HB 76-UNEMPLOYMENT; ELEC. FILING OF LABOR INFO  3:27:15 PM CHAIR OLSON announced that the first order of business would be 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." 3:28:27 PM PAUL DICK, Director, Central Office, Division of Employment Security (DES), Department of Labor & Workforce Development (DLWD), offered a brief recap of HB 76. He stated that Section 1 allows the commissioner to allow electronic filing of documents in place of paper filing. Section 2 would allow for an appropriation into the unemployment (UI) trust fund and Section 3 is a conforming section for federal provisions for relief of charges for UI. Section 4 would repeal and reenact a table to address the trust fund solvency and also would allow for the UI trust fund solvency to be calculated at a more precise percentage, to the hundredths of a percent instead of to tenths of a percent. He related that Section 5 would allow the commissioner of DLWD to suspend all or part of the increases of the UI tax rates conditioned on an average high cost multiple of .8 or greater. He stated that Section 6 would bring the state into conformity with federal law by removing the department's authority to waive collection of a penalty established due to a misrepresentation. Additionally, this section would authorize the department to deposit 30 percent of penalty collections into the UI trust fund. Section 7 would authorize the department to offset UI compensation debts through the federal treasury offset program - which addresses individual income tax refunds - and place them into the UI trust fund. Section 8 defines covered employment compensation. He concluded his summary by stating that Sections 9-11 relate to the effective date. 3:30:39 PM BARBARA HUFF TUCKNESS, Director, Governmental and Legislative Affairs, Teamsters Local 959, offered to touch on the important points. She commended the department for requesting the bill and offered support for the bill except for Section 5. She said that the unemployment insurance tax formula has been in place for 20-plus years and is a sound formula. She related that the Teamsters Local 959 (Teamsters) represents about 7,000 working teamsters around the state in almost every industry, except for the tourism and fishing industries. She informed the committee that the Teamsters Local 959 is also incorporated as an employer so the Teamsters would be affected by the employer tax rates under the bill. In 2012, as an employer, the Teamsters paid $37,000 in UI taxes. Additionally, the Teamster's employees, about 35 employees, paid approximately $8,300 in UI taxes. She reported that Alaska is one of three states in the country with employer and employee contributions going into the unemployment insurance (UI) trust fund. The UI trust fund has been sound, even during the recent U.S. recession, in which 33 states became insolvent. In fact, the state has had a sound plan and has been able to make contributions to employees who find themselves unemployed. 3:34:00 PM MS. HUFF TUCKNESS referred to questions the Teamsters asked the department and said while the DLWD's answers don't clearly prove the Teamsters point, they do raise some questions about Section 5 for the committee to consider as it deliberates HB 76. She read the first question the Teamsters posed, which asked whether employers and employees will be required to pay more than under the earlier [UI tax] rate if it had not been suspended in a situation in which the UI tax rate increases are suspended as referenced in Section 5 of the bill and the average high-cost multiple falls below the trigger. She related the department's response that if rate increases are suspended, employers and employees would be required to pay slightly more in UI taxes in subsequent years than they would have if increases had not been suspended in earlier years. However, over the long term, the amount paid by employers and employees would be about the same or slightly less than if increases were never suspended. Thus, the department's view is the suspension would have the effect of deferring suspended taxes that would be absorbed over multiple years after the suspensions. MS. HUFF TUCKNESS explained that the department's response raises the question regarding whether the impact on employers and employees will be significant enough to catch up over time, assuming the department's information is from an actuary. Granted, it's not a black and white issue as the UI tax rate is a complicated one with a formula. After all, the current system has worked. The department, she related, went on to respond that the intent of the aforementioned provision is to provide some flexibility so as not to overtax employers and employees in a year in which it is not necessary to do so. She questioned the definition of overtaxing and reminded members that the UI trust fund's purpose is to pay compensation for employees who are laid off from their jobs. In the event a substantial recession occurs and the UI rate increase has been suspended, she was unsure whether adequate funds will exist to cover UI. Further, she questioned whether reducing UI taxes on employers and employees might put the state into insolvency and necessitate borrowing from the federal government to ensure the UI trust fund has a sufficient balance. Additionally, if it became necessary to borrow from the federal government, the state would repay the loan with interest. 3:37:51 PM MS. HUFF TUCKNESS related that in response to the Teamsters' question inquiring as to the meaning of the average high-cost multiple, the DLWD explained that the average high-cost multiple is a measure of the UI Trust fund's solvency used primarily by the federal government to compare state systems and to encourage states to keep a healthy amount in reserve. This measure looks at the state's recent history, the previous three national recessions or 20 years, whichever is longer, to determine which percentage of the employers' wages was paid out in unemployment insurance claims. The three highest cost years, in terms of percentages, are then averaged and compared to the current trust fund balance. An average high-cost multiple of 1.0 means the state has as much money in its trust fund as a percentage of the total wages of employers covered by the state unemployment insurance system as the average percentage was paid out during those three higher cost years. Ms. Huff Tuckness related that percentages are used rather than the actual amounts since a larger economy would mean that more employees could potentially file for unemployment benefits. She explained that this would require a larger amount be paid out or required to be held in the reserve and assumes a potential run on the UI trust fund could occur in the event a large number of employees were subsequently laid off. 3:39:37 PM MS. HUFF TUCKNESS expressed another concern regarding whether sufficient reserves could be built up if the UI tax rate is reduced if Section 5 was adopted. For example, the multiple has been nine-tenths of a percent for ten years and assuming the economy changes and the rates can no longer be suspended, using the contribution rate in 2011-12 - which increased by one-half of one percent - it appears as though the department could only collect three-tenths of one percent, which would be insufficient to build up the reserves in the UI trust fund. In fact, if the UI tax rates are suspended, she predicted the employer and employee would ultimately pay more in order to replenish the UI trust fund. The department responded that the suspension of a tax increase would likely result in a slightly higher tax rate in the next year or two since the current calculations in statutes and unchanged by HB 76 would move the UI trust fund balance back toward its desired rate between the 3.0-3.3 percent of total wages paid by employers covered by the system. She said the DLWD further predicted it is very unlikely that the UI tax rates would rise dramatically from one year to the next. However, this bill would delay the amount of time it would have to build up the reserves in the UI trust fund. She was unsure whether this proved the Teamster's point, but it highlights the issue. MS. HUFF TUCKNESS reminded members that the Teamsters would be affected by the bill as both an employer and by its employees [each of which make contributions]. She highlighted that this raises the question on the proposed department flexibility on the UI rates and whether the department would need to subsequently catch up if it reduced rates [and an adverse economy reduced the UI trust fund balance.] She questioned changing the formula for a plan that has been working well for years. Further, Alaska's UI trust fund has not become insolvent as many states experienced when many employees in the Lower 48 became laid off and the states experienced a run on their funds. Actually, these Lower 48 states had a lack of contributions from employers and employees going into the funds to ensure when a recession happens that the UI trust fund is adequately funded. She asked the committee to consider Section 5, and to please reconsider the impact of this section on employers and employees over the long term. 3:43:20 PM REPRESENTATIVE JOSEPHSON asked whether the letter she referenced was from Mr. Rick Boyles [dated March 1, 2013.] MS. HUFF TUCKNESS answered yes. 3:43:48 PM REPRESENTATIVE JOSEPHSON asked whether the second document had been distributed to the committee. MS. HUFF TUCKNESS answered no. In further response, Ms. Huff Tuckness repeated the definition of average high-cost multiple, as follows: The average high-cost multiple is a measure of the trust fund's solvency used primarily by the federal government to compare state systems and to encourage states to keep a healthy amount in reserve. The measure looks at the state's recent history, the previous three national recessions or 20 years, whichever is longer, to determine which percentage of the employers' wages was paid out in unemployment insurance claims. The three highest cost years, in terms of percentages, are then averaged and compared to the current trust fund balance. An average high- cost multiple of 1.0 means the state has as much money in its trust fund as a percentage of the total wages of employers covered by the state unemployment insurance system as the average percentage was paid out during those three higher cost years. 3:45:15 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 76. [HB 76 was held over.] The committee took an at-ease from 3:45 p.m. to 3:46 p.m.