CS FOR HOUSE BILL NO. 76(FIN) "An Act relating to electronic filing of certain information with the Department of Labor and Workforce Development; relating to fund solvency adjustments, 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." 1:47:52 PM GREG CASHEN, ASSISTANT COMMISIONER, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, testified that HB 76 would do four things: · allow for electronic filing of reports · improve the department's ability to recoup fraudulent unemployment insurance payments · adopt minor changes to bring the department into compliance with federal law · change how unemployment tax rates are set in an effort to keep money in the hands of employers and employees; keeping money circulating through the economy while protecting the integrity of the trust fund 1:49:09 PM PAUL DICK, DIRECTOR, EMPLOYMENT SECURITY DIVISION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, highlighted the sections 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. Mr. Dick noted that conforming to the federal requirements was necessary for the state to qualify for the 90 percent Federal Unemployment Tax Act (FUTA) credit. He said that the tax credit was 6 percent and that Alaskan employers received a 90 percent credit. He shared that employers paid 10 percent of the tax, .6 percent, rather than the full 6 percent. He warned that losing the credit would result in an additional yearly payment total of $378, per employee, collectively resulting in a $115 million hit to Alaska's economy. He said that an additional benefit of the credit was that it required the state to deposit 30 percent of penalty collections into the unemployment insurance trust fund. He explained that currently, 100 percent of the penalties went into the General Fund; the 30 percent provision would result in more money in Alaska's unemployment insurance trust fund, which would ultimately help employers. Mr. Dick continued with the sectional analysis: Section 4 amends AS 23.20.290(c) by adding the word "surcharge" following the words "fund solvency adjustment". Mr. Dick explained that when calculating the unemployment insurance checks the department used a base calculation that examined the state's benefits over the prior three years. He said that there was additional provision in statue that had a target of 3 to 3.3 percent for the trust fund. He relayed that the two components added together determined the unemployment insurance tax rate for the state. He continued: 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. Mr. Dick relayed that the section removed a table currently in statute and replaced it with verbiage took the calculation of the solvency adjustment for .10 percent to .100 percent. He said that would make the trust fund solvency adjustment consistent with the base rate as calculated to the .100 percent. He added that it would make for more precise calculations and would remove the current 0.3 decrease limitation. He shared that Alaska was one of three states where the employee and the employer paid into the unemployment trust fund. He underscored that the bill would not affect the amount of training funds that went into the Statewide Training and Employment Program (STEP) and the Technical Vocational Education Program (TVEP) training funds. Mr. Dick continued with the sectional analysis: 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. Mr. Dick explained that the suspension would not be automatic and would require the action of the commissioner to suspend the increase. He said that this would allow for flexibility to adjust rates when the trust fund was healthy. He said that the fund was currently at $251 million. He noted the sunset date in Section 10. Mr. Dick continued with the sectional analysis: 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 said that the change would allow the state to offset federal tax income tax returns against unemployment insurance liabilities. He shared that the department estimated $500,000 in additional collections. Mr. Dick stated that the remaining sections pertained to effective dates: 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, 2016 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. 1:59:32 PM Senator Hoffman asked whether the 30 percent deposit into the unemployment insurance was fixed. Mr. Dick replied that federal law required a least 30 percent. 2:00:11 PM Senator Hoffman wondered whether other states had contemplated a higher percentage. Mr. Dick responded that he was not aware what other states were doing. 2:00:18 PM Senator Hoffman queried why the minimum of 30 percent had been chosen. Mr. Dick deferred the question to Ms. Pallesen. 2:00:44 PM AESHA PALLESEN, ASSISTANT ATTORNEY GENERAL, STATE OF ALASKA, ANCHORAGE (via teleconference), understood that the 30 percent amount was chosen because that was the number necessary to meet federal requirements. She said that she had advised the department to choose 30 percent in order to meet federal compliance. 2:01:52 PM Senator Hoffman probed the additional benefits if the state paid a higher percentage. Ms. Pallesen was unsure that increasing the percentage rate of what went into the trust fund would result in the state receiving additional federal monetary benefits. 2:02:28 PM Senator Hoffman thought that if the funds went into the trust fund, rather than the general fund, there could be more dollars for the STEP and TVEP programs. Ms. Pallesen responded that under the federal regulations the 30 percent of penalties collected could not go into the general fund. 2:03:28 PM Senator Hoffman responded that he understood. He believed that it the percentage were to be raised then there would be more money to invest in training programs, instead of going into the General Fund, which would benefit the state's workforce. Ms. Pallesen deferred the question to the Department of Labor and Workforce Development. 2:04:09 PM Senator Hoffman restated his question. Mr. Dick stated that the training program funds came from the employee contributions and that the monies under discussion were penalty funds. Senator Hoffman asked where the 30 percent would go. Mr. Dick replied that currently, all of the money collected just on the penalties went into the General Fund. Under the legislation, 30 percent of the collections would go into the unemployment insurance trust fund, and 70 percent would go to the General Fund. Senator Hoffman asked if employer rates could be reduced. 2:05:36 PM Mr. Dick responded in the affirmative. He said that an increase in the rate would increase revenues into the trust fund and mitigate the tax rates. 2:06:03 PM Senator Bishop asked which section of the bill the department could live without. Mr. Dick responded the department felt that all of the provisions of the bill were critical. 2:07:10 PM Co-Chair Meyer asked if there was a time constraint on the legislation. Mr. Dick replied that state conformance was required by October 21, 2013. 2:07:35 PM Vice-Chair Fairclough asked how long the state had been out of compliance. Mr. Dick replied that the state was not out of compliance until October 21, 2013. He stated that the federal government understood that the changes would need to go through the legislative process and gave states 2 years to meet compliance. 2:08:29 PM Co-Chair Meyer wondered what would happen if the state did not comply. Mr. Dick responded that the state would lose the FUTA tax credit, which was 90 percent of the tax rate and equated to $378 per employee, per year. 2:09:30 PM Co-Chair Meyer OPENED public testimony. Co-Chair Meyer CLOSED public testimony. 2:10:02 PM Vice-Chair Fairclough discussed the two fiscal notes attached to the bill. She noted the increase in $500,000 FY14 through FY19. She wondered if the note should be updated to reflect the changing of the sunset date to 2016. Vice-chair Fairclough MOVED to REPORT CS HB 76(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 76(FIN) was REPORTED out of committee with a "do pass" recommendation and with previously published fiscal impact note: FN4 (LWF); and previously published zero fiscal note: FN3 (LWF). 2:12:06 PM AT EASE 2:19:32 PM RECONVENED