Legislature(2001 - 2002)
04/10/2001 01:32 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
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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.
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