Legislature(2001 - 2002)

04/10/2001 01:32 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
             SB  30-UNEMPLOYMENT COMPENSATION BENEFITS                                                                      
CHAIRMAN PHILLIPS announced SB 30 to be up for consideration.                                                                   
MS. REBECCA  NANCE-GAMEZ, Deputy Commissioner,  Department  of Labor                                                            
and  Workforce   Development,  said  that  SB  30   relates  to  the                                                            
effectiveness  of Alaska's unemployment insurance  program. She told                                                            
     The national  unemployment system  was originally created                                                                  
     in 1935 as  one of the programs under the Social  Security                                                                 
     Act. Congress  chose, at that  time, to create a national                                                                  
     system for compensation  of unemployed workers composed of                                                                 
     programs  administered  by each state  and territory  with                                                                 
     broad federal  oversight. The decision was made  to create                                                                 
     the  system  on  an  insurance  model  rather  than  as  a                                                                 
     straight-forward entitlement  program. The insurance model                                                                 
     has worked  well for over 65 years. As with any  insurance                                                                 
     program,  the  object  is  to  underwrite  an  identified                                                                  
     potential  loss  incurred  by a  small percentage  of  the                                                                 
     insured  through accumulation  of funds  collected from  a                                                                 
     group as a whole. The loss  insured by this program is the                                                                 
     loss  of  wages   by  unemployed  workers.  The  premiums                                                                  
     required to  cover this potential loss are in  most states                                                                 
     paid solely by the employer;  although in Alaska, the cost                                                                 
     is shared  between the employer and the worker,  employers                                                                 
     carrying 80 percent of the  direct cost and workers paying                                                                 
     20 percent of these costs through payroll taxes.                                                                           
     As  with any program  that compensates  individuals  while                                                                 
     they are not  working, there's always been a concern  that                                                                 
     the goal of  providing temporary partial wage  replacement                                                                 
     not be a disincentive  for returning to work.  In striving                                                                 
     to provide sufficient temporary  income to enable a worker                                                                 
     to  bridge  the  gap  between  jobs  while  meeting   non-                                                                 
     deferrable   expenses,   such   as  housing,   food,   and                                                                 
     utilities,  the target of 50  percent wage replacement  is                                                                 
     most  widely used. According  to figures  provided by  the                                                                 
     U.S. Department of Labor,  Alaska ranks not only below all                                                                 
     other states in the adequacy  of wage replacement provided                                                                 
     by its unemployment insurance  program, but also below the                                                                 
     District of Columbia and  Puerto Rico. Benefit amounts are                                                                 
     based  on the  amount of  wages a  worker earns  during  a                                                                 
     prescribed  base  period.  Workers  with  higher earnings                                                                  
     whose  loss   of  work  has  a  higher  financial  impact                                                                  
     generally   receive  a  higher   weekly  benefit  amount.                                                                  
     Naturally,  higher  levels  of  contributions   have  been                                                                 
     collected on these higher wage amounts.                                                                                    
     Under current statutes,  the maximum benefit amount can be                                                                 
     paid  to workers  who  have earned  over $26,750  a  year,                                                                 
     which is $248  per week regardless of whether  the loss of                                                                 
     wages the  worker has incurred was $26,750 or  $50,000 per                                                                 
     year.  The maximum  amount currently  represents about  38                                                                 
     percent of the average weekly wage in our state.                                                                           
     The  proposed  legislation  seeks  to  raise  the maximum                                                                  
     weekly benefit amount in  Alaska in two steps to an amount                                                                 
     roughly equally to one half  of the average weekly wage in                                                                 
     the  state of  $320  maximum weekly  benefit  amount.  The                                                                 
     first  increase, to  be effective  January  1, 2002  would                                                                 
     raise  the   amount  to  $284  with  a  second  increment                                                                  
     effective  January  1, 2003.  The  second intent  of  this                                                                 
     proposal is to then tie  the maximum weekly benefit amount                                                                 
     to a percentage  of the average weekly wage as  is done in                                                                 
     most other  states. This would allow the wage  replacement                                                                 
     offered  by  the  program  to  rise or  fall  based  on  a                                                                 
     relationship to the loss being replaced.                                                                                   
     Clearly,  there's  a cost associated  with  both of  these                                                                 
     goals.  The initial goal  of closing  the gap between  our                                                                 
     current  maximum  benefit  amount  and the  target  of  50                                                                 
     percent  of  the  average  weekly   wage  is the  largest                                                                  
     financial  hurdle. The total  additional cost to the  fund                                                                 
     is anticipated  to be  just under $10  million. This  will                                                                 
     result in an increase of  taxes to the average employer of                                                                 
     9.6 percent. However, the  costs used as the foundation of                                                                 
     determining tax rates are  derived from the average of the                                                                 
     benefit  outlays  from  the previous  three  state fiscal                                                                  
     years. The  increase resulting from this legislation  will                                                                 
     not impact  taxes until 2003  and then the increases  will                                                                 
     be  phased in  during the  following years  with the  full                                                                 
     impact  being included in the  tax calculations for  2007.                                                                 
     From  2003  forward, the  maximum  weekly  benefit amount                                                                  
     would be calculated  each year based on 50 percent  of the                                                                 
     average weekly wage in the  state. This economic indicator                                                                 
     is  relatively stable.  Using  it in the  long-term  would                                                                 
     result in less dramatic  changes to employer taxes than we                                                                 
     have experienced  in the past as a maximum weekly  benefit                                                                 
     amount  remains  static and  then  becomes less  and  less                                                                 
     adequate.  During the 90s, two  separate law changes  were                                                                 
     necessary  to raise the maximum benefit amount  a total of                                                                 
     $60. Had  our maximum benefit  amount been tied to the  50                                                                 
     percent  of  the  average  weekly   wage,  it  would  have                                                                 
     increased   less  than  $40  in  very  small  incremental                                                                  
     changes.  It would  have,  in fact,  decreased  in one  of                                                                 
     those years. I appreciate  your consideration and am ready                                                                 
     and available to answer any questions you may have.                                                                        
Number 1000                                                                                                                     
SENATOR AUSTERMAN  asked why  there were two  fiscal notes  from the                                                            
Department of Administration (DOA).                                                                                             
MR. JOE THOMAS, Division of Finance, DOA, explained:                                                                            
     The  first fiscal note  was drafted  by the director  with                                                                 
     the understanding  that we were going to have  100 percent                                                                 
     increase  in costs to the working  reserve account,  which                                                                 
     is  used to  fund  the unemployment  insurance;  but  upon                                                                 
     receiving  the  information  from  Department  of Labor's                                                                  
     Actuary, we revisited the  fiscal note and have revised it                                                                 
     downwards  accordingly to take into account, for  example,                                                                 
     the University of Alaska  is no longer in our numbers, nor                                                                 
     is AHFC  nor the Railroad. The  fiscal note is to address                                                                  
     the  increased   cost  to  state   agencies  for  funding                                                                  
     unemployment insurance.                                                                                                    
SENATOR AUSTERMAN  asked if  AHFC, the University  and the  Railroad                                                            
would have their own fiscal notes.                                                                                              
MR. THOMAS answered  that he hoped they would, if  this would impact                                                            
their organization.                                                                                                             
CHAIRMAN PHILLIPS  said the University's was there,  but not AHFC or                                                            
the Railroad.                                                                                                                   
SENATOR TORGERSON asked how healthy the trust is.                                                                               
MS. GAMEZ answered  that it remains  solvent and is healthy  at this                                                            
time. It has between $200 to $220 million in the fund right now.                                                                
SENATOR TORGERSON asked  if the employers' contribution would be $10                                                            
MS. GAMEZ said  that figure was right. She explained  that right now                                                            
the maximum  earning someone  can have to  get $248 is $26,750.  The                                                            
schedule  takes  that up  to about  $31,000  and  it goes  up in  $2                                                            
SENATOR TORGERSON asked if this was inflation proofed each year.                                                                
MS.  GAMEZ  answered   that  it's  not  inflation   proofed  as  she                                                            
understood  it. It is tied into the  average weekly wage.  So if the                                                            
wages  go down,  the benefit  amount  could  go down.  "In terms  of                                                            
employer contributions,  it just keeps  [indisc.] the trust  fund in                                                            
order to  reach the  payment amount  of the maximum.  So it  kind of                                                            
self-adjusts, if you will."                                                                                                     
SENATOR TORGERSON asked if it self-adjusts now.                                                                                 
MS.  GAMEZ replied  that  if  the trust  fund  amount  dips below  a                                                            
certain level,  tax rates will go up, "but right now,  benefit rates                                                            
don't go up just because the tax rates might go up."                                                                            
SENATOR TORGERSON  said, "This bill  gives you all those  tools." He                                                            
asked why jump  from where we are  now to something that  floats and                                                            
raises rates.                                                                                                                   
MS. GAMEZ explained that  at this point in time, "We only replace an                                                            
average of about 38 percent  of someone's income temporarily and the                                                            
U.S. DOL  recommends that  we hit 50 percent  wage replacement.  The                                                            
$320 this legislation  would get us  to in 2002 is still  well below                                                            
the poverty  level of  $410 per week.  So it  really does cover  the                                                            
bare essentials  for people. The reason  we wanted to tie  it to the                                                            
average weekly wage is  because 50 percent wage replacement for most                                                            
workers (it wouldn't cover  all workers) is in the best interest for                                                            
economic   stabilization  to   communities   and  for  the   workers                                                            
SENATOR TORGERSON  said the estimated collection from  employers was                                                            
$10 million  and asked, "Is it equal  to the $10 million  or are you                                                            
building the trust a little bit with this?"                                                                                     
MR.  CHUCK  BLANKENSHIP,  Program  Manager, Unemployment   Insurance                                                            
Program, explained that  the costs to the employer are linked to the                                                            
additional benefits paid.                                                                                                       
SENATOR TORGERSON asked  what rate they target to keep in the trust.                                                            
MR. BLANKENSHIP replied  that the target balance for solvency in the                                                            
trust  is in  relationship  to total  wages  paid in  the state.  We                                                            
target  3 -  3.3  percent  of total  wage  in  order to  maintain  a                                                            
solvency that reacts to a recessionary economy.                                                                                 
SENATOR TORGERSON asked if they are low now.                                                                                    
MR. BLANKENSHIP replied that it is pretty healthy now.                                                                          
SENATOR TORGERSON said  the wages in the state are about $11 billion                                                            
and 3 percent of that $330 million.                                                                                             
MR. BLANKENSHIP said he  wasn't sure what the total wages are in the                                                            
state, but their economists would know.                                                                                         
SENATOR TORGERSON  asked if the poverty level of $410  was tax-free.                                                            
MR.  BLANKENSHIP  replied  that the  amount  is subject  to  federal                                                            
income tax.                                                                                                                     
SENATOR TORGERSON  noted that they are adding a category  of $31,000                                                            
at the high end and asked what percent that was.                                                                                
MR. BLANKENSHIP replied 45 - 50 percent.                                                                                        
SENATOR TOGERSON  said that 50 percent  of the $10 million  is a new                                                            
category completely.                                                                                                            
MR. BLANKENSHIP  explained  that it brings  the maximum amount  from                                                            
$248 to $284, which is the half-way-point.                                                                                      
SENATOR TORGERSON asked how much money the new category costs.                                                                  
MS.  GAMEZ  answered,  "Based   on  the  new  schedule,  we  have  a                                                            
collection  of about $10 million over  three years. We're  extending                                                            
the schedule.  It really helps out the middle class  workers. That's                                                            
the people on the lower economic end of things."                                                                                
MS. PAM LABOLLE,  President, Alaska State Chamber  of Commerce, said                                                            
they do not  have an official position  on this issue at  this time,                                                            
but from  an informal  poll  she did, members  would  like to  see a                                                            
justification  for an  increase and  if there is  an increase,  they                                                            
want  it  to  be  in  the  lesser  amount.   They  also  wanted  the                                                            
legislature to  retain the ability to make the decision  about where                                                            
the  benefit   level   rests.  She   said  there   wasn't  a   clear                                                            
understanding  of  what  would  happen  to  the  $24  per  week  for                                                            
dependents that the unemployed get above the 50 percent.                                                                        
SENATOR TORGERSON asked how many people responded to her poll.                                                                  
MS. LABOLLE answered about 12 percent of the 600 members.                                                                       
SENATOR DAVIS  asked if you are drawing  unemployment, are  you able                                                            
to hold another job at the same time.                                                                                           
SENATOR  TORGERSON  asked what  affect this  bill  has on  dependent                                                            
MS. GAMEZ  answered  that it  would do  nothing  to the dependent's                                                             
allowance. The maximum  number of dependents would stay at three and                                                            
the amount would remain at $24.                                                                                                 
SENATOR TORGERSON asked  if the national number included dependents.                                                            
MR. BLANKENSHIP  answered  that the dependent  number was not  used,                                                            
because  it's  not   something  that's  available   to  all  of  the                                                            
claimants. About 40 percent draw the dependent's allowance.                                                                     
SENATOR DAVIS asked him to repeat that.                                                                                         
MR. BLANKENSHIP  reiterated that currently  about 40 percent  of the                                                            
unemployment  insurance claimants  receiving dependent's  allowance,                                                            
which is an additional  amount up to a maximum of three and it's $24                                                            
for each of those children.                                                                                                     
SENATOR DAVIS  asked how they determined who is eligible  for it and                                                            
who isn't.                                                                                                                      
MR.  BLANKENSHIP  answered  that not  everyone  claims  children  as                                                            
SENATOR DAVIS  asked if anyone who claimed dependent  children would                                                            
get the money.                                                                                                                  
MR. BLANKENSHIP  answered if they  establish they have children  who                                                            
are dependent upon them for support, yes.                                                                                       
SENATOR  TORGERSON  asked  how many  other  states have  a  floating                                                            
average set yearly.                                                                                                             
MS. GAMEZ  answered  35 states.  Six states  tie it  to the  average                                                            
weekly wage  and the other  states tie it  to the CPI. "Tying  it to                                                            
the CPI, it always  goes up and with the average weekly  age, it can                                                            
go up or down."                                                                                                                 
CHAIRMAN  PHILLIPS   said  he  would  hold  the  bill   for  further                                                            

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