ANNUAL REPORT FY 2001
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION - Continued
States Minimally Solvent
Another measure of the sufficiency of accumulated UTF assets to meet future benefit payment requirements analyzes the adequacy of each State's accumulated net assets or reserve balance to provide a defined level of benefits over a defined period of time. To be considered minimally solvent, a State's reserve balance should provide for one year's projected benefit payment needs based on the highest level of benefit payments experienced by the State over the last twenty years. A ratio of 1.0 or greater indicates a state is minimally solvent. States below this level are the most vulnerable to exhausting their funds in a recession. States exhausting their reserve balance must borrow funds from the Federal Unemployment Account (FUA) to make benefit payments. During periods of high sustained unemployment, balances in the FUA may be depleted. In these circumstances, FUA is authorized to borrow from the Treasury general fund.
Chart V presents the State by State results of this analysis at September 30, 2001, in descending order, by ratio. As the table illustrates, 26 states failed to maintain minimal solvency ratios at September 30, 2001.
BLACK LUNG DISABILITY BENEFIT PROGRAM
The Black Lung Disability Benefit Program provides for compensation, medical and survivor benefits for eligible coal miners who are disabled due to pneumoconiosis (black lung disease) arising out of their coal mine employment. The U.S. Department of Labor operates the Black Lung Disability Benefit Program. The Black Lung Disability Trust Fund (BLDTF) provides benefit payments to eligible coal miners disabled by pneumoconiosis when no responsible mine operator can be assigned the liability.
Program administration and funding
Black lung disability benefit payments are funded by excise taxes from coal mine operators based on the sale of coal, as are the fund's administrative costs. These taxes are collected by the Internal Revenue Service and transferred to the BLDTF, which was established under the authority of the Black Lung Benefits Revenue Act, and administered by the U.S. Department of the Treasury. The Black Lung Benefits Revenue Act provides for repayable advances to the BLDTF from the general fund of the Treasury, in the event that BLDTF resources are not adequate to meet program obligations.
Program finances and sustainabilility
At September 30, 2001, total liabilities of the Black Lung Disability Trust Fund exceeded assets by $7.2 billion. This deficit fund balance represented the accumulated shortfall of excise taxes necessary to meet benefit payment and interest expenses. This shortfall was funded by repayable advances to the BLDTF, which are repayable with interest. Outstanding advances at September 30, 2001 were $7.3 billion, bearing interest rates ranging from 5.500 to 13.875 percent. Excise tax revenues of $522.2 million, benefit payment expense of $391.1 million and interest expense of $567.8 million were recognized for the year ended September 30, 2001.
As discussed in Note 1.L.2, DOL recognized a liability for disability benefits to the extent of unpaid benefits applicable to the current period. Accrued disability benefits payable at September 30, 2001 were $29.7 million. Although no liability was recognized for future payments to be made to present and future program participants, beyond the due and payable amounts accrued at year end, future estimated cash inflows and outflows of the BLDTF are tracked by the Department for budgetary purposes.
These projections, made over the thirty-nine year period ending September 30, 2040, indicate that cash inflows from excise taxes will exceed cash outflows for benefit payments and administrative expenses for each period projected. Cumulative net cash inflows are projected to reach $9.9 billion by the year 2040. However, when interest payments required to finance the BLDTF's repayable advances are applied against this surplus cash inflow, the BLDTF's cash flow turns negative during each of the thirty-nine periods included in the projections. Net cash outflows after interest payments are projected to reach $43.1 billion by the end of the year 2040, increasing the BLDTF's deficit to $50.3 billion at September 30, 2040. (See Chart I on following page.)
The net present value of future benefit payments for the thirty-nine year period ended 2040 is $3.5 billion. The net present value of future excise taxes for the thirty-nine year period is $7.9 billion which results in a $4.4 billion excess of excise taxes over benefit payments. However, the net present value of total cash outflows, including interest payments and administrative costs, is $20.8 billion resulting in an excess of cash outflows over excise taxes of $12.8 billion.
The projected decrease in cash inflows in the year 2014 and thereafter is the result of a scheduled reduction in the tax rate on the sale of coal. This rate reduction is projected to result in a fifty-four percent decrease in the amount of excise taxes collected between the years 2013 and 2015. The cumulative effect of this change is estimated to be in excess of $12.9 billion by the year 2040.
Yearly cash inflows and outflows are presented in the table on the following page.