Statement of Administration Policy: S. 1554 - Emergency Unemployment Compensation Act

(Senate)
(Bentsen (D) Texas and 14 others)

S. 1554 would provide 100 percent Federal funding for temporary supplemental unemployment compensation benefits in all States. The bill does not include offsets for this increased direct spending, as required by the Budget Enforcement Act of 1990 (BEA). Instead, bill language specifies that the provisions of S. 1554 become effective only if the President designates all spending under the bill as an "emergency" for the purposes of the BEA.

S. 1554 would create an expensive, poorly designed Federal program that would slow the return to work of those it purports to serve. The program would provide from four to twenty weeks of additional benefits through a complex and cumbersome four-tier system. Previous experience demonstrates that such a system would result in benefit delays, payment inaccuracies, and escalating administrative costs. Federal spending would be further increased under an option that allows States to shift costs from the Extended Benefit program, under which the Federal Government pays 50 percent of costs, to the new wholly Federal program.

Benefits under S. 1554 would be distributed using States' total unemployment rates (TURs). For 39 States and the District of Columbia, the TUR is based upon econometric models and cannot be seasonally adjusted; for 11 States, the TUR is based on sample survey data. TURs are subject to revision after they are published. They clearly are a much less sound basis for distributing billions of benefit dollars than the insured unemployment rate (IUR), which can be seasonally adjusted and is based on tax and claims records that can be readily verified. Moreover, the TUR includes many people who do not — and would not — qualify for benefits under S. 1554 and do not compete for jobs with those who are eligible for unemployment insurance.

The Administration is concerned about the human costs of the recession. However, the President's senior advisers would not recommend that he designate the spending in S. 1554 as an "emergency" for the following reasons:

— The Administration and most private forecasters believe that the recession is ending and the recovery is underway. Preliminary GNP figures show an increase for the second quarter, lending weight to this view. The unemployment rate typically peaks a few months after the economy bottoms, and thus it should be near its peak. It should decline with the continued economic growth forecast for the rest of this year and the next by most private economists.

— In this context, the Administration does not believe it is appropriate to declare an "emergency" under the BEA. Although it is possible for the "emergency" designation to be used when the President and Congress agree, it would be counterproductive to abandon pay-as-you-go discipline as the Nation comes out of recession.

— By historical standards, the current unemployment rate would not be cause for congressional action. When Congress put the current extended benefit program State triggers in place in 1982, the unemployment rate was 9.8 percent — much higher than the current rate. When Congress subsequently created the temporary Federal supplemental benefits program, the unemployment rate exceeded 10 percent — and when Congress allowed that program to expire in 1985, unemployment was still higher than the current rate.

— It is arguable whether the current unemployment insurance system again requires structural change, but any change should not exacerbate the problems of unemployment. Economic analysis has shown that additional weeks of unemployment benefits will increase the unemployment rate.

— Without offsets, the Federal Government would have to borrow $4.6 billion to fund S. 1554, increasing the Federal debt and deficit by this amount.

In addition, S. 1554 would provide 26 weeks of benefits to members of the Armed Forces who decide to leave the service voluntarily, either for retirement or a return to civilian life. Civilians who voluntarily quit their jobs generally are disqualified from receiving benefits. Thus, S. 1554 would provide significantly more generous benefits to servicemembers than are available to civilians. In previous legislation, the Administration has supported additional coverage for servicemembers who involuntarily leave the service — such as those who may be affected by Defense force reductions — but not for those who voluntarily end their service.

For all the above reasons, the Administration opposes passage of S. 1554.

It is the Administration's understanding that Senator Dole may propose a comprehensive substitute that would provide five weeks of additional benefits to all states and ten weeks of additional benefits to states where the insured unemployment rate exceeds six percent. The cost of the substitute appears to be fully offset under the BEA pay-as-you-go rules, and the proposed offsets are consistent with Administration policy. Because tie Dole substitute conforms to the Budget Enforcement Act, the Administration would not oppose passage of this amendment.

Costs of S. 1554

S. 1554 would increase direct spending and the budget deficit. Based on the economic assumptions in the mid-session review of the President's budget, OMB's preliminary scoring estimates for this bill are presented in the table below.

Preliminary Cost Estimates
Fiscal Years
($ in millions)