April 30, 2002

The Honorable Elaine L. Chao
Secretary of Labor
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210

Dear Secretary Chao:

I am writing to urge the Department of Labor to rescind the Birth and Adoption Unemployment Compensation (BAA-UC) regulations promulagated in 1999. The BAA-UC regulations authorize states to withdraw funds from state unemployment insurance (UI) trust accounts to pay compensation to workers during a leave of absence following the birth or adoption of a child.

UI-paid leave under the BAA-UC regulations is not unemployment insurance. Workers who take leave are not "unemployed." Their employers have work for them but these individuals are not available for work. Similarly, the regulation is a "back door" expansion of the Family and Medical Leave Act into a government funded paid leave program – a clear departure from Congress's original intent.

By inviting states to spend down unemployment insurance reserves for the entirely unrelated purpose of compensating leave takers, BAA-UC puts at risk the safety net for unemployed workers. The UI system is a return-to-work program for workers who lose their jobs, not a catch-all form of income support. State UI trust fund reserves are needed to assure that funds are available to pay unemployment compensation to jobless workers while they seek new work and to protect against the adverse economic consequences of payroll tax increases needed to finance unemployment benefits.

During the present economic slowdown, with elevated levels of unemployment claims, we are reminded of the importance of keeping unemployment funds available for the unemployed and fulfilling the original purpose of the UI program. UI trust fund reserves are drawn down quickly when the economic cycle turns. In this relatively mild recession, one state has had to borrow from the federal loan program, three states show a trust fund balance that is below revenues for the year, and others would show deficits in the near future if it were not for the Reed Act distributions. In these and many other states, payroll tax increases will be imposed automatically on employers to replenish UI trust funds.

As you know, a legal challenge to BAA-UC is pending in federal court. The lawsuit contends that BAA-UC violates the Federal Unemployment Tax Act and the Family and Medical Leave Act. During the Clinton Administration, DOL asked the court to dismiss this lawsuit because no state has enacted a UI-paid leave law. There has been no decision yet on the motion to dismiss or the underlying merits of the case. As a result, UI-paid leave proposals have been introduced and are under active consideration in many states. It is extremely important that the Department clarify its position to prevent the states from adopting a costly and invalid policy based on the BAA-UC regulations.

It should also be emphasized that it will take years before the legality of UI-paid leave laws is finally resolved if this issue is left to the courts. In the interim, the continued existence of the BAA-UC regulations as final rules fosters unhealthy interest in "raiding" UI trust funds for paid leave and other related purposes.

I encourage dialogue on positive ways to encourage financial support for parents who take leave following the birth or adoption of a child. However, the misuse of the unemployment insurance program for this unrelated puprpose is unwise and unworkable. Therefore, I respectfully urge the Department of Labor to take a strong policy position against UI-paid leave and begin the rulemaking process to rescind the BAA-UC regulations as soon as possible.

If you have any questions concerning this issue, please feel free to have your staff contact Annie White at 202-224-6770.

Sincerely,