Legislature(1999 - 2000)
04/20/2000 09:10 AM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 289(FIN) am
An Act relating to technical and vocational education
and to employment assistance and training; and
providing for an effective date.
MARY JACKSON, STAFF, SENATOR JOHN TORGERSON, explained that
the bill would establish a new Alaska Technical and
Vocational Education Program, which would be funded through
an employee credit on the Unemployment Insurance Trust Fund.
The new credit is one-tenth of one percent and is patterned
after the credit currently in place for the Statewide
Employment Program (STEP).
The new program would be administered by the existing Alaska
Human Resource Investment Council (AHRIC), which is charged
with the responsibility of determining the priorities for
grant submittal and distributions on an annual basis. The
revenue from that source is expected to be about $4.3
million annually. Entities eligible to receive grants are
those that are authorized by and are physically located in
the State of Alaska.
The first year revenues (about $3.2 million dollars) are
directed to specific entities because the AHRIC would not
have had the opportunity to formulate regulations to solicit
grant applications. Those funds are directed to the
University of Alaska (52% = $1.725 million), Kotzebue
Technical Center (16% =$516,000) and Alaska Vocational
Technical Center (32% = $1.032 million).
Ms. Jackson continued, the bill would also provide for the
AHRIC to act as the lead State planning and coordinating
entity for Alaska. The State would then be in position to
receive funds from the federal government for technical and
vocational education programs.
After the first year, grants would be awarded to programs in
Alaska run by technical and vocational entities that hold
valid authorization to operate. The AHRIC will award grants
to entities that have sufficient accounting systems, secured
private sector contribution commitments for matching
purposes, and who's grant application purpose is listed
first on the list of priorities adopted by the AHRIC. AHRIC
will adopt a priority list each year based on economic,
employment, and other relevant data in order to maximize
employment opportunities for participants.
Ms. Jackson pointed out that the bill would establish intent
language directing the AHRIC to undergo an internal review
to improve its efficiency and minimize its membership. It
would require a report to the 22nd Legislature on that review
and also on the developed guidelines for implementing the
new grant program.
Ms. Jackson stated that the bill would revise some program
elements of the existing STEP by adding clarifying language
on grant fund use for relocation assistance, tools and other
gear, and support services, including allowances.
Representative J. Davies referenced the diagram contained in
member's packets indicating .2% - Attachment #1 and asked
how that number had been determined. [Copy on File].
Ms. Jackson noted that the account was established on Page
3; Page 30 indicates establishment of the employee
contribution; Page 4 contains the same verbiage that is in
the existing State Training Employment Program (STEP) where
the 2/10th was established.
Vice Chair Bunde referenced the current STEP funding and
asked if that referred to the current amount that the
employee and employer were having deducted. Ms. Jackson
replied those are the current averages.
(TAPE CHANGE, HFC 00 - 130, Side 2).
Ms. Jackson explained that it would not increase the
deductions.
Representative Phillips inquired if the sponsor had an
amount in mind for the Intent Language in Section #1. Ms.
Jackson stated that they did not. She noted that the first
board was a stand alone, five-person board. The Legislature
appointed it through the Governor and is subject to
ratification. The Senate Finance Committee (SFC) decided to
go with the existing group, however, she commented since the
membership is so large, there should be common provisions
put into effect.
Ms. Jackson referenced the Alaska Human Resource Investment
Council (AHRIC) and noted that grants after the first year
would be awarded according to regulations developed by
AHRIC. The revenue from that source is expected to be about
$8.6 million dollars annually.
TIM NAVARRE, (TESTIFIED VIA TELECONFERENCE), KENAI,
testified in support of the legislation. He noted that it
would provide a better-trained and educated work force from
which to draw upon as an employer. Potentially, that could
reduce the draw on the trust fund for unemployment. Mr.
Navarre suggested that there would be concerns regarding
future increases.
DWIGHT PERKINS, DEPUTY COMMISSIONER, DEPARTMENT OF LABOR AND
WORKFORCE DEVELOPMENT, noted the position paper included in
members packets as submitted by Commissioner Flanagan. [Copy
on File].
Mr. Perkins advised that the Department strongly supports
the intent of the bill, however, are opposed to the
diversion of funds from the Unemployment (UI) Trust fund to
achieve that goal. The Department is not opposed to some
sort of tax to support vocational technology education. It
is true that there is currently a diversion of .1% of
employed UI contributions in the STEP, which was established
in legislation in 1989. STEP, however, is closely tied to
the UI program; eligibility for service is restricted to
workers who have contributed to UI by working for a
contributing employer; the statutory purpose of the program
is to reduce claims against unemployment benefits and reduce
unemployment costs. When not reappropriated to the STEP
account, unexpended funds have always been deposited back
into the corpus of the UI Trust Fund.
Representative Phillips asked if any of the UI funds were
used for relief sent to Bristol Bay a couple years ago. Mr.
Perkins replied that those funds were not sent directly from
the Trust Fund. He pointed out that there are large
unemployment pockets having a need and it becomes an
infusion of funds into those communities.
Vice Chair Bunde commented that the STEP draw was for those
people whom had paid into the UI program and had become
unemployed. He proposed that using that money to train
people would help prevent future danger of unemployment.
Representative Bunde suggested that it was a type of "user
fee". Mr. Perkins replied that, currently, in order to
qualify for STEP funds, only private employers pay into it.
Many folks would not be eligible for those funds.
In response to Co-Chair Therriault, Mr. Perkins noted that
Alaska is one of five states in which the employee
participates in the unemployment insurance side of the
equation. In Alaska, it is referred to as a 20/80 plan. The
employee pays 20% and the employer pay 80%. If there were
an increase in the weekly benefit amount, the corpus of the
fund would need to be made up. The concern is if the corpus
of the fund begins to draw down, and if the employer side of
the equation increases, would they be interested in an
increased weekly benefit amount.
RON HALL, DEPUTY DIRECTOR, EMPLOYMENT SECURITY DIVISION,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, replied to
questions asked by Representative G. Davis. He noted that
that the chart represents a reversed axle and would not
originate from the trust fund. The bill would not add an
additional deduction into the employee paycheck, but
instead, the corpus would drop. To recover those funds, the
tax rate of the employers would have to increase. The
employers are responsible to pay for this increase.
Co-Chair Mulder asked the amount of money currently in the
fund. Mr. Hall replied that in October 1999, there was $211
million dollars. Co-Chair Mulder asked the percentage of
solvency. Mr. Hall explained that it would take about two
years for the formula to set in. The formula reacts over a
three-year cycle and if there is a large economic down pour,
the solvency rate could drop fast. It takes two to three
cycles for that to happen. The solvency rate formula is
established by a federal standard. Right now the State is
at .98% of that standard. He added that we should be at 1%
of the standard.
Co-Chair Mulder believed that was a healthy number. Mr.
Hall explained that if the State dropped to .8%, there would
be sanctions imposed. Co-Chair Mulder asked at what level
could a tax be imposed. Mr. Hall replied that the proposed
legislation would impose a tax to the employer. It would
take two years for that to occur. Co-Chair Mulder asked
what could trigger a tax. Mr. Perkins interjected that a
draw down could happen.
TOM WYLIE, ACTUARY, UNEMPLOYMENT INSURANCE TRUST FUND,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, noted that
there are two parts of the calculation of the UI tax rates.
The first part looks at benefit costs in relation to
payroll. That provides a certain percentage which is called
the "average benefit cost rate". That is the percentage
rate which is divided between the employer and the employee
and provides the 2.14% and .54% number. After that
calculation is done, then the tax rate calculation looks at
the amount of money and calculates according to a solvency
rate schedule whether the fund appears to be in good or bad
shape in comparison to the statewide payroll.
In response to Co-Chair Mulder's question as to when the
trust fund becomes solvent, Mr. Wylie noted that is the
stage where the trust fund is looked at. When the amount of
money in the UI Trust Fund falls below 3% of taxable total
payroll in the State, then a tax is added on to the
employers tax rate. If the Trust fund balance falls below
3.3% of total payroll in the State, it is considered more
solvent than it needs to be and the employers tax rate is
reduced by the solvency adjustment.
Co-Chair Mulder inquired about applying that concept to
today. Mr. Wylie replied that today, the trust fund is at
approximately 3.15%, which is a bit higher than it needs to
be. Discussion followed between Mr. Wylie and Co-Chair
Mulder regarding the solvency percentage. Mr. Wylie noted
that the calculation states that if the Trust Fund solvency
is between 3%-3.3% of payroll, it is okay and we would not
need a tax. He noted that the State is currently at 3.15%.
Co-Chair Mulder asked what the 3% would constitute. Mr.
Wylie replied that 3% of total payroll tends to be right
around $200 million dollars. That changes during the course
of the year and during the winter months when unemployment
rates are higher. For tax rate purposes, the State looks at
the Trust Fund balances at the end of September. This is a
State standard and added that there is no national standard
compared to the Alaska standard. All the states have a
different way to set solvency. The tax rate moves based on
the assumption of whether it is a good rate or not. The
federal government has a solvency rate which they call an
average high cost multiplier. That calculation is applied
to every state.
In response to Co-Chair Mulder, Mr. Wylie noted that the
average high cost is 1%. It is a different type of
calculation than the one previously explained. Co-Chair
Mulder asked how would that translate to the State of
Alaska's calculation. Mr. Wylie replied that the federal
calculation on our tax rate came out to .98, just under 1%,
which is considered the proper average high cost multiplier
that the federal government uses. Co-Chair Mulder asked the
flexibility. Mr. Wylie replied that the federal government
is not that complicated. If a state is at 1% or above, they
are okay and if below, they are not. He reiterated that
above is good, below is not.
JIM SAMSON, (TESTIFIED VIA TELECONFERENCE), FAIRBANKS,
spoke in opposition to the legislation. He noted that he
had the responsibility of distributing the Unemployment
Trust Fund in 1986-1987, during the lowest point in the
account. He stated that the Trust Fund should not be used
to pay for the programs outlined in SB 289.
Mr. Samson noted that he supported adequate funding for the
Tech Center and full funding for the University, however,
disagreed that the funding should come out of the Trust Fund
that was set up to pay benefits to workers during temporary
unemployment. He understood that by taking 2/10 of 1%, and
diverting it into another fund would be unfair to every
Alaskan employee. He stressed that the burden would not be
fairly distributed by that method of tax.
WENDY REDMAN, VICE PRESIDENT, STATEWIDE SERVICES, UNIVERSITY
OF ALASKA, FAIRBANKS, voiced support for the proposed
legislation. She acknowledged that an alternative source of
funding would be better. Ms. Redman noted that since the
State general fund should be supportive of all training
programs, the State should keep people employed. Given that
the State is not at that place yet, one of the best things
that the State could do is to provide training to people to
be better able to hold jobs. Given the last decade of flat
funding for vocational programs throughout the State, the
University is in trouble trying to respond to the current
training needs existing in Alaska.
Ms. Redman explained that there has not been a capital
appropriation for instructional equipment in almost a
decade. In trying to respond to some of the high tech
programs needed throughout the State, there is not enough
money to make the up-front investment.
CS SB 259 (JUD) was HELD in Committee for further
consideration.
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