Legislature(2019 - 2020)BELTZ 105 (TSBldg)
03/05/2020 01:30 PM Senate LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s) | |
| SB156 | |
| SB195 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 156 | TELECONFERENCED | |
| *+ | SB 195 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 156-EMPLOYER'S UNEMPLOYMENT INSUR RATE
1:47:47 PM
CHAIR BISHOP announced the consideration of SENATE BILL NO. 156,
"An Act relating to unemployment insurance contribution rates;
and providing for an effective date."
He noted that this is the first hearing and public testimony is
scheduled.
1:48:08 PM
CATHY MUNOZ, Deputy Commissioner, Department of Labor and
Workforce Development (DOLWD), Juneau, Alaska, introduced SB 156
on behalf of the administration by paraphrasing the following
prepared statement: [Original punctuation provided.]
Good afternoon Chairman Bishop and members of the
Committee.
For the record, my name is Cathy Mu?oz Deputy
Commissioner of the DOL/WD
With me is Economist Lennon Weller, and in the
audience, Employment Security Analyst Chalise Fisk.
Thank you for the opportunity to present SB 156 an
act relating to unemployment insurance contribution
rates.
Alaska's Employment Security Tax is a state tax on
wages. Employer rates are found in Title 23, Chapter
20 of the Alaska Employment Security Act. The act is
designed to promote employment security and provide a
partial wage replacement for qualified unemployed
workers.
The national Unemployment Insurance system was created
in 1935 by the Social Security Act. Congress chose to
create a national system of compensation for the
unemployed based on an insurance model, rather than an
entitlement program.
Currently, the Alaska statute for employer
contribution rates requires a minimum rate of 1% for
all rate classes. SB 156 seeks to lower the minimum
contribution rate for employers in rate classes 1
through 9 and set the minimum rates to correlate with
an employer's experience rating.
An experience rating is assigned to an employer based
on their experience with the program and the
consistency of their payroll. For example, a business
with 2 or 3 year-round employees with low employee
turn-over over-time would have a lower experience
rating to reflect this stability in their workforce.
Employers who experience large fluctuations in their
workforce and payroll are assigned higher experience
rates.
For businesses in rate classes 1 through 9, the
current minimum 1% tax is significantly greater than
the experience factor for those businesses. These
lower experience rated businesses produce fewer
unemployed workers in need of Unemployment Insurance
Benefits, and thus have lower impacts on the UI Trust
Fund the fund which pays the benefit.
At this time, approximately 4700 employers pay more
contributions than necessary.
The proposed change will not impact the weekly benefit
amounts payable to unemployed workers, but will result
in more proportionate contributions for employers in
all rate classes. The proposed change will also not
adversely impact the sustainability of the UI Trust
Fund.
I appreciate the Committee's consideration of this
legislation.
Mr. Weller has additional information on the
Unemployment Insurance Trust Fund, and how it works,
and we both are available for questions at the end of
his presentation.
Thank you Chairman Bishop.
1:51:47 PM
CHAIR BISHOP summarized his understanding that businesses in the
UI tax rate classes 1-9 are those who provide year-round
employment.
MS. MUNOZ answered yes.
CHAIR BISHOP related that Alaska has a high seasonal population,
but since employees in classes 1-9 work are year-round workers,
their experience rate should be lower.
MS. MUNOZ answered that is correct. The experience factor of the
business over time is also considered, so several quarters of
tax submissions are reviewed when making the determination.
1:52:32 PM
SENATOR STEVENS asked if the rates for seasonal industries, such
as the salmon fisheries, would remain high but would not be
increased to a higher rate.
MS. MUNOZ answered that is correct. She explained that
currently, the minimum unemployment tax rate is one percent, but
in rate classes 1-9, the experience factor is closer to .4 to .9
percent. However, this change will not impact the sustainability
of the Unemployment Insurance Trust Fund (UI Trust Fund). The
rates for the other businesses would remain comparable to the
current rates.
SENATOR STEVENS related that industries that make greater use of
unemployment insurance would be asked to pay more of their fair
share.
MS. MUNOZ replied those employers would pay the same rate as
they are currently paying. The bill addresses the disparity of
payment for the lower classes, who are currently paying more
than their impact on the UI Trust Fund. She explained that
employees in those rate classes draw fewer unemployment
benefits, so they do not impact the sustainability of the fund.
1:54:13 PM
SENATOR REVAK asked if the issue is that the employers with more
experience are overpaying and therefore causing the UI Trust
Fund to have surplus funds.
MS. MUNOZ answered that there are 20 rate classes plus a penalty
class, rate 21. Those businesses rated in classes 1-9 tend to
have a more stable employment base and fewer fluctuations in
their payroll, yet they pay a greater proportion of
[unemployment insurance] taxes than the impact their employee
base has on the UI Trust Fund.
SENATOR REVAK asked if that is causing the UI Trust Fund to
grow.
MS. MUNOZ answered yes. She deferred further comment to Mr.
Weller.
1:55:26 PM
LENNON WELLER, Economist, Research and Analysis Section,
Division of Administrative Services, Department of Labor and
Workforce Development (DOLWD), Juneau, Alaska, stated that SB
156 would lower the floor for minimum tax rates specifically for
rate classes 1-9. Currently, by statute the DOLWD cannot assign
a rate less than one percent, even if the projected cost
calculations warrant it.
SENATOR REVAK asked if tax rates are reduced if there would
still be enough to cover unemployment liabilities.
MR. WELLER answered yes; the system would still be able to
respond to any costs and fluctuations. Also, the department can
adjust tax rates to meet the costs and achieve the department's
target for full solvency. This bill would simply allow the
department to have greater flexibility at a greater range of
costs than allowed by the current structure.
1:56:45 PM
SENATOR GRAY-JACKSON summarized her understanding that SB 156
will not affect the weekly benefit amounts, that the UI Trust
Fund is sound, and that the bill will decrease the balance in
the UI Trust Fund. She reminded everyone of what happened years
ago when the state underfunded the Public Employees Retirement
System and expressed concern that SB 156 could adversely affect
the future soundness of the UI Trust Fund.
MS. MUNOZ responded that the presentation would show why the
proposal is justified and why the department believes the fund
can sustain the reduction.
1:57:48 PM
MR. WELLER added that the department issues an annual actuarial
report that provides a comprehensive financial analysis of
Alaska's UI system. The latest report reflects the calendar year
2018 data. It is a great source for those interested in the
various metrics of the system and how it is faring, he said.
He read the first two paragraphs of the unemployment insurance
financing since it provides a nice introduction on how the
system functions:
Every state has a trust fund designed solely to pay
unemployment insurance liabilities and to meet those
liabilities, a UI system must function well and
maintain its solvency.
In 1980, the Alaska legislature implemented the bulk
of the current system. Tax rates adjust annually to
reflect changes in benefit costs, wages, and the trust
fund reserve ratio while the base in which taxes are
assessed adjust to changes in statewide average wages.
He explained that this essentially means that the current
structure of the financing system is designed to respond to a
very wide range of costs. This is built in by the main
component, which is the cost recapture portion of tax rates
reflected in any given year. There is also a targeted reserve
ratio, which is based on historical experience from the program.
He offered his view that the presentation will show it is quite
adequate in meeting most of any potential liabilities.
1:59:50 PM
MR. WELLER began the PowerPoint presentation, "Unemployment
Insurance Financing Metrics in Alaska 1980's to Current." He
displayed a chart of the UI Trust Fund End-of-Year Balance,
Benefit Costs, and Payroll Contributions, 1981 -2019.
He explained that slide 3 shows the interaction between benefit
costs, which is the payment of UI benefits, net contributions,
i.e., tax revenue directed to the program, and the resulting UI
Trust fund balance. He pointed out that the net UI contributions
or tax revenues fluctuate normally in accordance with benefit
costs. There is a counter cyclical function to the tax rates,
such that as benefit costs rise, the tax rates will rise in
order to recapture the amount paid out above and beyond the
revenues during those periods. This will also bring the UI Trust
Fund balance into the statutory target range for full solvency
before the next recession.
2:01:11 PM
SENATOR STEVENS asked why the fund balance shows such remarkable
ups and down, particularly the decline in 2009.
MR. WELLER replied it was the result of the national Great
Recession in 2009. The unemployment insurance program is
designed to compensate for loss of wages, so it tracks with the
cyclical changes in the economy. As unemployment rises,
unemployment claims increase during those times, which results
in accelerated benefit costs. This results in a drop in the UI
Trust Fund balance, he said. The system responds. As costs
increase, tax rates, based on a three-year moving average, start
to respond and as the balance moves outside the target range, an
additional solvency adjustment is made to help return the fund
balance to its ideal target
SENATOR STEVENS noted that the benefit costs are much more
stable than the contributions but questioned why the fund
balance showed such a precipitous decline from $350 million to
$250 million.
MR. WELLER explained that on an annual basis during 2009-2013,
the UI fund paid out $180 million more in benefits than it
collected in tax revenue. He emphasized that this is by
intention because the system is not meant to shock employers
from one year to the next. In addition, since the fund has a
reserve ratio target between 3.0-3.3 percent of covered wages,
the nominal value of the fund tends to grow over time. With
those components in place, it allows the system to absorb these
large shocks and to subsequently recover.
2:04:44 PM
CHAIR BISHOP remarked that the reason the system works is
because David Teal helped to design it.
2:05:30 PM
MR. WELLER reviewed slide 4, the Unemployment Insurance Trust
Fund Reserve Rate the Measure of Solvency 1981 - 2020:
He said this slide shows the UI Trust Fund balance reflected as
the reserve ratio, which is the balance of the fund as a
percentage of wages covered at any given point in time. He
directed attention to the shaded gray line that shows the
targeted range of 3.0-3.3 percent. Ideally, the blue line would
run right through it. However, the system is built to withstand
fluctuations in benefit costs, so it finds itself outside of the
range as often as not. For example, it fell as low as 1.6
percent in 1988 and reached as high as 4.75 percent in the mid-
1990s. Right now, the reserve ratio is 3.82 percent, which is
nearly a half of a percentage point beyond statutory and
historical targets for full solvency. He said the financing side
of the system is stuck and unresponsive to the low costs.
2:07:32 PM
MR. WELLER reviewed slide 5, U.S. DOL, Measures of Trust Fund
Adequacy:
He stated that the U.S. Department of Labor (DOL) has its own
metrics for solvency. Ideally, the state would like to be at 100
percent of the U.S. DOL recommendation for reserves to cover
recessionary costs, but the reserve amount is currently 160
percent of the recommendation. He directed attention to the
terms on the graph, the high cost multiple and the average high
cost multiple. The high cost multiple is a high-water mark that
represents a benefit cost rate of well over 4 percent, but this
is not the state's statutory target. However, the state is
getting close to 80 percent of that rate he said. He offered his
view that the average high cost multiple is the measure more
widely used as the appropriate metric of solvency to give the
fund the ability to weather recessionary costs.
2:08:50 PM
MR. WELLER reviewed slide 6, Unemployment Insurance Average
Benefit Cost Rate, ABCR 1985-2020:
He explained that the main driver of tax rates in any given year
is the average benefit cost rate. It is technically three years
of benefit costs as a percentage of three years of covered
wages, or a three-year moving average that drives the primary
portion of tax rates in any given year. This shows a long-term
downward trend in the cost rates. The red line signifies the
threshold when the average tax classes (classes 10 and 11) hit
the minimum 1 percent rate. In 2020, the rate for the employers'
share is .93 percent, which is the first year it has fallen
below the 1 percent threshold.
CHAIR BISHOP remarked that the state is on the right side of the
ledger.
2:10:22 PM
MR. WELLER reviewed slide 7, Alaska, UI Contribution Rates
Employer and Employee, CY1981-CY2020:
He stated that this slide shows how costs are borne into rates.
It shows a long-term downward trend. Rates fluctuate in every
year, consistent with the system goals to respond to changes in
costs as tax rates rise and vice versa, as costs drop the rates
also drop. In the last four years the average rates class 10 and
11 have been stuck at the minimum of 1 percent.
2:11:11 PM
MR. WELLER reviewed slide 8, 1985 2020, Count of Tax Classes at
Statutory Min. 1% in a given tax year, Total of 20 Tax Classes
subject to 1% Min:
He said that from the 1980s on, at least one rate class or two
is subject to the statutory minimum because of the experience
rating system in statute. He explained that 40 percent of the
employer's share becomes a very small value. Therefore, 1
percent tends to be higher than the calculation. However, since
2017, the number of tax classes subject to the minimum 1 percent
has risen precipitously, which is primarily a driver of reduced
costs, the trust fund balance recovers, and the tax rates have
not been able to respond. In 2020, 18 of 20 rate classes subject
to the 1 percent minimum were at that level.
2:12:37 PM
MR. WELLER reviewed slide 9, 2020 Rate Classes 1-9 Current
Statute V. Proposed Change:
He explained that the final slide projects how SB 156 would
impact tax rates in 2020 if it had been in place, using current
calculations. The red line shows the 1 percent statutory
requirement and what the rates classes 1-9 paid. He related a
scenario in which no minimum was in place. He said given the
state's costs, including the solvency adjustment, the projected
rate class one would be paying -0.02 percent. This is because 40
percent of the employer portion of the benefit cost rate
calculates to .38 percent, but there is currently a .04 credit
adjustment for solvency since the fund is beyond its target rate
so rate class 1 would be in negative territory. He said he would
not suggest doing that. Under the bill, .04 of a percent would
be applied, such that by using a new minimum rate, the class 1
rate would receive a 60 percent decrease on employer taxes for
2020.
2:14:39 PM
MR. WELLER summarized stating that the DOLWD views the change in
SB 156 as trying to bring the UI tax rate in line with the
statutory goals. It would essentially lower the floor, such that
tax rates will be allowed to adjust to the statutory targets.
2:15:15 PM
SENATOR STEVENS directed attention to the employer and employee
chart [on slide 7]. He asked what would happen to the chart if
SB 156 goes into effect.
MR. WELLER answered that it would not have changed anything up
until 2017 because the rates are above the threshold. However,
costs are so low, the system cannot respond. He said the average
tax for rate classes 10 and 11, which is reflected in the gray
bar, would not be affected since this bill would only affect
rate classes 1-9. Employees must pay the current rates of a
minimum of one-half a percent and employers must pay a minimum
of 1 percent.
2:17:05 PM
CHAIR BISHOP reported that under the bill 13 employers would
save more than $100,000, and 177 employers would save between
$10,000 and $100,000. He offered to provide members the chart
that shows the scope of the change for employers under SB 156.
2:18:41 PM
MS. MUNOZ reviewed the sectional analysis for SB 156.
Section 1:
Amends Alaska Statute 23.20.290 tax rate contributions
for employers in rate classes 1-9. The applicable
minimum tax rate is reduced from the current minimum
1% to correspond to the employer's experience factor
set out in column C. The amended tax rates are found
in column D.
Section 2:
Provides for an effective date of January 1, 2021.
2:19:42 PM
CHAIR BISHOP opened public testimony on SB 156.
2:20:04 PM
DON ETHERIDGE, Lobbyist, Alaska AFL-CIO, Juneau, Alaska, spoke
in opposition to the SB 156. He expressed concern that there has
not been any increase in over ten years in the weekly
unemployment benefit to the worker, yet this bill would cut the
fund. He drew a parallel with the PERS/TRS [Public Employees'
Retirement System/Teachers' Retirement System]. He expressed
concern that people are leaving the state because they cannot
live on their weekly benefits, so before cutting the UI rate, it
the state should consider increasing benefits to retain workers
in the state. He agreed with Senator Gray-Jackson about the
PERS/TRS fiasco. He recalled that at one time the PERS/TRS was
funded at 110 percent, so excess funds were used elsewhere, and
the system got in trouble. Alaska is only one of two states
where the employee pays into the UI benefit and it is time to
give back to the employee, he said.
2:22:50 PM
HEIDI DRYGAS, Consultant, Alaska State Pipe Trades Association,
Fairbanks, Alaska, spoke in opposition to SB 156. She echoed the
concerns Mr. Ethridge articulated. She said that the fund is
healthy. In fact, the formula has worked for decades, she said.
She offered her view that any bill that addresses unemployment
insurance that does not increase the maximum weekly benefit
amount is an incomplete bill. The maximum weekly benefit amount
is stagnant at $370 and it has not been increased in over 11
years.
2:23:59 PM
SENATOR STEVENS asked what happens if nothing is done and the
fund keeps growing. He also asked how the weekly employee
unemployment insurance benefit could be increased.
MS. DRYGAS answered that it would be done by introducing a bill,
such as the one the Walker administration introduced. Her
opinion is that the statute needs to have an automatic
adjustment because the legislature does not touch it very often.
She reported that Alaska is eighth in the nation for weekly
wages, but the replacement ratio is 52nd, behind all the states
and some territories. She said that Alaska used to be one of the
leaders in the maximum weekly benefit amount, but it is now 38th
in the country. As Mr. Ethridge said, it is a significant
problem and one reason Alaska is losing seasonal workers in the
pipe trades.
2:26:13 PM
SENATOR GRAY-JACKSON commented that it seems that increasing
weekly benefits would be a good idea.
MS. DRYGAS agreed.
2:26:48 PM
CHARLES MCKEE, representing self, Anchorage, Alaska, expressed
concerns about SB 156. He said he is the beneficiary of the
McKee Trust. He noted that he submitted five pages of written
testimony. He said that he was an injured worker who was denied
workers' compensation. He provided some details of his case.
2:31:16 PM
CHAIR BISHOP asked where Alaska is ranked for wage replacement
by state.
2:31:52 PM
MS. MUNOZ answered that Alaska is ranked 39th in the nation for
its weekly benefit amount of $370.00, 46th for its average
weekly benefit amount of $249.00, 18th for its average weekly
wage of $885.00, and 52nd for its replacement ratio of 32
percent.
2:32:32 PM
CHAIR BISHOP held SB 156 in committee for further consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| L&C Pharmacy Board Ruffridge #1.pdf |
SL&C 3/5/2020 1:30:00 PM |
Confirmations |
| L&C Physical Therapy and Occupational Therapy Radley#1.pdf |
SL&C 3/5/2020 1:30:00 PM |
Confirmations |
| L&C Marital & Family Therapy Green #1.pdf |
SL&C 3/5/2020 1:30:00 PM |
Confirmations |
| L&C Public Accoutancy Viera #1.pdf |
SL&C 3/5/2020 1:30:00 PM |
Confirmations |
| SB 156 Sectional Analysis.pdf |
SL&C 3/5/2020 1:30:00 PM |
SB 156 |
| SB 156 Presentation.pdf |
SL&C 3/5/2020 1:30:00 PM |
SB 156 |
| SB 156 Letter NFIB 2-11-20.pdf |
SL&C 3/5/2020 1:30:00 PM |
SB 156 |
| SB 195 Sponsor Statement.pdf |
SL&C 3/5/2020 1:30:00 PM SL&C 3/10/2020 1:30:00 PM |
SB 195 |
| SB 195 Sectional Analysis ver. A.pdf |
SL&C 3/5/2020 1:30:00 PM SL&C 3/10/2020 1:30:00 PM |
SB 195 |
| SB 195 DRAFT Fiscal Note DCCED-DOI 02-28-2020.pdf |
SL&C 3/5/2020 1:30:00 PM SL&C 3/10/2020 1:30:00 PM |
SB 195 |
| SB 195 Letters of Support 3-04-2020.pdf |
SL&C 3/5/2020 1:30:00 PM SL&C 3/10/2020 1:30:00 PM |
SB 195 |