Legislature(1999 - 2000)
04/14/2000 03:33 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 289-TECH & VOC EDUC/ EMPLOYMENT ASSISTANCE CHAIRMAN ROKEBERG announced that the next order of business is 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." Number 0484 MARY JACKSON, Staff to Senator Torgerson, Alaska State Legislature, pointed out that the bill packet should include a sponsor statement, a sectional analysis, a question and answer sheet and two attachments. She explained that this bill places a new emphasis on technical and vocational information. She informed the committee that almost 60 percent of Alaska's high school graduates do not go through a four-year program. However, these high school graduates need to be trained and need to work. This [legislation] is one of the ways in which Alaska can better prepare its workforce. This legislation proposes a new funding system which is similar to the existing Statewide Employment Program (STEP). The new system is a two-tenths of one percent diversion, which amounts to $8.6 million annually. She pointed out that the first year funds are directed to the public institutions in Alaska, which is about $6.4 million. Funds [collected] after the first year would be distributed by a grant process through guidelines that the Alaska Human Resource Investment Council (AHRIC) will develop. The bill requires that AHRIC review and report back to the legislature on the following topics: the AHRIC guidelines, AHRIC's internal review, and AHRIC's proposal to act as Alaska's lead agency for vocational technical education for the next 10-20 years. Ms. Jackson pointed out that this legislation also provides clarifying legislation on three of the six program elements that are in STEP. CHAIRMAN ROKEBERG expressed concern in regard to comments that he has heard regarding SB 289 being a tax on business. He noted that he has strong feelings about placing any further burden or tax on business. MS. JACKSON specified that the two-tenths of one percent is a diversion from the trust fund. If an adjustment of the trust fund is required, the employer would be required to make that up. She noted that there are many external influences on the trust fund and this would be one of them. The influence of this on the trust fund is unknown. She informed the committee that the trust fund is periodically balanced by the division. CHAIRMAN ROKEBERG related his belief that his worst fears were confirmed as he understood that an imbalance would result in assessments. MS. JACKSON responded, "That would go up." She pointed out that it would be equally true that if it decreases the rate would decrease. CHAIRMAN ROKEBERG asked if it is a specific amount of dollars or is there a percentage (indisc.). MS. JACKSON reiterated that it is two-tenths of one percent. CHAIRMAN ROKEBERG remarked that it seems to be a burden on the corpus of the [retained] earnings of [the trust fund]. MS. JACKSON agreed. CHAIRMAN ROKEBERG inquired as to the current surpluses. MS. JACKSON deferred to the department. Number 0806 JOHN BROWN, Business Agent, Operating Engineers Union; President, Central Labor Council in Fairbanks, testified via teleconference from Fairbanks. He said that he strongly opposed SB 289 because it is the wrong way to fund the university. Mr. Brown pointed out that Alaska's unemployment benefit is currently thirty-second in the nation. Alaska hasn't raised its unemployment levels in many years, yet the state has a very large contingent of seasonal workers who depend upon unemployment to get them through that seasonal work. If funds are diverted to the trust fund, the state risks its ability to provide unemployment. Furthermore, he had the impression that if more money is necessary, business will have to pay it. He disagreed with that philosophy as he believes funding the university through the general fund is appropriate. He reiterated his opposition to this legislation. Number 0916 TIM NAVARRE, Small Business Owner; Member, Kenai Peninsula Borough Assembly, testified via teleconference from Kenai. Mr. Navarre expressed his strong support of SB 289 as he did not view this as merely a funding mechanism for the university. From a borough standpoint, Mr. Navarre stated, "If it hadn't been for the cooperation of the local branch of the university ... along with the private business with the modular project ... and the fast ... time frame with our economic development to train some local residents to work on and get jobs on those, they wouldn't have been able to get seasonal [employment] .... He was sure that they were happy to have a job first and then worry about whether they qualify for unemployment benefits." From a business standpoint, Mr. Navarre didn't have a problem paying additional taxes in some areas so long as he receives a benefit from it. He explained that having a better qualified and trained workforce to choose from is a benefit to the employers. He noted that he has been a big supporter of more vocational educational programs on the Kenai Peninsula. He recalled hearing that about 70 percent of Alaska's high school graduates do not continue to higher education. Mr. Navarre applauded the Senate's effort as well as Senator Torgerson's effort to get Alaska more involved in vocational education. Number 1074 MARIE NELSON, Small Business Owner, testified via teleconference from Wasilla. She informed the committee that she owns a training facility in Wasilla that is approved by the [Alaska Commission] on Post-secondary Education. In June the facility will have been in operation for three years at which time she will have trained 90 certified nurses aides and 12 pharmacy certified technicians. Ms. Nelson stressed that she does not receive any state or federal grants. Therefore, she inquired as to how this legislation would affect a small training facility such as hers. She commented, "If we get people here to Wasilla, we're doing great. Getting them to Anchorage from here is going to be a very big problem." She also inquired as to who determines who receives what grants and how much. CHAIRMAN ROKEBERG asked if Ms. Nelson was concerned about these other programs competing with her business. MS. NELSON replied no and clarified that she is concerned about [the possibility] of all the money being funneled to Juneau, Anchorage and Kotzebue, and she wondered where that would leave those in the Mat-Su Valley. CHAIRMAN ROKEBERG related his belief that this is new additional money that is currently not being utilized. He asked if some of Ms. Nelson's students receive other state grants or scholarships or governmental funding in order to attend Ms. Nelson's training facility. MS. NELSON answered in the affirmative. She specified that her students are funded by Veterans' Affairs, Vocational Rehabilitation and the Job Training & Partnership Act (JTPA) as well as private funds. She noted that she is also eligible for student loans. However, she is concerned because some of the agencies sponsor the tuition. CHAIRMAN ROKEBERG related his understanding that [this program] would not necessarily be a new program, but would be an additional funding source, which also has a capital component. Chairman Rokeberg requested that Ms. Jackson speak to Ms. Nelson's concern. MS. JACKSON clarified that SB 289 would create a new program for which there is new money for a new training and education program. The first year of the program the monies would be directed specifically out. After that first year, $8.6 million annually would be made available to entities, and Ms. Nelson may qualify as one of those entities, that would be subject to the criteria and grant application process developed by AHRIC. She pointed out that AHRIC currently develops the guidelines for the existing STEP. CHAIRMAN ROKEBERG identified the negative aspect of this for Ms. Nelson as a possible increase in her unemployment insurance contribution. MS. JACKSON replied, "That's fine." She then asked what she is supposed to do during the year when the new money and this program are being developed. She inquired as to how she would pay her mortgage payments. CHAIRMAN ROKEBERG clarified that this is additional money to existing programs. He said, "This is new stuff; we're not taking anything away." Number 1309 SCOTT LOMELINO, Case Manager, Division of Public Assistance, testified via teleconference from Wasilla. As an employee, Mr. Lomelino understood that this is new money. He asked if, as an employee that pays unemployment insurance taxes, he would be paying more new taxes. CHAIRMAN ROKEBERG stated that Ms. Jackson is shaking her head indicating a no response. However, he believes Mr. Lomelino's assessment to be correct. MR. LOMELINO related his understanding that the one-tenth of one percent is now going to be two-tenths of one percent. He asked if that is a 100 percent increase. He also asked if this increase is basically going to come from the pocket of everyone who is working. CHAIRMAN ROKEBERG replied yes. He informed Mr. Lomelino that he believes the ratio is 80:20 from the employer and employee, respectively. Therefore, that assessment would be against the corpus of the trust fund and would be on those tax collections. MR. LOMELINO ascertained, then, that if SB 289 passes, his taxes will increase and institutions such as the university will be given money to do with what they will. CHAIRMAN ROKEBERG remarked that Mr. Lomelino has a good point, which Ms. Jackson can answer later. Number 1413 TONY DASSAW testified via teleconference from the Mat-Su Valley. He said that he would like to reiterate Mr. Lomelino's testimony. Mr. Dassaw informed the committee that he is opposed to the doubling of the unemployment insurance tax. He pointed out that these funds can be used for anything, although the current one-tenth of one percent has some restrictions. Therefore, he felt that is misleading. He mentioned that he has heard that the University of Alaska - Anchorage (UAA) employees do not pay unemployment insurance taxes. Mr. Dassaw felt that this is sloppy legislation and if the desire is to obtain UAA's money, it could be achieved in a more straightforward manner. Number 1467 SHARON EILERS, recipient of STEP, testified via teleconference from the Mat-Su Valley. She informed the committee that she graduated from JTPA last year and is employed by Human Resources Incorporated. Ms. Eilers said that she is very concerned. She related her understanding that UAA has already been appropriated a certain amount of dollars and yet not much of that is realized at the Mat-Su college. If that is case, why are "we" going to hit someone working [at minimum wage] with a 100 percent increase to their unemployment insurance benefit in order to provide the university with more money, when the university has just increased the credit rate. Ms. Eilers expressed her opposition to this legislation. CHAIRMAN ROKEBERG said that Ms. Eilers question would be noted and answered after all the testimony was taken. Number 1626 JAN TATLOW, Alaska Human Resource Investment Council, testified via teleconference from the Mat-Su Valley. She expressed concern that very few people [in the area] seem to know what is happening as no one has been told that they will be paying 100 percent more employment insurance. People don't realize that their personal taxes are going to increase. Ms. Tatlow recalled that Ms. Eilers was a recipient of unemployment insurance dollars for training; however, should those dollars be shifted from their current use, people will not have direct access [the funds]. She predicted that people will be funneled into various programs. Ms. Tatlow informed the committee that state employment training dollars are used to purchase training from all entities in the state. Thousands of dollars are spent at the university through this system as well as at a number of prominent colleges and vocational training sites. Often the purchase of training for such things as hazardous waste materials training is not available through UA. These are the very things that people need to [receive training for] and return to the workforce in a matter of days. Ms. Tatlow stressed that it will be a disservice to have a 100 percent increase in the unemployment insurance tax to every worker in the state, [especially since] they have no knowledge of this. Number 1752 PATRICK O'BRIEN, Member, Kenai Peninsula Borough Assembly, testified via teleconference from Seward. Mr. O'Brien testified in favor of SB 289. In regard to earlier comments that unemployment benefits would be affected by SB 289, Mr. O'Brien stated that if these undertrained and under qualified individuals could receive training through vocational education programs, these folks would not have to avail themselves of these unemployment benefits. Mr. O'Brien took issue with prior testimony that the funds can be used for anything because SB 289 includes a grant approval process, which provides for a screening process. MR. O'BRIEN informed the committee that people in his area are familiar with vocational education as there is a center, AVTEC, in the area that offers such education. This area of the Kenai Peninsula is very supportive of vocational education as many of the young people do not have the wherewithal to obtain higher education. Still, training opportunities for those individuals should be available in order to put them in the workforce and take them off the unemployment rolls. Mr. O'Brien said that he strongly supported SB 289 and urged the committee to pass it out with "Do Pass" recommendations. Number 1830 VINCE KELLY, Training Coordinator, Prince William Sound Community College, testified via teleconference from Valdez. Mr. Kelly noted his support of SB 289. He informed the committee that he had been with the Prince William Sound Community College for about nine years doing vocational/technical training in education. During that time, he has watched successful programs produce graduates in this declining economic environment, specifically for the Prince William Sound Community College. Furthermore, the oil transportation industry, the main industry locally, is experiencing an aging workforce from which many are retiring. Such a situation will provide opportunities. However, if these opportunities are not met with students that are trained by educational institutions in Alaska, they will be met with individuals trained outside of Alaska. Mr. Kelly said that he is very much in favor of the opportunity to fund more vocational and technical training. He pointed out that all of the funding is going into UAA the first year and then some of it is directed to technical and vocational schools in Seward and Kotzebue. He believed that in the succeeding years, the funding will be available to any recognized post-secondary training or education institution that qualifies for the grants. CHAIRMAN ROKEBERG inquired as to Mr. Kelly's thoughts regarding the affects SB 289 would have on Prince William Sound Community College. MR. KELLY reiterated that Prince William Sound Community College has been developing vocational programs in a declining funding atmosphere. If funds were available to Prince William Sound Community College to develop new programs in answer to industry, "we" would put more graduates in the workforce. Opportunities are being missed due to the level funding that has occurred. Number 1964 JEFF PRUSS, Business Representative, Carpenters Local 1243, testified via teleconference from Fairbanks. Mr. Pruss stated his opposition to SB 289. He said that he would rather see these trust funds used to benefit those that truly rely on the unemployment benefits, the seasonal workers that constitute the majority of [Alaska's] workforce. Mr. Pruss noted his support for the university, which he believes should continue to be funded in the traditional manner, through the general fund. Number 1993 ERNIE RUMP, President, Painters Local 1555, testified via teleconference from Fairbanks. Mr. Rump voiced his strong opposition to SB 289. He noted his support of vocational training at the university; however, he didn't believe "you could rob Peter to pay Paul." Two good programs exist and there should be support of both of them. Therefore, he indicated the appropriateness of funding the university vocational training through the general fund. Number 2035 MANO FREY, President, Alaska American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), testified via teleconference from Anchorage. Mr. Frey applauded the Majority as this is the opportunity to discuss additional taxes for the people of Alaska. He said, "Thank you, Mr. Chairman, for bringing this up and just taking the bull by the horns, as far as trying to put additional taxes on the employers and employees of the State of Alaska." Mr. Frey related his belief that Chairman Rokeberg is on the right track. He said, "If you increase by two-tenths of one percent, what is probably ... pretty balanced as far as income and expenses, that is a burden that will have to be born. Either you drain the account by [$]8.6 million a year or more or the taxes are going to increase and it's going to be an additional burden on the employers and the employees." MR. FREY remarked that much work is done to make it attractive for [seasonal workers] to live in this state. In regards to Mr. Brown's testimony that Alaska ranks thirty-second, Mr. Frey specified that Alaska ranks thirty-second as far as the state's maximum weekly benefit while the state ranks thirty-eighth in regard to the average benefit paid. Mr. Frey said, "If we're talking about something as critically important as unemployment benefits and the unemployment insurance fund, I couldn't agree more with some of the speakers in supporting the university and what they try to accomplish in vocational and technical education ...." He noted his support of additional capacity for training for those that are unemployed; however, he said, "Go through the front door, not the back door." By increasing two-tenths of one percent, it basically eliminates a chance in the near future of [increasing] the amount of unemployment that Alaskans receive, which is a real shame. He informed the committee that Arkansas ranks higher than Alaska [in regard to the average benefit paid]. CHAIRMAN ROKEBERG asked if that is in nominal dollars. MR. FREY informed the committee that Alaska, in regard to the average weekly benefits, pays $176 per week. That level ranks Alaska at thirty-eight. Arkansas pays $186 in average weekly benefits, which ranks Arkansas at thirty-third. He said, "We're going to eliminate the opportunity that Alaska has to help those that are unemployed." He stressed that this additional burden to the unemployment insurance fund shouldn't be added as it would be a shame to increase the tax burden on the employer and the employee while removing the hope to see that [average weekly benefit] grow. CHAIRMAN ROKEBERG inquired as to the impact of modifying SB 289 such that contributions could only be made to this fund if there were surpluses in the [unemployment insurance] fund. He requested that Mr. Frey think about that possibility. Number 2287 WENDY REDMAN, Vice President, Statewide University System, began by correcting some misinformation regarding SB 289. She specified that there is absolutely no increase in employee tax, anticipated by this legislation. She explained that it is a diversion of two-tenths [of one percent] of the existing tax to this new program. Furthermore, nothing in SB 289 relates to the weekly benefit rates that are currently to paid to individuals on unemployment nor is there legislation from DLWD that suggests an increase in the weekly benefit rate. Although it may be necessary for an increase in the weekly benefit rate, especially given the information presented by Mr. Frey. Therefore, she expected there to be a proposal to raise those rates within the next year or so and at which time it would be necessary to review the solvency of the fund. Ms. Redman believes that everyone agrees that the trust fund must remain solvent. If a raise in the weekly benefit rate caused a problem, the employer tax could be utilized or this program could be eliminated. That question should be dealt with at the time the legislature is faced with the weekly rage rate increase. MS. REDMAN specified that this program is designed to get needed money into building capacity for job training in the state. She noted that she didn't request that money be appropriated to the university in this money. Therefore, the university would be supportive of SB 289 without receiving any allocation. She explained that the language was included because Senator Torgerson felt that AHRIC would not have the opportunity to get a program up and running right away and the desire was to get money out quickly and he felt that the most appropriate place was the public institutions. The university does rely upon public money to run the program. She informed the committee that in the future the university would apply for money along with all other authorized training programs within the state for access to these funds. MS. REDMAN echoed earlier comments that the university's funding has remained flat over the last ten years. During that time, the university has absorbed all of the inflationary increases. The university's training programs are in desperate need at exactly the same time at which employers are in desperate need for more trained workers. Therefore, it is absolutely critical to have the infusion of funding in order to build capacity. She noted that [the university] has held consortiums in various areas/industries all of which express the need for more trained workers. Ms. Redman indicated her dislike of a situation in which organized labor and the Administration are in an antithetical position with the university; it is an uncomfortable position. CHAIRMAN ROKEBERG interjected the need not to forget the small business community. MS. REDMAN remarked that many in the small business community are supportive of SB 289. She noted the good relationship that [the university] has in working with the small business community to ensure that programs are duplicated. TAPE 00-49, SIDE B DWIGHT PERKINS, Deputy Commissioner, Department of Labor and Workforce Development (DLWD), came forward to testify on SB 289. He indicated there is position paper from the department which is included in the bill packet. He stated: The department, while we strongly support the intent of this legislation to adequately fund vocational and technical education and build capacity at the post-secondary level primarily through the University Seward Skill Center and Kotzebue Tech Center, we are opposed to the diversion of funds from the Unemployment Insurance Trust Fund to achieve that laudable intent. As you know, or may not know, the UI [unemployment insurance] trust fund is just that - protect a dedicated fund comprised of employer and employee payroll taxes. It is held in trust for the state by the federal government for the sole purpose of paying unemployment benefits to Alaskan workers in times of individual and, often, community-wide economic hardships. The department is not opposed to some form of tax support for vocational and technical education, but the use of UI's taxes, however, is inappropriate and they should be restricted to their intended purpose. It is true that there is currently a diversion of one-tenth of one percent of employee UI contributions to the state training and employment program which was established by legislation in 1989. STEP [Statewide Employment Program], however, is closely tied to the unemployment insurance program - eligibility for services restricted to workers who have contributed to the UI by working for a contributing employer, the statutory purpose of the program is to reduce claims against unemployment benefits and reduce unemployment cost. When not reappropriated to the STEP account, the unexpended funds have always been deposited back into the corpus of the UI fund for future benefits to pay out. So, with that, Mr. Chairman, at this point, although we do strongly support the intent, we'll have to agree to disagree on the way to fund it. Number 0123 REPRESENTATIVE MURKOWSKI said it appears that the concern deals with the solvency aspect of the fund. She wondered how solvency is being defined and asked at what point is there not enough in the fund and therefore need to go out to the employers for an additional "hit". RON HULL, Deputy Director, Division of Employment Security, Department of Labor and Workforce Development, came forward to testify on SB 289. He asked Representative Murkowski to repeat the question. REPRESENTATIVE MURKOWSKI stated she would like to hear some discussion regarding the solvency aspect of the fund and how the fund has gone from being solvent to less solvent. TOM WILEY, Unemployment Insurance Actuary, Division of Administrative Services, Department of Labor and Workforce Development, came forward to answer questions on SB 289. He explained that when the fund falls below three percent of the total payroll, the trust fund solvency adjustment tends to jack up the employer's tax rate to bring the fund towards what is considered a balance point. A balance point is somewhere around $200,000 given today's payroll. The fund seeks to set itself at 3.15 percent of the total payroll. This works out to be approximately $200 million which is about where the fund is today. In the long run, a 0.2 percent diversion would lower the trust fund below that level and would trigger an add-on employer tax. REPRESENTATIVE MURKOWSKI asked what the tax would be if the add-on employer tax is triggered. MR. WILEY replied that is a difficult question to answer for a number of reasons because there are so many dynamics. In the long run, if 0.2 percent of the tax is diverted from the trust fund, the employer tax will increase 0.2 percent to make up for it. It would take a number of years for the rates to begin to move up. During that period of time, the trust fund will be reduced by $8.6 million per year. This does have some implications with respect to solvency from the point of view of the federal government. He said the federal government has been worried about each state's trust fund solvency for a number of years, and so they have established a national standard based on an average high-cost multiplier. He stated: There's a very strong indication that some money - in about two or three years - that will be going out to the states - a large amount of what's called Reed-Act funds will be affected by whether or not the state's trust fund meets this national standard. Apparently, Alaska is just slightly below meeting the national standard. Now, that's not a real concern for us as a state because we have a fast-acting trust fund mechanism, but, from a national point of view, it may cause us to lose eligibility to receive this Reed-Act money which is estimated at roughly $25 million. From that point of view, the solvency could be affected from a national perspective. Number 0310 CHAIRMAN ROKEBERG said part of the problem is that he does not have a clear understanding. He asked, "You said when the trust fund falls below three percent of the total payroll, is that the total estimated state payroll?" MR. WILEY said it is the total estimated payroll in the State of Alaska. CHAIRMAN ROKEBERG wondered how often that is calculated. MR. WILEY responded that it is calculated toward the end of every year usually around the beginning of November. The calculation is used to set the tax rates for employers and employees for the following year. CHAIRMAN ROKEBERG asked, "So, you have a January 1 calendar year adjustment then the rate if need be?" MR. WILEY stated that is correct and said the tax year is based on a regular calendar year. CHAIRMAN ROKEBERG wondered, "The deviation from your (indisc.) at a 3.15 for the last 10 years, how often are you deviating?" MR. WILEY explained that there was not an adjustment this year because the trust fund was just about where it should be. If there were a diversion, he is sure there would be an add-on tax that would probably start the year after next. CHAIRMAN ROKEBERG asked, in the last 10 years, how often there had been a deviation. MR. WILEY said it is usually the case that there is a deviation, up or down. He explained, "After the bad recession (indisc.) period in the late 80s, the trust fund solvency adjustment caused tax rates to be higher for a number of years." CHAIRMAN ROKEBERG wondered what the highest rate was. MR. WILEY replied that it was 4.14 percent. CHAIRMAN ROKEBERG asked what year that was. MR. WILEY stated that it was 1989. Over a number of years after that, the trust fund rebuilt itself and went over the balance point. There have been some reductions in the employer tax rate over the past few years. CHAIRMAN ROKEBERG wondered what the lowest rate was. MR. HULL replied that it was 1.96 percent. CHAIRMAN ROKEBERG referred to the 0.2 percent diversionary amount and asked if there is a chart or graph which illustrates this. MR. HULL indicated there is a chart [Included in the bill packet]. CHAIRMAN ROKEBERG referred to the chart which shows a 0.54 percent employee tax and a 2.14 employer tax. MR. WILEY stated that is for the current tax year. CHAIRMAN ROKEBERG wondered if that was for the year 2000. MR. HULL replied yes. MR. WILEY indicated that it is the average employee tax and that some employers pay more and some pay less. CHAIRMAN ROKEBERG wondered what the difference is based on. MR. WILEY explained there are 20 rate classes. Ten are above and 10 are below the average. He said it also depends on the employer's experience. CHAIRMAN ROKEBERG said, "...employee turnover, so they have higher claims, historically." MR. WILEY answered that is essentially it. CHAIRMAN ROKEBERG speculated that it would almost be like having a rating underwriting type of thing. Number 0524 MR. WILEY stated: What we do is we look at payroll and we analyze decline in payroll, and each employer gets what's called a payroll decline quotient and so they are rated based on these quotients and put into one rate class or the other. CHAIRMAN ROKEBERG wondered how many states besides Alaska have an employee contribution. MR. WILEY said he believes there are only two others currently. CHAIRMAN ROKEBERG referred to concern expressed in earlier testimony with respect to employees being taxed. He asked where in the bill are employees protected. MR. HULL commented that in the bill "it taxes the employee, then credits in the same amount." CHAIRMAN ROKEBERG asked if it is a "two-step thing" and if it because of federal law. MR. HULL answered that it is two-step. He said it is not because of federal law, but he thinks it is because "they want to put it on the employers. The STEP bill is written the same way - existing statute. The one percent from STEP is then credited to the employee so it isn't an additional tax." CHAIRMAN ROKEBERG referred to Section 23.15.835, subsection (b), which states: Notwithstanding AS 23.20.290(d), the department shall credit each employee with an amount equal to the amount collected from the employee under (a) of this section against unemployment contributions owed by the employee under AS 23.20. MR. HULL explained the STEP one percent is taken, but then a credit is given. The credit does not mean less money coming out of their check, but it is not an added tax to the employee. CHAIRMAN ROKEBERG clarified that the bill sponsor stated this is not a burden because there tends to be a surplus. He asked, "That's where this thing starts breaking down or what?" Number 0625 MR. WILEY said he believes what is confusing is that the money is being diverted from the employee side of the tax structure. Instead of the 0.2 percent going into the trust fund, it is going into the new program. The balance of the trust fund is reduced as a result of diverting the money. The adjustment to make up for the reduction of the trust fund is placed on the employer. CHAIRMAN ROKEBERG wondered how it is placed on the employer. MR. WILEY answered that the trust fund calculation is two steps. The first step looks at benefit costs and comes up with an average rate to pay benefits. This is the tax rate which is divided 80/20 between the employer and the employee. The second part of the calculation looks at the solvency of the trust fund. If the trust fund is lower than it should be, there is an add-on tax which is only placed on the employer. CHAIRMAN ROKEBERG asked if that is an add-on surcharge for the following year. MR. WILEY replied, "Yeah, kind of." As money is diverted from the trust fund, the trust fund balance will fall. When the balance has fallen enough, the adjustment calculation will increase. He said, "We'll say, 'It's too low. We need to put an additional tax onto the employer to make up for the difference'." CHAIRMAN ROKEBERG said, "So, it'd kind of be an automatic default is that would work to put the surcharge on the employer." MR. WILEY stated that is correct. CHAIRMAN ROKEBERG indicated the sponsor stated there would always be surplus. He said that does not seem to make sense. Number 0710 MR. WILEY responded: Well, actually, I think what'll happen because the calculation is always based on the balance from the prior years, we will end up with several years of diversion from the trust fund, and then the trust fund solvency adjustment will put large add-on on the employer tax rate...The only thing that could stop that would be if payroll earnings went up much more than they're projected to do, so that taxes coming in, based on all this increased employment, were so heavy that they would somehow make up for this. And I think that's probably very unlikely to occur. REPRESENTATIVE MURKOWSKI said, "So, this figure is tied in - this three percent, kind of your benchmark here - that's tied in to the federal..." MR. WILEY interjected and explained that the three percent is actually state law. He commented that the federal government has a different standard for solvency which is a flat standard they apply to every state. REPRESENTATIVE MURKOWSKI asked, "Even if we were to choose to adjust somehow, that solvency figure, we still have a tie-in to the federal?" MR. WILEY responded: Not in terms of the calculation of our own tax rate, but in terms of the federal government, down the road, looking at our trust fund balance, and if it's lower than what it is now, we may very likely not meet that national standard which could result in quite a loss of money. CHAIRMAN ROKEBERG asked if there is any impact on the draw in the bill and when the calculations are made for adjusting the taxes. MR. WILEY replied, if the bill passed, the department would not actually see the employee taxes until the end of the year. Employee taxes due for the July-August-September quarter are not paid until the following quarter. He commented, "Because we look at the trust fund balance at the end of September, we would have five quarters of draw from employee taxes that would not be calculated into the tax rate calculation until the year after that." Number 0872 CHAIRMAN ROKEBERG stated that it is his understanding that there should be a surplus, but there could occasionally be an adjustment in the rate. MR. WILEY clarified that there is no surplus in the trust fund now. With the way the timing of the bill would work and with contributions, the tax would be affected one-quarter of this calendar year, four quarters of the next calendar year, and only then would the trust fund take the diversion into account. While it is raising the tax rate for that year, if it is indeed enough to raise the tax rate, then it would "start trying to make it back" a year and a half after the law is enacted. If the diversion is not quite enough to trigger the trust fund solvency adjustment and another year of diversion takes place before the trust fund solvency adjustment is triggered, then "we could possibly look at nine quarters of money being diverted from the trust fund." This might kick the trust fund up to 0.2 percent or possibly even 0.4 percent which would be a 0.2 or 0.4 percent increase in what the employer tax rate would normally be. He indicated that it is a very imprecise science. MR. HULL agreed that it is imprecise. He noted that the fund was built so that the tax rates do not react instantly. If there is a downturn in the economy, what "we" do not want to do is raise the tax rates on employers. It would be based on a three-year cycle. REPRESENTATIVE MURKOWSKI said: Mr. Chairman, I'll just ask the question that you asked somebody on-line. I think you'd asked, well, let's do this contribution only if there is a surplus in the fund, but what you're saying is, because of this lag, you can't do it that way. It just doesn't work. MR. WILEY reiterated that there is no surplus in the fund this year. If there were a surplus in the fund, then there would not be a surplus in the fund next year because of the draw. He stated, "What you would certainly have would be a program that would be kicking in and out and the funding would certainly be unstable." MR. PERKINS interjected and commented that it could possibly raise, at higher levels, the tax rate of employers. CHAIRMAN ROKEBERG asked if any of the STEP money is now going to the University of Alaska. Number 1066 MR. HULL indicated that STEP money is granted all over the state. He explained that anybody who has a vocational-technical program can apply for those funds. He said, "The other thing that one of the callers talked about - only 75 percent of Alaskan's employers pay these taxes as well as the employees. The rest are reimbursable." CHAIRMAN ROKEBERG asked, "Only 75 percent. The rest are reimbursable, like the state employers?" MR. HULL answered: When they talked about UAA [University of Alaska, Anchorage], the school systems don't pay it, the city, municipality, boroughs don't pay it. Some private, non-profit corporations don't pay those taxes. CHAIRMAN ROKEBERG wondered if they are exempt from paying those taxes. MR. HULL explained that if one of their employees is laid off and they draw benefits, then they are paid directly from the employer. CHAIRMAN ROKEBERG asked, "They apply to you and the employer pays?" MR. HULL replied, "The employer pays us the money and we pay it to them [the unemployed person]." CHAIRMAN ROKEBERG inquired as to how someone qualifies for this. MR. WILEY responded, "You have to be a state government, local government or a private, non-profit corporation." CHAIRMAN ROKEBERG asked Ms. Jackson to answer some of the questions from previous testifiers. Number 1192 MS. JACKSON reiterated that this is not an employee tax. She does not know how else to say it except to say it using number. CHAIRMAN ROKEBERG said that it looks like an employer tax. MS. JACKSON replied that is exactly right. She stated, "If it's a tax and it isn't even that." CHAIRMAN ROKEBERG asked her to explain that. MS. JACKSON referred to Attachment 1 [Included in the bill packet.] and explained that the State of Alaska has a 80/20 split; 80 percent employer, 20 percent employee. The average rate for the employer is 2.14 percent. The average rate for the employee is 0.54 percent. The 0.54 percent remains intact. There is a step of one-tenth of one percent which does not mean that the employee pays 0.64. They still pay 0.54 percent and it means that 0.44 percent goes into the UI trust fund. If another one-tenth is taken out from somewhere else, it simply diverts it from going directly into the trust fund, and does not increase the employee tax. The trust fund is "crux of the biscuit" in this particular case. She stated that the reason it is coming out of the employee side and not the employer side is because if you go over to the employer side, then you bump into some serious federal regulations. CHAIRMAN ROKEBERG asked (indisc.). MS. JACKSON answered, "As a credit. Yes, sir." She said there is not any increase and there never has been. She reiterated that the bill does not talk about a weekly benefit rate and never has. If there is some discussion about the weekly benefit rate and an increase, she has not heard about it. There is no legislation that she is aware of that would do that. CHAIRMAN ROKEBERG wondered, "They'd raise the weekly benefit rate?" MS. JACKSON replied yes. CHAIRMAN ROKEBERG stated that the bill could always be amended. MS. JACKSON responded, "Sure. Well, you could. It would change the title. That would be fun." She explained that the adjustments to the fund are really the crux of the biscuit. There are two things that "hit" the fund. The money that goes out when benefits are paid or the money that goes in. She indicated that the department is saying that if the amount of money that goes into the fund is limited, then there will have to be an employer adjustment. This would be correct if the unemployment claims were still paid out. She said the goal is to train people so they have employable skills and that the unemployment rates drop. When unemployment rates drop, the whole statewide employment factor is involved. This is good for everybody. CHAIRMAN ROKEBERG commented that it is supply-side economics and said, "If you train enough people, the unemployment rate will go away." MS. JACKSON stated that she knows better than to get into a discussion with the chairman on economics [laughter]. CHAIRMAN ROKEBERG called an at-ease at 4:55 p.m. and returned at 4:56 p.m. He explained there was not a quorum available to take action on CS SB289(FIN) am and the committee would return to the bill. He indicated HB 342 would be taken up at this time. SB 289-TECH & VOC EDUC/EMPLOYMENT ASSISTANCE REPRESENTATIVE HALCRO made a motion to move CSSB 289(FIN) am out of committee with individual recommendations and the attached fiscal note. REPRESENTATIVE HARRIS objected for the purpose of discussion. He said: I think this puts a lot of us in a rather tough situation because this body has allocated a lot of money, or is attempting to allocate a lot of money to the university. Some of it could go to vocational education. I, quite frankly, oppose taking what will be, I think, maybe not the intent at this point, but unintended consequences will be that workers - people who are out of work have paid into their unemployment insurance as well as the employers, could and probably will suffer in the amount that they could receive. And, as has been stated, Alaska workers are paid considerably less than most workers in other states. I think we are thirty-eighth or something like that. As all of us know, our cost of living in Alaska is certainly not down to thirty-eighth lowest. I think the unintended consequences of this will be that Alaskan workers will not get an increase in unemployment benefits without an increase in the unemployment insurance that the employers will pay because the employees will not pay more. So, for that reason, probably in deference to the sponsor to this bill, I may remove my objection to allow it to move from this committee, but it's not without very severe opposition. In my opinion, I think many questions haven't been answered and, even though we don't deal with what's happening in the other body, I think we have addressed a lot more of the university's concerns that they have and I think that this is a vehicle to attempt on the backs of workers to address the concerns and issues of the university at times. I think we address it much differently and much more appropriately, in my opinion. REPRESENTATIVE HALCRO stated that he also has some concerns. He commented, "Of course, [HB]441 is the desired gift, if you will, for the university...hopefully [SB]289 will not be necessary." REPRESENTATIVE MURKOWSKI indicated that she is looking at this as not necessarily the funding for the university this year. She said she has certain reservations based on the testimony she has heard about the fact that it is not necessarily an employee tax. It is a hit to the employer if in fact the solvency point is triggered. She stated: I guess if we're prepared to say we're going to start moving the taxes in this state, and I've been one of those that's been kind of out front with it, but I'd like to think that it's part of some kind of an overall plan and that it's not just going to be the employers that see the hit. It's a big policy statement that's being made here. Number 2307 CHAIRMAN ROKEBERG said the "double dip" issue with respect to the university does need to be resolved. He pointed out that this committee is very sensitive to and supportive of AHRIC and the other job training and vocational programs in the state. He stated, "We need to put more resources in this state behind vocational training and job training. No question about it." He indicated he has significant concerns and cannot intellectually look at this any other way than as a tax on business. He said he thinks the goal of the use of these funds is very laudable. He stated, "I think we're finding ourselves at the end of our five-year plan being trapped by the budget again, looking for money and ways to find money that doesn't show up (indisc.) impacting the budget gap that's leading us into things like this." REPRESENTATIVE HARRIS added that he thinks it is unfortunate that the university may in fact get labeled by certain groups and people in this state as attacking the benefits of unemployed workers. He said this would be very unfortunate. It may be an unintended consequence that may get labeled on the university. He does not wish that to happen. CHAIRMAN ROKEBERG asked if there is any further objection. There being none, CSSB 289(FIN)am moved from the House Labor and Commerce Standing Committee.
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