HOUSE BILL NO. 76 "An Act relating to electronic filing of certain information with the Department of Labor and Workforce Development; relating to surcharges, rate increase reduction, prohibition on the relief of certain charges, the unemployment trust fund account, and the offset of certain unemployment compensation debt under the Alaska Employment Security Act; relating to the definition of 'covered unemployment compensation debt' in the Alaska Employment Security Act; and providing for an effective date." DIANE BLUMER, COMMISSIONER, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT (DLWD), introduced department staff. She explained that the bill did four things: (1) allowed for electronic filing of reports and documents, (2) improved the ability to recoup fraudulent unemployment insurance (UI) payments, (3) adopted minor changes bringing the department into compliance with federal law governing the UI program, and (4) changed how UI tax rates were set in order to keep more money in the hands of Alaskan employers and employees. The bill would keep more money circulating in the state's economy while protecting the integrity of the trust fund. PAUL DICK, DIRECTOR, DIVISION OF EMPLOYMENT SECURITY, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, provided a sectional analysis of the bill. Section 1 adds a new section, AS 23.05.055, authorizing the commissioner to allow the use of electronic filing methods in place of paper filing. Section 2 adds a new section, AS 23.20.021, authorizing the legislature to appropriate money into the unemployment trust fund account. Section 3 adds a new section, AS 23.20.279, to bring the state into conformity with federal law, Public Law 112-40, by prohibiting the relief of charges to employers when an erroneous payment of unemployment insurance benefits is made due to an established pattern of the employer, or an agent of the employer, for failing to respond timely or adequately to a documented request for information relating to a claim for unemployment compensation. This section defines "erroneous payment" as a payment made that would not have otherwise been paid, but was due to the failure of the employer to respond timely or adequately. This section also defines "pattern of failing" as two or more times or 2% or more of all requests, whichever is greater, during the prior year. Section 4 amends AS 23.20.290(c) by adding the word "surcharge" following the words "fund solvency adjustment". Section 5 repeals and reenacts AS 23.20.290(f), replacing a table method for determining fund solvency adjustment surcharges with a more precise calculation method. It also eliminates the 0.3 limitation on fund solvency adjustment surcharge decreases in a single year. Section 6 adds a new section, AS 23.20.291, authorizing the commissioner to suspend, in whole or in part, increases in unemployment tax rates when the "average high cost multiple," a measure of solvency calculated by the U.S. Department of Labor, Employment and Training Administration, is 0.8 or greater and after consultation with the department's actuary. Section 7 amends AS 23.20.390(f) to bring the state into conformity with federal law, Public Law 112-40, by removing the department's authority to waive the collection of a penalty established due to misrepresentation and requires that a minimum of 30% of the unemployment insurance penalties collected due to misrepresentation be deposited into the state's unemployment trust fund account. Section 8 adds new section, AS 23.20.486 to authorize the department to offset unemployment compensation debt against a claimant's federal income tax refund. This section would allow the state to participate in the federal treasury offset program. Mr. Dick elaborated on Section 7 and relayed that currently the department was required to put 100 percent of the penalty collections into the unemployment trust fund account (the figure would be changed to 30 percent under the legislation). He pointed to Section 8 and shared that there were 19 other states currently participating in the federal treasury offset program; the program would enable the department to collect $500,000 per year and to allocate more money to the trust fund. 5:09:14 PM Mr. Dick continued with the sectional analysis: Section 9 amends AS 23.20.520, by adding a new paragraph to define "covered unemployment compensation debt" in accordance with the federal statutory definition. Section 10 effective July 1, 2018 repeals AS 23.20.291, added by section 6 of this bill. Section 11 amends state uncodified law by specifying that AS 23.20.279, added by section 3 of this bill, applies to overpaid benefits established after October 21, 2013. Section 12 specifies that the department will adopt necessary regulations to implement changes. Regulations will not be effective prior to July 1, 2013. Section 13 establishes that section 12 takes effect immediately. Section 14 establishes the effective date for the remaining sections of this Act as July 1, 2013. 5:10:08 PM CATHIE ROEMMICH, CEO, JUNEAU CHAMBER OF COMMERCE, spoke in support of the legislation. She read from a statement: Thank you for all of your efforts to keep our state strong by working for small business growth. It's not often these days we find ways to lower the cost on anything, so we applaud the governor for bringing forward the solvency of Alaska's Unemployment Trust Fund Account. The Juneau Chamber of Commerce represents nearly 400 business members and their employees. It is our job to promote and support a positive business climate, not only in Juneau, but throughout the state. Our members support legislation that updates and clarifies laws as they relate to doing business in an effort to improve Alaska's business environment. Therefore, we would like to add our support to House Bill 76. We are pleased that this legislation will ensure that business owners as well as Alaskan workers are not paying more to state government in unemployment insurance taxes than necessary. The Juneau Chamber also understands the importance of compliance with the federal unemployment insurance laws. Maintaining a significant federal Unemployment Tax Act credit that our employers currently receive is another critical piece of responsible taxation. The federal compliance components of House Bill 76 ensure that Alaskan businesses will not be sending any more money to Washington D.C. than necessary for the unemployment insurance program. We are also supportive of the greater efficiencies that the Department of Labor will be able to provide by allowing electronic filing of our unemployment claims. Thank you all for the work you do on behalf of Alaskans. 5:11:56 PM BARBARA HUFF TUCKNESS, DIRECTOR, LEGISLATIVE and GOVERNMENTAL AFFIARS, TEAMSTERS LOCAL 959, discussed the organization's membership. She referred to an opposition letter from the Fairbanks Chamber of Commerce (copy on file). She relayed that the organization had paid approximately $36,000 in unemployment taxes in 2012; employees had paid slightly over $8,000. She shared that Alaska was one of three states where employee and employer contributions went into the fund. She communicated that the organization had concern related to Section 6 of the House Labor and Commerce Committee CS. She detailed that the concern with Section 6 related to the amount of money employers and employees would pay into the fund. She had sent DLWD questions related to how the rate was calculated and how the change would impact employers and employees. She read a specific question that had been raised followed by a response from DLWD: Q: If the rate increases are suspended as referenced in Section 5 [Section 6 in the current CS] of the bill and the average high cost multiple falls below the trigger, won't employers and employees subsequently be required to pay more than what they would have had the earlier rate increase not been suspended. A: If rate increases are suspended employers and employees would be required to pay slightly more in subsequent years than they would have if the increases had not been suspended in the earlier years. Over the long-term, the amount paid by employers and employees would be about the same or slightly less if increases were never suspended. Any suspension would have the effect of deferring suspended taxes that would be absorbed over a multiple of years following. Ms. Huff Tuckness was not concerned with any other sections of the bill. 5:16:21 PM Ms. Huff Tuckness stressed that the current formula had worked well since the 1980s. The concern related to a potential impact on a fund that was currently running well. She encouraged the committee's consideration related to Section 6. Representative Holmes asked what the organization's preference was related to Section 6. Ms. Huff Tuckness replied that the organization would prefer that the section was removed from the legislation. She noted that the removal of the section would mean there would not be any suspensions of what employers or employees would pay. Representative Gara asked whether Section 6 could be rewritten so that the regular rate would go back into effect when the fund's surplus dissipated. Ms. Huff Tuckness felt that she was not the appropriate person to respond to the question. She referred to a question by the organization about how a surplus in the fund would be defined. She believed the questions fell under the purview of the department or the creator of the original formula. She added that the UI fund paid for some great educational programs throughout the state and made contributions to unemployed individuals. Representative Gara wanted to ensure the fund was able to continue paying for items it funded. He asked if Ms. Huff- Tuckness disagreed that the fund currently had a surplus. 5:20:02 PM Ms. Huff Tuckness did not agree that there was a surplus. She elaborated that fund contributions were based on a formula that had been established in the 1980s that had successfully ensured adequate contributions when economic times in the state were bad or good. She discussed rates over the past 10 or 20 years and referred to a chart showing slight increases and decreases over the years. She noted that the current formula ran smoothly. Vice-Chair Neuman asked whether the issue had been addressed in the House Labor and Commerce Committee and if so, why the committee had decided to keep the section. Ms. Huff Tuckness replied that she had brought the concern to the prior committee. She believed a sunset provision amendment passed by the prior committee was a way to address any negative issues should they occur. She surmised that if the bill passed with the provision intact and none of the concerns came to fruition there may be an effort to either extend or remove the repeal. Representative Costello requested that the bill be held after public testimony for further review. She offered her time to help resolve the issue. 5:23:26 PM PAUL GROSSI, ALASKA PIPE TRADES AND IRON WORKERS OF ALASKA, JUNEAU, followed up on testimony provided by Ms. Huff Tuckness related to Section 6 and stated that there may be a surplus in the fund currently, but there was no way for him to know. He surmised that the Legislative Finance Division director was probably the expert. He stated that there may be a way of tweaking the formula if the fund was over funded in order to give employers a break; the fund had been in effect for over 30 years and had worked close to perfectly. He cautioned to be careful with changing the formula because if there was a relief of an increase and a downturn in the economy caused the fund to become insolvent the employers would be on the hook. He explained that the federal government would have to pay the benefits and would require reimbursement with interest and the fund would need to be made solvent again. He did not believe the sky was falling, but the current system had worked for a long-time. He suggested that the committee look further into the issue. 5:26:42 PM Representative Wilson observed that Section 6 appeared to have checks and balances. She furthered that if the formula were to be changed it would be looked at again in the first year and subsequent years to ensure it was running smoothly. Mr. Grossi agreed that there were checks included the Section. He communicated that when the formula had gone into effect in 1979 or 1980 there had been significantly fewer employers and employees. He stated that it may be possible to tweak the formula to give employers a break for a long period of time. He noted that the financial analysts would be better equipped to provide that information. 5:28:45 PM DENNIS DEWITT, NATIONAL FEDERATION OF INDEPENDENT BUSINESSES, JUNEAU, shared information about the organization. He spoke in strong support of the legislation including Section 6. He shared that the organization's national consultant had looked at the section and was comfortable that the slight formula tweak would not cause any trouble for employers. He detailed if no employer were able to pay any UI taxes the fund would still have the ability to pay out funds equal to those paid in the last year for another 1.75 years. The organization believed the amount was sufficient for a trust fund. Additionally, the organization believed that continuing to increase the trust fund assessment was taking money out of employers' and employees' pockets and putting it into a state savings account at an inappropriate and unneeded level. Representative Gara pointed to Section 6, page 4, line 26. He believed the bill's provision requiring a reduction to last for a one-year period in the event of a surplus was inflexible. He wondered whether the section could be modified to allow for a lower rate on a month to month basis. Mr. Dewitt replied that continued changes of tax rates created problems for employers related to payroll. Changing the rate on a monthly basis would require computer systems to be reprogrammed on a monthly basis, which would become expensive. He stated that Public Employees' Retirement System (PERS) was concerned about when retirees were elderly; however, the UI fund was concerned about setting rates for the present and three years out. The organization believed an annual setting was sufficient and the likelihood of the fund being expended during that time period was very unlikely. Representative Gara assumed that the rate would not need to be looked at every month. He believed that if a surplus was identified the rate could be reduced and once there was no longer a surplus it could be dropped the following month. 5:33:30 PM DON ETHERIDGE, ALASKA AFL-CIO, JUNEAU, supported the majority of the legislation but had concerns about Section 6. He shared that declining revenues was the primary reason for concern. 5:34:29 PM ANDY ROGERS, SELF, ANCHORAGE (via teleconference), spoke in support of the legislation. He spoke from the perspective of an employer and did not see the bill as a game changer. He was encouraged by the state's work to conduct business efficiently. He looked at Section 6 and opined that the ability for the commissioner to give employers a break when the fund did well was a good way for the state to help employers. He did not believe a break on a potential increase would save the solvency of the fund in a major economic downturn. Co-Chair Stoltze asked if Mr. Rogers was a small business owner. Mr. Rogers replied in the affirmative. He and his wife owned a physical therapy clinic with multiple locations. 5:36:54 PM RACHEL PETRO, PRESIDENT and CEO, ALASKA STATE CHAMBER OF COMMERCE (via teleconference), spoke in support of the legislation. She stated that most of the provisions were straight forward. She asked for the system to remain compliant, efficient, and fair. She relayed that the chamber did support Section 6 of the legislation. Co-Chair Stoltze CLOSED the public testimony. HB 76 was HEARD and HELD in committee for further consideration. AT EASE 5:39:06 PM RECONVENED 5:42:48 PM