SENATE BILL NO. 120 "An Act relating to the calculation and payment of unemployment compensation benefits; and providing for an effective date." SENATOR JOHNNY ELLIS, sponsor, explained the intent of the bill. He reported that the bill is a result of a year-long stakeholders process conducted in the Senate Labor & Commerce Committee. There were numerous work sessions with business groups, labor advocates, Department of Labor experts, staff, and committee members. Senator Ellis pointed out that a healthy unemployment insurance system benefits all Alaskans. It provides a shock absorber for businesses, individuals and families hit by economic change. It helps both businesses and workers. Alaskan workers stay in Alaska, ready for jobs when business picks up. Employers maintain a stable, ready pool of experienced workers. Senator Ellis reported that Alaska's unemployment insurance system has been soundly managed. It has never depleted its trust fund. Other states have depleted their trust funds during time of economic stress. Alaska's system has always been able to maintain payments, even during the severe 1986 oil price crisis. Senator Ellis emphasized another important consideration - wage replacement. The unemployment insurance system seeks to replace roughly 50 percent of lost wages, a goal repeatedly confirmed by presidents and commissions over many decades in the United States. Alaska's wage replacement rate is dead last among all states. It was 25.8 percent in 2005 and is likely to be even lower today. Senator Ellis pointed out that Alaska's benefit amount has fallen far behind wages. The maximum weekly benefit amount of $248 is the fourth lowest in the nation. Alaska's maximum weekly benefit amount has not been adjusted since 1997. Eligible wages are capped at $26,500. One third of Alaskan wage earners earn that much or more, but are limited to $248 in weekly benefits. Senator Ellis reported that tax rates are low. Now is the time to raise the benefit amount. Alaska's 2008 unemployment insurance tax rates for employers are the lowest in 28 years. There is room to raise the benefit - the $370, which represents a restrained, compromised weekly benefit amount. CSSB 120 (L&C) would raise the average employer cost $25 per employee from the 2008 level. The total out-of-pocket cost to employers would remain $89 below 2007 level. The employee cost will rise $37 per year over the 2008 amount. 4:16:09 PM Senator Ellis said the Senate Labor & Commerce version represents a compromise. Benefits need to be raised. Employers view the system as too costly. The bill shifts costs from the employers to employees. Currently employers pay 80 percent, employees 27 percent. Under the bill, employers would pay 73 percent and employees would pay 27 percent. Alaska is one of only two states that actively mandate employee contributions. New Jersey is the other one. New Jersey's maximum weekly benefit is $536; Alaska's is $248. The bill would raise it to $370. Senator Ellis explained that the bill includes an automatic inflation proofing mechanism. It will help to avoid having to address the issue every year. 4:19:17 PM Senator Ellis stressed that Alaska must enact the confidentiality statutes. The first eight sections of the bill are confidentiality related. Federal law requires all states to protect unemployment insurance data by October 2008. Failure would mean the loss of $19.1 million in federal funds to the state. Alaska businesses would pay an additional $87 million in taxes if the statutes are not updated in regards to confidentiality. 4:20:55 PM DANA OWEN, STAFF, SENATOR JOHNNY ELLIS, explained a handout entitled "The Case for Raising Alaska's Unemployment Benefit Amount" (copy on file.) He highlighted page 1, "Unemployment Insurance Maximum Weekly Benefit Amount by State," which illustrates where Alaska's weekly benefit th falls in relation to other states. Alaska is 48. New Jersey, a state that has an employee contribution to the unemployment insurance tax system, is third from the top. Mr. Owen discussed page 2, "Alaska's Maximum Weekly Benefit - Unemployment Insurance 1966 - 2006." This stair step chart illustrates the history of raises in the unemployment insurance benefit amount. The rate of $248 was achieved in 1997. This is the longest stretch, since 1966, of not raising rates. Mr. Owen interpreted the table on page 3, "Alaska's Unemployment Insurance - Weekly Benefit Amount Schedule." This chart shows the effect of the 1997 amendment and the range of amounts earned under the unemployment insurance system. Mr. Owen reported that page 4, "Alaska Unemployment Insurance - Recipients by Weekly Benefit Amount, 2000." It illustrates that the largest portion of unemployment insurance recipients are maxed out at $248 weekly benefit. Mr. Owen explained the graph on page 5, "Average Wage Replacement Rates - By State, 2005". Alaska is at the bottom of the list. 4:23:05 PM Mr. Owen depicted "Replacement Rates - Western States, 2005" on page 6. He pointed out that Alaska is the lowest at 25.8 percent. Mr. Owen showed on page 7 how "The Target Gets Farther Away - Alaska, 1987 to 2007." The amount of benefit diminishes in relation to the amount of wage it replaces. Mr. Owen discussed the "Average Weekly Benefits Amount (AWBA) as a Percentage of Average Weekly Earnings - 2006." Mr. Owen noted that the chart on page 9, the "Estimated Annual Unemployment Insurance Employee Tax Cost with Maximum Weekly Benefit Amount Increased, Tax Share Ratio Changed, and Minimum Qualifying Wage Raised, Effective January 2009," is what is presented in the Labor and Commerce version of the bill. The employee rate would increase from $157 to $194 by the time the rate phases in, in 2013. This is a $37 increase in the employee payment. The graph on page 10 depicts "Estimated Annual Cost per Worker for Average Employer with Unemployment Insurance Maximum Qualifying Wage Raised, effective January 2009. In 2007 the estimated annual cost per worker for the average employer was $584. In 2008 that number drops dramatically to $470. It continues to decline until 2010 when the effect of SB 120 comes into play. When it is fully in effect in 2013, the cost of $495 is still below what employers were paying last year. 4:25:49 PM Senator Ellis pointed out that business groups requested that this bill be phased in. He summarized that the bill is long overdue, is a reasonable well-crafted compromise, and is nearly cost neutral. This is the right time; the rates are the lowest in 28 years. It is a reasonable compromise. 4:27:22 PM DAVID RUIZ, MEMBER, LABORERS UNION 341, Anchorage, testified in support of SB 120. LARRY BRINK, ANCHORAGE, testified in support of SB 120. ELSA BILLINGHAM, ANCHORAGE, testified in support of SB 120. She shared a personal story regarding unemployment benefits. WAYNE STEVENS, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE, testified in support of SB 120. He included a letter of support in the members' packets (copy on file.) 4:36:18 PM Senator Elton referred to the chart that looks at past costs of the employee to the employer. The bill reflects a savings to the employer. He wondered if the figures were inflation adjusted. Mr. Stevens said he did not know. Mr. Owen thought they were nominal dollars and did not include adjustment for inflation. Senator Elton concluded that the savings to the employer are even greater. 4:38:34 PM TOM BRICE, AGENT, ALASKA DISTRICT COUNCIL OF LABORS, testified in support of SB 120. He mentioned a concern about the perception that the employee will have to buy the increase, going from 20 percent to 27 percent. DON ETHERIDGE, ALASKA AFL-CIO, testified in support of SB 120. 4:40:38 PM Co-Chair Stedman asked if anyone opposed the bill. Senator Ellis reported that the National Federation of Independent Businesses included a letter in the members' packets which stated opposition to the bill. There are others that don't believe in unemployment insurance or that it should be paid 100 percent by the employer. He shared discussions regarding the phase-in aspect of the bill. Co-Chair Stedman asked how long the groups worked on the bill. Mr. Owen said about a year. Senator Ellis added that he has received a letter from AGC stating some support for the bill. SB 120 was heard and HELD in Committee for further consideration. AT-EASE: 4:44:40 PM RECONVENE: 4:47:56 PM