Employment and Training Administration
Washington, D. C. 20210


Reed Act




May 8, 2002















Assistant Secretary




Suggested Uses of Reed Act Distribution for Administrative Purposes.

  1. Purpose. To provide suggestions to states regarding administrative uses of the $8 billion Reed Act distribution made on March 13, 2002.

  2. Reference. Section 209 of the Temporary Extended Unemployment Compensation Act of 2002 (TEUCA), which is Title II of the Job Creation and Worker Assistance Act of 2002, Public Law 107-147, signed by the President on March 9, 2002; Title IX of the Social Security Act (SSA); the Federal Unemployment Tax Act (FUTA); the Wagner-Peyser Act; the Workforce Investment Act (WIA); 20 CFR 652; Unemployment Insurance Program Letter (UIPL) No. 39-97 (62 Fed. Reg. 63960 (December 3, 1997)); UIPL No 39-97, Change 1 (January 16, 2002); and Training and Employment Guidance Letter 18-01 (April 22, 2002).

  3. Background. On March 13, 2002, an $8 billion distribution was made to the states' accounts in the Unemployment Trust Fund. This distribution gives states an opportunity to make significant improvements in unemployment insurance (UI) and employment service (ES) operations in areas where grant funds have not been sufficient. The Department of Labor (Department) urges each state to give serious consideration to devoting a portion of its distribution to the uses suggested in this advisory.

    States should note that an appropriation by the state's legislature is necessary before the state's share of this distribution may be used for administrative expenses. See TEGL 18-01, Question and Answer 9. States should also refer to that TEGL and UIPL 39-97 for requirements relating to this appropriation and limitations on the use of Reed Act money.

  4. Suggested Administrative Uses.

    1. Revolving Funds for UI and ES Automation. The Department recommends that each state consider setting aside a portion of its Reed Act distribution to be used as a revolving fund for UI/ES automation costs. (Since automation costs vary by state, the amount would also vary by state.) This will help assure that states have sufficient funds to invest in large computer installations and upgrades.

      This revolving fund would work in the following way: A state would use Reed Act moneys to fund the costs of computer installations, including certain software acquisitions. Over time, UI and ES grants would be used to reimburse the state's Reed Act account for the expenditures for the computer installation. Once the state's Reed Act automation fund has sufficient dollars to fund another project, the legislature would again appropriate the funds.

      Reimbursement from these grants is limited to depreciation costs allowable under the Wagner-Peyser Act, Title III of the Social Security Act, implementing federal regulations, and the allowable cost principle of OMB Circular A-87. Where Reed Act-financed computer installations include software costs, only software with a cost of $1 million or more may be amortized. See Section 4 at page 16 of Attachment I to UIPL No. 39-97 and UIPL No. 39-97, Change 1.

    2. UI and ES Performance Improvement. States should consider using a portion of their share of the $8 billion Reed Act distribution for performance improvement. This may include evaluating current delivery systems to see how they may be improved and funding the costs of improvement, including systems for validating state data. In particular, states should focus on areas where performance problems have persisted through several years.

    3. Reducing UI Fraud and Abuse. Reducing UI overpayments is a major priority for the Department. States should consider using a portion of their share of the $8 billion Reed Act distribution to improve systems for detecting, preventing, and recovering UI overpayments. Reed Act funds may, for example, pay for the costs of implementing a crossmatch with the state directory of new hires for purposes of detecting individuals who continue to collect UI after returning to work, or a crossmatch with the Social Security Administration for purposes of verifying claimant identity and determining valid social security account numbers.

    4. Improvement in UI Claims Filing and Payment Methods. States should consider using a portion of their share of the $8 billion Reed Act distribution to establish or enhance Internet and telephone access for both employers and claimants. For example, employer wage and tax information could be reported through the Internet and claims could be filed through the Internet. (Anecdotal information indicates that, during the recent downturn, states with Internet claims filing were better able to handle sudden increases in workloads.) Also, states should consider using the Reed Act distribution to create or modify claims filing systems to allow for simultaneous UI and ES intake or linkages as well as to address special needs such as individuals with limited English proficiency and disabilities. Other UI uses include establishing systems for electronic payment of employer taxes and direct deposit and debit cards for claimant benefit payments.

    5. One-Stop Administration. States should consider using a portion of their share of the $8 billion Reed Act distribution for One-Stop administration. In general, Reed Act funds may be used in the same manner that Wagner-Peyser Act funds are used to support One-Stop systems. Examples of activities that support administration and service delivery of employment and workforce information services in One-Stop Career Centers include:
    This list is not exhaustive, but only intended to provide examples of activities in the One-Stop system for which Reed Act funds may be used. Guidelines on permissible uses of Wagner-Peyser funds are found in 20 CFR Part 652 and Section 193, WIA (pertaining to ES and UI equity). In addition, the Department plans to post guidance entitled One-Stop Comprehensive Financial Management Technical Assistance Guide on Employment and Training Administration websites in the near future. When activities are jointly shared with non-UI/non-ES programs, costs will need to be allocated between Reed Act and the non-UI/non-ES programs. See TEGL 18-01, Question and Answer 16.

  5. Action.

    State administrators should distribute this advisory to appropriate staff.

  6. Inquiries. Questions should be addressed to your Regional Office.