Legislature(2001 - 2002)
04/10/2001 01:32 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 members: 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 million. 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 increments. 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 themselves. 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 allocations. 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 dependents. 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 consideration.