UI Outlook

UI Outlook

OVERVIEW

Twice each year, when the Office of Management and Budget issues economic assumptions for the federal budget, the Division of Fiscal and Actuarial Services (DFAS) of the Office of Workforce Security (OWS) uses those assumptions to develop financial projections for the Unemployment Insurance system.

Using the economic assumptions, the paths of key program variables are projected for the following five years. It is important to keep in mind that the economic assumptions beyond the first two years are not intended to be forecasts but rather are based on long-term trends. Deviations from the assumed economic path could have a significant effect on the accuracy of the estimates shown in the UI Outlook. It should be noted that the economic assumptions used for this analysis were developed prior to the release of the Gross Domestic Product statistic for the final quarter of 2008. That statistic unexpectedly declined sharply, suggesting that the economic assumptions may be somewhat optimistic.

Highlights of the analysis for the FY 2010 President’s Budget are detailed below. The total unemployment rate (TUR) is assumed to average 7.8% in FY 2009 and 7.9% in FY 2010. These rates are significantly higher than the 5.6% and 5.4% assumed for the FY 2009 Midsession Review.

Under these assumptions:

The insured unemployment rate (IUR) is projected to average 3.7% in both FY 2009 and FY 2010.

State UI regular benefit outlays are estimated at $66.9 billion in FY 2009 and $65.0 billion in FY 2010, up significantly from Midsession Review estimates of $44.7 billion and $43.5 billion, respectively.

Outlays from state trust fund accounts are projected to exceed revenues and interest income by $29.0 billion in FY 2009 and $21.1 billion in FY 2010.

State trust fund account balances, net of loans, are projected to fall from $36.8 billion at the end of FY 2008 to -$19.9 billion at the end of FY 2011 before starting to grow again. Net balances are projected to become positive again in FY 2014.

Very large amounts of borrowing from the Federal Unemployment Account (FUA) are projected over the next few years. The balance of outstanding loans is expected to increase from the current $10.0 billion to a peak end-of-year balance of $32.1 billion in FY 2011.

Due to the high volume of state loans, FUA is projected to borrow $15.8 billion from the general fund in FY 2010, after first borrowing available funds from EUCA and ESAA, and an additional $13.8 billion in FY 2011. The general fund advances must be repaid with interest.

These projections assume no funding of employment services from the Unemployment Trust Fund after FY 2008, consistent with the Administration’s budget request.

Enacted Legislation

These projections include the impact of the American Recovery and Reinvestment Act (ARRA), although most of the additional outlays are from general revenues and do not affect the trust fund accounts. In particular, the extension of the EUC08 program costs an estimated $23.7 billion over two years and the temporary FAC program, which increases all UI weekly payments by $25, costs an estimated $8.7 billion over two years. Both the EUC08 extension and the FAC program are funded from general revenues (the existing EUC08 program was mostly FUTA-funded). Items which affect the trust fund include: temporary 100% Federal funding of EB, which shifts an estimated $1.3 billion of outlays from state accounts to EUCA; waiver of loan interest payments, which reduces FUA income by an estimated $1.4 billion; and UI Modernization, which transferred $500 million from ESAA and reserves $7.0 billion in FUA for incentive payments to states, thus greatly increasing the need for general fund advances.

Questions and/or comments regarding this document are welcomed. Please contact Mike Miller at miller.michael@dol.gov or (202) 693-2930, or write to:

Office of Workforce Security
Division of Fiscal and Actuarial Services
Room S-4231
U.S. Department of Labor
200 Constitution Ave., NW
Washington, DC 20210