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 Unemployment Insurance (OUI) 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 should be noted 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 here.

Highlights of the analysis for the FY 2013 President's Budget are detailed below. The total unemployment rate (TUR) is assumed to average 9.0% in FY 2012 and 8.7% in FY 2013. These rates are slightly higher than those assumed for the FY 2012 Budget Midsession Review.

Under these assumptions:

The insured unemployment rate (IUR) is projected to average 3.0% in both FY 2012 and FY 2013, about the same as Midsession.

State UI regular benefit outlays are estimated at $49.1 billion in FY 2012 and $50.6 billion in FY 2013, down somewhat from Midsession estimates.

Revenues and interest income for state trust fund accounts are projected to exceed outlays in FY 2012 for the first time since 2007.

State trust fund account balances, net of loans, are projected to increase by $2.9 billion in FY 2012 and $4.7 billion in FY 2013. Net balances are projected to become positive again in FY 2016.

State borrowing from the Federal Unemployment Account (FUA) is expected to continue over the next few years, but the aggregate loan balance is projected to decline after FY 2012 from a peak end-of-year balance of $40.4 billion.

Both FUA and EUCA are projected to start reducing their outstanding general fund advance balances after 2012.

Technical Note

The projections in this report are the official projections for the FY 2013 Budget. They were prepared in late November 2011. Since that time, the TUR has declined significantly and the IUR has also declined somewhat, suggesting that these projections may be too pessimistic, at least in the near term. The projections will be updated for the FY 2013 Budget Midsession Review in July 2012.

Proposed Legislation

The tables in this publication are based on current law. The FY 2013 President's Budget includes a proposal to extend EUC08 and 100% Federal funding of EB for ten months. EUC08 benefits are funded from general revenues so would not affect the trust fund, but the EB extension would increase EUCA drawdowns and general fund advances by about $1.5 billion in FY 2012.

The FY 2013 President's Budget also includes a solvency proposal which would return the net FUTA tax rate to 0.8% in 2013, then reduce it to 0.37% in 2015. The FUTA taxable wage base (which effectively provides a floor for state taxable wage bases) would be increased to $15,000 in 2015, then indexed to wage growth. The proposal would also provide near-term tax relief by allowing for a two-year moratorium on state loan interest and by delaying FUTA credit reductions for borrowing states for two years. These changes would first reduce, then increase, state loan repayments and repayment of FUA general fund advances as well as increasing repayments of EUCA 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 Kevin Stapleton at stapleton.kevin@dol.gov or (202) 693-3009 or write to:

Office of Unemployment Insurance
U.S. Department of Labor Room S-4231
200 Constitution Ave., NW
Washington, DC 20210