HB 305-UNEMPLOYMENT COMPENSATION BENEFITS  VICE CHAIR SEEKINS announced HB 305 to be up for consideration. REPRESENTATIVE TOM ANDERSON, sponsor of HB 305, explained that the bill provides an 8.12% increase to the maximum weekly unemployment benefit amount. This increase would be phased over a three-year period and minimizes the impact to employers, employees and the UI trust fund. He introduced the bill because Alaska ranks 47th in the nation with a maximum weekly benefit of $248. With the changes in the bill, Alaska will rank approximately 28th in the nation. The fully increased maximum benefit amount would be available to claimants earning $34,250 or more per year. The full impact of the increase in benefits will not be reflected in employer tax rates until 2010, which was a concern in the House. When the cumulative impact of the costs is included in a tax rate calculation by 2010, the average employer tax rate will increase by .17% and the average employee tax rate will only increase by .04%. COMMISSIONER GREG O'CLARAY, Department of Labor, pointed out that the amount of money that goes into the state's economy per year (for 2002) was nearly $127 million in unemployment insurance checks. In the North Star Borough, $13,719,440 worth of unemployment checks were cashed in 2002. In the Anchorage Mat-Su area, $55 million goes into the local economy. The increase they are looking at only affects about 3.28% of those that actually collect benefits within the state. He noted: I think that's important for you to underscore because you'll hear those who oppose this bill and this increase...because employers cannot stand this increase. Believe me, this is a compromise piece of legislation... He said this bill moves the effective date to January 1 of each year and that assists employers in adjusting costs in terms of their taxes. It will not have any effect in FY04 and the maximum it will cost per employee in 2005 is $5 per year. COMMISSIONER O'CLARAY said: We are mainly concerned about keeping our skilled workers in Alaska and we're starting to lose them because they cannot afford to maintain their residency in Alaska during the slow-down in work in the winter when they would draw their UI benefits and they are migrating to other portions of the United States where the cost of living is cheaper. That is a major problem for the construction industry because, if we are - and this governor has indicated he wants to build some roads - and I support that - we're going to be seeing some heavy construction. We need those craftsmen in- state - because the other concern our department has is with respect to the amount of non-residents that come to Alaska that work in our high paying jobs in the construction industry. Those dollars all go south and so it's our goal in the department to increase the amount of resident workers and to not only build, but maintain our resident work force in Alaska. So, I would encourage the committee to move this bill. SENATOR FRENCH asked how they will put off the increase of benefit costs and keep them from being reflected in employer tax rates until 2010. MR. PATRICK SHIER, Chief, Employment Security Tax Division, explained that the whole rating system is a look-back system. When rates are set for 2004, they look back at half of 2003 and prior. SENATOR FRENCH said this bill has a three-year phase in at 2003. He thought the whole increase would be phased in by 2006 and asked if it will use a four-year look-back period. MR. SHIER added that there is also a mechanism in the rating system that depresses any called-for increase by using an average of the prior three years. He surmised, "So, the full effect, yes, is not expected to be fully represented in the rating process until 2010." SENATOR FRENCH asked if this is the way most UI programs are administered in other states. MR. SHIER replied that they are everywhere. He told members: For example, in 1985-87, we were having some difficulty here in the state of Alaska and employer rates did not go up until we had actually turned the corner and begun to come out of there because of this statutory rating process that takes a three-year average. VICE CHAIR SEEKINS asked where the money comes from that comes out in UI benefits. He questioned, "Doesn't it come out of the economy before it goes back into the economy?" COMMISSIONER O'CLARAY replied yes and explained: Obviously, 80% of the rate comes out of the employer's pocket and 20% of the UI tax comes out of the employee's. VICE CHAIR SEEKINS responded: As an employer, I tell you it all comes out of the employee's pocket. It comes out of his pocket, because if I wasn't paying it in, I'd be giving it to him more than likely. It would be negotiable for him. It's his money. He added that he thought the construction industry had been that way historically in Alaska but is probably better now than it ever was in the past because of new technology. He pointed out he has seen buildings being built in tents in Anchorage in the wintertime. When he worked in construction, workers were laid off in the wintertime. COMMISSIONER O'CLARAY responded that there have been good years in construction and this looks like another good year. With highway construction, there could be even better years. He said: The main impact, though, is not necessarily on construction trades. The service industry is one that gets hit very heavily, especially in tourism, because of the seasonality of that type of work. SENATOR STEVENS commented that Alaska would be ranked 28th in 2006, but that's assuming no other states change their unemployment rates. MR. SHIER explained the differences in the charts before the committee and said there would be some movement in the rankings. It is not an absolute scale. He did not include dependents allowance in the calculations. VICE CHAIR SEEKINS asked if they are talking about families with dependents allowance. COMMISSIONER O'CLARAY responded that there is a dependent allowance of $24 per week per dependent with a maximum of three paid to claimants. MR. DON ETHERIDGE, AFL-CIO, supported HB 305. VICE CHAIR SEEKINS said that years ago, an operator made more on an Alaska job than elsewhere because they knew they weren't going to have that employment in the wintertime. He asked if that is still the case. MR. ETHERIDGE replied that is still the case, but "It's tightening up more all the time." MS. PAM LABOLLE, President, Alaska State Chamber of Commerce, said this bill is a compromise of another bill that was introduced and discussed two years ago. The Chamber supported the first step then, of $24 and halfway with the second step (a 12% increase from what the bill is proposing now). Almost a third of the UI payments were at the maximum amount in 2001 and nearly half included some dependent allowance. Eleven percent of claimants were paid the full dependent allowance. MS. LABOLLE reminded the committee that there was also a minimum wage increase last year and an increase in business license fees that would impact employers as well. She said further that 16 states have a rule that if you're unemployed during the time of your seasonal work, that's when you can collect benefits, but if you are unemployed out of season for that seasonal work, you can't receive benefits. She stated, "Alaska is very lenient in that they pay unemployment insurance benefits when the kind of work you do isn't even available." She encouraged the committee to get a full picture of what the full cost is both to the tax rated employers and to the reimbursable employers before they pass this legislation. She said it would immediately impact the state's budget and thought taking it half way would still have Alaska in the upper quarter of the maximum weekly benefit amount compared to other states. VICE CHAIR SEEKINS asked Commissioner O'Claray about the fiscal impact of the change on the state treasury. One fiscal note indicated zero, which he thought meant the cost of administration of the program would not increase as a result of a change in the rate. COMMISSIONER O'CLARAY said that was correct. VICE CHAIR SEEKINS asked if there was an estimate of the impact a change would have on the treasury. COMMISSIONER O'CLARAY replied that the bill that didn't pass last year or the year before had an increase on the first increment of $175,000 to the state for FY03. That was for half a year. He explained, "If you follow that number, your increase for 12 months in 2004 would be under $300,000. He questioned the correctness of Ms. LaBolle's figures for the Alaska Railroad. He said he was trying to avoid getting into an argument with advocates from the Chamber of Commerce, because in the 38 years he had been coming before this legislature, he had never once seen the Alaska State Chamber of Commerce agree to any increase in benefits to workers. VICE CHAIR SEEKINS asked Ms. LaBolle if the information from the Alaska Railroad Corporation information was correct and said if it is, then a fiscal note should reflect that. COMMISSIONER O'CLARAY responded that is correct, but he also knew of the game that is played with fiscal notes. He stuck by the numbers he had just quoted. MS. BARBARA HUFF-TUCKNESS, Director, Legislative and Governmental Affairs for Teamsters Local 959, said during the last 20 years, unemployment insurance has actually increased four times. The last time was in 1997. She said: I would like to reiterate on record that we are one of three states that actually has employees that do contribute along with employers to this particular benefit program. Additionally, I would also like to reiterate that it is a partial wage reimbursement. It does benefit those workers who are in the unfortunate situation of being unemployed temporarily - that they can have a partial wage benefit that's going towards covering those life necessities out there such as shelter, utilities, food and clothing, which, of course, does go back into the business community. She said that sometimes workers don't plan to be unemployed and having a benefit designed to protect them during that time is something she wanted the legislature to support. For the record, she was a participatory member of the quasi-task force that had six meetings over the last two or three months prior to introduction of this legislation and there is strong support from AGC, VECO and others. She reiterated that this is a compromise bill and is not the one they wanted to see introduced, but they are supportive of it. MR. RON PECK, President, Alaska Travel Industry Association, said the vast majority of the businesses he represents are small and have had a challenging last season. The prospects for next year are not much better. He noted, "All sectors of our business are in a state of decline." He said that labor costs comprise a significant portion of their business operations and they are facing an increasing minimum wage. These are very challenging times for Alaskan tourism. He thanked them for this opportunity to speak. VICE CHAIR SEEKINS said the last time this legislation came through it had a fiscal note and this time it doesn't. He announced an at-ease to find out what the leadership's intent was. 9:40 to 9:56 a.m. - at ease VICE-CHAIR SEEKINS said that a fiscal note was needed and that they would hold the bill in committee until the commissioner prepared it for them. TAPE 03-38, SIDE A    SENATOR FRENCH asked if this bill has a Senate Finance Committee referral. He suggested in the interest of efficiency the committee send the bill there to wait for the fiscal note. VICE CHAIR SEEKINS said leadership preferred that it stay in this committee. There being no further business to come before the committee, he adjourned the meeting at 10:00 a.m.