the total wages paid workers covered 

by the unemployment compensation 

(UC) program during the 12 months 

ending on December 31 of such year. 

Final calculations are rounded to the 

nearest multiple of 0.01 percent. 

* * * * * 

§ 606.20 [Amended] 

■ 3. In § 606.20, amend paragraph (a)(3) 

by removing the reference ‘‘§ 606.3(c)’’ 

and adding in its place, the reference 

‘‘§ 606.3’’ and by removing the reference 

§ 606.3(j)’’ and adding in its place, the 

reference ‘‘§ 606.3’’. 

■ 4. In § 606.21, amend paragraph (c) by 

removing the reference ‘‘606.3(j)’’ and 

adding in its place, the reference 

‘‘§ 606.3’’ and amend paragraph (d) by 

revising the first sentence to read as 

follows: 

§ 606.21 Criteria for cap. 

* * * * * 

(d) State five-year average benefit-cost 

ratio. The average benefit-cost ratio for 

the 5 preceding calendar years is the 

percentage determined by dividing the 

sum of the benefit-cost ratios for the 5 

years by five. * * * 

§ 606.22 [Amended] 

■ 5. In § 606.22, amend paragraph (b)(4) 

by removing the reference ‘‘§ 606.3(f)’’ 

and adding in its place, the reference 

‘‘§ 606.3’’; and amend paragraphs (c)(1) 

and (c)(3) by removing the reference 

‘‘§ 606.3(k)’’ and adding in its place, the 

reference ‘‘§ 606.3’’: and by amending 

paragraphs (c)(2) and (d)(3) by removing 

the reference ‘‘§ 606.3(l)’’ and adding in 

its place, the reference ‘‘§ 606.3’’ 

■ 6. Section 606.32 is amended by 

revising paragraph (b) to read as follows: 

§ 606.32 Types of advances subject to 

interest. 

* * * * * 

(b) Cash flow loans. (1) Availability of 

interest-free advances. Advances are 

deemed cash flow loans and shall be 

free of interest provided that: 

(i) The advances are repaid in full 

prior to October 1 of the calendar year 

in which the advances are made; 

(ii) The State does not receive an 

additional advance after September 30 

of the same calendar year in which the 

advance is made. If the State receives an 

additional advance after September 30 

of the same calendar year in which 

earlier advances were made, interest on 

the fully repaid earlier advance(s) is due 

and payable not later than the day 

following the date of the first such 

additional advance. The administrator 

of the State agency must notify the 

Secretary of Labor no later than 

September 10 of the same calendar year 

of those loans deemed to be cash flow 

loans and not subject to interest. This 

notification must include the date and 

amount of each loan made beginning 

January 01 through September 30 of the 

same calendar year, and a copy of 

documentation sent to the Secretary of 

the Treasury requesting loan repayment 

transfer(s) from the State’s account in 

the UTF to the Federal unemployment 

account in the UTF; and 


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(iii) The State has met the funding 

goals described in paragraph (b)(2) or 

(b)(3) of this section. 

(2) Funding goals. This paragraph 

(b)(2) is applicable to all States as of 

January 1, 2019. A State has met the 

funding goals requirement if: 

(i) The State, as of December 31 of any 

of the 5 consecutive calendar years 

preceding the calendar year in which 

such advances are made, had an AHCM 

of at least 1.00, as determined under 

§ 606.3; and 

(ii) The State maintained tax effort as 

determined under paragraph (b)(4) of 

this section. 

(3) Phasing in funding goals. This 

paragraph (b)(3) applies for calendar 

years 2014 through 2018. A State has 

met the funding goals requirement if it 

has satisfied the solvency criterion in 

paragraph (i), and the maintenance of 

tax effort criteria in paragraph (ii), of 

this § 606.32(b)(3). 

(i) A State has met the solvency 

criterion if: 

(A) For calendar year 2014, as of 

December 31 of any of the 5 

consecutively preceding calendar years, 

the State had an AHCM of at least 0.50, 

as determined under § 606.3; 

(B) For calendar year 2015, as of 

December 31 of any of the 5 

consecutively preceding calendar years, 

the State had an AHCM of at least 0.60, 

as determined under § 606.3; 

(C) For calendar year 2016, as of 

December 31 of any of the 5 

consecutively preceding calendar years, 

the State had an AHCM of at least 0.70, 

as determined under § 606.3; 

(D) For calendar year 2017, as of 

December 31 of any of the 5 

consecutively preceding calendar years, 

the State had an AHCM of at least 0.80, 

as determined under § 606.3; 

(E) For calendar year 2018, as of 

December 31 of any of the 5 

consecutively preceding calendar years, 

the State had an AHCM of at least 0.90, 

as determined under § 606.3; 

(ii) A State has met the maintenance 

of tax effort criteria if it maintained tax 

effort as determined under paragraph 

(b)(4) of this section. 

(4) Maintenance of tax effort criteria. 

A State has maintained tax effort if, for 

every year between the last calendar 

year in which it met the solvency 

criterion in paragraph (b)(2)(i) or 

(b)(3)(i) of this section and the calendar 

year in which an interest-free advance is 

taken, the State’s unemployment tax 

rate as defined in § 606.3 for the 

calendar year is at least— 

(i) 80 percent of the prior year’s 

unemployment tax rate; and 

(ii) 75 percent of the State 5-year 

average benefit-cost ratio, as determined 

under § 606.21(d). 

Signed at Washington, DC, this 8th day of 

September, 2010. 

Jane Oates, 

Assistant Secretary, Employment and 

Training Administration. 

[FR Doc. 2010–22926 Filed 9–16–10; 8:45 am] 

BILLING CODE 4510–FW–P 


wwoods2 on DSK1DXX6B1PROD with RULES-PART 2