This testimony discusses how states are using the March 2002 Reed Act distribution, which was part of the Job Creation and Worker Assistance Act of 2002. This broad stimulus package included an additional 13 weeks of federally-funded extended unemployment insurance (UI) benefits for all states and a distribution to states of $8 billion of the unemployment tax revenue it holds in reserve, referred to as a Reed Act distribution. Under the act, these funds may be used to pay UI benefits, and/or to enhance UI benefits, such as increasing weekly benefit payments, extending the period of time benefits are paid, or otherwise expanding eligibility to groups that currently do not qualify for benefits. States may also appropriate these funds for the administrative costs of UI, including activities related to program integrity, and employment services (ES) programs, including one-stop service centers. This testimony focuses on: (1) the proportion of Reed Act dollars that states have spent; (2) the proportion of total Reed Act dollars that remains in state UI trust funds and the effect this has had on employer UI taxes; and (3) the proportion of Reed Act dollars that have been appropriated by states for administering the UI, ES, or one-stop systems.

We found that about 17 percent ($1.34 billion) of the $8 billion 2002 Reed Act distribution had been spent as of November 30, 2002, primarily on regular UI benefits, and only a small portion had been spent on benefit enhancements, or administrative costs of UI, ES, and one-stop systems. A total of $6.66 billion (83 percent) remains in state trust funds, which, according to state workforce officials, has prevented automatic increases in employer taxes in 30 states. Twenty-seven states appropriated about $662 million for administrative costs of UI, ES, or one-stop systems, of which $74 million has been spent.