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July 20, 2004

REGION 5 ETA WORKFORCE DEVELOPMENT LETTER NO. 012-04

TO:              STATE WORKFORCE AGENCY ADMINISTRATORS

FROM:         Byron Zuidema                           
                   BYRON ZUIDEMA
                   Regional Administrator              

SUBJECT:    Fiscal Year (FY) 2005 State Workforce Agency Unemployment Insurance (UI) Resource Planning Targets and Guidelines

1.  Purpose.

a. To provide preliminary FY 2005 dollar and staff year base resource planning targets for UI operations to be used in planning and developing State Quality Service Plans;

b. To provide general guidelines for FY 2005 resource planning; and

c. To explain how base resources were allocated among States.

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

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

4.  FY 2005 Base Funding Level.  T­he total for the FY 2005 UI planning targets is $2,260,311,224, an increase of $8,679,552 over the FY 2004 level due to workload growth in the number of subject employers and wage records.

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 2005 are drawn from the RJM data collection submitted in 2004.  The RJM methodology is explained in ET Handbook No. 410.  The following table shows the changes in the data inputs for the planning targets from FY 2004 to FY 2005.  These changes are described in more detail in paragraph 8.

DATA INPUTS

CATEGORY

FY 2004 Targets

FY 2005 Targets

MPU values

Average of FY 2001 actual and FY 2002 actual

Average of actual for FY 2001, 2002, and 2003

Annual hours worked

FY 2004 projected

FY 2005 projected

Non-Workload SY

FY 2002 actual

FY 2003 actual

PS/PB rates

FY 2002 actual increased annually by 3 percent

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

NPS dollars

FY 2002 actual less State $ and one-time costs, increased annually by 3 percent

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

6.  Reduction to Availability.  The Workload staff years, Support staff years, Administrative Staff and Technical Services (AS&T) staff years, and NPS dollars from the RJM data collection were reduced from the $2,456,385,747 need determined by the RJM data inputs above to the budget request level of $2,260,311,224.  The reduction for each category was determined by multiplying each category’s relative share of the total RJM submissions by the difference between the amount available and the RJM request as determined by the data inputs above.  Workload staff years represented 49.96 percent, Support staff years represented 13.71 percent, AS&T staff years represented 9.30 percent, and NPS dollars represented 27.03 percent of the total.  Benefit Payment Control and UI PERFORMS staff years were not reduced.  See also paragraphs 8.a.(1)(c), 8.a.(2), and 8.c.

7.  Highlights of Base Planning Targets.

a.  UI Economic Assumptions.  The FY 2005 UI planning targets reflect the economic assumptions used in the President's budget request.  The key assumptions for FY 2005 affecting workloads and administrative costs are:

                                                                       Percent

- Average Civilian Total Unemployment Rate              5.5

- Average Insured Unemployment Rate                     2.5

b. UI Base Workload Level.  The FY 2005 national base claims-related workload was formulated at 2.3 million average weekly insured unemployment (AWIU).

c. Funding Period.  States may obligate FY 2005 UI grant funds through December 31, 2005, except that States may obligate UI funds through September 30, 2007, if such obligations are for automation acquisitions.  States have an additional ninety days after the end of the funding period to liquidate obligations.

d. Postage.  The FY 2005 UI targets identify a separate UI postage allocation.  Attachment II 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 2005, and the Department will continue to pay the State postage costs directly to USPS. 

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.

a. UI Base Staff.

(1)  Workload Functions Allocation Methodology.  The FY 2005 methodology seeks to achieve three objectives to the greatest extent possible: equitably allocate resources; enable resources to shift with workloads; and avoid abrupt shifts of resources among States from year to year.

(a)  Data Sources.

i.  Time Factors.  The MPU values are an average of the data for FY 2001, FY 2002, and FY 2003.

ii.  Work Hours.  The hours per staff year are from the FY 2005 data in the RJM data collection.

(b)  Workload Forecasts.  Using historical data, the National Office built statistical models that forecasted total workloads for the four claims workload items (initial claims, weeks claimed, nonmonetary determinations, and appeals) and two employer workload items (subject employers and wage records) for each State.  The FY 2005 base claims workloads for each State were derived using the annual average concept.  Under this approach, the total annual workloads were projected for each State for each item, and then were reduced to budgeted national total base workloads using a straight proportional reduction.  This method, as opposed to the low-quarter method, does not penalize States with wide seasonal swings in workload.

(c)  Determination of Allowable MPU Values.  For FY 2005, the calculation using States’ unreduced MPU values from the RJM data collection yielded 23,486 workload staff years.  To fit the targets within the budget request, 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 21,414 staff years.  MPU reductions in each of the six activities were made as follows:

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

ii.  The lowest ten MPU values were not reduced.

iii.  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.  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 2003 data in the RJM data collection.  No reduction was applied to BPC and UI PERFORMS staff years.  Support and AS&T staff years were reduced by using the MPU reduction algorithm.  Instead of workload and MPU values, the algorithm used total unreduced staff years and support and AS&T percentage of total unreduced staff years.  The support and AS&T staff years were not reduced for States with the lowest ten percentages.  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 2003.  

b. Personnel Compensation Costs.  The FY 2005 PS/PB rates were determined by using each State's FY 2003 PS/PB rate for each functional activity after subtracting State supplemental PS/PB dollars and increasing the result by 3 percent annually.

c. Non-Personal Services.  The FY 2005 NPS allocation was based on the States’ FY 2003 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 $580,567,235.

d. 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.

e. Hold-Harmless Provisions.  There are two hold-harmless provisions for the FY 2005 planning targets:

(1)  Claims Activity Staff Years.  The “stop-loss” for claims activity staff years is 15 percent; however, no State lost more than 15 percent in FY 2005.  Therefore, no “stop-loss” for claims activity staff years was imposed. 

(2)  Total Dollars.  A “stop-loss” of 5 percent was imposed on States that would have lost more in total base dollars from FY 2004, with a resulting “stop-gain” of 4.59 percent on States that would have gained more in total base dollars.  This adjustment is shown on a separate line in Attachment I.

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, the allocated claims activity staff years paid, and the allocated annual MPU values in the FY 2005 above-base certification process.  States should submit the UI-1 report by October 1, 2004; the annual hours on the report should agree with the FY 2005 annual hours in the States’ 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 promulgating the final FY 2005 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/grantsforms.html.  The National and Regional offices will review the SF 424 (.pdf) 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 the SF 424A (.pdf) and show the quarterly distribution in item 23 (Remarks) of the form.  All States should submit the SF 424B (.pdf)

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.  This is to ensure that States do not earn more above-base resources than they would otherwise have been entitled to earn. 

12.  Action.  State Administrators are requested to:

a. Provide appropriate staff the FY 2005 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 15, 2004.

c. Ensure that the FY 2005 SF 424 (.pdf), 424A (.pdf), and 424B (.pdf) are submitted no latter than August 27, 2004 per instructions in the FY 2005 State Quality Service Plan (SQSP) issued July 13, 2004

d. Submit the FY 2005 UI-1 electronically by October 1, 2004 using the UI Required Reports (UIRR) system.

13.  Inquiries.  Please direct any questions about RJM and the allocation methodology to Dominic Pavese on 312.596.5436 or Steve Weigel on 816.502.9007. Questions or comments about the format of this Letter may be directed to Tom Coyne on 312.596.5435.

14. Attachments. Hard copies of the attachments listed below will be mailed in hardcopy to each State Workforce Administrator:

Attachment I - FY 2005 Detail State Base Staff Planning Levels

Attachment II - Proxy FY 2005 Base Postage Amounts

15. Effective Date. Immediate

16. End Date. October 1, 2004



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