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July 15, 2005

REGION 5 ETA WORKFORCE DEVELOPMENT LETTER NO. 014-05

TO:              STATE WORKFORCE AGENCY ADMINISTRATORS

FROM:         Byron Zuidema
                   BYRON ZUIDEMA
                   Regional Administrator              

SUBJECT:   Fiscal Year (FY) 2006 State Workforce Agency Unemployment Insurance (UI) Resource Planning Targets and Guidelines

1.  Purpose. To transmit preliminary FY 2006 dollar and staff year base resource planning targets and general guidelines for resource planning for UI operations, to be used in planning and developing State Quality Service Plans;

2.  References.  ET Handbook No. 336, 17th Edition, State Quality Service Plans Planning and Reporting Guidelines; ET Handbook No. 410, 3rd Edition, Resource Justification Model (RJM).

3.  Links. This Letter is in the Region 5 website Library at: http://www.doleta.gov/regions/reg05/pages/libraryissuances.cfm

4.  FY 2006 Base Funding Level.  The total for the FY 2006 UI planning targets is $2,268,083,509, an increase of $7,772,285 over the FY 2005 level due to workload growth in the number of subject employers and wage records.  This amount is included in the Administration’s FY 2006 appropriations request.  If the final appropriation differs from the request, adjustments may be made in the allocations. 

5.  Data Inputs.  Minutes Per Unit (MPU) values, annual hours worked, non-workload staff years, personal services/personnel benefits (PS/PB) rates and non-personal services (NPS) dollars for FY 2006 are drawn from the RJM data collection submitted in 2005.  The RJM methodology is explained in ET Handbook No. 410.  Attachment II – Backup Material for FY 2006 Workload Allocation provides additional information on the computation methodology. The following table shows the changes in the data inputs for the planning targets from FY 2005 to FY 2006.  These changes are described in more detail in paragraph 7. Highlights of Base Planning Targets.

DATA INPUTS

CATEGORY

FY 2005 Targets

FY 2006 Targets

MPU values

Average of actual for FY 2001, 2002, and 2003

Average of actual for FY 2002, 2003, and 2004 (less State dollars/hours)*

Annual hours worked

FY 2005 projected

FY 2006 projected

Non-Workload SY

FY 2003 actual

FY 2004 actual

PS/PB rates

FY 2003 actual less State $, increased annually by 3 percent

FY 2004 actual, increased annually by 3 percent*

NPS dollars

FY 2003 actual less State $ and one-time costs, increased annually by 3 percent

FY 2004 actual less State $ and one-time costs, increased annually by 3 percent

* Both State supplemental PS/PB dollars and the hours worked/paid associated with those dollars were excluded from State RJM inputs, effectively leaving the PS/PB rates intact but reducing the MPU values.

6.  Reduction to Availability.  The data inputs described above and FY 2006 base workloads produced a national total base funding request of $2,529,197,737.  Base funds anticipated to be available for FY 2006, $2,268,083,509, are about 10.3% below the requested level.   The amount of funds available for allocation in each category (e.g., workload, Support, AS&T, and NPS) was determined by applying the percent each category represented of the total requested amount to the total dollars available, with two exceptions.  The requested amounts for Benefit Payment Control and UI Performs were not changed in the targets. 

7.  Highlights of Base Planning Targets.

A.  Economic Assumptions.  The FY 2006 UI planning targets reflect the economic assumptions used in the President's budget request.  The key assumptions for FY 2006 affecting workloads and administrative costs are:

                                                                                      Percent

- Average Civilian Total Unemployment Rate                  5.2
- Average Insured Unemployment Rate                         2.2

B.  Base Workload Level.  The FY 2006 national base claims-related workload was formulated at 2.3 million average weekly insured unemployment (AWIU).

C.  Funding Period.  States may obligate FY 2006 UI grant funds through December 31, 2006, except that States may obligate UI funds through September 30, 2008, if such obligations are for automa­tion acquisitions.  States have an additional ninety days after the end of the funding period to expend and liquidate obligations.  Should an extension of the expenditure/liquidation period be necessary, a State must seek in writing the approval of the Grant Officer by the end of the funding period.

D.  Postage.  The FY 2006 UI targets identify a separate UI postage allocation.  Attachment III – FY 2006 UI Planning Targets shows the amount withheld for Federal payments to the U.S. Postal Service (USPS).  This is for information only.  The current methodolo­gy uses projected base weeks claimed and subject employer workloads which are totaled for each State; proxy base postage resources are calculated on a pro rata basis based on each State's share of the total workload.  States will continue to use the penalty mail system during FY 2006, and the Department will continue to pay the State postage costs directly to USPS.  Since State UI postage allocations are withheld and used to pay the United States Postal Service for State UI mailings, States may not benefit when costs incurred are less than the amount that would have been given them if penalty mail were discontinued.

States should continue to use commercial mail methods for mailings that pertain to both employment security and non-employment security business.  In such instances, the Department will reimburse States via supplemental budget requests for the employment security share of the cost. 

8.  Allocation Methodologies.

  1. UI Base Staff.


    1. Workload Functions Allocation Methodology.  The FY 2006 methodology seeks to achieve three objectives to the greatest extent possible: equitably allocate available resources and promote administrative efficiency; enable resources to shift with workloads; and avoid abrupt shifts of resources among States from year to year.


      1. Data Sources.


        1. Time Factors.  The MPU values are an average of the data for FY 2002, FY 2003, and FY 2004.  The MPUs were calculated from data submitted in the RJM data collection instrument.


        2. Work Hours.  The hours per staff year are from the FY 2006 data in the RJM data collection instrument.


      2. Workload Forecasts.  Each State’s total FY 2006 workloads for initial claims, weeks claimed, non-monetary determinations, appeals, subject employers, and wage records were forecast using statistical models developed by the department’s actuaries.  Each State’s total workload in each category was reduced by the percent that the estimated national total workload exceeds the national total base workload for that category.  In other words, each State receives funding for the same percent of its estimated total workload in its base budget allocation.  Additional funds are available on a quarterly basis for claims-related workloads actually processed above the base level. 


      3. Determination of Allowable MPU Values.  For FY 2006, the calculation using States’ unreduced MPU values from the RJM data collection yielded 23,207 workload staff years.  To fit the targets within available funds, the allocated MPU values were developed for the six base workload activities by reducing the RJM MPU values for most States so that the number of targeted workload staff years equaled 20,642 staff years for which funds are available.  MPU reductions in each of the six activities were made as follows:


        1. MPUs were arrayed from the highest to the lowest MPU value.


        2. The lowest ten MPU values were not reduced.


        3. Within each of the six workload categories, the difference was calculated between each of the top 43 MPU values and the tenth lowest MPU.  Differenc­es were then reduced by a percent determined by available resources and the result for each State added back to the tenth lowest MPU to obtain the allocated MPU for each State.  In general, the higher the MPU, the greater its reduction; however, reductions in MPUs for States with relatively smaller workloads were mitigated by up to 25 percent of what the reduction otherwise would have been.  The percent of the mitigation was determined by the relationship of the State's workload to the largest workload among States being reduced.


    2. Non-Workload Staff Years Allocation Methodology.   Staff years for non-workload functions are drawn from the FY 2004 data in the RJM data collection.  No reduction was applied to BPC and UI Performs staff years.  Support and Administrative Staff & Technical (AS&T) staff years were reduced by using the MPU reduction algorithm.  The algorithm used the percentages that Support and AS&T staff represented of each State’s total requested staff.  The ten States with the lowest percentages in each category were not reduced.  In general, the higher the percentage Support and/or AS&T staff represented of the total, the larger the reduction in Support and/or AS&T staff years.  In addition, no State’s Support staff years were reduced below the lesser of 15 staff years or the number of actual Support staff years used in FY 2004. 


  2. Personnel Compensation Costs.  The FY 2006 PS/PB rates were determined by using each State's FY 2004 PS/PB rate for each functional activity and increasing the result by 3 percent annually.


  3. Non-Personal Services.  The FY 2006 NPS allocation was based on the States’ FY 2004 data in the RJM data collection, less any State supplemental NPS dollars and one-time expenditures.  This amount was increased by 3 percent annually and reduced across-the-board to equal the NPS funding availability of $537,736,327.


  4. State Retirement Funds.  These resources provide funding for the UI share of the annual amortization cost of the unfunded liability for State agencies with indepen­dent retirement plans.  The dollar levels are based on the most recent actuarial studies from each agency involved.


  5. Hold-Harmless Provisions.  There are two hold-harmless provisions for the FY 2006 planning targets.


    1. Claims Activity Staff Years.  The “stop-loss” for claims activity staff years is 15 percent.  Only two States would have lost more than 15 percent in claims activity staff years.


    2. Total Dollars.  A “stop-loss” of 5 percent was imposed on States that would have lost more in total base dollars from FY 2005, with a resulting “stop-gain” of 4.56 percent on States that would have gained more in total base dollars.  This adjustment is shown on a separate line in Attachment I – FY 2006 Allocation.


9.  General Guidelines for Above-Base Workload Resource Levels.  The State Administration budget activity includes a reserve for above-base workloads and law changes; however, the President's budget request does not specifically include funds for law changes.

The National Office will use the quarterly hours data on the UI-1 report, the allocated claims activity staff years paid, and the allocated annual MPU values in the FY 2006 above-base certification process.  States should submit the UI-1 report by October 1, 2005; the annual hours on the report should agree with the FY 2006 annual hours in each State’s RJM submission.

A.  Above-Base Overhead.  The above-base overhead per­centage will remain at 19 percent.

B.  Above-Base Instructions.  General instructions for completing UI-3 reports are in ET Handbook No. 336, Chapter II.  Specific implementation procedures concerning the above-base certification process will be issued later this year in a field memorandum promulgating the final FY 2006 UI allocations.

10.  Standard Form (SF) 424.  Instructions for completing these forms are in ET Handbook No. 336, Chapter I.  The forms are available in Portable Document Format at www.whitehouse.gov/omb/grants/grants_forms.html.  The National and Regional Offices will review the SF-424 only to ensure that total UI dollars are the same as the allocated levels.  Only States that vary the quarterly number of claims activity staff years paid should submit a SF-424A and show the quarterly distribution in item 23 (Remarks) of the form.  All States should submit the SF-424B

11.  Bottom-Line Authority.  The allocation methodology is a very detailed process that determines the funding level for each State; however, the assumptions made in the methodology to determine that level are not binding on the State agencies' management.  Since FY 1987, States have had full authority to shift resources among UI program catego­ries as they deem appropriate and necessary to manage their UI programs to meet established program goals and requirements.  Thus, States have the flexibility to move UI resources among UI program categories, among quarters within a fiscal year, and among specific cost categories. 

States are held accountable on a bottom-line basis, giving States the discretion to use UI administrative resources to meet their assessment of needs and to meet UI performance requirements.  The only exception to bottom-line authority is that States may not change the staff year level in the claims activities category from the allocated staff year level for purposes of computing above base resources.  This is to ensure that States do not earn more above-base resources than they would otherwise have been entitled to earn. 

12. Supplemental information regarding FY2006 UI State Administration Planning targets.  The attachments include two tables which provide additional detail/analysis regarding the base allocation:  Attachment IV - FY2006 State-Specific Explanations identifies for each State that will receive less base funding in FY2006 than in FY2005 and the primary factor(s) that caused the decline in funding.  Attachment V – FY 2006 Target Data is a spreadsheet containing 9 worksheets summarizing various FY2006 vs. FY2005 differences.

13.  Action.  State Administrators are requested to:

A. Provide appropriate staff the FY 2006 planning targets and above instructions as soon as possible.

B. Closely review the attached tables upon receipt and notify the Regional Office of any problems as soon as possible, but no later than August 5, 2005.

C. Ensure that the FY 2006 SF 424 (.pdf), 424A (.pdf), and 424B (.pdf) are submitted no later than August 26, 2005 per instructions in the FY 2006 State Quality Service Plan (SQSP) issued electronically July 12, 2005.

D. Submit the FY 2006 UI-1 electronically before October 1, 2005 using the UI Required Reports (UIRR) system.

14.  Inquiries.  Please direct any questions about RJM and the allocation methodology to Steve Weigel on 816.502.9007 or Richard Skinner on 312.596.5442. Questions or comments about the format of this Letter may be directed to Tom Coyne on 312.596.5435.

15.  Attachments.

I.  FY 2006 Detail State Base Staff Planning Levels 

II. Back-up Material for Allocation of FY 2006 UI Base Staff

III. Proxy FY 2006 Base Postage Amounts

IV. FY 2006 State-Specific Explanations

V. FY 2006 Target Data

16. Effective Date. Immediate

17. End Date. September 30, 2006


Attachment IV

FY 2006 State UI Base Administrative Grant
State-Specific Explanations for Decline from Prior Year

The reasons for shifts in resources among States are largely due to changes in cost data submitted by States and shifts in projected workload.  Cost data reported by States are factored into the allocation process after discounting any supplemental State funded expenditures; only Federally funded expenditures are considered.

The four main factors that caused States to receive less in FY 2006 than FY 2005 were:

Decline in NPS – The non-personal services (NPS) allocation is based on the amount of NPS each State spent during the most recently completed fiscal year, increased by 3 percent annually, then reduced across-the-board to equal the amount available in the budget.  If a State reported significantly less NPS expenditures, that is reflected in their target allocation.  NPS includes utilities, space, equipment, and maintenance costs.

Decline in workload – A major input into the base allocation process is workload.  OWS actuaries forecast State level workload for initial claims, weeks claimed, nonmonetary determinations, appeals, subject employers and wage records.  Although the national level of base workload is fixed, shifts occur among States.  Generally speaking, lower workloads suggest lower staffing needs.  Except for subject employers and wage records, which are more predictable and therefore funded for an entire fiscal year, additional resources are provided to States quarterly throughout the fiscal year as States process workloads above base.

Decline in MPUs – The amount of staff funded to process the projected workload is based on State reported unit time measures or minutes per units (MPUs).  The allocation process inputs a 3-year average MPU in computing the number of staff.  In many instances, the FY2001 MPU – the first year this data was collected – was an outlier and was significantly higher than subsequent years. When the FY2001 MPU is dropped from the 3-year average and FY2004 is added, the 3-year average declines.

Decline in overhead – Overhead includes expenses for managing and supervising UI operations as well as for performing the overall administration of employment security programs.  Allocations for overhead are largely based on prior year expenditures and less expenditures of Federal grant funds in these areas typically result in a lower amount allocated.

Following is the State specific summary of resource changes:


Dollar Amount and Percentage Decline in FY 2006 Base Allocation
From FY 2005 - Major Cause for Decline

State Specific Explanations

State FY2006Difference% DiffReason
Alabama27,670,735-1,456,355-5.0%Decline in workload
Decline in MPUs
Alaska17,926,939-943,518-5.0%Decline in NPS
Arkansas18,768,153-987,792-5.0%Decline in NPS
Dist. of Columbia9,180,643-483,188-5.0%Decline in NPS
Idaho14,430,556-759,501-5.0%Decline in NPS
Illinois112,899,965-3,097,781-2.7%Decline in workload
Decline in MPUs
Louisiana24,544,088-373,783-1.5%Decline in overhead
Maine11,800,905-570,570-4.6%Decline in MPUs
Decline in NPS
Decline in overhead
Maryland46,288,607-2,436,237-5.0%Decline in MPUs
Decline in overhead
Massachusetts60,519,789-3,185,249-5.0%Decline in NPS
Missouri35,885,284-1,215,382-3.3%Decline in overhead
Montana8,045,233-423,429-5.0%Decline in MPUs
Decline in State reported salary rate
New Jersey89,028,997-4,685,772-5.0%Decline in NPS
New Mexico11,174,802-588,151-5.0%Decline in workload
Decline in NPS
North Dakota6,497,270-8,731-0.1%Decline in workload
Oklahoma17,488,020-920,428-5.0%Decline in NPS
Decline in overhead
Ohio82,044,737-4,318,139-5.0%Decline in MPUs
Decline in overhead
Pennsylvania121,239,798-4,850,231-3.8%Decline in NPS
Puerto Rico15,306,485-805,604-5.0%Decline in NPS
Rhode Island12,901,115-679,001-5.0%Decline in NPS
Virginia33,337,781-1,302,717-3.8%Decline in overhead
West Virginia12,369,922-651,043-5.0%Decline in NPS
Decline in overhead
Decline in MPUs
Wyoming5,745,066-302,368-5.0%Decline in MPUs
Decline in overhead

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