Unemployment Insurance: Legislative Issues in the 115th Congress
Released: 2018-11-19T00:00:00

T he unemployment insurance (UI) system has two primary objectives: (1) to provide temporary, partial wage replacement for involuntarily unemployed workers and (2) to stabilize the economy during recessions. In support of these goals, several UI programs provide benefits for eligible unemployed workers.

Overview of Unemployment Insurance Programs

In general, when eligible workers lose their jobs, the joint federal-state Unemployment Compensation (UC) program may provide up to 26 weeks of income support through regular UC benefit payments. UC benefits may be extended for up to 13 weeks or 20 weeks by the Extended Benefit (EB) program if certain economic situations exist within the state. Currently, although the UC and EB programs are both authorized, no state is in an active EB period.

For information on the expired Emergency Unemployment Compensation 2008 (EUC08) program, which provided additional unemployment benefits depending on state economic conditions from July 2008 to December 2013, see CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration .

Unemployment Compensation Program

The Social Security Act of 1935 (P.L. 74-271) authorizes the joint federal-state UC program to provide unemployment benefits under which most states provide up to a maximum of 26 weeks of UC benefits. Former federal workers may be eligible for unemployment benefits through the Unemployment Compensation for Federal Employees (UCFE) program. Former U.S. military servicemembers may be eligible for unemployment benefits through the Unemployment Compensation for Ex-servicemembers (UCX) program. The Emergency Unemployment Compensation Act of 1991 ( P.L. 102-164 ) provides that ex-servicemembers be treated the same as other unemployed workers with respect to benefit levels, the waiting period for benefits, and benefit duration.

Although federal laws and regulations provide broad guidelines on UC benefit coverage, eligibility, and determination, the specifics regarding UC benefits are determined by each state. This results in essentially 53 different programs. Generally, UC eligibility is based on attaining qualified wages and employment in covered work over a 12-month period (called a base period) prior to unemployment. All states require a worker to have earned a certain amount of wages or to have worked for a certain period of time (or both) within the base period to be eligible to receive any UC benefits. The methods states use to determine eligibility vary greatly. Most state benefit formulas replace approximately half of a claimant's average weekly wage up to a weekly maximum. Additionally, each state's UC law requires individuals to have lost their jobs through no fault of their own, and recipients must be able to work, available for work, and actively seeking work. These eligibility requirements help ensure that UC benefits are directed toward workers with significant labor market experience and who are unemployed because of economic conditions.

The UC program is financed by federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes under the State Unemployment Tax Act (SUTA). The 0.6% effective net FUTA tax paid by employers on the first $7,000 of each employee's earnings (no more than $42 per worker per year) funds federal and state administrative costs, loans to insolvent state UC accounts, the federal share (50%) of EB payments, and state employment services.

SUTA taxes on employers are limited by federal law to funding regular UC benefits and the state share (50%) of EB payments. Federal law requires that the state tax be on at least the first $7,000 of each employee's earnings (it may be more) and requires that the maximum state tax rate be at least 5.4%. Federal law also requires each employer's state tax rate to be based on the amount of UC paid to former employees (known as "experience rating"). Within these broad requirements, each state has great flexibility in determining its SUTA structure. Generally, the more UC benefits paid out to its former employees, the higher the tax rate of the employer, up to a maximum established by state law. Funds from FUTA and SUTA are deposited in the appropriate accounts within the Unemployment Trust Fund (UTF).

Extended Benefit Program

The EB program was established by the Federal-State Extended Unemployment Compensation Act of 1970 (EUCA; P.L. 91-373) (26 U.S.C. §3304, note). EUCA may extend receipt of unemployment benefits (extended benefits) at the state level if certain economic conditions exist within the state. As of the date of this publication, EB is not active in any state.

Extended Benefit Triggers

The EB program is triggered when a state's insured unemployment rate (IUR) or total unemployment rate (TUR) reaches certain levels. All states must pay up to 13 weeks of EB if the IUR for the previous 13 weeks is at least 5% and is 120% of the average of the rates for the same 13-week period in each of the two previous years. States may choose to enact two other optional thresholds. (States may choose one, two, or none.) If the state has chosen one or more of the EB trigger options, it would provide the following:

Option 1—up to an additional 13 weeks of benefits if the state's IUR is at least 6%, regardless of previous years' averages. Option 2—up to an additional 13 weeks of benefits if the state's TUR is at least 6.5% and is at least 110% of the state's average TUR for the same 13 weeks in either of the previous two years; up to an additional 20 weeks of benefits if the state's TUR is at least 8% and is at least 110% of the state's average TUR for the same 13 weeks in either of the previous two years.

EB benefits are not "grandfathered" (phased out) when a state triggers "off" the program. When a state triggers "off" of an EB period, all EB benefit payments in the state cease immediately regardless of individual entitlement.

The EB benefit amount is equal to the eligible individual's weekly regular UC benefits. Under permanent law, FUTA finances half (50%) of the EB payments and 100% of EB administrative costs. States fund the other half (50%) of EB benefit costs through their SUTA.

Unemployment Insurance Benefits and the Sequester

The sequester order required by the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and implemented on March 1, 2013 (after being delayed by P.L. 112-240 ), affected some but not all types of unemployment insurance expenditures. Regular UC, UCX, and UCFE payments are not subject to the sequester reductions. EB, EUC08 (when it available), and most forms of administrative funding are subject to the sequester reductions. Please see CRS Report R43133, The Impact of Sequestration on Unemployment Insurance Benefits: Frequently Asked Questions , for additional information on the impact of sequestration on UI benefits and sequestration for FY2013 and FY2014. Please see CRS Report R43993, Unemployment Insurance: Legislative Issues in the 114th Congress for additional information on the implications of the sequester order for FY2015 and FY2016.

FY2018 Sequester of Unemployment Insurance Benefits

The FY2018 sequestration order requires a 6.6% reduction in all nonexempt nondefense mandatory expenditures, but no sequestration reductions are applicable to discretionary programs, projects, and activities. As a result, EB expenditures are required to be reduced 6.6% (only on the federal share of EB benefits) for weeks of unemployment during FY2018. In FY2018, EB was activated only in the U.S. Virgin Islands from December 17, 2017, through June 23, 2018.

FY2017 Sequester of Unemployment Insurance Benefits

The FY2017 sequestration order required a 6.9% reduction in all nonexempt nondefense mandatory expenditures, but no sequestration reductions are applicable to discretionary programs, projects, and activities. Therefore, the sequestration order required that EB expenditures be reduced by 6.9% (only on the federal share of EB benefits) for weeks of unemployment beginning on October 8, 2016, through September 30, 2017. However, EB was not activated in any state during FY2017.

State Fiscal Concerns Alleviating State Unemployment Compensation Stress

If a recession is deep enough and if state unemployment tax (SUTA) revenue is inadequate for long periods of time, states may have insufficient funds to pay for UC benefits. Federal law, which requires states to pay these benefits, provides a loan mechanism within the UTF framework that an insolvent state may opt to use to meet its UC benefit payment obligations. States must pay back these loans. If the loans are not paid back quickly (depending on the timing of the beginning of the loan period), states may face interest charges, and states' employers may face increased net FUTA rates until the loans are repaid.

As of November 13, 2018, the Virgin Islands owed $68.5 million to the federal accounts within the UTF.

President's Budget Proposal for FY2019

The President's budget for FY2019 proposes changes to several aspects of the UI system. It would create a new required standard for state account balances within the UTF. The President's FY2019 budget also proposes to make funding for Reemployment Services and Eligibility Assessments (RESEA) permanent beginning in 2020, and to make these assessments mandatory for 50% of UC beneficiaries. Additionally, the proposal would create a new benefit entitlement for paid parental leave financed through state unemployment taxes. Finally, the President's budget for FY2019 proposes a set of additional integrity measures, including offsetting Social Security Disability Insurance (SSDI) benefits for concurrent receipt of UI benefits.

New Minimum Account Balance for State UTF Accounts

The President's budget proposal for FY2019 would require states to maintain a UTF account balance of at least 50% of the state's Average High Cost Multiple (AHCM). The proposal would alter the rules for calculating the net FUTA rate, requiring a higher net FUTA rate on a state's employers if that state maintained an AHCM of less than 0.5 on January 1 of two or more consecutive years. The additional FUTA revenue would be deposited into the state UTF account and would be terminated once the state met the 0.5 AHCM criteria.

Mandatory RESEA Services

The President's budget proposal for FY2019 would create permanent and mandatory RESEA program funding, beginning in 2019. States would be required to provide reemployment services and eligibility assessments to 50% of UC claimants as well as to 100% of Unemployment Compensation for Ex-Servicemembers (UCX) claimants. (Just prior to the February 12, 2018, release of the President's budget proposal for 2019, Section 30206 of P.L. 115-123 , the Bipartisan Budget Act of 2018 (enacted February 9, 2018) codified RESEA. See the section in this report on " The Bipartisan Budget Act of 2018 (P.L. 115-123) " for a summary of the enacted RESEA provisions.)

Paid Family Leave Benefit

The President's budget proposal for FY2019 would require states to establish a paid parental leave benefit by 2020 using the UC program as its administrative framework. States would be required to provide six weeks of benefits to a worker on leave or otherwise absent from work for the birth or adoption of the worker's child. States would have discretion to determine the parameters of eligibility and financing for this new paid parental leave benefit. For information on a previous attempt to create a paid benefit for the birth or adoption of a child through the UC program, see CRS In Focus IF10643, Unemployment Compensation (UC) and Family Leave .

UI Program Integrity

Requirements to Use Particular Data Sources for Program Integrity

The President's 2019 budget includes additional integrity measures that would require states to use three specific data sources to confirm an individual's eligibility for UC benefits: State Information Data Exchange System (SIDES), the National Directory for New Hires (NDNH), and the Prisoner Update Processing System.

Additional Integrity Proposals

The proposal would create several additional integrity measures. These include

giving the Labor Secretary authority to implement new corrective action measures in response to poor state administrative performance within the program; allowing states to retain up to 5% of UC overpayments for program integrity use; requiring states to deposit all UC penalty and interest payments into a special state fund, with these funds required to be used for improving state UI administration as well as providing reemployment services for UI claimants; and offsetting SSDI benefits to account for concurrent receipt of UI benefits.

Proposed Rescission of Expired Temporary Extended Railroad Unemployment Benefits

On May 8, 2018, the Trump Administration submitted to Congress a proposal for 38 rescissions of budget authority. In their transmission, the Office of Management and Budget stated that these rescissions were transmitted pursuant to Section 1012 of the Congressional Budget and Impoundment Control Act of 1974 (2 U.S.C. 683). Included in this proposal was a rescission of $132,612,397 from the unexpended remainder of a $175 million appropriation contained in P.L. 111-92 for a temporary program of extended Railroad unemployment benefits. These temporary mandatory benefits were originally created in 2008 ( P.L. 111-5 , Title II, Section 2003) and the authority for the benefits expired on December 31, 2013 ( P.L. 112-240 , Title V, Section 504). The Government Accountability Office issued a letter stating that each proposed rescission was properly classified as a rescission proposal and not as a deferral. Additionally, the letter stated that if the amounts proposed for rescission are not rescinded, the President or the head of the Railroad Retirement Board may use the authority provided in 31 U.S.C. § 1555 to cancel the amounts without any further Congressional action.

Enacted Laws in the 115th Congress

Congressional Review Act: Disapproval of Unemployment Compensation Drug Testing Regulations (H.J.Res. 42/P.L. 115-17)

On March 31, 2017, President Donald Trump signed H.J.Res. 42 / P.L. 115-17 . This Congressional Review Act (CRA) resolution negated 20 C.F.R. Part 620. This rule had set out the circumstances under which states were allowed to prospectively drug test UC claimants based upon the prevalence of drug testing in the occupations in which they were seeking employment. Since there are no longer any lists of occupations that require drug testing within the UC sections of the Code of Federal Regulations (on account of P.L. 115-17 ), this ability to prospectively test UC claimants based upon occupation is no longer available to states. Without this rule, states may drug test UC claimants only if they were discharged from employment because of either unlawful drug use or for refusing a drug test. On November 5, 2018, DOL published a Notice of Proposed Rulemaking (NPRM) to reissue a rule that identifies occupations that regularly conduct drug testing for purposes of Section 2105 of P.L. 112-96 . Because the 2016 regulation was repealed using the Congressional Review Act, this new rule is subject to the reissue requirements of the CRA.

S.J.Res. 23 , introduced by Senator Ted Cruz on February 16, 2017, proposed measures identical to H.J.Res. 42 .

The Bipartisan Budget Act of 2018 (P.L. 115-123)

On February 9, 2018, President Donald Trump signed the Bipartisan Budget Act of 2018 ( P.L. 115-123 ). Among other provisions, P.L. 115-123 includes two UI-related changes. First, Section 20801 of P.L. 115-123 authorizes a deferral of interest payments on an outstanding federal UI loan for the U.S. Virgin Islands (USVI). Second, Section 30206 of P.L. 115-123 codifies Reemployment Services and Eligibility Assessments (RESEAs) for UI beneficiaries into Title III of the Social Security Act (SSA) and provides an allocation formula for the funds and other requirements.

Deferral of Interest Payments for USVI in Section 20801 of P.L. 115-123

Two major disaster declarations were announced by the Federal Emergency Management Agency (FEMA) for the U.S. Virgin Islands in September 2017. This provision responds to the resulting economic conditions, including increased unemployment, in the USVI in the aftermath of Hurricanes Irma and Maria. Under this provision, the deadline for USVI's payment of interest on a federal UI loan that was due on September 29, 2017, was extended and not due until September 28, 2018. Additionally, no interest accrued on this outstanding interest payment during the deferral period.

RESEA Provisions in Section 30206 of P.L. 115-123

RESEA grants have been directed to states by U.S. Department of Labor (DOL) since 2005 through discretionary appropriations. Section 30206 of P.L. 115-123 codifies the authority for DOL to administer a RESEA program. It also sets out various requirements for states to use certain types of evidence-based interventions for UI claimants under RESEA as well as allocates discretionary funding for RESEA across three categories (base funding, outcome payments, and research and technical assistance). Under this law, state RESEA programs must include reasonable notice and accommodations to participating UI beneficiaries.

The FAA Reauthorization Act of 2018 (P.L. 115-254)

P.L. 115-254 , the FAA Reauthorization Act of 2018, was signed into law on October 5, 2018. Among its many provisions, it retroactively extended Disaster Unemployment Assistance (DUA) for an additional 26 weeks for persons who were unemployed in Puerto Rico and the U.S. Virgin Islands as a direct result of the 2017 Hurricane Irma or Hurricane Maria disasters. (This created a total potential entitlement to DUA of up to 52 weeks for some individuals.) Because the disasters had both been declared more than 52 weeks before the passage of P.L. 115-254 , the remaining DUA weeks will be paid retroactively. Individuals who worked in these areas and who have exhausted entitlement to UC or EB also may be eligible for DUA benefits for the remaining otherwise uncompensated weeks in the disaster assistance period that were not covered by UC and EB.

Legislative Proposals in the 115th Congress

Rehiring UI Beneficiaries and Exhaustees

Representative David McKinley introduced the Manufacturing Economic Recovery Act of 2017, H.R. 3702 . The bill, among other items, would create a permanent work opportunity tax credit for hiring a full-time employee in a manufacturing facility located in the United States and include an increased credit for hiring individuals receiving unemployment compensation.

Delegate Eleanor Holmes Norton introduced the Reducing Long-Term Unemployment Act, H.R. 4470 . The bill would suspend employment and railroad retirement taxes for employers who hired unemployed individuals through 2018. The aggregate reduction in taxes from such suspension would be limited to $5,000 per employee.

Vouchers and Demonstration Projects

Representative James Renacci sponsored H.R. 1091 , the Flexibility to Promote Reemployment Act. The bill would make a number of changes to the state UC demonstration projects created by the Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ). The bill would extend the time period that the (now-expired) state demonstration projects could be approved by DOL through December 31, 2021 ( P.L. 112-96 authorized these demonstration projects through December 31, 2015), as well as expanded the existing authority for state UC demonstration projects by authorizing 10 states per year to conduct approved demonstration projects (the original, expired authority was only for 10 states total). H.R. 1091 would also revise state UC demonstration project requirements, including removing a requirement that any direct disbursements paid to employers for hiring UC claimants not exceed an individual's UC weekly benefit amount and requiring that DOL approve state applications for UC demonstration projects based on the order of receipt. Additionally, the bill would transfer the responsibility for the state UC demonstration project impact evaluation from the states, as under the now-expired demonstration authority, to DOL and would require a specific procedure for termination of the state UC demonstration project by DOL.

Unemployment Benefits for Energy Workers

Senator Jeff Merkley and Representative Jared Polis introduced S. 987 and H.R. 3314 , the 100 by '50 Act, respectively. Among other provisions, these bills would allow states to provide additional, temporary, federally funded UI benefits to individuals who have exhausted all UI benefits (regular UC benefits and any other UI benefit available—e.g., EB benefits); who are certified as workers adversely affected by a transition away from fossil fuels and into clean and renewable energy by the year 2050; and who are receiving certain adjustment assistance provided through this proposal.

Drug Testing50

Representative Earl Carter sponsored H.R. 3330 , the Ensuring Quality in the Unemployment Insurance Program (EQUIP) Act. The bill would allow states to require any UC applicant to complete a substance abuse risk assessment. If the applicant had been deemed high-risk, the applicant would have to pass a controlled substances test to receive UC benefits. Those who did not pass the test would be ineligible for benefits for 30 days and then would have to be retested to determine eligibility.

Unemployment Compensation for Ex-Servicemembers (UCX)51

Representative Steve Russell sponsored H.R. 2861 , the Hire Military Service Members Act. The bill would require the Department of Defense to withhold payments to the states for UCX benefits if the stat e imposes professional licensing requirements that do not accept certain professional credentials related to military training and skills (i.e., credentials obtained under a program specified by 10 U.S.C. §2015 or in a similar program ) .