Legislature(1999 - 2000)

03/03/1999 03:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                              
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                                                                     
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                                                              
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                                                                  
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.                                                                                

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