Unemployment Insurance Committee Update / Meeting Notice

February 23, 2011

President's FY 2012 Budget Proposes FUTA Changes

Included in the President's FY 2012 Budget Request is one of three proposals that affect spending from the Unemployment Trust Fund. According to budget documents, the President's UI solvency proposal is designed to improve the solvency of state accounts in the UTF and to provide temporary relief to employers in states with Title XII advances. This would be accomplished by increasing the Federal wage base (last increased in 1983) and indexing it and by making Title XII advances interest-free for a specified period as well as delaying the application of the Federal Unemployment Tax Act (FUTA) credit reduction schedule in states that have outstanding Title XII advances. The President's budget estimates that 35 to 40 states would benefit from interest relief and as many as 30 states would benefit from the delay in application of the credit reduction schedule. The FUTA tax rate would be lowered when the higher Federal wage base goes into effect to make the proposal revenue neutral that year. The budget proposal anticipates that as States react to the change in the Federal wage base, they will take the opportunity to adjust their UI tax structures to pay off their loans and improve their solvency.

A US Department of Labor analysis on the President's budget proposal related to FUTA, can be found here. The President's budget is merely a request. It has to be reduced to legislative language in the form of a budget resolution and then appropriations bills and/or tax bills to be implemented.

While the waiver of the loan interest for two years has generated buzz, the increase in the FUTA taxable wage base has generated negative reactions both inside and outside Congress. There is recognition within Congress related to the burden outstanding loan balances across the states will have on economic recovery, but it is too soon to gauge whether the President's proposal will gain traction and, if so, what the impact will be on NY employers where our current loan balance exceeds $3 billion. One thing the President's budget did not address, but which is certainly putting added pressure on the FUTA, is the continued extension of unemployment benefits for the long-term unemployed. Whether there is sufficient political will to address that head-on along with changes to the FUTA will need to be closely monitored.

What's Next in New York

The President's budget proposal was released just as the State Department of Labor was preparing bills to apportion this year's interest owed on the outstanding loan balance. The federal stimulus bill passed in 2009 waived the interest on outstanding loans for two years, and that interest waiver expired at the end of 2010. NYSDOL estimates interest owed at approximately $115 million, amounting to a per employee charge of $24 and absent action on the President's budget proposal by Congress, the interest payment will be due. At the end of CY 2011, employers will also start addressing the principal balance owed through FUTA credit reductions.