Legislature(2017 - 2018)HOUSE FINANCE 519
05/09/2017 01:30 PM FINANCE
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HOUSE BILL NO. 142 "An Act relating to unemployment insurance benefits; increasing the maximum weekly unemployment insurance benefit rate; and providing for an effective date." 2:40:57 PM REPRESENTATIVE CHRIS TUCK, SPONSOR, read the sponsor statement: The Alaska Department of Labor's Unemployment Insurance (UI) program provides unemployment benefits to eligible workers who become unemployed through no fault of their own, working less than full-time, and meet certain other eligibility requirements. With the seasonal nature of much of the state's workforce and Alaska's vast remoteness, UI benefits serve not only to bridge the economic gap for the individual worker, but also as a stabilizing influence on local economies. The current Maximum Weekly Benefit Amount (MWBA) of $370 only replaces 36% of the state's average weekly wage of $1,020. An MWBA of $510 would provide 50% wage replacement of the average weekly wage, a nationally recognized norm. To compare to other western states, the MWBA rate in Washington is $681, Oregon is $590, and California is $450. In addition, Alaska is one of only three states where the cost of providing UI benefits is shared by employers and employees. House Bill 142 would increase the maximum weekly benefit amount under the UI Program in two steps from the current $370 to $458 in 2018 and to $510 in 2019. Among 50 states, the District of Columbia, and Puerto Rico, Alaska is: · 39th in Maximum Weekly Benefit Amount · 44th in Average Weekly Benefit Amount ($252) · 52nd in Wage Replacement Ratio (.288) · 9th in Recipiency Rate (unemployed workers receiving benefits - .37) As a claimant filing for UI benefits, individuals are responsible for actively seeking suitable fulltime employment and reporting activity for seeking employment each week to remain eligible. The federal poverty level for a family of three in Alaska for 2016 is $25,200, or $2100 a month. An unemployed single parent with two dependent children receiving the MWBA of $370 plus the dependent child allowance of $24 per child under 18 (up to a maximum of three) receives approximately $1800 per month in UI benefits. By passing House Bill 142, Alaska will be more in-line with the average weekly benefits and provide the necessary financial support families need to survive while seeking employment. Representative Tuck relayed that there were representatives from the Department of Labor and Workforce Development who worked with the Unemployment Insurance (UI) Program available for questions. Co-Chair Foster reviewed the list of available testifiers. Representative Wilson commented that it looked like the amount a person made was going up rather than having a cap. She wondered if the legislation would require employers or employees to pay a higher percentage into unemployment. 2:45:30 PM LENNON WELLER, ECONOMIST, RESEARCH AND ANALYSIS, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, responded that as the state increased benefit costs beyond the current schedule there would be a bit of an increase in costs going out into the future, as tax rates would need to respond to some larger benefit costs. Representative Wilson wanted to know if it would cost employers or employees more of a percentage than what they currently contributed to the program. Mr. Weller responded that there were essentially two steps to the financing of the UI system. The first main part was a cost recapture portion which divvied out benefit costs recaptured as a share. It was a 73/27 split in statute. He relayed that the share would remain the same. However, as costs increased, rates would reflect a larger benefit cost. As more benefits were paid out and the trust fund moved, it would potentially increase tax rates. Representative Wilson wondered if the department would have to come back to the legislature for a statute change if the rates increased. Mr. Weller relayed that the financing system was set in statute. The department would not be required to come back to make a statute change. Essentially, it was an automatically adjusting system trying to both maintain rates that were reflective of costs and a target for the reserve ratio in the fund. All the financing was directed through current statute. Representative Wilson wanted to see a chart showing what the change would look like. She agreed that the rates were low, especially with a cap in place. She also wanted to know about the training funds such as the Alaska Technical Vocational Education Program (TVEP) funds tied to the state's unemployment. She wondered, that as the state dwindled some of the funds by increasing funding in another place, how someone would have access to those funds for additional training. She was concerned because there had been an issue in the prior year with unemployment funding. Representative Tuck wondered if her question was about what would happen with the TVEP funds if the rates increased. He thought the TVEP funding rate was 1 percent. Representative Wilson commented that as more people were unemployed there would be less money available in the unemployment fund, the fund that funded TVEP. She indicated there was also other training programs, paid through the unemployment fund, available for people needing to find a new vocation. She wanted to ensure there was enough money for the programs already using the fund. Mr. Weller conveyed that an increase in the maximum weekly benefit amount would not impact either the State Training and Employment Program (STEP) or TVEP funding to any extent; they were dedicated taxes paid for out of a portion of employees' tax rates. It never actually went into the UI trust fund. It was diverted, pre-deposit, and the rates were set in statute. It was sixteen hundredths of a percentage point for TVEP and one tenth of a percentage point for the STEP training programs of which were offset against an employee's portion of their initial UI tax liability. Representative Tuck responded that unemployment would not go up because of the bill. Larger benefits would help to maintain families. If the representative was concerned that more Alaskans would remain in Alaska and would have to take advantage of the programs, it was a possibility. 2:51:06 PM Representative Wilson wanted Alaskans to stay in Alaska. Her concern was that the excess money that was not utilized currently would be utilized for other things aside from benefits. She wanted to ensure that the fund was healthy enough and those who needed to be retrained could get the training. She commented that UI was used for other things besides benefits. She wondered how the state would do more with less. She thought the cost would fall on the shoulders of the employer and the employee. Representative Tuck answered that he did not know what kind of benefits unemployed Alaskans received if there was left over money. He thought most of the programs were paid off the top, when the money went into the fund. He deferred to the department. PATSY WESTCOTT, ASSISTANT DIRECTOR, EMPLOYMENT SECURITY, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, responded that the funding mechanisms for STEP and TVEP did not change with the bill. If the department had seen variations in the amount available for STEP and TVEP, it was because UI tax rates went up or down. As UI tax rates went up, more money was collected creating a larger diversion for STEP and TVEP. As tax rates went down, there was less of a diversion for STEP and TVEP. Representative Wilson asked how the rates went up and down. Mr. Weller answered that the amounts the state would take in for both the STEP and TVEP programs were based on taxable wages. Specifically, as taxable wages grew, the nominal amount of dollars being pulled into either of those funds would reflect that growth. The rates for the two programs were fixed. However, the amount of money would change based on the taxable wage base. Representative Kawasaki mentioned that in Section 2 of the bill there were some automatic adjustments in the bill. He wondered if most states had automatic adjustments. Ms. Westcott replied that about 26 states had an automatic adjustment in their statutes to provide for an auto adjusting maximum weekly benefit amount. Representative Kawasaki asked if the automatic adjustment typically pegged to a specific dollar amount or something else. Ms. Westcott answered that it was typically tied to the state's average weekly wage or a percentage of the state's average weekly wage. Representative Kawasaki reported that in Section 2 it stated that the department would increase weekly benefits $2 for each $250. He wondered why the amount was set in place. Representative Tuck responded that it was already in statute. The bill was lifting the amount to about the national average for those individuals making more than the average per week. He referred to Page 2 which reflected the same formula, only it extended the higher maximum amount paid out. 2:55:59 PM Co-Chair Seaton referred to Page 5 of the handout that reviewed the weekly benefit amounts. The page was titled, "Recipiency Rates." He noted that Alaska was the ninth state on the list. He asked about the meaning of recipiency rate and whether Alaska's rate was good or bad. He wanted to better understand the term. Mr. Weller answered that recipiency rates reflected the percentage of those who were unemployed, eligible for UI, and those that were actually collecting UI. He suggested that the state would want to see as many of the people that were eligible for the program file for and collect benefits if possible. Research showed that it helped to stimulate the economy and provide short-term income, keeping individuals in a geographical area and allowing them to reattach to work more quickly. Co-Chair Seaton asked Mr. Weller to review the percentage rates. Alaska was at 37 percent. He wondered what factors lead to Alaska's percentage being so high. Ms. Westcott responded that each state had its own unique set of eligibility requirements. In addition to being monetarily eligible for UI, there were non-monetary disqualifications such as why someone was not working or their availability for fulltime work. Fluctuations in recipiency rates could be seen from state-to-state depending on what other disqualifications states might have in their laws. Vice-Chair Gara stated that UI was available to people who were laid off. He asked if there was a distinction that if someone was terminated for cause, they would not be eligible for UI. Ms. Westcott confirmed that Alaska had disqualifications. For instance, if someone was terminated for cause, or if someone voluntarily quit their job without good cause, there was a 6-week disqualification of benefits under those circumstances. Vice-Chair Gara asked if Ms. Westcott meant that there were 6 weeks of benefits. Ms. Westcott responded in the negative. They would be disqualified from receiving benefits for the first week of unemployment and the following 5 weeks. There was also a 3-week deduction from the maximum amount that a person was eligible for over the term of their benefit year. 2:59:57 PM Representative Wilson asked for a response about how it would impact small business in a negative way. Representative Pruitt asked about the numbers listed at the bottom of one of the handouts provided by the bill sponsor [Weekly Benefit Amount Proposal - Page 1] (copy on file). He asked if the increases listed would take place if the bill was enacted. Mr. Weller responded that he was correct. HB 142 was HEARD and HELD in committee for further consideration. Co-Chair Foster reviewed the agenda for the following meeting. Representative Wilson made the comment that she had just received a new iPad. She thought iPads should be used in lieu of paper. Co-Chair Foster stated the Co-Chairs would think about the idea.