Legislature(2005 - 2006)CAPITOL 17
01/25/2006 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB242 | |
| HB274 | |
| HB373 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 242 | TELECONFERENCED | |
| *+ | HB 274 | TELECONFERENCED | |
| *+ | HB 373 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 242-UNEMPLOYMENT INSURANCE FUND & TAXES CHAIR ANDERSON announced that the first order of business would be HOUSE BILL NO. 242, "An Act relating to the deposit of certain penalties collected under the unemployment insurance program; requiring an employing unit with a change in ownership, management, or control to notify the Department of Labor and Workforce Development of the ownership change; regarding the unemployment contribution rate of an employing unit; and defining 'business' for purposes of statutes setting unemployment contribution rates; establishing the crime of obtaining an unemployment rate by deception; and providing for an effective date." [Due to technical difficulties the recording begins at this point.] CHAIR ANDERSON, upon hearing no objection, announced that CSHB 242, Version 24-LS0821\F, Wayne, 1/20/06, is the working document. 3:28:27 PM REPRESENTATIVE CRAWFORD, speaking as the sponsor of HB 242, clarified that HB 242 doesn't raise anyone's taxes. He characterized HB 242 as a "sunshine bill" in that it informs the state as to "who's doing the employing and gives them a better idea of how much UI [unemployment insurance] taxes they owe." This legislation needs to be passed or Alaska won't be able to access the federal funds for UI, he related. 3:29:30 PM PAT SHIER, Acting Deputy Director/Employment Security Tax, Division of Employment Security, Department of Labor & Workforce Development (DLWD), explained that HB 242 is required by federal language that [requires] the placement of additional penalties in state statute. Such penalties would discourage the practice of willfully hiding facts that would win an employer an artificially low rate. The aforementioned occurs when an employer changes entity or when an employer, in an attempt to reduce their UI rate, "gobbles up" a company with a lower rate and presents themselves as if they were the low rate employer. Currently, Alaska has laws and regulations in place to detect the aforementioned. This legislation would simply adopt the federal requirements for those who willfully misstate the facts in an attempt to illegally obtain an artificially low rate. 3:31:18 PM CHAIR ANDERSON pointed out that page 2, lines 9-10, refer to 42 U.S.C. 503(k), the SUTA [State Unemployment Tax Act] Dumping Prevention Act of 2004. He asked if HB 242 is essentially adopting the national standard. MR. SHIER replied yes. CHAIR ANDERSON, noting that he is the chair of the National Conference of State Legislatures' Committee on Labor & Workforce Development, related that the aforementioned committee has adopted the SUTA Dumping Prevention Act of 2004 and urged all states to do so. 3:32:08 PM REPRESENTATIVE ROKEBERG asked if current Alaska Statute requires reporting between the business and DLWD when there is a change in ownership, management, or control. MR. SHIER clarified that current statute isn't all-inclusive. Current statute requires reporting when there is a change in ownership or entity. However, nationally it has been discovered that there are business models based on simply changing the management of the company in order to [utilize another company's lower UI rate]. The language being proposed is based on the federal language and is designed to notify the department of the possibility of a company attempting to "hijack" a lower UI rate. REPRESENTATIVE ROKEBERG characterized this federal law as onerous and anti-business if it requires that businesses report to the government when they alienate, transfer, or change management of the business. He expressed the need to see the federal statute that HB 242 mirrors. 3:34:06 PM MR. SHIER explained that when the [federal] statute was passed, it contained requirements for businesses to report certain changes in management. The intent was to ensure that the DLWD had sufficient information to affect collection against those employers who decided they no longer had to pay taxes or wanted to leave the state. He explained that it's already a requirement to report a change in corporate officers. Therefore, HB 242 simply expands the requirement to include management. Mr. Shier opined that it's not unusual for DLWD to review who is really running a business and who is really responsible for the debts and filing the reports. 3:36:42 PM MR. SHIER, in response to Representative Guttenberg, explained that notifying the department about a change in management or ownership ensures that the DLWD is assessing the proper individuals. REPRESENTATIVE LEDOUX posed a situation in which an owner of a business has a general manager and later decides to hire another manager. She asked if, under current law or HB 242, the owners would have to notify DLWD of the newly hired manager. 3:39:23 PM MR. SHIER answered that it's important to know the responsibilities of the general manager, which is why the statute specifies that [the department needs to be notified of those who are] given the authority to sign checks and file periodic reports. When an individual files a registration form with DLWD that allows the individual to specify the obligations of the manager. The aforementioned is well understood by the business community, and if not the department's staff help to sort it out. In further response to Representative LeDoux, Mr. Shier confirmed that [an owner would have to notify DLWD of management changes] if the owner had designated a responsible party other than himself/herself. If the owner retains that responsibility, the owner could change managers as often as he/she wants. The aforementioned is the current reporting requirement and is what is included in HB 242. Mr. Shier clarified, "We are not changing our level of rigor, in terms of reporting; that will remain the same." However, the term "manager" is a new term that's required by the federal template. The department's interpretation of a "manager" is a "responsible party," he related. 3:42:09 PM REPRESENTATIVE LEDOUX asked if the legislation reflects that interpretation in order to avoid confusion. MR. SHIER said that he didn't see a definition of "management" [in HB 242]. However, he pointed out that the legislation, throughout, refers to an individual who "knowingly or recklessly" violates [the reporting requirement]. The burden of proof to show that an individual knowingly took the steps [violate the requirement] lays with the department. He opined that the burden of proof on the department is very high. Furthermore, he didn't believe the department, by adopting this language, is putting a large number of individuals in the state at great risk. 3:43:36 PM REPRESENTATIVE ROKEBERG noted that the committee members should have a copy of the federal law. After reading it, he said that he couldn't see the necessity of Section 1 of HB 242 and the term "management." The term "management" in federal law relates to "the substantial common ownership or management or control in the unemployment experience attributed to the transfer of business shall also be transferred." Therefore, he surmised that it only comes into play if there's an experience level. However, HB 242 specifies that any time a business transfers its ownership or even a portion of it, it must make a report. 3:44:34 PM MR. SHIER said that the federal law was primarily drafted to require reporting for changes in ownership and transfers of management in order to trap schemes in which individuals tried to capture another business to capture its lower rate. REPRESENTATIVE ROKEBERG emphasized that he agreed with the aforementioned and characterized it as laudable public policy. However, he said he didn't believe the intent was to file a form with DLWD every time management or a portion of it is transferred. 3:45:34 PM CHAIR ANDERSON announced that he would like to hold HB 242 until Friday in order to have time to determine if HB 242 is commiserate with other state legislation. 3:46:26 PM REPRESENTATIVE GUTTENBERG turned attention to Section 1 in which it refers to "employing unit's trade" and inquired as to what it means. MR. SHIER explained that in Alaska there is a common misconception that when an employee is laid off, that act penalizes the employer immediately. However, Alaska is unique in that an employer's rate is based on fluctuations in the employer's payroll whether due to terminations for cause or to lay off. Therefore, a seasonal business may seek to bid on a construction project. The seasonal rate for that business may be 3.5-4.5 percent. That business may attempt to purchase a secretarial firm with stable payroll experience and a rate of perhaps 1.5 percent and transfer the construction payroll to the secretarial firm and adopt the lower rate. The business might then unfairly bid on a construction project with a 3 percent automatic advantage. Therefore, this reporting merely notifies the department of a change in entity, as is the case now. This reporting allows DLWD to be aware of the changes that may have happened as in the aforementioned example. The language in question makes it explicit that DLWD is reviewing this information for rating purposes and to notify the employer that if information is concealed in an attempt to obtain a lower rate than the business would otherwise qualify, there are penalties. The federal law requires this, he said. 3:49:21 PM REPRESENTATIVE KOTT pointed out that the committee packet includes a letter dated December 7, 2006, from the U.S. Department of Labor. However, he said he didn't see a response letter. MR. SHIER said that there have been a number of letters between DLWD and the U.S. Department of Labor. The letters all convey the importance of Alaska moving in this direction and the dire consequences if the state does not. 3:50:57 PM REPRESENTATIVE KOTT highlighted that the last paragraph of the aforementioned letter, which says: "Please provide this assurance before January 1, 2006, that Alaska will enact the required legislation expeditiously in the next legislative session." He asked if that assurance has been provided. MR. SHIER related that Commissioner O'Claray did sign a letter assuring that legislation would be passed this [session] and the department would do what it could while acknowledging that the legislature passes legislation not the department. REPRESENTATIVE KOTT expressed concern with the part of HB 242 that deals with the ex post facto law. He pointed out that those who fall within the scope of HB 242 could be subject to a class C felony upon its adoption. He inquired as to how that would work with the ex post facto law. 3:52:43 PM MR. SHIER agreed that it's a concern and has been a matter under discussion with the US Department of Labor. REPRESENTATIVE KOTT asked if there was any discussion regarding moving that date to the effective date. MR. SHIER pointed out that Section 7 specifies the various sections of HB 242 that are to take effect on July 1, 2006, while Section 8 specifies that Sections 5 and 6 take effect immediately. However, "immediately" is subject to the laws in Alaska that impact how legislation takes effect, which he opined would satisfy the concern regarding reaching back in time and holding someone to the new requirement. Mr. Shier related his interpretation that any actions taken after the effective date of this legislation would come under this legislation whereas those actions prior to the enactment of HB 242 would be attempted or successful. MR. SHIER noted that Alaska has been very aware as to the importance of individual rating, such that AS 23.21.080 requires separate reporting for that purpose. He recalled the 1960s when the trust fund went broke and the state had to borrow money from the federal trust fund and employers were saddled with regular taxes plus the repayment of that debt and interest. The new rating scheme was designed to prevent that from ever happening again. That rating system, he highlighted, contemplated individual reporting. Therefore, Mr. Shier related the department's confidence that the statutes and regulations have identified these transfers fairly successfully and thus it seems that federal law is catching up with Alaska. 3:55:52 PM REPRESENTATIVE LYNN opined that the [intent] of HB 242 seems good as it seems to simply protect against fraud. MR. SHIER agreed, specifying that the language in HB 242 addresses those who knowingly attempt to circumvent existing statute. REPRESENTATIVE LYNN expressed concern that the commissioner, in response to the letter from the U.S. Department of Labor, would pass legislation before the legislation is even assigned to a committee. Representative Lynn highlighted the separation of powers. MR. SHIER clarified that the commissioner's response was that the department would do all that it can to bring the matter before the legislature and facilitate its passage. 3:57:33 PM REPRESENTATIVE CRAWFORD said that he would work with Representative Rokeberg and the department to craft language to achieve a comfort level that moves the legislation on its way. CHAIR ANDERSON announced that HB 242 would be held over.
| Document Name | Date/Time | Subjects |
|---|