B-126738, APR. 11, 1956

B-126738, APR. 11, 1956

TO THE HONORABLE, SECRETARY OF THE TREASURY:

BY LETTER DATED JANUARY 20, 1956, THE ACTING SECRETARY OF THE TREASURY REQUESTED OUR DECISION CONCERNING CERTAIN QUESTIONS RAISED IN CORRESPONDENCE BETWEEN THE DEPARTMENT OF LABOR AND YOUR DEPARTMENT WITH RESPECT TO FUNDS REQUIRED BY THE EMPLOYMENT SECURITY ADMINISTRATIVE FINANCING ACT OF 1954, APPROVED AUGUST 5, 1954, 68 STAT. 668, TO BE TRANSFERRED TO THE UNEMPLOYMENT TRUST FUND. THE UNEMPLOYMENT TRUST FUND (HEREINAFTER REFERRED TO AS THE "FUND") CONSISTS OF 53 COMPONENT ACCOUNTS- -- A SEPARATE ACCOUNT FOR EACH OF THE 48 STATES, ALASKA, HAWAII, DISTRICT OF COLUMBIA, THE RAILROAD UNEMPLOYMENT INSURANCE ACCOUNT AND THE FEDERAL UNEMPLOYMENT ACCOUNT.

THE ACT OF AUGUST 5, 1954, PROVIDES THAT THE EXCESS OF COLLECTIONS FROM THE FEDERAL UNEMPLOYMENT TAX OVER EMPLOYMENT SECURITY ADMINISTRATIVE EXPENSES AND OTHER SPECIFIED ITEMS FOR THE FISCAL YEAR ENDING JUNE 30, 1954, AND FOR EACH SUCCEEDING FISCAL YEAR THEREAFTER SHALL BE USED TO ESTABLISH AND MAINTAIN A $200,000,000 RESERVE IN THE FEDERAL UNEMPLOYMENT ACCOUNT. IT IS INDICATED IN THE LETTER OF JANUARY 20 THAT, AFTER CONSULTATION WITH THE SECRETARY OF LABOR WITH REGARD TO CERTAIN ADMINISTRATIVE EXPENSES AS REQUIRED BY SECTION 901 (A) (2) OF THE ACT, THE EXCESS FOR THE FISCAL YEAR ENDING JUNE 30, 1954, WAS DETERMINED TO BE $64,287,507 AND THAT AMOUNT WAS TRANSFERRED TO DEPOSIT ACCOUNT "20 BY 6042 UNEMPLOYMENT TRUST FUND" ON DECEMBER 23, 1954, AND INVESTED ON THE SAME DATE IN INTEREST BEARING OBLIGATIONS OF THE UNITED STATES. IT IS FURTHER STATED THAT EARLY IN 1955 IT WAS DISCOVERED THAT $7,396,002.64 OF 1954 UNEMPLOYMENT TAXES HAD BEEN ERRONEOUSLY CREDITED TO ANOTHER ACCOUNT IN THE GENERAL FUND OF THE TREASURY DURING THE 1954 FISCAL YEAR AND HENCE HAD NOT ENTERED INTO THE ORIGINAL COMPUTATION OF THE EXCESS FOR THAT YEAR. THIS AMOUNT WAS CREDITED TO THE FEDERAL UNEMPLOYMENT ACCOUNT IN THE FUND ON JULY 1, 1955, TOGETHER WITH THE AMOUNT DETERMINED TO BE EXCESS TAX COLLECTIONS FOR FISCAL YEAR 1955. IT IS THE CONTENTION OF THE SECRETARY OF LABOR THAT BOTH OF THE ABOVE-MENTIONED SUMS FOR FISCAL YEAR 1954 SHOULD HAVE BEEN TRANSFERRED TO THE FUND AS OF JUNE 30, 1954, AND CREDITED TO THE FEDERAL UNEMPLOYMENT ACCOUNT AS OF JULY 1, 1954, AND HENCE SHOULD HAVE COMMENCED EARNING INTEREST AND PARTICIPATING IN THE EARNINGS OF THE FUND AS OF THE LATTER DATE.

ACCORDINGLY, THE FOLLOWING FOUR QUESTIONS ARE PRESENTED FOR OUR DECISION:

"1. IS THE FEDERAL UNEMPLOYMENT ACCOUNT ENTITLED TO THE EXTENT OF $64,287,507 TO PARTICIPATE IN THE EARNINGS OF THE UNEMPLOYMENT TRUST FUND FROM JULY 1, 1954 TO DECEMBER 23, 1954?

"2. IS THE ADJUSTMENT OF $7,396,002.64, INCLUDED IN THE APPROPRIATION TO THE FEDERAL UNEMPLOYMENT ACCOUNT AS OF JULY 1, 1955, REQUIRED TO BE APPROPRIATED AS OF JULY 1, 1954, AND PARTICIPATE IN THE EARNINGS OF THE UNEMPLOYMENT TRUST FUND FROM JULY 1, 1954, AS IN QUESTION NO. 1, ABOVE?

"3. IF AFFIRMATIVE ANSWERS ARE GIVEN TO QUESTIONS NO. 1 AND/OR 2, WILL IT BE NECESSARY TO REVISE THE DISTRIBUTION OF INTEREST ACTUALLY EARNED BY THE UNEMPLOYMENT TRUST FUND FOR EACH QUARTER YEAR SINCE JULY 1, 1954, AND REDUCE AMOUNTS PREVIOUSLY CREDITED TO ALL PARTICIPATING ACCOUNTS, IN ORDER THAT THE FEDERAL UNEMPLOYMENT ACCOUNT MAY PARTICIPATE RETROACTIVELY TO THAT DATE IN THE EARNINGS OF THE FUND?

"4. THE RETROACTIVE READJUSTMENT OF EARNINGS IN THE UNEMPLOYMENT TRUST FUND TO JULY 1, 1954, WILL CAUSE A COMPLETE RESTATEMENT OF THE DAILY BALANCES IN EACH OF THE FIFTY-THREE COMPONENT ACCOUNTS FOR EACH DAY SINCE THAT DATE. THE NET EFFECT OF SUCH ADJUSTMENTS WOULD BE TO REDUCE THE CURRENT BALANCE IN EACH ACCOUNT OTHER THAN THE FEDERAL UNEMPLOYMENT ACCOUNT, AND TO INCREASE THE BALANCE IN THAT ACCOUNT. UNDER SUCH CIRCUMSTANCES, WOULD THE TREASURY GIVE EFFECT TO SUCH NET ADJUSTMENT APPLICABLE TO EACH ACCOUNT IN THE NEXT DISTRIBUTION OF EARNINGS?

THE EMPLOYMENT SECURITY ADMINISTRATIVE FINANCING ACT OF 1954, PROVIDES, IN PERTINENT PART, AS FOLLOWS:

"SEC. 901. (A) (1) THERE ARE HEREBY APPROPRIATED TO THE UNEMPLOYMENT TRUST FUND, OUT OF ANY MONEYS IN THE TREASURY NOT OTHERWISE APPROPRIATED, FOR THE FISCAL YEAR ENDING JUNE 30, 1954, AND FOR EACH FISCAL YEAR THEREAFTER, AN AMOUNT EQUAL TO THE AMOUNT BY WHICH---

" "/A) 100 PERCENTUM OF THE TAX (INCLUDING INTEREST,PENALTIES AND ADDITIONS TO THE TAX) RECEIVED DURING THE FISCAL YEAR UNDER THE FEDERAL UNEMPLOYMENT TAX ACT AND COVERED INTO THE TREASURY; EXCEEDS

" "/B) THE SUM OF (I) THE EMPLOYMENT SECURITY ADMINISTRATIVE EXPENDITURES FOR SUCH YEAR, (II) THE REFUNDS OF SUCH TAX (INCLUDING INTEREST ON SUCH REFUNDS) MADE DURING SUCH FISCAL YEAR, AND (III) THE AMOUNTS APPROPRIATED BY SECTION 1202 (B) FOR SUCH FISCAL YEAR.

"/2) THE AMOUNT APPROPRIATED BY PARAGRAPH (1) FOR ANY FISCAL YEAR SHALL BE TRANSFERRED FROM THE GENERAL FUND IN THE TREASURY TO THE UNEMPLOYMENT TRUST FUND AT THE CLOSE OF SUCH FISCAL YEAR. EACH SUCH TRANSFER SHALL BE BASED ON ESTIMATES MADE BY THE SECRETARY OF THE TREASURY AS OF THE CLOSE OF SUCH FISCAL YEAR, BUT PROPER ADJUSTMENT SHALL BE MADE IN THE AMOUNT TRANSFERRED AT THE CLOSE OF THE SUCCEEDING FISCAL YEAR TO THE EXTENT THAT SUCH ESTIMATES PROVE TO BE ERRONEOUS. THE SECRETARY OF THE TREASURY SHALL MAKE HIS ESTIMATE OF THOSE EMPLOYMENT SECURITY ADMINISTRATIVE EXPENDITURES FOR ANY FISCAL YEAR WHICH ARE DESCRIBED IN SUBSECTION(B) (1) ONLY AFTER CONSULTATION WITH THE SECRETARY OF LABOR.

"/B) FOR THE PURPOSES OF SUBSECTION (A), THE TERM "EMPLOYMENT SECURITY ADMINISTRATIVE EXPENDITURES" MEANS, IN THE CASE OF ANY FISCAL YEAR, THE SUM OF---

"/1) THE AGGREGATE OF THE AMOUNTS EXPENDED DURING THE FISCAL YEAR FOR THE PURPOSE OF ASSISTING THE STATES IN (A) THE ADMINISTRATION OF THEIR UNEMPLOYMENT COMPENSATION LAWS (INCLUDING ADMINISTRATION PURSUANT TO AGREEMENTS UNDER TITLE IV OF THE VETERANS, READJUSTMENT ASSISTANCE ACT OF 1952), (B) THE ESTABLISHMENT AND MAINTENANCE OF SYSTEMS OF PUBLIC EMPLOYMENT OFFICES IN ACCORDANCE WITH THE ACT OF JUNE 6, 1933, AS AMENDED (29 U.S.C., SEC. 49-49N), AND (C) CARRYING INTO EFFECT SECTION 602 OF THE SERVICEMEN'S READJUSTMENT ACT OF 1944, AS AMENDED; AND

"/2) THE AMOUNT ESTIMATED BY THE SECRETARY OF LABOR AS EQUAL TO THE NECESSARY EXPENSES INCURRED DURING THE FISCAL YEAR FOR THE PERFORMANCE BY THE DEPARTMENT OF LABOR OF ITS FUNCTIONS (EXCEPT ITS FUNCTIONS WITH RESPECT TO PUERTO RICO AND THE VIRGIN ISLANDS) UNDER (I) THIS TITLE AND TITLES III AND XII OF THIS ACT, (II) THE FEDERAL UNEMPLOYMENT TAX ACT, (III) THE PROVISIONS OF THE ACT OF JUNE 6, 1933, AS AMENDED, (IV) TITLE IV (EXCEPT SECTION 602) OF THE SERVICEMEN'S READJUSTMENT ACT OF 1944, AS AMENDED, AND (V) TITLE IV OF THE VETERANS' READJUSTMENT ACT OF 1952; AND

"/3) THE AMOUNT ESTIMATED BY THE SECRETARY OF THE TREASURY AS EQUAL TO THE NECESSARY EXPENSES INCURRED DURING THE FISCAL YEAR FOR THE PERFORMANCE BY THE DEPARTMENT OF THE TREASURY OF ITS FUNCTIONS UNDER THIS TITLE AND TITLES III AND XII OF THIS ACT AND UNDER THE FEDERAL UNEMPLOYMENT TAX ACT.

"AMOUNTS CREDITED TO FEDERAL UNEMPLOYMENT ACCOUNT

"SEC. 902. WHENEVER ANY AMOUNT IS TRANSFERRED TO THE UNEMPLOYMENT TRUST FUND UNDER SECTION 901 (A), THERE SHALL BE CREDITED (AS OF THE BEGINNING OF THE SUCCEEDING FISCAL YEAR) TO THE FEDERAL UNEMPLOYMENT ACCOUNT SO MUCH OF SUCH AMOUNT AS EQUALS WHICHEVER OF THE FOLLOWING IS THE LESSER:

"/1) THE TOTAL AMOUNT SO TRANSFERRED; OR

"/2) THE AMOUNT BY WHICH $200,000,000 EXCEEDS THE ADJUSTED BALANCE IN THE FEDERAL UNEMPLOYMENT ACCOUNT AT THE CLOSE OF THE FISCAL YEAR FOR WHICH THE TRANSFER IS MADE.

FOR THE PURPOSES OF THE PRECEDING SENTENCE, THE TERM "ADJUSTED BALANCE" MEANS THE AMOUNT BY WHICH THE BALANCE IN THE FEDERAL UNEMPLOYMENT ACCOUNT EXCEEDS THE SUM OF THE OUTSTANDING ADVANCES UNDER SECTION 1202 (C) TO THE FEDERAL UNEMPLOYMENT ACCOUNT.'

IT WILL BE NOTED THAT SECTION 901 (A) (2) SPECIFICALLY PROVIDES THAT THE EXCESS TAX FOR ANY FISCAL YEAR STARTING WITH THE FISCAL YEAR ENDED JUNE 30, 1954,"SHALL BE TRANSFERRED FROM THE GENERAL FUND IN THE TREASURY TO THE UNEMPLOYMENT TRUST FUND AT THE CLOSE OF SUCH FISCAL YEAR.' SECTION 902 REQUIRES THE CORRESPONDING CREDIT TO THE FEDERAL UNEMPLOYMENT ACCOUNT TO BE MADE "AS TO THE BEGINNING OF THE SUCCEEDING FISCAL YEAR.' THESE PROVISIONS CLEARLY REQUIRE A PROMPT TRANSFER AND CREDIT OF THE EXCESS TAX AT THE TURN OF THE FISCAL YEAR. WHILE THE ACT DID NOT BECOME LAW UNTIL AUGUST 5, 1954, NO PROVISION WAS MADE THEREIN TO PERMIT DIFFERENT TREATMENT OF THE EXCESS FOR THE FISCAL YEAR 1954. INDEED, THE LEGISLATIVE THE ACT DISCLOSES THAT AN AMENDMENT WHICH WOULD HAVE POSTPONED THE STARTING DATE TO "FISCAL YEAR BEGINNING JULY 1, 1955," WHICH WAS PROPOSED BY THE DEPARTMENT OF LABOR APPARENTLY BECAUSE OF THE PROXIMITY OF JUNE 30, 1954, AND THE RESULTANT DIFFICULTY OF MAKING THE REQUIRED COMPUTATION IN TIME, FAILED OF ENACTMENT. SEE PAGES 34 AND 35 OF HEARINGS BEFORE THE COMMITTEE ON FINANCE, UNITED STATES SENATE, 83D CONGRESS, ON H.R. 5173, MARCH 9 AND 19, 1954. MOREOVER, ALL THROUGH THE REPORTS ON AND DISCUSSIONS OF THE BILL PRIOR TO ITS ENACTMENT, THERE IS EXPRESSED THE IDEA THAT THE TRANSFER AND CREDIT OF THE EXCESS TAX FOR ANY FISCAL YEAR IS TO BE MADE AT THE END OF THAT FISCAL YEAR AND THE BEGINNING OF THE NEXT. SEE, FOR EXAMPLE, PAGES 2, 3, 7, AND 8 OF SENATE REPORT NO. 1621, 83D CONGRESS, ON H.R. 5173, AND PAGES 1, 4, AND 5 OF THE HOUSE OF REPRESENTATIVES REPORT NO. 427, 83D CONGRESS, ON THE SAME BILL.

HOWEVER, WHILE IT IS APPARENT THAT THE EXCESS TAX FOR FISCAL YEAR 1954 SHOULD HAVE BEEN CREDITED AS OF JUNE 30, 1954, AND THE OMISSION COULD BE CORRECTED NOW BY ACCOUNTING ENTRIES, IT IS EQUALLY APPARENT THAT THE MERE CREDITING WOULD NOT CAUSE THAT SUM TO EARN INTEREST FROM THAT DATE, SINCE THE FUND EARNS INTEREST ONLY TO THE EXTENT THAT FUNDS THEREFROM ARE ACTUALLY INVESTED IN INTEREST BEARING OBLIGATIONS OF THE UNITED STATES. INASMUCH AS SUCH INVESTMENT INVOLVES THE ACTUAL PURCHASE OF SECURITIES, IT CAN READILY BE SEEN THAT NO INVESTMENT OF MONEY OF THE FUND CAN BE MADE UNTIL SUCH MONEY ACTUALLY HAS BEEN RECEIVED IN THE FUND. THAT IS, A MERE RETROACTIVE BOOK ENTRY CANNOT EFFECT A RETROACTIVE INVESTMENT. MOREOVER, SUBSECTION 1104 (B) OF TITLE 42, U.S.C. PROVIDES THAT THE SECRETARY OF THE TREASURY SHALL "INVEST SUCH PORTION OF THE FUND AS IS NOT, IN HIS JUDGMENT, REQUIRED TO MEET CURRENT WITHDRAWALS.' HENCE, EVEN IF THE CREDIT ACTUALLY HAD BEEN MADE ON JUNE 30, 1954, NOTHING IN THE LAW REQUIRES ITS IMMEDIATE INVESTMENT ON THAT DATE. THUS, THE SOLE RESULT OF MAKING A REDISTRIBUTION OF THE ACTUAL EARNINGS OF THE FUND FOR EACH QUARTER FROM JULY 1, 1954, TO DATE IN ACCORDANCE WITH THE PROVISIONS OF 42 U.S.C. 1104 (E). AS SUCH REDISTRIBUTION WOULD REQUIRE SPREADING THE AMOUNTS EARNED BY AND ALREADY CREDITED TO THE FUND OVER A LARGER BASE AND GIVE THE FEDERAL UNEMPLOYMENT ACCOUNT A LARGER SHARE THEREOF, IT IS OBVIOUS THAT THE RESULT WOULD BE AN ENRICHMENT OF THE FEDERAL UNEMPLOYMENT ACCOUNT AT THE EXPENSE OF THE INDIVIDUAL STATE ACCOUNTS AND THE RAILROAD UNEMPLOYMENT INSURANCE ACCOUNT.

THE PURPOSE OF THE CONGRESS IN ENACTING THE EMPLOYMENT SECURITY ADMINISTRATIVE FINANCING ACT OF 1954, AS IS CLEARLY INDICATED BY THE LEGISLATIVE HISTORY OF THE ACT, WAS TO RENDER ADDITIONAL FUNDS AVAILABLE TO THE STATES FOR EMPLOYMENT SECURITY PURPOSES. ACCORDINGLY, SINCE THE RETROACTIVE CREDIT OF EXCESS TAXES FOR FISCAL YEAR 1954 TO JUNE 30, 1954, AT THIS TIME WOULD SERVE NO USEFUL PURPOSE, WOULD INVOLVE A GREAT DEAL OF UNNECESSARY ADMINISTRATIVE WORK AND EXPENSE, AND WOULD ACHIEVE A RESULT DIAMETRICALLY OPPOSITE TO THAT INTENDED BY THE CONGRESS, SUCH RETROACTIVE CREDIT NEED NOT BE MADE. HOWEVER, IT MUST BE STRESSED THAT ALL FUTURE TRANSFERS OF EXCESS TAXES FOR ANY FISCAL YEAR TO THE FUND AND THE CORRESPONDING CREDITS TO THE FEDERAL UNEMPLOYMENT ACCOUNT IN ACCORDANCE WITH THE ACT SHOULD BE MADE PROMPTLY AT THE TIME PROVIDED IN THE ACT; THAT IS, THE END OF THE FISCAL YEAR INVOLVED AND THE BEGINNING OF THE NEXT, RESPECTIVELY.

WITH RESPECT TO THE $7,396,002.64 ERROR, SECTION 901 (A) (2) PROVIDES, IN PERTINENT PART, THAT ,EACH SUCH TRANSFER SHALL BE BASED ON ESTIMATES MADE BY THE SECRETARY OF THE TREASURY AS OF THE CLOSE OF SUCH FISCAL YEAR, BUT PROPER ADJUSTMENT SHALL BE MADE IN THE AMOUNT TRANSFERRED AT THE CLOSE OF THE SUCCEEDING FISCAL YEAR TO THE EXTENT THAT SUCH ESTIMATES PROVE TO BE ERRONEOUS.' ALTHOUGH THIS PROVISION SEEMS CLEAR AND UNAMBIGUOUS, THE DEPARTMENT OF LABOR IN ITS CORRESPONDENCE ON THE MATTER WITH YOUR DEPARTMENT CONTENDS THAT THE ONLY ESTIMATES AUTHORIZED BY THIS SECTION ARE OF ADMINISTRATIVE EXPENSES. HOWEVER, THE EXCERPTS FROM CONGRESSIONAL REPORTS ON THE BILL RELIED UPON BY THE DEPARTMENT OF LABOR TO SUPPORT THIS CONTENTION (SENATE REPORT NO. 1621, PAGE 7; HOUSE REPORT NO. 427, PAGE 5) ARE IN EXPLANATION, NOT OF SECTION 901 (A) (2), BUT OF SECTION 901 (B), WHICH DEFINES WHAT IS MEANT BY "EMPLOYMENT SECURITY ADMINISTRATIVE EXPENDITURES" AS THAT TERM IS USED IN SECTION 901 (A). HENCE, THESE EXCERPTS HAVE NO BEARING ON SECTION 901 (A) (2) AND FURNISH NO SUPPORT FOR THE CONTENTION OF THE DEPARTMENT OF LABOR. NO EXPLANATION OF THE QUOTED PORTION IS FOUND ANYWHERE IN THE HISTORY OF THE ACT, POSSIBLY BECAUSE THE CONGRESS CONSIDERED IT SO CLEAR IN MEANING AS TO REQUIRE NO EXPLANATION. AS INDICATED HEREIN, THE ENTIRE HISTORY OF THE ACT DISCLOSES THE INTENT OF THE CONGRESS THAT THE TRANSFER AND CREDIT OF EXCESS TAXES SHOULD BE MADE PROMPTLY AT THE TURN OF THE FISCAL YEAR. IT APPEARS EVIDENT THAT NONE OF THE ITEMS IN THE FORMULA PRESCRIBED FOR COMPUTING THIS EXCESS IS SUSCEPTIBLE OF REDUCTION TO AN EXACT FIGURE BEFORE OR IMMEDIATELY UPON THE END OF A FISCAL YEAR. MOREOVER, WHILE THE DEPARTMENT OF LABOR PLACES GREAT STRESS UPON THE WORDING "100 PERCENTUM OF THE TAX" USED IN THE ACT, CLEARLY NO EXACT FIGURE FOR THIS ITEM CAN BE DETERMINED FOR SOME TIME AFTER THE CLOSE OF A FISCAL YEAR AND, IN ADDITION, IT SEEMS OBVIOUS THAT IN A REVENUE COLLECTING OPERATION AS LARGE AS THAT CONDUCTED BY THE INTERNAL REVENUE SERVICE--- NO MATTER HOW EFFICIENT--- OCCASIONAL ERRORS ARE BOUND TO BE MADE AND WILL BE DISCOVERED AT VARYING TIMES AFTER THE END OF THE FISCAL YEAR. IT SEEMS REASONABLE TO CONCLUDE THAT THE CONGRESS WAS AWARE OF THESE FACTS WHEN CONSIDERING THIS ACT. ACCORDINGLY, THE ACTION TAKEN BY YOUR DEPARTMENT WITH RESPECT TO THIS ERROR WAS CORRECT AND IN ACCORDANCE WITH THE PROVISIONS OF THE ACT.

IN VIEW OF THE ABOVE, YOUR FIRST AND SECOND QUESTIONS ARE ANSWERED IN THE NEGATIVE, RENDERING UNNECESSARY ANY ANSWER TO QUESTIONS 3 AND 4.