Legislature(2019 - 2020)BARNES 124

02/24/2020 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
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+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 113(L&C) Out of Committee
           HB 215-EMPLOYER'S UNEMPLOYMENT INSUR RATE                                                                        
3:51:23 PM                                                                                                                    
CHAIR SPOHNHOLZ announced  that the next order  of business would                                                               
be  HOUSE  BILL  NO.  215,   "An  Act  relating  to  unemployment                                                               
insurance  contribution rates;  and  providing  for an  effective                                                               
3:51:57 PM                                                                                                                    
PATSY  WESCOTT, Director,  Division  of  Employment and  Training                                                               
Services, Department  of Labor & Workforce  Development, informed                                                               
the committee that  employer rates are provided for  in Title 23,                                                               
Chapter 20, the  Alaska Employment Security Act.   The act itself                                                               
is  designed  to promote  employment  and  economic security  and                                                               
provide  a  partial  wage replacement  to  qualified,  unemployed                                                               
workers  through the  collection  of  unemployment insurance  tax                                                               
contributions.  Currently, the applicable  statute provides for a                                                               
minimum contribution  rate of  one percent  for all  employers in                                                               
all rate classes one through twenty.   The only exception is rate                                                               
class twenty-one,  which is the  penalty rate.   HB 215  seeks to                                                               
lower  the  minimum  contribution  rates for  employers  in  rate                                                               
classes one through  nine and set the minimum  rates to correlate                                                               
with an  employer's experience  rating.   The current  minimum of                                                               
one percent notably  affects the rate for employers  with a year-                                                               
round consistent  work force.   These  employers contribute  at a                                                               
disproportionate  rate  when  compared   to  employers  who  have                                                               
inconsistent  employee  payroll  from  quarter to  quarter.    An                                                               
employer's experience rate is based  on how consistent their work                                                               
force  is throughout  the year.   The  more stable  an employer's                                                               
work force,  the less need there  is for their employees  to draw                                                               
unemployment  insurance benefits.    Since  these employers  have                                                               
fewer  employees in  need  of benefits,  it  is appropriate  that                                                               
their  rates   should  not   be  expected   to  carry   the  same                                                               
contribution  burden   as  their  counterparts  in   higher  rate                                                               
classes.  At this time,  approximately 4,700 employers are paying                                                               
more contributions than are necessary.   The proposed legislation                                                               
would establish lower minimum rates, beginning January 1, 2021.                                                                 
3:54:56 PM                                                                                                                    
LENNON   WELLER,    Economist/Unemployment   Insurance   Actuary,                                                               
Research  & Analysis  Section, Department  of  Labor &  Workforce                                                               
Development,   provided  a   PowerPoint  presentation,   entitled                                                               
"Unemployment  Insurance Financing  Metrics  in  Alaska 1980s  to                                                               
Current."  He noted that,  in general, the unemployment insurance                                                               
(UI) financing  system has essentially  been in its  current form                                                               
since the  early 1980s  and has served  the state  "fairly well."                                                               
He said it's  a well-functioning system.  Both  through the 1980s                                                               
recession and the 2009 recession,  Alaska never borrowed money to                                                               
pay benefits  - unlike  a majority  of other  states -  which, he                                                               
said,  is a  testament to  the system's  well-functioning nature.                                                               
He explained that the system  is self-adjusting, in that it looks                                                               
to recapture costs  born by the system as  its primary objective.                                                               
It's also  countercyclical, meaning it  attempts to do  that post                                                               
the high  cost period through  a three-year averaging of  cost in                                                               
relation  to covered  wages when  implementing tax  rates in  the                                                               
following  years.    The  UI financing  system  has  two  primary                                                               
objectives, cost recovery and recession  readiness, which are the                                                               
two  main drivers  of  rates  at any  given  year.   He  directed                                                               
attention to a graph on slide 3, entitled "UI Trust Fund End-of-                                                                
Year  Balance, Benefit  Costs, and  Payroll Contributions,  1981-                                                               
2019."  He  said it shows the relationship  between benefit costs                                                               
at any  given year,  net contributions,  and the  resulting trust                                                               
fund  balance.   Over  time,  in nominal  terms,  the trust  fund                                                               
balance should  grow because it  is kept within a  relative ratio                                                               
to wages in the economy.   Essentially, as wages grow the balance                                                               
of the fund should grow.                                                                                                        
3:58:05 PM                                                                                                                    
REPRESENTATIVE HANNAN asked  if benefit cost is what  is paid out                                                               
in benefits.                                                                                                                    
MR. WELLER answered yes.                                                                                                        
REPRESENTATIVE HANNAN  pointed out  that in  1986 more  money was                                                               
spent on  unemployment insurance  than was taken  in.   She asked                                                               
where that money  came from, more specifically, if it  was a draw                                                               
on the general fund.                                                                                                            
MR. WELLER said all revenues,  or net UI contributions, come from                                                               
the  payroll  tax, which  is  assessed  on  all wage  and  salary                                                               
employment in the state.                                                                                                        
REPRESENTATIVE HANNAN  said the graph  shows that the  trust fund                                                               
balance wasn't high enough to pay  the benefit cost in 1986.  She                                                               
asked what  happens when  the benefit costs  are higher  than the                                                               
trust fund balance.                                                                                                             
MR. WELLER explained  that while in any given  year more benefits                                                               
might  have   been  paid   out  than   the  amount   received  in                                                               
contributions,  the  actual  net  value of  the  fund  was  never                                                               
negative.  He  said in 1986 it  fell to a low of  $60 million and                                                               
began to recover thereafter.   He noted that several years prior,                                                               
the fund  was built up  to have  the cushion necessary  to absorb                                                               
those benefit costs higher than contributions.                                                                                  
3:59:43 PM                                                                                                                    
MR. WELLER  directed attention  to a graph  on slide  4, entitled                                                               
Unemployment  Insurance Trust  Fund Reserve  Rate the  Measure of                                                               
Solvency 1981-2020."  He discussed  how the trust fund balance is                                                               
viewed  in terms  of  the financing  system.   He  said the  more                                                               
important aspect,  as opposed to  the nominal value of  the fund,                                                               
is its relation  to the total wages covered in  the economy.  The                                                               
target for the reserve ratio  is between 3-3.3 percent of covered                                                               
wages and  the fund seeks  to return  to the relative  portion of                                                               
covered  wages.   In  periods  it will  be  below  that which  is                                                               
accounted for  by cost recapture  and a solvency adjustment.   He                                                               
said  that the  reserve ratio  is the  balance of  the fund  as a                                                               
percentage of wages  in the economy.  He pointed  out that in the                                                               
last  several years,  it has  gone  above the  target high  point                                                               
reserve ratio of  3.3 and is currently at 3.8  reserve ratio.  He                                                               
further  noted that  the  target  reserve ratio  is  a result  of                                                               
looking at  history, benefit costs  under high-cost  periods, and                                                               
deemed  acceptable to  meet a  vast majority  of potential  large                                                               
cost periods.                                                                                                                   
MR.  WELLER turned  attention to  a  graph on  slide 5,  entitled                                                               
"U.S.  DOL,  Measures   of  Trust  Fund  Adequacy."     He  said,                                                               
generally, the  state will meet  the average  high-cost multiple,                                                               
which  is a  more generous  measure.   It looks  at a  three-year                                                               
average of  the highest  cost periods as  a percentage  of wages.                                                               
That  high-cost rate  is 22.6  percent.   He  explained that  the                                                               
high-cost multiple looks  at the highest cost  12-month period in                                                               
the  program's history,  which was  in  1958 at  4.34 percent  of                                                               
covered wages.  The point of this  graph, he said, is to show how                                                               
far the reserve ratio has come in  the last several years.  It is                                                               
now  running at  60  percent  higher than  the  main federal  DOL                                                               
measure of  full solvency - 160  percent of what they  would deem                                                               
necessary to meet the most likely recessionary cost period.                                                                     
MR.  WELLER   continued  to   a  graph   on  slide   6,  entitled                                                               
"Unemployment Insurance  Average Benefit  Cost Rate,  ABCR, 1985-                                                               
2020."   He stated that the  Average Benefit Cost Rate  (ABCR) is                                                               
the main driver of  tax rates in any given year -  it is the cost                                                               
recover  element.   Three  years of  benefit cost  is  used as  a                                                               
percentage of  wages to replenish  the fund in relation  to those                                                               
wages  covered.     Since  the   mid-1980s,  there  has   been  a                                                               
significant decline  in the  relative ratio  of benefits  paid to                                                               
the general size  of the potential pool of wages  in the economy.                                                               
Furthermore,  2020 is  the first  year where  ACR fell  below the                                                               
threshold  at which  the one  percent statutory  minimum met  the                                                               
average rate classes 10 and 11.                                                                                                 
MR. WELLER  directed attention  to a graph  on slide  7, entitled                                                               
"Alaska, UI  Contribution Rates Employer  and Employee,  CY1981 -                                                               
CY2020."  He said it shows  the average employer tax rate and the                                                               
uniform  employee  rate.    The  past  four  years  has  steadily                                                               
remained at  the statutory minimum  one percent,  which signifies                                                               
that tax  rates have bottomed  out.  He  continued to a  graph on                                                               
slide 8,  entitled "1985-2020 Count  of Tax Classes  at Statutory                                                               
Min. 1  [percent] in  a given  tax year Total  of 20  Tax Classes                                                               
subject to  1 [percent] Min."   He  stated that there's  at least                                                               
one  or  two tax  classes  that  become  subject to  the  minimum                                                               
because  rate class  one equates  to  40 percent  of the  average                                                               
benefit cost rate of portion two employers.                                                                                     
4:06:23 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
4:06:27 PM                                                                                                                    
CHAIR SPOHNHOLZ  noted that something  is wrong with  the visuals                                                               
on the projector.                                                                                                               
4:07:24 PM                                                                                                                    
MR. WELLER  said on average,  there are several tax  classes that                                                               
are subject  to the  minimum rate; however,  in the  past several                                                               
years it has  steadily crept up to the point  where currently, 18                                                               
of the  20 rate classes that  subject to the minimum  are at that                                                               
one percent minimum.                                                                                                            
4:07:50 PM                                                                                                                    
REPRESENTATIVE  FIELDS  asked how  many  employers  HB 215  would                                                               
MS. WESCOTT answered approximately 4,700.                                                                                       
CHAIR  SPOHNHOLZ sought  clarification  on the  variation in  tax                                                               
MR.  WELLER  said  the  average benefit  cost  rate  becomes  the                                                               
primary component  for all employers'  rates.  Classes 10  and 11                                                               
are  currently  the median  of  the  class  structure.   That  is                                                               
multiplied by  something either  lesser or  greater than  that to                                                               
essentially  experience rate  employers.   He further  noted that                                                               
tax classes 9 would be subject to  90 percent of that, 8 would be                                                               
80 percent  and so  forth, all  the way down  to rate  class one,                                                               
which has  an experience factor  of .4.   That means  they should                                                               
ideally pay 40  percent of what those in the  average tax classes                                                               
10 and 11 would pay.                                                                                                            
CHAIR SPOHNHOLZ asked  for an even more  elemental description of                                                               
what  a  tax  classification  is  and  how  individual  jobs  are                                                               
ascribed to tax classifications.                                                                                                
4:09:36 PM                                                                                                                    
MR.  WELLER explained  that federal  law mandates  that employers                                                               
are experience rated.   The department does that  through a peril                                                               
decline method, which means employers  are assigned with a lesser                                                               
experience  a lower  rate and  those with  a higher  experience a                                                               
higher rate.   This is done by looking at  average decline in the                                                               
employers' payroll.   He noted that they must have  at least four                                                               
quarters of payroll to be subject to an experience rating.                                                                      
CHAIR SPOHNHOLZ asked what an experience rating is.                                                                             
MR. WELLER  said an  experience rating is  the relative  share of                                                               
the  average rate  that they  would  pay based  on their  payroll                                                               
decline portion.                                                                                                                
4:10:41 PM                                                                                                                    
MS.  WESCOTT,  in response  to  Chair  Spohnholz, explained  that                                                               
experience rating is  a long-used term by the  U.S. Department of                                                               
Labor.     Essentially,   employers  whose   payroll  has   large                                                               
fluctuations  from  quarter  to   quarter  indicates  that  their                                                               
employees  were  laid off,  filing  for  benefits, or  using  the                                                               
system.   Therefore, that employer  is experiencing  the benefits                                                               
of the  trust fund and the  benefits of the system,  as are their                                                               
employees.   This  is contrary  to an  employer whose  payroll is                                                               
consistent  from  quarter  to   quarter,  which  indicates  their                                                               
employees are  not being laid  off and not drawing  benefits from                                                               
the system.  This employer's  experience would be much lower than                                                               
an employer whose payroll fluctuates greatly.                                                                                   
4:12:14 PM                                                                                                                    
REPRESENTATIVE   HANNAN  surmised   that   in   the  context   of                                                               
unemployment insurance,  a high experience  rating is bad,  and a                                                               
low experience rating is good.                                                                                                  
MS. WESCOTT  replied she wouldn't use  the term "bad."   She said                                                               
the unemployment insurance system  exists to provide that partial                                                               
wage replacement during periods of  time where an employee can be                                                               
laid  off.   Nonetheless,  from  an  employer's perspective,  the                                                               
lower  the rate  class  they're  in the  better  it  is for  that                                                               
employer because they are paying out a lower rate.                                                                              
4:13:00 PM                                                                                                                    
REPRESENTATIVE FIELDS noted  that some of this is  sectoral - the                                                               
construction of industry  waxes and wanes with season.   He asked                                                               
if that is correct.                                                                                                             
MS. WESTCOTT confirmed that.                                                                                                    
4:13:13 PM                                                                                                                    
REPRESENTATIVE  HANNAN  said she  assumed  that  there are  other                                                               
states that  have seasonality to  their incomes.  In  Alaska, for                                                               
example, there  are huge swaths  of industry -  from construction                                                               
to fisheries - that are always  going to be high experience.  She                                                               
asked if  the ranking, rating,  and payment rate account  for any                                                               
industry differences or if seasonality is irrelevant.                                                                           
MR.  WELLER  acknowledged  that there  is  a  strong  correlation                                                               
between seasonality  and the rate  class - the more  seasonal the                                                               
industry the higher the rate class.   He added that less seasonal                                                               
more  stable employers  all find  themselves in  the lowest  rate                                                               
class one.                                                                                                                      
REPRESENTATIVE HANNAN  asked if seasonal employers  are penalized                                                               
by the slower seasons.                                                                                                          
MS. WESCOTT  said there is  nothing in statute that  provides for                                                               
any waiver or relief to any particular industry.                                                                                
4:16:57 PM                                                                                                                    
MR.  WELLER  resumed  his  presentation   on  slide  9,  entitled                                                               
"Average  Benefit cost  rate,  ABCR/Employer  Rate Share/Min  one                                                               
percent  Rate."   He explained  that the  graph depicted  on this                                                               
slide displays  the relationship between  the total ABCR  and the                                                               
employer share.  He said at an  ABCR of 1.37 or lower the average                                                               
rate  classes  10 and  11  would  be  subject to  this  statutory                                                               
minimum.  Currently, for 2020 there  was an ABCR of 1.28 percent,                                                               
which would make  the average rate class .82.   Under HB 215, the                                                               
absolute minimum  take would be .82  as opposed to the  current 1                                                               
percent statutory  minimum.  He  continued to slide  10, entitled                                                               
"2020 Rate Classes 1-9, Current  Statute V. Proposed Change."  He                                                               
said that  this slide demonstrates  how the new  experience rated                                                               
minimums would affect  rate classes 1-9 for  the current calendar                                                               
year.    If there  was  no  minimum  in  place and  included  the                                                               
solvency adjustment, there would be  a negative tax rate for rate                                                               
class 1 in 2020.  However,  if the solvency adjustment were to be                                                               
disregarded, the  experience rated rate  class 1 would be  at .38                                                               
percent in 2020.                                                                                                                
4:20:36 PM                                                                                                                    
REPRESENTATIVE FIELDS  said an  employer might pay  in more  in a                                                               
given year than their employees take  out when they get laid off.                                                               
He asked if  that changes from year to year,  meaning one year an                                                               
employer's employees getting laid off  may take less and then the                                                               
next year  they might take  more.   He asked if  that's generally                                                               
MR. WELLER answered yes.                                                                                                        
REPRESENTATIVE FIELDS  asked if Alaska  is 50th in the  nation in                                                               
terms of UI payments.                                                                                                           
MS. WESCOTT said Alaska is currently 37th.                                                                                      
REPRESENTATIVE FIELDS asked  how much below average  Alaska is in                                                               
terms of weekly or bi-weekly payments.                                                                                          
MS. WESCOTT said she would follow up with requested information.                                                                
REPRESENTATIVE FIELDS explained that  he would like to understand                                                               
where Alaska  is relative to  the average  in terms of  amount of                                                               
dollars workers are not getting when they get laid off.                                                                         
CHAIR SPOHNHOLZ said the entire  committee would be interested in                                                               
knowing what Alaska's  UI payments are and how they  fit into the                                                               
national  context, as  well as  what wages  are in  the state  of                                                               
4:22:23 PM                                                                                                                    
REPRESENTATIVE HANNAN  sought clarification on whether  the state                                                               
ranking accounts for  the number of people being paid  as well as                                                               
the  dollars they  are receiving  or  just the  dollars they  are                                                               
MS. WESCOTT  explained that the  state ranking  compares Alaska's                                                               
maximum weekly benefit amount to that of the rest of the states.                                                                
REPRESENTATIVE HANNAN asked  if it disaggregates for  the time of                                                               
year and job type.                                                                                                              
MS.  WESCOTT  said  there  are  a number  of  measures  that  the                                                               
department reports  on.  She  noted that Alaska's  average weekly                                                               
benefit amount in a given year is much lower than 370.                                                                          
4:24:33 PM                                                                                                                    
REPRESENTATIVE  FIELDS said  he would  be interested  in learning                                                               
Alaska's maximum and average compensation  over time and adjusted                                                               
for inflation  to understand  if workers  today are  getting paid                                                               
more or less than 20 or 30 years ago.                                                                                           
CHAIR SPOHNHOLZ agreed.                                                                                                         
[HB 215 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 215 DOLWFD UI Presentation 02.21.2020.pdf HL&C 2/24/2020 3:15:00 PM
HB 215
HB 215 Governor's Transmittal Letter 01.21.20.pdf HL&C 2/24/2020 3:15:00 PM
HB 215
HB 215 Fiscal Note DOLWD-UI 01.07.20.PDF HL&C 2/24/2020 3:15:00 PM
HB 215
HB 215 Trust Fund Base Line Charts 01.3.2020.pdf HL&C 2/24/2020 3:15:00 PM
HB 215
HB 113 v. S Amendment #3 HL&C 2.22.2020.pdf HL&C 2/24/2020 3:15:00 PM
HB 113
HB 84 Fiscal Note DLWD WC 4.3.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Opposition Document- AML Joint Insurance Association 3.29.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Presentation 4.3.19.pdf HL&C 2/24/2020 3:15:00 PM
HL&C 2/26/2020 3:15:00 PM
HB 84
HB 84 Sectional Analysis 4.3.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Sponsor Statement 3.28.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Breast Cancer in Women Firefighters.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Asbestos 3.28.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Breast Cancer Rates For Women Firefighters San Francisco 2.5.20.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Legal Analysis on State Firefighters 2.5.20.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Letter of Support ACAT 4.3.19.pdf HL&C 2/24/2020 3:15:00 PM
HL&C 2/26/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Letter of Support- APOA 3.28.19.pdf HL&C 2/24/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- Literature Review- Police Occupational Hazards 2.5.20.pdf HL&C 2/24/2020 3:15:00 PM
HL&C 2/26/2020 3:15:00 PM
HB 84
HB 84 Supporting Document- RADS in Police from Chemical Spill- 3.28.19.pdf HL&C 2/24/2020 3:15:00 PM
HL&C 2/26/2020 3:15:00 PM
HB 84