Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/10/2018 01:30 PM LABOR & COMMERCE
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HB 142-UNEMPLOYMENT INSURANCE BENEFITS 2:02:05 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of HB 142. [CSHB 142(FIN) was before the committee.] 2:02:22 PM REPRESENTATIVE CHRIS TUCK, Alaska State Legislature, Juneau, Alaska, sponsor of HB 142, thanked the committee for hearing the bill that improves unemployment insurance. He said his staff would provide the introduction and sectional analysis and he would follow up talking about the economic benefits. 2:02:42 PM KENDRA KLOSTER, Staff, Representative Chris Tuck, Alaska State Legislature, Juneau, Alaska, introduced HB 142 speaking to the following 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. 2:04:24 PM MS. KLOSTER delivered a sectional analysis of HB 142 speaking to the following prepared document: Sectional Analysis for HB 142 version R Increase to Alaska's Unemployment Insurance Maximum Weekly Benefit Amount Increases the state's maximum weekly benefit amount (WBA) from $370 to $510 and increases the qualifying wage scale from $42,000 to $59,500. After the initial increase to $510, future benefit increases are tied to an economic indicator based on the state's average weekly wage (AWW). Increases to the WBA shall not exceed 50% of the states average weekly wage from the prior calendar year. 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, 2020, 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, 2019. MS. KLOSTER related that the sponsor believes this is the right time to increase unemployment insurance benefits. There is an economic downturn and Alaskans need help to ensure that they can pay the mortgage and put food on the table. Testimony in other committees demonstrated that it's been hard to take care of families when the UI benefits are so low. She advised that individuals from DOLWD were available to answer any questions the committee may have. 2:06:23 PM REPRESENTATIVE TUCK provided information on the economic benefits of always having unemployment insurance and specifically when there is a downturn in the economy. A study by the Columbia Business School titled The Importance of Unemployment Insurance as an Automatic Stabilizer found that unemployment insurance acts as an automatic stabilizer to the economy. The more generous the unemployment insurance benefits are, the better the region fairs overall." The research explains that "as demand for products and services decline due to unemployment, unemployment insurance allows for continual cash flow in the community." Further, the Congressional Budget Office reports that every dollar that is invested into unemployment insurance nationwide, contributes to about 19,000 new jobs. By comparison, a dollar in tax cuts creates just 10,700 jobs. He explained that unemployment insurance creates more jobs because people spend all the money received from unemployment insurance, whereas someone who is employed and receives that dollar from tax credits won't spend the whole dollar. Just part of that dollar goes into the economy; the rest is to pay off a mortgage, to pay down debt, put in savings or something else. He reiterated that a benefit of unemployment insurance is as a stimulus to the economy. Research indicates the return per dollar invested can be as high as $2.15. The reason is that when people purchase groceries, it keeps agriculture workers, truck drivers, grocery store workers, and others employed. REPRESENTATIVE TUCK argued that paying reasonable unemployment insurance benefits also helps to keep skilled, seasonal workers in Alaska. Alaska is among the highest in the nation for seasonal work and the cost of living is very high. Once a worker moves out of the state, it's difficult to get them back, particularly when the Lower-48 economy is doing well, and unemployment insurance is higher. A worker in Washington state who loses his/her job will receive almost 70 percent more than the UI benefits in Alaska. He shared that the Federal Reserve commented that unemployment insurance is the best economic stimulus package a state can offer. It is better than infrastructure investment for mass transit because the money immediately goes into the economy. Former Federal Reserve Chair Ben Bernanke said the unemployment insurance benefits program spurs growth and creates jobs. CHAIR COSTELLO noted who was available from DOLWD to answer questions. 2:11:04 PM SENATOR MEYER asked what the UI benefits would be today if a COLA had been in effect in 2009 when the benefits were last raised. REPRESENTATIVE TUCK deferred the question to Lennon Weller and advised that HB 142 would increase the maximum weekly benefit amount (WBA) to $510. 2:12:17 PM At ease 2:12:40 PM CHAIR COSTELLO reconvened the meeting. SENATOR MEYER asked if $510 was a reasonable weekly benefit compared to a cost of living allowance (COLA) applied to the 2009 benefit. 2:13:07 PM LENNON WELLER, Economist and Actuary for the Unemployment Insurance System, Research and Analysis Section, Department of Labor and Workforce Development, Juneau, Alaska, advised that the two amounts are roughly aligned. The calculation shows that for calendar year 2018, the maximum benefit would be $506. SENATOR MEYER asked the derivation of the $510 value. MR. WELLER explained that when the bill was originally drafted, it was 50 percent of the average annual wage. The basis was state fiscal year 2016 wages and employment. SENATOR MEYER asked if there was a surplus or deficit in the Unemployment Insurance Trust Fund. MR. WELLER said that as of February, the fund balance was $442.7 million. More importantly, that corresponds to a 3.64 percent reserve ratio. The goal is to have a reserve ratio of between 3 percent and 3.3 percent to handle increased benefit loads. "Right now, we have what we would consider full solvency, he said. SENATOR MEYER observed that Alaska is one of just three states where both employers and employees contribute to the unemployment insurance program. He asked if employers are the sole contributors in the other 47 states. MR. WELLER said yes. SENATOR MEYER asked if the sponsor agrees with that and questioned whether the employer should be the sole payer. 2:16:53 PM REPRESENTATIVE TUCK said he would like Alaska to be more like the other states, but it's important to put this money in the economy now rather than getting bogged down with too many fixes at one time. Right now, the bill increases the WBA to DOLWD's recommended level and implements an automatic mechanism. 2:18:06 PM CHAIR COSTELLO asked for an explanation of the actual weekly payout. REPRESENTATIVE TUCK directed attention to the chart of numbers on page 7. He explained that the numbers continue the calculation in existing statute. For every $250 increase in annual earnings for an employee, the weekly benefit increases $2. Under the bill, the maximum weekly benefit is $510. Under current statute the calculation stops at the maximum annual wage of $42,000. That benefit would be $370. Anyone making more than $42,500 would still only receive $370. HB 142 increases the maximum base wage calculation to $59,500. CHAIR COSTELLO asked if he had run any economic modeling to determine the impact the bill would have on the fund. MR. WELLER said the economic modeling on the cost impact of this increase goes through 2024. CHAIR COSTELLO asked him to share that information with the committee. MR. WELLER advised that HB 142 brings costs back to the long- term goals where financing of the system tends to be more reactive and functional. Increases won't begin to go into effect for the average rate class until 2021. At that point the maximum cost per employee is projected to increase from $70 to $139 in 2022 and to $222 in 2023 before falling back to a difference of $185 over the baseline cost expectations at the average tax rates for tax classes 10 and 11. MS. KLOSTER added that the packets have some charts that would help with the explanation. CHAIR COSTELLO asked, if the bill were to pass as written, would the highest change be to the $510 per week or would that amount go up over time. MR. WELLER advised that very little change is expected in the average annual wage through 2024. As a result, the maximum weekly benefit amount is not expected to change through 2024. CHAIR COSTELLO asked for an explanation of the language in subsection (h) on page 9, lines 13-17. 2:26:06 PM REPRESENTATIVE TUCK replied that is the automatic adjustment factor that is based on the average annual wages of Alaskans. What Mr. Weller was relating is that DOLWD expects wages to be stagnant for a while, so unemployment insurance benefits are not going to increase either. If there was a sudden spike in the economy and wages went up proportionally, unemployment insurance would also go up because it's factored on 50 percent of the average annual wage. That is the calculation in Section 2. Thirty-six other states use that same calculation, one state uses less than 50 percent and some states use as high as 60 percent of the average annual wage. 2:27:33 PM CHAIR COSTELLO observed that Section 2 has new subsections and asked if this is a new adjustment. REPRESENTATIVE TUCK confirmed that was correct. CHAIR COSTELLO observed that the system is currently static. MS. KLOSTER agreed. 2:27:58 PM CHAIR COSTELLO opened public testimony on HB 142. 2:28:14 PM RYAN ANDREW, International Brotherhood of Electrical Workers (IBEW) Local 1547, Anchorage, Alaska, stated he was speaking in support of HB 142. He pointed out that there hasn't been an increase in the unemployment benefit since 2009, that Alaska th ranks 37 in the nation for maximum weekly benefit, and it ranks dead last on the wage replacement ratio. He said Alaskan workers employed in industries like construction rely on unemployment benefits to carry them through the winter when construction work isn't readily available. The cost of living is high in Alaska and $370 a week isn't enough. The proposed increase would benefit both employees and employers. It would be a direct benefit to employees and an indirect benefit to employers by retaining a skilled workforce. The economy on the West Coast is booming and there is no economic reason for a skilled worker to return to Alaska once they've made the decision to seek employment elsewhere. He said the IBEW apprenticeship program invests 4-5 years and between $20,000 and $30,000 to train an apprentice and it's a blow to lose those workers to the Lower- 48. Increasing the benefit would encourage workers to remain in Alaska, even when the economy is slow. He said it's also important to point out that paying for unemployment benefits is a shared burden. 2:31:32 PM SERGIO ACUNA, representing self, Anchorage, Alaska, said he's been a construction worker for over 22 years and is speaking in support of HB 142. This much-needed increase will help unemployed workers and their families while they look for another job. 2:33:46 PM DOUG TANSY, President, Fairbanks Central Labor Council, Fairbanks, Alaska, stated support for HB 142 and asked the committee to consider the social factors that come into play when workers and their families are stretched beyond their means to extend debt. He emphasized that hard-working Alaskans deserve a bill like HB 142. 2:34:43 PM LAKE WILLIAMS, President, Fairbanks Building Trades and district representative for the International Union of Operating Engineers (IUOE), Local 302, Fairbanks, Alaska, advised that the resolution he introduced on behalf of the Fairbanks Building Trades in support of HB 142 should be in members' packets. He said his members are relying on unemployment insurance benefits more than ever to make payments and feed their families until the next job is available. This year between 300 and 400 people were on the out-of-work list hoping to go to the North Slope but the jobs were not available. He said another problem is that competition from the Lower-48 is causing some of Alaska's skilled workforce to relocate out of state. They generally don't come back, but some become transient workers who return to get a paycheck then go back to their new state of residence and spend their money there. He opined that increasing the UI benefits will help curb this situation. He urged the committee to pass HB 142 and send it to the governor. 2:37:04 PM DON ETHERIDGE, Lobbyist, Alaska AFL-CIO, Juneau Alaska, stated strong support for HB 142 and requested the committee move it on. He related that during the last economic downturn the local labor union lost over 50 percent of its membership to Washington, Oregon, and Nevada. Once the economy recovered the union spent millions of dollars retraining a workforce. Passing HB 142 will help prevent that situation from recurring. 2:38:23 PM BARBARA HUFF-TUCKNESS, Director of Government and Legislative Affairs, Teamsters Local 959, Anchorage, Alaska, said she would not reiterate the excellent testimony on HB 142, but she would remind members that the unemployment insurance, like health, fire, and home insurance, provides a cushion when there is an unexpected economic situation that folks either aren't prepared for or their savings can't cover. Without that cushion many are forced to leave their community and/or state. She referenced Senator Meyer's comment and advised that she has never heard a member complain about the contribution they make towards the unemployment insurance fund. She said she supports employees and employers both contributing to this important insurance fund. She urged support for the passage of HB 142. 2:40:02 PM ANTHONY LADD, Iron Workers Local 751, Anchorage, Alaska, stated support for HB 142. He said it's an understatement to say that an iron worker's job in Alaska is seasonal. He shared that in earlier years he was forced to fly south to look for work during the off season to be able to support his four kids. He currently trains apprentices and sees the work and money that goes into training the workforce in Alaska. He opined that when they are laid off in the winter they'll do nothing but leave and get their unemployment somewhere else. 2:41:45 PM RODNEY HESSON President, Juneau Building and Trades Council, Juneau, Alaska, said the skilled trades workforce in Alaska is particularly hard hit now because members are not only relocating to find work but many are also retiring at an accelerated rate. He said it takes five years to train an IBEW apprentice and for them to leave the state as journeymen and possibly never return is expensive and problematic. We need to keep our workers here in the state, he said. 2:43:05 PM CHAIR COSTELLO closed public testimony on HB 142. SENATOR GARDNER commented that she's come to realize that the bill has a broader impact than just protecting the families of people who are temporarily unemployed. It also addresses keeping seasonally or temporarily unemployed workers in Alaska as part of a skilled workforce. SENATOR MEYER asked for an explanation of how a worker qualifies for unemployment insurance benefits. 2:44:40 PM MR. WELLER explained that to qualify for UI benefits a worker is required to work in multiple quarters and must earn at least $100 in a quarter outside the primary quarter of earnings. The size of the benefit is assessed according to the individual's base period wages. That is the first four of the most recent five completed calendar quarters. Seasonality of the wages impacts the duration of the benefit. SENATOR MEYER asked if individuals who come to Alaska to work in seafood processing plants would qualify for benefits once the work ends and they leave Alaska. MR. WELLER said yes if they meet the strict requirements. They must earn at least $2,500 in wages and at least $100 must be in a quarter outside the primary quarter of earnings. They must also meet the requirements of being able and available for work. SENATOR MEYER noted the letters in the bill packet from small businesses that are opposed to HB 142. He questioned the opposition if the UI increases would be healthy for the economy. MR. WELLER replied it's understandable that employers are concerned about the increased costs and payroll taxes, but it's important to keep in mind that employers that have relatively stable payrolls will receive a tax rate that is much lower on average. He said it's also important to understand that there is parity established within the unemployment insurance financing system. 2:49:44 PM REPRESENTATIVE TUCK quoted the Federal Reserve Bank of Minnesota that said, Despite years of research, the economic effects of unemployment benefits are poorly understood. While intuition might suggest that providing financial aid to people who lose their jobs would discourage them from seeking new jobs, recent research has found that extending benefits has little effect at the individual level. One of the reasons is that the opportunity cost is low. When one goes from unemployed to employed, they are willing to give up unemployment insurance to get full employment. This is unlike someone who is considering opening a restaurant where the opportunity cost is high. Those high opportunity costs might prevent someone from making the investment. He said the solution to unemployment is creating new jobs. The federal reserve also says that UI adds to the overall demand and overall employment over what otherwise would have been if there had been no unemployment insurance at all. It's during those periods of economic weakness that UI keeps money circulating in the economy. He said some business groups oppose the bill due to the misunderstanding of how unemployment insurance benefits affect the economy. Some people look at it as paying people to sit at home but that hasn't been the case. SENATOR MEYER questioned how raising the unemployment insurance benefits would help the oil industry be more profitable. REPRESENTATIVE TUCK agreed it would not help that industry unless it maintained its workforce in Alaska. SENATOR MEYER commented on the importance of maintaining a skilled workforce in Alaska. 2:53:02 PM CHAIR COSTELLO thanked the sponsor and stated she would hold HB 142 in committee.