References: UIPL 41-95 (August 24, 1995), "Draft Narrative Describing the System for Enhancing Unemployment Insurance (UI) Performance: The `UI Performs' System." Background: Beginning in 1993, a team of senior State Employment Security Agency (SESA) managers and Unemployment Insurance Service (UIS) staff known as the Performance Enhancement Workgroup (PEWG) developed the outlines of a comprehensive new closed-loop system for helping ensure continuous improvement in UI operational performance. This new system, called UI Performs, is described in UIPL 41-95, issued August 21, 1995, which solicited comments from SESAs. The UI Performs design is now being refined in the light of responses to UIPL 41-95; the system will be phased in over 3-4 years as the various components are completed. When complete and fully operational, UI Performs will comprise a renewed affirmation of long-standing principles for Federal-State cooperation; a redesigned process for operational planning and the execution of improvement activities; various mechanisms to ensure that performance in key areas at least exceeds certain minimum levels; and the redesign of many performance measurements plus the regular validation of key performance measures. The measures were selected to enable the UI system's success to be judged by how well it serves its ultimate customers--claimants and employers. Most of the data used to construct existing and new UI Performs measures are already in State databases; UI Performs should not appreciably increase measurement effort overall. The measurement redesign aspect embraces the results of three initiatives which predated UI Performs: Revenue Quality Control, which developed new measures for tax performance to replace those previously gathered under the Quality Appraisal (QA) system; the Performance Measurement Review (PMR) project, which updated QA benefit payment timeliness and quality measures; and data validation. The team designing UI Performs also proposed substantial changes in the Benefits Quality Control (BQC) system for measuring benefit payment accuracy, including the assessment of the accuracy of decisions to deny eligibility. This issuance deals with proposed modifications to the BQC program, intended to make it the benefits accuracy measure appropriate for UI Performs. The proposal was developed in part to help fulfill the Department's commitment to the Vice President's National Performance Review (NPR) to "reexamine the present mix of systems for improving the performance of the unemployment insurance program...[with] a substantial focus on the BQC program." (The NPR issue paper is Appendix I of the attached paper). The Proposal: The attached proposal was developed after a thorough review of BQC in the PEWG process. In the context of the NPR mandate, this set of changes represents how BQC's resources can "best be divided between measurement, analysis and direct support for program improvement" in the context of the larger UI Performs system. The following changes are proposed for BQC: Reductions in required sample sizes; Greater flexibility in how States verify claims data; A review of the existing BQC data record with the object of reducing its size; Elimination of the requirement that States release payment accuracy (overpayment and underpayment rates) in a public forum; More elaborate breakdowns of accuracy data when the Department reports them to help users more readily see the effect of different State laws and policies on overpayment and underpayment rates; The eventual measurement of the accuracy of decisions to deny, as well as to pay, claims; and Resources freed up by the reductions in measurement effort made available to pursue the goals of UI Performs overall, with an emphasis on continuous improvement. Next Steps and Timetable: Once the proposed changes are in final form, the Department will implement them incrementally as quickly as possible. Because of clearances, additional developmental work, and pilot testing, full implementation will take a few years. However, a number of key changes will be made in this calendar year. Elimination of State Release June 1996 Sample Size Reductions Summer 1996 Verification Flexibility Summer 1996 Denials Accuracy (Pilot Begins) October 1996 "Building Block" Data Breakdown January 1997 DCI Review/Changes January 1997 Denials Accuracy (Nationwide Start) October 1999 Action Required: SESA administrators are requested to share these materials with affected staff and comment as appropriate. Please send comments to Burman Skrable, Office of Quality Control, 200 Constitution Avenue, NW, Room S-4015, Washington, DC 20210, Att: TEUQ, with cc to appropriate Regional Office staff. Comments should be sent 45 days from the date of this UIPL.

References: Chapter IV, ET Handbook No. 384, Second Edition, 20 CFR 614.12 and 5 U.S.C. 8521(a)(2). Instructions: State Employment Security Agencies (SESAs) shall use the attached schedule to determine Federal military wages for UCX "first claims" filed beginning with the first day of the first week which begins after April 6, 1996, pursuant to 20 CFR 614.12. SESAs will continue to use the existing schedule for UCX "first claims" filed before the effective date of the attached revised schedule. As provided by 20 CFR 614.12(d), the attached schedule shall be published as a notice in the Federal Register. Action Required: Administrators should provide the above instructions and the attached revised schedule to appropriate staff.

References: Section 3304(a)(9)(B) of the Internal Revenue Code, as amended; 20 CFR 616; ET Handbook No. 399; UIPL 28- 97, dated April 24, 1997; UIPL 15-98, dated February 12, 1998; UIPL 27-98, dated May 6, 1998; and the ICON User Guide. Background: Administration of the combined wage claim (CWC) program involves the transfer of wages, exchange of information pertaining to CWC status/disposition of transferred wages, quarterly billing of benefit charges to transferring States and the quarterly reimbursement of benefit charges between States. These administrative activities require the use of the Request for Wage Transfer (TC-IB4), the Report on Determination of CWC (TC-IB5), the Quarterly Statement of Benefits Paid to Combined Wage Claimants (TC-IB6) and the U.S. Department of Treasury's On- line Unemployment Trust Fund Accounting System (UTFAS). To increase the quality and timeliness of benefits paid under the CWC program and to create a more efficient method for handling the administrative activities, the release of ICON applications for handling CWC transactions began in 1989. ICON applications to handle the transmission of electronic TC-IB4 and TC-IB5 data were released to the States in 1989 and 1990, respectively. Currently, all States except the Virgin Islands are operational on these applications. In 1997, the U.S. Treasury expanded its UTFAS's capabilities to allow States to make quarterly IB6 reimbursements through fund transfers between States' accounts. Using the UTFAS eliminates CWC administrative costs associated with the use of checks or electronic fund transfers between banks and the potential loss of interest income to the UTF. Currently, there are forty-four States using this system for reimbursements. The TC-IB6, commonly called the quarterly bill, is the final module in automating the administrative processes between States that are necessary for the combined wage program. This module was completed and tested in 1997. National distribution was delayed because of the year 2000 considerations. However, as of late 1997, 19 States had requested and received the application code from Lockheed Martin. Therefore, after consultation with the Interstate Conference of Employment Security Agencie's Interstate Benefit (IB) Committee, the application code was released to all States with an implementation requirement of the billing cycle for the quarter ending March 31, 1999. Before and after the distribution of the TC-IB6 application, the requirements of the system were explained at sessions held at the annual meeting of interstate program and information technology staff. SESAs continue to be allocated special funding to install, interface, and maintain the ICON applications. Reminder: Some SESAs have not installed the required applica- tions to date. The time frame for issuing the first quarter (ending March 31, 1999) TC-IB6 timely, is extended until May 15, 1999. Therefore, there is still time for States to meet the implementation requirement. SESAs' failure to electronically transmit the required data will have an adverse effect on all other States as they must continue to maintain a manual system in order to handle hardcopy IB6s received from such States. Requirement for Conformity and Compliance: Section 3304(a)(9)(B) of the Federal Unemployment Tax Act requires States to participate in any combined wage claim arrangement approved by the Secretary of Labor (in consultation with the State agencies). Title 20 C.F.R. 616.13, in pertinent part, implements this arrangement by providing that: - Each State agency will cooperate with every other State agency by implementing such rules, regulations, and procedures as may be prescribed for the operation of this [combined wage] arrangement. Effective no later than May 15, 1999, electronic data communication is the prescribed procedure for handling IB6 billings by CWC Paying States. Transition Procedures: States that have not maintained an electronically accessible TC-IB5 file will not be able to create TC- IB6s that carry the key identifying the TC-IB5 used in the calculation of the charges. States receiving these records will have to manually edit the charges. However, States should not delay TC-IB6 implementation until they build TC-IB5 files. Recognizing that some States may not meet the May 15, 1999, deadline, transition procedures were discussed with the IB Committee at its February 1999 meeting. The discussion centered around the issue of whether or not States that have the ICON TC-IB6 application in place have to make a distinction between States that were operational and those that were not creating and sending electronic TC-IB6s. The decision was that States with the electronic TC- IB6 installed should create and send both an electronic and a hardcopy IB6 to each State. This will eliminate the sorting burden for the paying States that are operational on the TC-IB6. The TC- IB6 data addressed to States that are not operational by May 15, 1999, will thereafter be discarded by the HUB. Action Required: State Administrators are requested to take the necessary actions to ensure that, no later than May 15, 1999, all quarterly IB6 bills will be transmitted and received via ICON.

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References: ET Handbook No. 395, Revised July, 1997. FY 1999 BAM Training Seminars for State Investigators: Three remaining sessions of approximately 30 participants each are scheduled as follows: Date Location Deadline May 18 -21, 1999 Kansas City, Missouri April 16, 1999 June 29 -July 2, 1999 Washington, D.C. May 28, 1999 August 17 -20, 1999 Buena Park, California July 9, 1999 Logistics Information: The attached sheets provide information on location, hours, hotel arrangements, and ground transportation for the upcoming training seminars. A separate sheet is provided for each seminar. State Nominees: Nominations for each session will be accepted on a first come, first served basis. Nominations should indicate the session being requested. The deadlines shown above are for notification to the Regional Office (RO).

References: Sections 501, 1402(a)(15), 3301-3310 (the Federal Unemployment Tax Act (FUTA)), 7701(a), 7871, and 7873(a)(2) of the Internal Revenue Code (IRC); 25 U.S.C. Sections 450b and 479; Revenue Rulings 56- 110, 59-354, 68-493 and 85-194; and Unemployment Insurance Program Letters (UIPLs) 29-83, 29-83, Change 1, 12-87 and 24-89. Background: It is the Department's position that the granting of reimbursement status to Indian tribes liable for the Federal unemployment tax is inconsistent with the experience rating requirements of Section 3303(a)(1), FUTA. However, some States have nevertheless granted such Indian tribes reimbursement status. Although Congressional action has been anticipated on this matter for a considerable time, it does not appear to be forthcoming. Therefore, the Department is issuing this UIPL to assure consistent treatment of tribes for experience rating purposes. This UIPL also contains a discussion concerning State jurisdiction over the tribes. Unless greater specificity is required, this UIPL will use the term "tribe" to describe the Indian tribe, its tribal government as well as other tribal governmental entities and tribal business enterprises. Section 7701(a)(40)(A) of the IRC defines the term "Indian tribal government" to mean "the governing body of any tribe, band, community, village, or group of Indians, or (if applicable) Alaska natives, which is determined by the Secretary [of the Treasury], after consultation with the Secretary of the Interior, to exercise governmental functions." Tribal governments, usually called "tribal councils," frequently operate business enterprises. "Tribe" is not defined in the IRC. For purposes of the Indian Self-Determination and Education Assistance Act, a tribe is defined as "any Indian tribe, band, nation or other organized group or community . . . which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians." 25 U.S.C. 450b(e). For purposes of the Indian Reorganization Act, a "tribe" refers to "any Indian tribe, organized band, pueblo, or Indians residing on one reservation." 25 U.S.C. 479. Federal Law Requirements: Section 3301, FUTA, imposes an excise tax on every employer (as defined in Section 3306(a)(1), FUTA) with "respect to having individuals in his employ . . . . " To encourage States to cover these services, Section 3302, FUTA, provides for a "normal" and an "additional" credit against this tax. Also, as described below, FUTA requires States to cover services performed for certain entities which are not subject to the FUTA tax and to offer such entities a reimbursement option. As a condition of receiving the additional credit, Section 3303(a)(1), FUTA, requires that State law provide that "no reduced rate of contributions . . . is permitted to a person (or group of persons) . . . except on the basis of his (or their) experience with respect to unemployment or other factors bearing a direct relation to unemployment risk." (Emphasis added.) Therefore, except as explained below, if an entity is a "person," that entity may be assigned a reduced rate only on the basis of its experience or other factors bearing a direct relation to unemployment risk (hereafter "experience"). If a "person" is assigned a rate that is not based on experience, the State's assignment of rates will conflict with Federal law requirements and all employers in the State will lose the additional credit against the FUTA tax. To determine if an entity is a "person," States may rely on the entity's FUTA tax status. Section 3306(a)(1), FUTA, defines the term "employer" as, in part, "any person . . . ." Only "employers" are liable for the FUTA tax (Section 3301, FUTA). Thus, any entity determined by the IRS to be an employer subject to and liable for the FUTA tax is a "person" which must be experience rated. However, since the term "person" is broader than the term "employer," it is possible for an entity to be a "person" even though it is not liable for the FUTA tax. One way this will happen is if all the services performed for a "person" are excluded from the definition of "employment" in Section 3306, FUTA. Two of these exclusions are described in paragraphs (7) and (8) of Section 3306(c): (7) service performed in the employ of a State, or any political subdivision thereof, or any instrumentality of any one or more of the foregoing which is wholly owned by one or more States or political subdivisions; and any service performed in the employ of any instrumentality of one or more States or political subdivisions to the extent that the instrumentality is, with respect to such service, immune under the Constitution of the United States from the tax imposed by section 3301; (8) service performed in the employ of a religious, charitable, educational, or other organization described in section 501(c)(3) which is exempt from income tax under section 501(a). Since these State and local governmental entities and nonprofit organizations are not subject to the FUTA tax, the principal incentive for requiring State unemployment compensation (UC) coverage - the receipt of the tax credits against the FUTA tax for the individual employer - is absent. Sections 3304(a)(6) and 3309, FUTA, therefore, require, as a condition for all employers in a State to receive credit against the FUTA tax, that the State cover these services. These sections further require that States extend the option to make "payments (in lieu of contributions)," commonly called reimbursements, based on these services. The only way a "person" can qualify for reimbursing status under a State law without conflicting with Federal law is by meeting one of these two exclusions. Providing reimbursement status is viewed by the Department as assigning a zero rate to the "person" because no prospective liability is created. (Similarly, assigning no rate is viewed as assigning a zero rate.) Unless the "person" qualified for reimbursement status as discussed in the preceding paragraph, a conflict with Section 3303(a)(1), FUTA, would exist since the zero rate would not be based on experience. In addition, such a zero rate would not be based on the three years of experience immediately preceding the computation date and "persons" would not receive rates based on the same factors over the same period of time. (A discussion of these experience rating requirements is found in UIPL 29-83 and its Change 1.) Status of Tribes under Federal Law: It is well established that the IRS and the courts consider tribes to be "persons" for Federal tax purposes. The term "person" is defined in Section 7701(a)(1), IRC, "to mean and include an individual, a trust, estate, partnership, association, company or corporation." IRS Revenue Ruling 85-194 addressed whether an Indian tribal government was a "person." That ruling held that the definition of "person" in Section 7701(a)(1), IRC, "is sufficiently broad to include a governmental body." See Ohio v. Helvering, 292 U.S. 360 (1934). Therefore, the tribal government was a "person." The fact that tribes may perform governmental functions does not, therefore, form a basis for excepting them from the definition of "person." In fact, in cases where they are subject to the FUTA tax, they are plainly "persons" under Federal law since only "persons" are subject to this tax. In Revenue Ruling 56-110, the IRS determined that a business enterprise operated by a tribe is not an instrumentality wholly- owned by the United States and, therefore, is liable for the FUTA tax. Revenue Ruling 59-354 held that a tribal council is liable for FUTA taxes for employees of the council and employees of tribal council business enterprises. Revenue Ruling 68-493 held that services performed by an Indian employee are not excepted from the FUTA definition of employment merely because the Indian is a ward of the United States. Courts have upheld the IRS position that tribes are subject to FUTA. See Matter of Cabazon Indian Casino, 57 B.R. 398 (Bankr. 9th Cir. 1986), and Washoe Tribes v. United States, 79-2 U.S. Tax Cas. (CCH) P9718. Also, Confederated Tribes of Warm Springs Reservation v. Kurtz, 691 F.2d 878 (9th Cir. 1982), established that tribes are liable for Federal excise taxes. Under Section 3301, FUTA, the FUTA tax is specifically defined as an excise tax. The FUTA liability of tribes is confirmed by the fact that two special provisions were deemed necessary to exempt certain tribal services from the FUTA tax. First, an amnesty provision was created in 1986 to exempt service in the employ of "a qualified Indian entity" from the FUTA tax for a specific period during which the entity (that is, the tribe) was not covered by a State UC program. See UIPL 12-87. Second, Sections 1402(a)(15) and 7873(a)(2) were added to the IRC in 1988 to exclude from the FUTA tax services "performed in a fishing rights-related activity of an Indian tribe by a member of such tribe for another member of such tribe or for a qualified Indian entity." See UIPL 24-89. Even though tribes perform governmental functions, this does not mean that a tribe may be treated as a governmental entity for FUTA purposes. In fact, in Section 7871, IRC, Congress has clearly delineated those situations where a tribe may be treated as a State for Federal tax purposes. These purposes do not include the FUTA tax. The FUTA governmental exclusion in Section 3306(c)(7) applies only to State governments or "political subdivisions thereof." In the attached correspondence, the IRS has confirmed that, even where tribes are considered to be political subdivisions or agencies of a State under State law, the tribes remain subject to the FUTA tax in the same way as other private employers. (The IRS further stated that tribes would likely not be allowed a credit against the FUTA tax for any reimbursements made to a State's unemployment fund.) A State may, for UC purposes, treat a tribe as a Section 3306(c)(7), FUTA, entity only if the tribe is in fact such an entity under Federal law. Merely designating a tribe as a governmental entity under State UC law is not sufficient; the tribe must be a Section 3306(c)(7) entity in all respects. The term "political subdivision" is a Federal law term; it is not affected by the State's use of that term. In sum, if a tribe is subject to the FUTA tax, it is a "person." This tribe is not a governmental entity described in Section 3306(c)(7) since such entities are exempt from the FUTA tax. The State may not give this tribe reimbursable status and may assign it a reduced rate only on the basis of its experience. Status of Tribes under State Law - Jurisdictional Issues: The provisions of FUTA relating to taxable services do not require a State to cover these services for UC purposes. Instead, coverage is encouraged by granting employers credit against the FUTA tax for contributions paid on services covered under State law. Since States have limited jurisdictional rights over tribes or activities on reservations, State UC coverage has not always been extended to the tribes. In some States, the continuation of coverage for tribal services is conditioned on the tribe's payment of its UC benefit costs. If tribes are not covered under State law, then they will not be eligible for any credit against the FUTA tax. A leading State court decision on this jurisdictional matter is Employment Security Department v. the Cheyenne River Sioux Tribe, 119 N.W.2d 285 (S.D. 1963). In this case, South Dakota sought to collect from a tribe contributions owed to the State's UC fund. The Cheyenne Court noted that the tribal authority in certain areas results in the existence of three forms of government within the geographical confines of the State: the United States of America, the State itself and Indian tribes. In concluding that the Cheyenne River Sioux Tribe was immune from suit, the Court decided that "unless Congress enacts a statute authorizing, or consenting to, actions to enforce the claimed liability, the courts of this state have no jurisdiction of the Tribe in this civil action." The United States Supreme Court has confirmed the States' limited jurisdiction over tribes. In Bryan v. Itasca County, 426 U.S. 373, 96 S.Ct. 2102 (1976), the Court held that States may not impose a tax, in this case a personal property tax, on Indians living on reservations without the consent of Congress. In White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 143, 100 S.Ct. 2578, 2583 (1980), the Court held that States could not impose taxes on a non- tribal company operating on a reservation. The White Mountain opinion provided a useful summary concerning the status of tribes: The status of the tribes has been described as "'an anomalous one and of complex character,'" for despite their partial assimilation into American culture, the tribes have retained "'a semi- independent position . . . not as States, not as nations, not as possessed of the full attributes of sovereignty, but as a separate people, with the power of regulating their internal and social relations, and thus far not brought under the laws of the Union or the State within whose limits they resided.'" [Citations omitted.] At least one State mandates UC coverage of tribes on the basis that, through Section 3305(d), FUTA, Congress has provided States with the authority to cover services on lands held in trust for the tribes by the Federal government. That section provides that "[n]o person shall be relieved from compliance with a State unemployment compensation law on the ground that services were performed on land or premises owned, held, or possessed by the United States, and any State shall have full jurisdiction and power to enforce the provisions of such law to the same extent and with the same effect as though such place were not owned held, or possessed by the United States." The Department has not, however, taken a position on this. In short, States have limited jurisdictional authority to impose or collect a State UC tax on tribes. However, unless this tax is imposed by the State and paid by the tribes, the tribes receive no credit against the FUTA tax for which they are liable. Summary: Although tribes may perform governmental activities, this does not mean that they are not liable for the FUTA tax. In fact, both the IRS and the courts have concluded that tribes are "persons" liable for the tax. For employers in a State to receive the additional credit, the State may assign reduced rates to any "person" only on the basis of experience. If a State does not assign a rate based on experience to a FUTA liable employer, this experience requirement is not met. Only entities excluded from the FUTA tax under Sections 3306(c)(7) and (8) qualify for reimbursement status. As FUTA liable tribes are not among those entities qualifying for the reimbursement option, they must be assigned a reduced rate only on the basis of experience. Action Required: State agencies should assure that, for experience rating purposes, tribes are treated consistent with the Federal law requirements described herein.

Average Weekly Benefit Amount (AWBA) Utilization: As required by 20 CFR 625.6, the attached listing sets forth the 50 percent of AWBA computation applicable for major disasters declared during the third quarter of FY 1999, from April 1 through June 30, 1999. Action Required: SESA Administrators are requested to provide this information to appropriate staff and insure that the correct AWBA is utilized in determining the weekly DUA amount.

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Background: A review of Benefit Timeliness and Quality (BTQ) non-monetary determination quality scores of the SESAs indicates a need for improvement in certain areas of the adjudication process. In an attempt to assist States with improving performance in these selected areas (see attached draft agenda), the National Office is offering two ¿Train the Trainer¿ seminars. Participants and Objectives: The seminars are designed to assist SESA staff who are responsible for training State staff in areas of non-monetary determinations with training material and preparation. The seminars will be held in 1999 in Washington, D.C., and in San Diego, California. While prior training experience is not necessary, each participant should be knowledgeable of the adjudication process in his/her State. A package of training materials will be provided to each participant which may be used to conduct training within his/her respective State. Each participant will be expected to practice presenting the material during these sessions. Group workshops will be conducted in areas which have been identified based on analyses of the BTQ data as needing specific attention. Conference Locations/Reservations: The sessions will be held as follows: States in Regions I thru V: A session will be held June 7 -11, 1999, in Washington, D.C., at One Washington Circle Hotel, One Washington Circle NW, Washington, D.C., 20037. Room rates are $115.00 plus 14.5% tax per night for a single and $130 plus 14.5% tax each night for a double. Each participant is responsible for contacting the hotel at (800) 424-9671 or (202) 872-1680 to make his/her own reservation. Please reference ¿Department of Labor (DOL) Group¿ when making a reservation to ensure the correct rate is quoted. Reservations must be made no later than May 8, 1999. Ground Transportation : The hotel is located directly across the circle from the Foggy Bottom-George Washington University Metro station on the blue line. The blue line is available from National Airport without a change of trains. Super Shuttle and taxi cabs are also available from all three area airports (National, Dulles, Baltimore-Washington). States in Regions VI thru X: A session will be held July 26 -30, 1999, at the Westgate Hotel, 1055 Second Avenue, San Diego, California. Room rates are $98.00 (includes all taxes) per night for a single/double room. Each participant is responsible for contacting the hotel at (619) 238-1818 to make his/her own reservation. Please reference ¿Department of Labor (DOL) Group¿ when making a reservation to ensure the correct rate is quoted. Reservations must be made no later than July 5, 1999. Ground Transportation: The hotel provides complimentary airport transportation. The San Diego Trolley stops at the hotel. Auto parking is available for an additional $12 per day for those who may wish to drive. Action Required: SESA Administrators are requested to: (a) Encourage attendance of State staff who are responsible for training in the area of non-monetary determinations. (b) States in Regions I thru V -provide the names of each staff member planning to attend the June training to the appropriate Regional Office no later than May 8, 1999. States in Regions VI thru X -provide the names of each staff member planning to attend the July training to the appropriate Regional Office no later than July 5, 1999.

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