Legislature(1999 - 2000)
03/03/1999 03:20 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 87 - UNEMPLOYMENT TRUST FUND Number 0079 CHAIRMAN ROKEBERG announced the first order of business would be HB 87, "An Act relating to money credited to the account of the state in the unemployment trust fund by the Secretary of the Treasury of the United States; and providing for an effective date." Number 0096 DWIGHT PERKINS, Deputy Commissioner, Department of Labor (DOL), came forward to explain that HB 87 provides the state authority to receive federal funds for the administration of the unemployment insurance program, as required in the Balanced Budget Act of 1997 [federal]. That Act provided for disbursement from the federal unemployment trust fund to the state unemployment trust fund; these disbursements are known as "Reed Act distributions." States must enact legislation restricting the use of those funds to the administration of the unemployment insurance program, rather than using them for unemployment benefits or services. This bill is housekeeping language necessary to allow the state to accept the funds from the federal government, and to ensure that the employment insurance program continues to operate. MR. PERKINS explained that these are excess funds from the Federal Unemployment Tax Act (FUTA), known as the FUTA tax. The federal government has several billions of dollars in excess; when overfunded, they are to refund to the states their portions. What members see before them is the state's share of those FUTA taxes to run the unemployment insurance program, administratively only, for the next three years; language in the bill says this will go away in 2002. Mr. Perkins reminded members that HB 87 is enabling language that helps the state. He noted that with him to answer technical questions, both from the DOL's Division of Employment Security, were Charles Blankenship, the program coordinator, and Daniel Kanouse, the "budget person." Number 0289 CHAIRMAN ROKEBERG referred to the revised fiscal note, dated 3/1/99. He asked whether the change in revenue of $700,000 is per annum. MR. PERKINS affirmed that. CHAIRMAN ROKEBERG noted that the $700,000 from the federal government is for the administration only of the funds, and it cannot be paid out in benefits. He asked whether that language is within the "BBA" [Balanced Budget Act]. MR. PERKINS affirmed that, as well. He reminded members that the Division of Employment Security is wholly funded by federal dollars; there are no general fund receipts. Number 0366 CHAIRMAN ROKEBERG expressed his understanding that state employees, uniquely, pay into the unemployment compensation monies. MR. PERKINS said the federal dollars pay for programs, with the exception of the State Training Employment Program (STEP). Alaskan employees pay towards their unemployment benefits, with about an 80/20 split. Alaska is one of five or six states nationwide where employees contribute to weekly unemployment benefit amounts. Number 0448 REPRESENTATIVE MURKOWSKI referred to the fiscal note attachment, which indicates funds will be utilized to enhance data processing upgrades and to redesign the automated Unemployment Insurance tax system; she said she assumes that will be coming in 2000 to 2001. She asked whether, with the Y2K [year 2000] funds allocated recently for upgrades to state systems, anything was specifically allocated towards unemployment insurance taxes. MR. PERKINS indicated that although the DOL had put in such a request, the current Y2K-related legislation from the Administration has no dollars for the DOL. CHAIRMAN ROKEBERG indicated the House and Senate have passed bills regarding use of general funds and program receipts money for that. He asked whether the DOL is authorized to use those for Y2K problems. Number 0540 MR. PERKINS affirmed that, pointing out that he and Representative Murkowski had been referring to new funds. He stated, "And the answer is no, we don't have any new dollars for Y2K issues. The employment security division does have funds, but those are federal dollars, and we are doing it internally, if you will, with the funds that we have." He emphasized that the DOL is not requesting new state general fund dollars for the Y2K issue. CHAIRMAN ROKEBERG asked if there are any general fund dollars that the monies in HB 87 can replace, for a savings to the state. MR. PERKINS said no. These are additional monies, to enhance the administrative side of the unemployment insurance program by purchasing state-of-the-art hardware and software, running the day-to-day program, and helping unemployed workers by getting checks out in a timely manner, for example. At a recent overview, Rebecca Gamez, director of the Division of Employment Security, had explained about direct deposits of checks and other improvements. CHAIRMAN ROKEBERG noted that from other testimony before the committee, the money would be used to enhance a system that apparently is not broken. Number 0735 MR. PERKINS said unfortunately these funds cannot help reduce the state's general fund dollars in other areas. These funds are from the FUTA tax, collected by the federal government from the state. This Reed Act was started in 1954, and there have been three distributions since: 1956, 1957 and 1958. When the federal government gets overfunded in this area, they like to reimburse money to the states for shoring up the state programs. Number 0812 CHARLES BLANKENSHIP, Program Manager, Unemployment Insurance, Division of Employment Security, Department of Labor, came forward. He stated, "The money that we expect to receive from this Reed Act distribution does have some intended purposes. We currently have a capital improvement project with a price tag of about $2.6 million for redoing our tax collection ... automated system. Some of that money has been diverted - operating expenses toward Y2K efforts - and we intend to replace that money, then, with the Reed Act distribution that's coming in the next three years." He added, "Money that we had set aside from the operating budget and other sources to do the project have been diverted to Y2K." CHAIRMAN ROKEBERG requested that before this goes to the House Finance Standing Committee, the DOL provide the intended uses of those funds, as well as the federal language that restricts the use to administrative purposes. MR. PERKINS agreed to that. Number 0911 REPRESENTATIVE SANDERS asked if the money invested in hardware wouldn't relieve the DOL's needs for Y2K money. MR. BLANKENSHIP replied, "Yes, to some degree. The tax project is largely a software project. We have invested money in hardware for testing for Y2K compliance and replacing the equipment that wasn't compliant." REPRESENTATIVE SANDERS asked what that savings might be. MR. BLANKENSHIP said he couldn't provide a figure. Number 0959 REPRESENTATIVE HALCRO commented that when any commissioner talks about increasing the administration side, it makes him nervous. He then asked, "What is your department's burden on the general fund?" MR. PERKINS said he believes it is just short of $8 million. He stated the Division of Employment Security's budget is about $43 million. He stated, "I think the legislature took the remaining balance of $1,500 last year when they did their budget reductions." Number 1009 REPRESENTATIVE HALCRO asked about the $2.6 million capital improvement project against which they had borrowed for Y2K issues. MR. BLANKENSHIP explained that initially that was a Y2K project. He stated, "When we saw that we wouldn't be able to get the system redone by the requisite deadline, we remediated the old system; and part of what we thought would go into the project that was to start on revising the tax system has now been used, instead, for Y2K preparedness. The capital improvement project had basically been planned to come out of the operating grant for the three-year period. This will assist us in making up some of the money that's been diverted." REPRESENTATIVE HALCRO asked how much of the $2.6 million has been used to date. DANIEL KANOUSE, Budget Officer, Division of Employment Security, Department of Labor, said approximately $.5 million dollars. MR. BLANKENSHIP clarified that it had been spent on the Y2K issue. Number 1093 REPRESENTATIVE HARRIS requested confirmation that if the legislature doesn't pass HB 87, the DOL won't receive the money. MR. PERKINS confirmed that. REPRESENTATIVE HARRIS referred to the fiscal note attachment, which says the national distribution is anticipated to be $100 million annually for three years. He asked whether Alaska's share of $600,000 to $700,000 is per year, for the next three years. MR. BLANKENSHIP said that is correct. REPRESENTATIVE HARRIS asked whether that is to offset the $2.6 million. He then asked whether that is in the Y2K legislation and what HB 52 relates to. Number 1142 MR. PERKINS indicated HB 52 is the Governor's capital budget, under which the DOL has requested equipment. He re-emphasized that if HB 87 is not adopted, the state will not receive that $600,000 to $700,000 per year. REPRESENTATIVE HARRIS asked whether the $600,000 to $700,000 per year will be used to offset the request of $2.6 million in the budget. Number 1216 MR. KANOUSE explained, "This is a collection of revenues to be applied against the expenditure authorization we're requesting in the capital budget. We were intending to use part of our normal unemployment insurance federal grant, ... part of it to go to the ongoing operating costs, and part of it to the capital budget, because we had to divert some of those dollars back to the operating budget to cover our Y2K expenditures. We're taking these revenues and applying them against our capital budget request." CHAIRMAN ROKEBERG asked, "Which are embodied in HB 52 and SB 32?" MR. KANOUSE affirmed that, indicating they have to stay in there to give the DOL authorization to spend those revenues. CHAIRMAN ROKEBERG suggested HB 87 is not a spending or appropriation bill, but merely an authorization bill. MR. KANOUSE agreed. CHAIRMAN ROKEBERG suggested they actually need two bills from the legislature, then, to deal with this money. MR. KANOUSE said that is his understanding. Number 1302 REPRESENTATIVE HALCRO asked whether the DOL knew that the $600 or $700 [thousand] was coming down the road before they came up with the $2.6 million. MR. KANOUSE replied, "Our request for capital funds happened before ... it was clear to us exactly what we could anticipate from the Reed Act distribution. They were fairly close together; it happened in the fall, early winter." Number 1340 REPRESENTATIVE MURKOWSKI asked whether she had heard correctly that a portion of these monies, in addition to upgrading systems, could be towards job training. MR. PERKINS said no. CHAIRMAN ROKEBERG noted that the DOL would provide the federal statute delineating the use of the monies. Number 1361 REPRESENTATIVE SANDERS asked for confirmation that the state will save no money from the $600,000 to $700,000 per year. MR. PERKINS affirmed that. REPRESENTATIVE SANDERS asked whether, without the money, the DOL would simply not do these things. MR. PERKINS deferred to Mr. Blankenship. Number 1402 MR. BLANKENSHIP answered, "Your question's a good one. ... We had planned the capital project, $2.6 million, before we anticipated this revenue. We had also anticipated starting that capital project a little earlier. In the interim, we have had to use some of the operating money that would have gone to a capital project for Y2K expenses, and we anticipate more through the balance of this year. This apparent windfall will help us offset some of that, as well as add additional enhancements to the program. The money coming in is not replacing any state general fund money that the department has used for the program. The basis for this distribution, at the national level, is the USDOL's [United States Department of Labor] attempt to make up for frozen administrative funding that has been a shortfall over the last several years. And that's part of the driver behind this distribution. So, unemployment programs across the nation have been cutting back, trying to do more with less, and USDOL is making up for some of that now with this distribution." MR. BLANKENSHIP explained that two tax streams go into unemployment insurance. The federal FUTA tax collected by the IRS [Internal Revenue Service] is largely offset by the employers' participation in Alaska's state employment security tax; the FUTA tax goes only for administration of the program. All of the salary dollars and overhead dollars come back from that FUTA tax, through the federal government. The money that the state collects from the employers and employees also goes into a nationally-maintained trust fund, in Alaska's name, and that is dedicated strictly for benefits, with the exception of the small portion that can be diverted for the STEP program. Number 1509 CHAIRMAN ROKEBERG asked whether the DOL would have asked for general funds for a capital appropriation. MR. BLANKENSHIP replied, "We never thought there would be any." CHAIRMAN ROKEBERG asked whether they would have taken it right out of the other tax revenue dollars. MR. BLANKENSHIP affirmed that. CHAIRMAN ROKEBERG requested confirmation that in those tax income streams, there would not have been general fund appropriations, either through general funds or the capital budget. MR. BLANKENSHIP replied, "As the deputy commissioner indicated, the last general fund money that our division had was about $1,500 last year for some equipment maintenance." Number 1545 REPRESENTATIVE HALCRO asked whether the $600,000 to $700,000 was originally contributed by taxpayers. MR. BLANKENSHIP said it was contributed by the employers. REPRESENTATIVE HALCRO asked whether instead of going to pay for new programs or expansion, it shouldn't instead fill the DOL's need. MR. BLANKENSHIP asked whether Representative Halcro was suggesting it would be more logical to offset or lower employer taxes, since that is where the money came from originally. REPRESENTATIVE HALCRO replied, "Yes, either that or use that $600,000-$700,000 to offset the costs your department burdens the general fund with." MR. BLANKENSHIP said there are no costs. Number 1600 MR. PERKINS concurred, emphasizing that there are absolutely no state general fund dollars in the Division of Employment Security, and there is no burden to the state from the division. REPRESENTATIVE HALCRO asked whether they shouldn't, then, look at putting this $600,000 to $700,000 back into the pockets of the people who originally paid it. CHAIRMAN ROKEBERG said that is a good idea, but this is mandated by the federal law. Number 1622 REPRESENTATIVE MURKOWSKI stated her understanding that the last time there was a windfall like this was in the late 1950s. MR. BLANKENSHIP said that is correct. REPRESENTATIVE MURKOWSKI suggested that the DOL couldn't really have anticipated that this would come along, and that it couldn't have allocated accordingly. MR. BLANKENSHIP told members there are various statutory ceilings to the accounts in the federal unemployment trust fund. As those ceilings are reached, the overflow eventually will trickle back to the states. Since the late 1950s, those ceilings have been raised by Congress four times, essentially prohibiting such distributions. Number 1654 CHAIRMAN ROKEBERG asked if there was further testimony, then closed the public hearing. He confirmed there was no further discussion. Number 1688 REPRESENTATIVE HARRIS made a motion to move HB 87 out of committee with individual recommendations and the attached revised fiscal note dated 3/1/99. There being no objection, HB 87 moved out of the House Labor and Commerce Standing Committee.