Legislature(2017 - 2018)HOUSE FINANCE 519
02/02/2018 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." Representative Guttenberg reported that he had asked a young woman in the back of the room why she was supportive of the bill. She had replied that it would help her pay her mortgage. He was supportive of the legislation. 2:20:36 PM REPRESENTATIVE CHRIS TUCK, SPONSOR, provided a summary of the bill: 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. 2:25:49 PM Representative Tuck reviewed the sectional analysis (copy on file): Section 1: AS 23.20.350(d) Amends the benefit schedule by increasing the maximum qualifying wage requirement from $42,000 to $59,500. The qualifying wage schedule is extended in $250 increments to reach the new maximum qualifying amount. The benefit schedule is extended in $2 increments for each additional $250 of qualifying wages to reach a new maximum weekly benefit amount of $510. Section 2: Amends AS 23.20.350 by adding new subsections: (h) Annually, after December 31, 2019, authorizes the Department to increase the highest WBA for individuals earning at least $59,750. The new WBA calculation shall amend the highest base period wages in $250 increments and the highest WBA in $2 increments if the state's average weekly wage increases. The new maximum WBA shall not exceed 50% of the average weekly wage. (i) Provides for public notice of any new benefit amounts calculated under (h) by December 1 of each year by posting a notice on the Alaska Online Public Notice System and allows for public comment on the accuracy of the Department's calculations. New maximum WBAs apply to benefit years established on January 1 of each year and does not change existing claims. Changes to the WBA shall be calculated only once per year. (j) Establishes the calculation procedure for determining Alaska's average weekly wage by December 1 of each year. The average weekly wage is determined by dividing the average annual wage in the state for the preceding 12-month period ending June 30 by 52. The state must include wages of all employees in the state covered by this chapter, both public and private. If the calculation does not result in whole dollars, the amount shall be rounded down. Section 3: Provides for an effective date of January 1, 2018. 2:28:13 PM Representative Tuck noted that the bill was not changing the dependent factor. Vice-Chair Gara referenced opposition from the NFIB. He understood that calculation of employer contributions was written in another area of statute. Representative Tuck deferred to the department. LENNON WELLER, ECONOMIST, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, replied that a separate statute AS 23.22.290 outlined how tax rates were calculated. Vice-Chair Gara asked whether the bill would increase the employee contribution. Ms. Weller answered that any time the cost of a program was increased there was a corresponding increase in tax rates going forward. There was a forecast to FY24 showing the difference employers and employees would pay if the bill passed. There was a 73/27 percent split (employer and employee respectively). 2:31:10 PM Vice-Chair Gara asked for verification that in all states but two the employer covered the costs. Representative replied in the affirmative - Pennsylvania and New Jersey were the two other states that did not cover the costs. Representative Neuman asked how the bill would impact self- employed people. Representative Tuck deferred to the department. PATSY WESTCOTT, CHIEF OF UNEMPLOYMENT INSURANCE, DIVISION OF EMPLOYMENT AND TRAINING SERVICES, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, answered that self-employed individuals did not pay into the program and would not be impacted. Representative Neuman recalled a similar bill on the subject from the past. He spoke of construction companies and the complications surrounding independent contractors on job sites. He wondered whether the bills were related. 2:33:16 PM Representative Tuck answered that the independent contractor legislation had more to do with cheating Davis Bacon requirements. He explained that a self-employed contractor working on a Davis Bacon job was not required to pay themselves the same benefits and wages laid out in Title 36. He said that the bill did not speak to the issue. He added that with private contractors the employer could avoid paying the benefits due to hourly employees. Representative Neuman stated that self-employed individuals also had to pay self-employment taxes. He was unsure whether the unemployment compensation act was part of self- employment taxes. Ms. Westcott asked Representative Neuman to restate the question. Representative Neuman complied. Ms. Westcott answered that contributions to the Unemployment Insurance Trust Fund were not taken from self- employed individuals. The division investigated workers that were misclassified and reported incorrectly as independent contractors, those issues were addressed so that the employer could correctly report the employees and pay security tax contributions on their behalf. 2:35:36 PM Representative Pruitt asked when the employer paid the money, withheld from an employee's check for unemployment benefits, to the department. Ms. Westcott replied that the funds were deducted from the employees check each pay period and then held in trust by the employer on behalf of the employee. The funds were submitted to the department on a quarterly basis. Representative Pruitt referenced the effective date of January 1, 2018. He understood that this could affect the payments after March 31, 2018. Mr. Weller answered that tax rates were calculated once per year by the department and were effective for the following calendar year. He said that he could not speak to the retroactive nature of the bill but that the three most recent state fiscal years of costs and the trust fund balance at the end of September were used to calculate rates for the following January. He did not believe that rates would be recalculated if the bill went into effect partway through a calendar year. Co-Chair Seaton noted that the bill had been introduced the previous session and wondered whether the effective date should be updated. 2:38:04 PM Representative Tuck answered that the effective date should be amended. Representative Pruitt referenced Section 2 of the bill. He expressed concern for the elimination of legislative control in issues related to the bill. Representative Tuck responded that the bill would bring us up to date with other states by bringing the wage percentage factor up to 50 percent. He said that there was a chart in the packet that showed actual wage base predictions through 2024. Representative Pruitt struggled to understand the numbers. He hoped that the department could address his concerns. 2:40:57 PM Representative Neuman referenced Line 14, page 9 of the bill, which discussed the increase of weekly benefits. He wondered whether the increase mentioned would be increased to remain at the 50 percent of weekly average determination or would it fluctuate. Representative Tuck responded that it would be changed annually and would be locked in for a year. The wages would be determined before November 1, and the calculation would be used to determine the benefits after January 1. Representative Neuman clarified that the increase or decrease would depend on the average wages of Alaskans at 50 percent of the average weekly determined rate. Representative Tuck answered in the affirmative. Representative Tilton asked whether the bill would impact the Technical Vocational Education Program (TVEP) funds. Representative Tuck replied that the legislation would not impact TVEP or STEP [State Training and Education Program] grants. Ms. Westcott explained that those programs were funded through a portion of a tax collected from employees and was dedicated to the TVEP and STEP programs prior to the rest of the tax being deposited into the trust fund. The funds from the trust could only be used to pay benefits, training programs were funded through different federal grants received by the department. 2:44:39 PM Representative Guttenberg queried the logistics of the $250 increments to reach the new maximum qualifying amount and the $2 increments for each additional $250 for qualifying wages. Representative Tuck referenced a handout from the Department of Labor and Workforce Development (copy on file): • For every additional $250 in base year wages, $2 is added to the weekly benefit, with the schedule maxing out at a base year wage of $42,000 and $370 weekly benefit (excluding dependent child allowances, if applicable). Representative Guttenberg understood that the rate would go up automatically as pay wages increased to $250. Representative Tuck replied that the number would be locked in annually. Representative Pruitt asked whether someone could speak about the fiscal note. Ms. Westcott deferred to the Office of Management and Budget. Representative Pruitt asked about the mechanism that made the employee percentage of contribution at average rate class go down over the next 5 years under the legislation. Mr. Weller answered that the decrease was due to the change in the minimum tax rates. 2:48:56 PM Representative Gara referenced Page 7 of the legislation and stated that the benefit rate had not increased. Representative Tuck replied in the affirmative. Vice-Chair Gara understood that the bill assumed that as wages went up with inflation the benefit also increased. Representative Tuck answered in the affirmative. Whether a person was making $42,000 or $84,000 per year, they were locked in at the #370 per month. He speculated that a person making $84,000 per year probably had higher expenses. Representative Neuman asked about people filing for disability insurance. He asked whether the bill would increase disability payments. 2:51:07 PM Representative Tuck answered that the bill only dealt with unemployment insurance. Representative Neuman remarked that he had not known whether disability insurance fell under // Representative Pruitt referred to the indeterminate fiscal note. He hoped that an estimate of cost to the state could be determined. CAROLINE SCHULTZ, POLICY ANALYST, OFFICE OF MANAGEMENT AND BUDGET, responded that OMB had used actual state costs and liabilities from 2017 to model as if the legislation had been in effect in 2017. There had been about 1,500 state employees that qualified for the benefits under unemployment insurance. She reminded the committee that state employees and the state as an employer did not pay into the unemployment fund through the traditional tax that most employers did, rather the state reimbursed the fund as the state. If a state employee made a claim, the state reimbursed the fund, which came out of the working reserve fund. She said that the cost difference to the state would have been $456.6 thousand more dollars out of the working reserve fund in the 2017 calendar year; the state paid $4.4 million in calendar year 2017 and had the 487 claimants qualified for the higher rate greater that $370, the total cost to the state would have been $4.9 million. Representative Pruitt stated that the explanation was helpful. 2:54:46 PM Co-Chair Seaton asked whether the department could craft a new fiscal note that reflected the fiscal impact due to inflation adjustment. Ms. Schultz said that because the amounts of employees that would be claiming against the fund, and what their base wages would be, the fiscal impact would remain indeterminate. Co-Chair Seaton relayed that the bill would be heard on February 7, 2018. He asked amendments to be in Co-Chair Foster's office by 5:00 pm on February 6. 2:56:34 PM AT EASE 2:56:52 PM RECONVENED Co-Chair Seaton OPENED public testimony. TRENTON ENGLISH, SOUTHEAST REPRESENTATIVE, ALASKA LABORERS, JUNEAU, testified in favor of the bill. He felt that the rising cost of living should be considered and that unemployment benefits should be increased to help working Alaskans. 2:58:27 PM JOSHUA GARDNER, LABORERS 942, JUNEAU, spoke in support of the bill. He shared that it had been a slow year for construction workers and if he was lucky he worked 7 to 8 months of the year, making $800 to $1,000 per week. He said that when he was on unemployment he made $370 per week, which made it difficult to support his family and prepare for emergency expenses. 2:59:16 PM SYDNE WILLIAMSON, CARPENTERS 1281, JUNEAU, testified in support of the legislation. She shared her personal story. She relayed that she had worked jobs she did not enjoy and had lived in the women's shelter. She had gone back to school and she was now a carpenter. She loved her job and worked hard to support herself and her daughter. She relayed that she had to have a roommate to afford living in Juneau. She had been part of the crew that built the building at the airport. She was now out of work as the nature of carpentry work was job by job. She felt that she should not have to deplete her savings while in between jobs. She asked the committee to consider raising the weekly unemployment insurance benefit rate. 3:02:27 PM KYLEE LARSEN, LOCAL 1281, JUNEAU, spoke in support of the bill. She stated that the economy in Alaska thrived in the summer months. She spoke to struggling to find work and pay bills. She was a first-year apprentice in the local carpenters' union. She had broken her hand earlier in the year and had healed, but the work was now scarce. She stated that the average daycare charged $900, per month, per child, which was a major stressor on top of food, gas, and rent. She lamented that these factors left hardworking individuals to contemplate moving to another state. 3:04:50 PM LANCE NELSON, IRONWORKERS 751, FAIRBANKS (via teleconference), spoke in favor of the bill. He felt that when work slowed, and lay-offs occurred, the low unemployment benefits forced people to move out-of-state to find work and benefit from better unemployment benefits. He stressed that $370 per week was not a livable wage for Alaska families. He argued that the funds were not considered a luxury by needy working families but went right back into the economy being spent on home heat, food, and rent. 3:06:52 PM JD WILKERSON, LOCAL 751, FAIRBANKS (via teleconference), spoke in favor of the legislation. He indicated he had seen his volume of work drop about 50 percent over the past 2 years. He reported that over the last couple of years he'd seen young workers forced to leave Alaska. He hoped that the states economy could provide the means for families to remain in the state. Co-Chair Seaton indicated the legislative information office was having technical difficulties. 3:10:22 PM AT EASE 3:11:55 PM RECONVENED Co-Chair Seaton reported that there were 4 additional testifiers in Anchorage. 3:13:14 PM At EASE 3:14:12 PM RECOVENED DUSTIN SWATEK, PNWRCC, ANCHORAGE (via teleconference), spoke in favor of HB 142. He said that much of the trade work in the state was seasonal. He lamented that these workers often lived paycheck to paycheck. He believed that a raise in the unemployment benefits would help workers meet their financial needs until they could procure work. 3:15:27 PM RYAN ANDREW, IBEW LOCAL 1547, ANCHORAGE (via teleconference), testified in support of the legislation. The state was experiencing tough economic times, which meant the union had seen members move from the state for work in other locations. He felt an increase in the benefit would retain the Alaskan workforce. 3:16:36 PM KEVIN MACKY, IBEW LOCAL 1547, WASILLA (via teleconference), spoke in favor of the bill. He shared that about 220 members worked a seasonal career. The bill would be a major benefit, especially in the winter. He was a constituent of Representative Tilton. He spoke to the high cost of living and low unemployment insurance. 3:17:50 PM VINCE BELTRAMI, ALCSKS AFL-CIO, ANCHORAGE (via teleconference), testified in support of the bill. The current amount of $370 per week was over a decade old. He said that due to inflation, people collecting that $370 rate had lost $62, per week. He stressed that Alaska was behind most other states for wage replacement. The organization had over 1,000 members working in the Lower 48 because they could not wait to find work in Alaska while living under a paltry wage replacement. He referenced the Alaska Workforce Investment Board that had submitted a letter unanimously endorsing the bill. He referenced the number of employers supporting the bill. He felt that if the state was on the brink of building a new pipeline it was necessary to have a workforce ready to work. 3:22:05 PM Co-Chair Seaton CLOSED public testimony. He reminded members of the amendment deadline of 5:00 p.m. on February 6. 3:23:19 PM Representative Neuman queried the last time the unemployment insurance had been raised. Ms. Westcott answered that the last time the weekly benefit amount had been raised in the state was effective January 1, 2009. Prior to that the maximum weekly benefit amount had been $248. 3:24:11 PM HB 142 was HEARD and HELD in committee for further consideration. Co-Chair Seaton discussed housekeeping.