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October 19, 2008 DOL Home > About DOL > Annual Report 2005 > Required Supplementary Stewardship Information |
DOL Annual Report, Fiscal Year 2005 Required Supplementary Stewardship Information STEWARDSHIP INVESTMENTS IN HUMAN CAPITAL Stewardship investments are made by the DOL for the nation's benefit. For accounting purposes, these investments are expensed as incurred, and reflected in the net cost of the DOL's operations. Stewardship investments provide long-term benefits which cannot be measured in traditional financial reports. The DOL's stewardship investments are in human capital, reported as expenses in the net cost of the DOL's employment and training programs. These investments are intended to maintain or increase national economic productive capacity, as demonstrated by program outputs and outcomes. Within the DOL, the Employment and Training Administration and the Veterans' Employment and Training Service administer programs which invest in human capital, as discussed below. Employment and Training Administration The U.S. Department of Labor, Employment and Training Administration's (ETA) Federal investment in human capital comprises expenses incurred for training programs enacted under the Workforce Investment Act of 1998 (WIA); Job Training Partnership Act, as amended (JTPA); the Trade Act of 1974, as amended (Trade Act); School-To-Work Opportunities Act of 1994, as amended (STW), and Balanced Budget Act of 1997, as amended. This investment is made for the general public and the expenses incurred are intended to increase or maintain national economic productive capacity. Investment in human capital specifically excludes expenditures for employment services, apprenticeship program administration and unemployment and other benefit payments which make up the bulk of ETA's services to the public at $36.1 billion and 22.6 million people served. The ETA's investment in human capital for fiscal years 2001 to 2005, excluding the cost of internal Federal education and training, is presented below, along with the number of participants exiting the programs, an output measure for these programs for fiscal years 2004 and 2005 (participant data is not available for the earlier years). This output measure is the latest data available for the currently operating programs, was collected for periods ending in March or June of the fiscal year, and includes some estimates, depending on the program involved. Participants could have exited from, and therefore been counted in, more than one program during the measurement periods. This participant information specifically excludes participants for employment services, apprenticeship and unemployment and other benefit recipients who receive ETA services to the public. A brief description of the programs under each Act is as follows: Workforce Investment Act (Successor Legislation to the JTPA)
Job Training Partnership Act (Antecedent legislation to the WIA)
Trade Act of 1974 As Amended
School-To-Work Opportunities Act
Balanced Budget Act of 1997
The National Apprenticeship Act
Veterans' Employment and Training Service The mission of Veterans' Employment and Training Service (VETS) is to provide veterans and transitioning service members with the resources and services to succeed in the 21st Century workforce, by maximizing their employment opportunities, protecting their employment rights, and meeting labor market demands with qualified veterans. The Agency's vision is embodied in this statement: Veterans Succeeding in the 21st Century Workforce. VETS can be classified into two main areas, Career Counseling and Employment Services, and Transition and Reemployment Services. Brief descriptions follow: Career Counseling and Employment Services Disabled Veterans Outreach Program Specialist (DVOP) This program is codified at 38 U.S.C. 4103A. DVOP grants are made to State Workforce Agencies (SWAs) according to a distribution formula prescribed by law. DVOP staff provide counseling, assessment, lifelong learning skills and/or referral to training for veterans, particularly those with disabilities or recently separated from the military. Local Veterans' Employment Representative (LVER) This program is codified at 38 U.S.C. 4104. The program provides grants to SWAs for the appointment of LVER staff positions identified in Job Service local offices and One-Stop Career Centers to enhance the services provided to veterans through oversight, technical support, and direct provision of services. LVER staffs help veterans into productive employment through lifelong learning services. Homeless Veterans' Reintegration Project (HVRP) The HVRP, codified at 38 U.S.C. 2021, provides employment assistance to homeless veterans through grants to both urban and other areas. Veterans' Workforce Investment Program (VWIP) The VWIP, codified at 29 U.S.C. 2913, provides targeted veterans training and/or employment opportunities. The program targets service connected disabled veterans, recently separated, campaign badge veterans and veterans with significant employment barriers. Transition and Reemployment Services Transition Assistance Program (TAP) Authority for TAP is provided in 38 U.S.C. 4215 and 10 U.S.C. 1144. TAP operates as a partnership between the Departments of Labor, Defense, and Veterans Affairs. This partnership also exists at the local level, where memoranda of understanding spell out the responsibilities of SWAs, military installations, VETS staff and VA facilities. The program provides separating service members and their spouses or individuals retiring from military service with career counseling and training on becoming productive members of society through employment. TAP workshops are provided throughout the Nation and overseas. Uniformed Services Employment and Reemployment Rights and Veteran's Preference Rights (USERRA) is codified at 38 U.S.C. Chapter 43. The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) succeeded Veterans' Reemployment Rights statutes. USERRA continues to protect civilian job rights and benefits for veterans, members of the National Guard and Reserves. Veteran's Preference for Federal employment is codified in 5 U.S.C. 2108. VETS educates both employee and employer so they better understand the rights of the individuals and promotes a more productive relationship between employer and employee. The full cost of VETS major programs is presented below. Full costs include all direct program costs and those indirect costs which can reasonably be assigned or allocated to the program.
SOCIAL INSURANCE PROGRAMS The Federal Accounting Standards Advisory Board (FASAB) has classified certain government income transfer programs as social insurance programs. Recognizing that these programs have complex characteristics that do not fit traditional accounting models, the FASAB has developed accounting standards for social insurance programs which require the presentation of supplementary information to facilitate the assessment of the program's long term sustainability. The U.S. Department of Labor operates two programs classified under Federal accounting standards as social insurance programs, the Unemployment Insurance Program and the Black Lung Disability Benefits Program. Presented below is the supplementary information for the two programs. Unemployment Insurance Program The Unemployment Insurance (UI) Program was created in 1935 to provide income assistance to unemployed workers who lose their jobs through no fault of their own. The program protects workers during temporary periods of unemployment through the provision of unemployment compensation benefits. These benefits replace part of the unemployed worker's lost wages and, in so doing, stabilize the economy during recessionary periods by increasing the unemployed's purchasing power. The UI program operates counter cyclically, with benefits exceeding tax collections during recessionary periods and UI tax revenues exceeding benefit payments during periods of recovery. Program Administration and Funding The UI program is administered through a unique system of Federal-State partnerships, established in Federal law but executed through conforming State laws by State officials. The Federal government provides broad policy guidance and program direction through the oversight of the U.S. Department of Labor, while program details are established through individual State UI statutes, administered through State UI agencies. Federal and State Unemployment Taxes The UI program is financed through the collection of Federal and State unemployment taxes levied on subject employers and deposited in the Unemployment Trust Fund (UTF). The UTF was established to account for the receipt, investment and disbursement of unemployment taxes. Federal unemployment taxes are used to pay for the administrative costs of the UI program, including grants to each State to cover the costs of State UI operations and the Federal share of extended UI benefits. Federal unemployment taxes are also used to maintain a loan account within the UTF, from which insolvent States may borrow funds to pay UI benefits. State UI taxes are used exclusively for the payment of regular UI benefits, as well as the State's share of extended benefits.
Unemployment Trust Fund Federal and State UI taxes are deposited into designated accounts within the Unemployment Trust Fund. The UTF was established under the authority of Title IX, Section 904 of the Social Security Act of 1935, as amended, to receive, hold, invest, loan and disburse Federal and State UI taxes. The U.S. Department of the Treasury acts as custodian over monies deposited into the UTF, investing amounts in excess of disbursing requirements in Treasury securities. The UTF is comprised of the following accounts:
UI Program Benefits The UI program provides regular and extended benefit payments to eligible unemployed workers. Regular UI program benefits are established under State law, payable for a period not to exceed a maximum duration. In 1970, Federal law began to require States to extend this maximum period of benefit duration by fifty percent during periods of high unemployment. These extended benefit payments are paid equally from Federal and State accounts.
Program Finances and Sustainability At September 30, 2005, total assets within the UTF exceeded liabilities by $54.5 billion. This fund balance approximates the accumulated surplus of tax revenues and earnings on these revenues over benefit payment expenses and is available to finance benefit payments in future periods when tax revenues may be insufficient. Treasury invests this accumulated surplus in Federal securities. The net value of these securities at September 30, 2005 was $54.8 billion. These investments accrue interest, which is distributed to eligible State and Federal accounts within the UTF. Interest income from these investments during FY 2005 was $2.5 billion. Federal and State UI tax and reimbursable revenues of $41.8 billion and regular, extended and emergency benefit payment expense of $31.2 billion were recognized for the year ended September 30, 2005. As discussed in Note 1.L.1 to the consolidated financial statements, DOL recognized a liability for regular, extended and temporary extended unemployment benefits to the extent of unpaid benefits applicable to the current period. Accrued unemployment benefits payable at September 30, 2005 were $0.9 billion. Effect of Projected Cash Inflows and Outflows on the Accumulated Net Assets of the UTF The ability of the UI program to meet a participant's future benefit payment needs depends on the availability of accumulated taxes and earnings within the UTF. The Department measures the effect of projected benefit payments on the accumulated net assets of the UTF, under an open group scenario, which includes current and future participants in the UI program. Future estimated cash inflows and outflows of the UTF are tracked by the Department for budgetary purposes. These projections allow the Department to monitor the sensitivity of the UI program to differing economic conditions, and to predict the program's sustainability under varying economic assumptions. The significant assumptions used in the projections include total unemployment rates, civilian labor force levels, percent of unemployed receiving benefits, total wages, distribution of benefit payments by state, state tax rate structures, state taxable wage bases and interest rates on UTF investments. Presented on the following pages is the effect of projected economic conditions on the net assets of the UTF, excluding the Federal Employees Compensation Account. Expected Economic Conditions Charts I and II graphically depict the effect of expected economic conditions on the UTF over the next ten years.
Recessionary Scenarios Charts III and IV demonstrate the effect on accumulated UTF assets of projected total cash inflows and cash outflows of the UTF over the ten year period ending September 30, 2015, under mild and severe recession scenarios. Each scenario uses an open group, which includes current and future participants in the UI program. Charts III and IV assume increased rates of unemployment during mild and deep periods of recession.
Tables containing the total yearly cash inflow, interest earnings and cash outflow for each scenario are presented in the following page. States Minimally Solvent Each State's accumulated UTF net assets or reserve balance should provide a defined level of benefit payments over a defined period. To be minimally solvent, a State's reserve balance should provide for one year's projected benefit payment needs based on the highest levels of benefit payments experienced by the State over the last twenty years. A ratio of 1.0 or greater prior to a recession indicates a state is minimally solvent. States below this level are vulnerable to exhausting their funds in a recession. States exhausting their reserve balance must borrow funds from the Federal Unemployment Account (FUA) to make benefit payments. The Missouri and New York state accounts had loans payable to FUA at the end of FY 2005. In addition, Texas, Illinois and North Carolina had outstanding debts to other sources. During periods of high-sustained unemployment, balances in the FUA may be depleted. In these circumstances, FUA is authorized to borrow from the Treasury general fund. Chart V presents the State by State results of this analysis at September 30, 2005, in descending order, by ratio. As the table below illustrates, 27 state funds were below minimal solvency ratio at September 30, 2005. Chart V
Black Lung Disability Benefit Program The Black Lung Disability Benefit Program provides for compensation, medical and survivor benefits for eligible coal miners who are disabled due to pneumoconiosis (black lung disease) arising out of their coal mine employment. The U.S. Department of Labor operates the Black Lung Disability Benefit Program. The Black Lung Disability Trust Fund (BLDTF) provides benefit payments to eligible coal miners disabled by pneumoconiosis when no responsible mine operator can be assigned the liability. Program Administration and Funding Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the sale of coal, as are the fund's administrative costs. These taxes are collected by the Internal Revenue Service and transferred to the BLDTF, which was established under the authority of the Black Lung Benefits Revenue Act, and administered by the U.S. Department of the Treasury. The Black Lung Benefits Revenue Act provides for repayable advances to the BLDTF from the general fund of the Treasury, in the event that BLDTF resources are not adequate to meet program obligations. Program Finances and Sustainability At September 30, 2005, total liabilities of the Black Lung Disability Trust Fund exceeded assets by $9.2 billion. This deficit fund balance represented the accumulated shortfall of excise taxes necessary to meet benefit payment and interest expenses. This shortfall was funded by repayable advances to the BLDTF, which are repayable with interest. Outstanding advances at September 30, 2005 were $9.2 billion, bearing interest rates ranging from 4.500 to 13.875 percent. Excise tax revenues of $610.4 million, benefit payment expense of $327.9 million and interest expense of $674.9 million were recognized for the year ended September 30, 2005. As discussed in Note 1.L.3, DOL recognized a liability for disability benefits to the extent of unpaid benefits applicable to the current period. Accrued disability benefits payable at September 30, 2005 were $24.4 million. Although no liability was recognized for future payments to be made to present and future program participants beyond the due and payable amounts accrued at year end, future estimated cash inflows and outflows of the BLDTF are tracked by the Department for budgetary purposes. The significant assumptions used in the projections are coal production estimates, the tax rate structure, number of beneficiaries, life expectancy, medical costs and the interest rate on new repayable advances from Treasury. These projections are sensitive to changes in the tax rate and changes in interest rates on repayable advances from Treasury. These projections, made over the thirty-five year period ending September 30, 2040, indicate that cash inflows from excise taxes will exceed cash outflows for benefit payments and administrative expenses for each period projected. Cumulative net cash inflows are projected to reach $16.1 billion by the year 2040. However, when interest payments required to finance the BLDTF's repayable advances are applied against this surplus cash inflow, the BLDTF's cash flow turns negative during each of the thirty-five periods included in the projections. Net cash outflows after interest payments are projected to reach $41.6 billion by the end of the year 2040, increasing the BLDTF's deficit to $50.8 billion at September 30, 2040. (See Chart I on following page) The net present value of future benefit payments for the thirty-five year period ending 2040 is $2.6 billion. The net present value of future excise taxes for the thirty-five year period is $8.5 billion which results in a $5.9 billion excess of excise taxes over benefit payments. However, the net present value of total cash outflows, including interest payments and administrative costs, is $25.1 billion resulting in an excess of cash outflows over excise taxes of $16.6 billion. The interest rate used for net present value is 4.5 percent. The net present value of future benefit payments was $2.9 billion, $3.0 billion, $3.1 billion, and $3.5 billion for FY 2004, 2003, 2002 and 2001, respectively. The net present value of future excise taxes was $7.7 billion, $7.3 billion, $7.8 billion, and $7.9 billion for FY 2004, 2003, 2002 and 2001, respectively. The fund deficit was $8.7 billion, $8.2 billion, $7.7 billion and $7.2 billion at the end of FY 2004, 2003, 2002, and 2001, respectively.
Chart I The projected decrease in cash inflows in the year 2014 and thereafter is the result of a scheduled reduction in the tax rate on the sale of coal. This rate reduction is projected to result in a fifty-two percent decrease in the amount of excise taxes collected between the years 2013 and 2015. The cumulative effect of this change is estimated to be in excess of $12.2 billion by the year 2040. Yearly cash inflows and outflows are presented in the table on the following page.
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