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September 12, 2005

REGION 5 ETA WORKFORCE DEVELOPMENT LETTER 015-05

FROM:         Byron Zuidema
                  BYRON ZUIDEMA
                  Regional Administrator

TO:      State Workforce System Administrators         

SUBJECT:  Designation of Areas of Substantial Unemployment for the Workforce Investment Act during Program Year 2006

1.  Purpose. To advise the States of the designation of Areas of Substantial Unemployment (ASUs) for the Workforce Investment Act during Program Year (PY) 2006 in order to allot funds under the Act for the period beginning July 1, 2006.

2.  References. None.

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

4.  Background. Sections 127(b)(2)(B) and 132(b)(1)(B)(v)(III) of the Workforce Investment Act define an ASU and require that ASU determinations be made once each Fiscal Year.  These ASU designations will be used by the Department of Labor for the allotment of Title I, Chapters 4 and 5 funds to States for PY 2006. 

5.  Substance. Following are guidelines to States for the FY 2006 designation of ASUs:

A.  Definition.  An ASU is a contiguous area with a current population of at least 10,000 and an average unemployment rate of at least 6.5 percent for the 12-month reference period.

B.  Technical Adjustment for PY 2006.  Due to an anomaly in data collection or processing 2000 census, it will no longer be possible for the Bureau of Labor Statistics (BLS) to certify the State use of census tracts to calculate unemployment in determining ASUs in the methodology employed in the past.

An ETA working group was formed to recommend a solution.  The group solicited comments from BLS and enlisted a third party contractor, SPR Associates, to perform data analysis.

The group examined four options, all of which would be feasible with existing Local Area Unemployment Statistics (LAUS) data, to designate: 


i. individual counties as ASUs,
ii. local workforce investment areas as ASUs,
iii. combinations of contiguous counties into ASUs, and
iv. combinations of any available LAUS areas into ASUs.

After a review of the prepared analysis and consultation with BLS, the workgroup recommends the use of LAUS area combinations (option iv.) because this would give States the greatest geographic flexibility and most closely approximate past results.

BLS staff have reviewed the options and concur with this recommendation.  BLS has also proposed a technical adjustment for the handling of New England cities under 25,000 population – LAUS areas include cities under 25,000 predominantly in New England States.  This gives those States an unfair advantage in forming ASUs by providing more opportunities to make combinations.  Following BLS’s suggestion, ETA has determined that the use of cities under 25,000 population will not be allowed in creating ASUs.

C. Reference Period.  The 12-month reference period for the designation shall be July 2004 through June 2005.

6.  Process.

    A.  If a State has an unemployment rate of 6.5 percent or higher for the reference period, the entire State will be designated an ASU, for purposes of the State allotments.  In this case, no data or forms need to be transmitted.

    B.  If the State does not qualify in total as an ASU, the State should examine all LAUS-defined areas within the State, with a view toward designating as ASUs contiguous combinations of LAUS areas (with the exception of New England cities under 25,000 population, as noted previously).  ASUs designated under this section should be described using the largest appropriate defining units. If Local Area Unemployment Statistics data for the total area designated as an ASU are already routinely collected by the BLS as a unit, the State should report it, but no data need to be submitted.

     C.  For those designated ASUs for which data are not routinely collected by BLS, the State should prepare an ASU designation form and send it according to BLS instructions.  The form should include data for the 12-month period ending June 2005.  A copy of each form should be sent to the National Offices of BLS and ETA.  (See Section 7)

     D.  The State should describe the geographic components of each ASU in sufficient detail for a knowledgeable reviewer to verify that they are contiguous, do not overlap and have a total population of at least 10,000 persons.  States should either include maps with the submission or keep the maps available in case questions arise.

     E.  BLS is now issuing specific procedures to States, for preparation of the ASU data.

7.  Action.State Workforce System Administrators are requested to share this Letter with appropriate regional staff and State WIA officials; and ensure that all designation forms are in the ETA and BLS National Offices by October 7, 2005. 

The copy for ETA should be sent to:

U.S. Department of Labor/ETA
200 Constitution Avenue, NW
Room N-5637
Washington, D.C. 20210.
Attention: Wayne S. Gordon

The copy for BLS should be sent to:

Bureau of Labor Statistics
Division of Local Area Unemployment Statistics
Mail Code 140, Room 4675
2 Massachusetts Avenue, NE
Washington, D.C.  20212-0001
Attention: Lisa Williamson

8.  Contact.Comments or questions concerning the 2006 Areas of Substantial Unemployment may be directed to Wayne S. Gordon. Comments or questions about the format of this Letter may be directed to Tom Coyne on 312.596.5435.

9.  Expiration Date. Continuing

10.  Attachment.

Q’s & A’s on the Revised Methodology for Determining Areas of Substantial Unemployment (ASUs)


Attachment

Q’s & A’s on the Revised Methodology for Determining Areas of Substantial Unemployment (ASUs)

1. Why is there a problem with the current method of computing ASUs?

ETA has been notified by the Bureau of Labor Statistics (BLS) that there will be a problem with the census share method used by States to identify Areas of Substantial Unemployment (ASU) – a factor in WIA Title I allocation formula for the Adults and Youth programs. The problem is due to Census 2000 processing errors of group quarters (such as college dormitories) data and may cause extreme errors in unemployment rates.  For example, Princeton Borough in New Jersey would have an unemployment rate of 1.7 percent for March-April 2000 based on 1990 census share, but 21.0 percent based on 2000 census share, due to the erroneous rate from the 2000 census of 42.3 percent.  The issue will first affect PY 2006 allotments that will be made early next year, since these would be the first allotments based on 2000 Census data.  In order to have BLS certification of the data, the method of computing ASUs must be revised beginning with PY 2006 to avoid use of erroneous census data.  These changes in the ASU methodology are considered of a technical nature only and not a substantive change to the WIA statutory requirements.

2. Why is the new method for computing ASUs based on combinations of LAUS areas only, and not some other area configurations?

An ETA working group was formed to review options for the ASU methodology and four options were examined, to designate:

a. individual counties as ASUs,
b. WIA local workforce investment areas as ASUs,
c. combinations of contiguous counties as ASUs, and
d. combinations of any available LAUS areas as ASUs.  

After a review and analysis of these options and consultation with BLS, the workgroup recommended the use of LAUS area combinations because this would give States the greatest geographic flexibility and also most closely approximate results using the previously used methodology.

3. Will there be any special adjustments in the formula allotment calculations to accommodate States adversely affected by the new methodology?

The Adult and Youth allotment formulas are statutory formulas which use the concept of States’ relative shares of the data factors and contain stop-loss and stop-gain provisions to mitigate large changes in a State’s allotments from one year to another.  Any large swings in funding in a State due to the ASU methodology changes will be constrained by these provisions.   No additional adjustments beyond these provisions will be applied in the formula calculations.


4. Will the new methodology be used for calculating future years’ formula allotments, or just PY 2006?

Because of the 2000 Census problem with processing of group quarters data, subsequent years’ formula allotments will continue to use the new ASU methodology. At the time the 2010 decennial Census data become available, the decision will be revisited, in the context of requirements for the formula funding and quality of the data.

5.  Is the use of Census tracts to do within State allocations still allowed?

Census tracts may be used for within State allocations.  States that do so should be prepared, if questions arise, to show that their allocations are based on valid data and a reasonable methodology.  Specifically, if a State uses the Census share method to create Census tract-based areas for formula allocations, the resulting unemployment figures may  still be affected by the 2000 Census processing errors of group quarters data and thus could not be used.  If a State can show that its Census tract data, as well as the Census data for the LAUS areas from which they are derived, are not affected by the problem, Census tracts may be used for within State allocations.

6.  Can a State make special adjustments in the formula allocation calculations to accommodate local areas adversely affected by the new methodology?

No further adjustments to the statutory formulas for within-State allocations are allowed.  The formulas already contain stop-loss/stop gain provisions which address this issue.

7.  Are States required to file an amendment to their State plan regarding this change?

The change in ASU identification methodology is considered a technical change.  Therefore, it does not impact State plans.  However, it should be noted that, for any State using the 30 percent discretionary formulas to distribute funds to local areas, any changes in those formulas as specified in the approved State plan must comply with ETA requirements regarding changes in discretionary formulas.


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