SB 120-UNEMPLOYMENT COMPENSATION BENEFITS  2:12:16 PM CHAIR ELLIS announced SB 120 to be up for consideration. He recapped that they had an entire year of stakeholders' hearings before this session on this issue, and Governor Palin just announced some stunningly good news for employers about the rates over the next few years. It's a really good time to make a modest increase in benefits, which was his goal. Last Saturday the committee had a work session that resulted in a revised committee substitute, CSSB 120(L&C), 25-LS0622\L. He asked Mr. Owen to review it for the committee. 2:14:08 PM DANA OWEN, staff to Senator Ellis, recalled that the previous CS discussed in the Saturday work session was trying to balance some equities. On one hand, the unemployment insurance benefits had not been changed in 10 years, and the need to raise them was widely recognized. However, employers regarded the unemployment benefit structure as costing them more than it needed to. Employer groups offered suggestions about how costs could be brought down for them. The CS they discussed on Saturday attempted to do that in two ways. First, the CS shifted about $2-million of tax liability from employers over to employees; an additional cost savings to employers of approximately $5.4 million was found by denying benefits to employees who had been fired for misconduct. During and subsequent to that meeting, the committee heard vigorous testimony from labor that denying that benefit would cause a greater hardship and would give employers the incentive to abuse the system by firing people for misconduct unjustly. 2:16:21 PM They looked for other ways to retain the total of $7.4 million tax benefit to employers. Two options were suggested; one was to raise the minimum wage in the base period that it takes to qualify for benefits. Version L deletes the provision denying benefits to those fired for misconduct and retains the provision shifting the tax burden from employers to employees by amending the percentages. Currently employers pay 80 percent and employees pay 20 percent. Version L changes that to 73 percent paid for by employers and 27 percent paid for by employees. That shifts an approximate aggregate of $7 million from the employers onto the employees. Another $.8 million in savings to the employer was found by raising the minimum amount necessary to qualify for benefits from $1000 to $2500. MR. OWEN said the savings of $7.4 million in the previous CS for the employer increased to $7.8 million in Version L. 2:18:28 PM SENATOR STEVENS asked him to explain raising the minimum from $1000 to $2500. MR. OWEN explained that current law says you have to have earned a minimum of $1000 in each of two quarters to qualify for benefits; the CS raises that minimum to $2500. CHAIR ELLIS said updating the $1000-minimum seemed like a good idea to him because it was established a long time ago, and $2500 seemed like a reasonable figure. He explained that everyone thought that under the suggested dismissal provision no one would be ever laid off again. They would be dismissed for conduct, and the appeals process is a hassle as well as time consuming. That seemed to be a show stopper for this legislation, so he decided to leave it out and give more significant benefit to the employers without significantly impacting the employee. He didn't know how he could be any more fair or impactful in a positive way to the employees. MR. OWEN said some states raise the minimum amount to qualify regularly with either an escalator clause or as a routine, but Alaska hadn't raised it since 1970. CHAIR ELLIS said if this bill passes, Alaska would still be below the middle of the pack among other states for average weekly benefits. 2:24:14 PM PAULA SCAVARA, Special Assistant to the Commissioner, Department of Labor and Workforce Development (DOLWD) said she is also the legislative liaison. She offered to answer questions. CHAIR ELLIS asked her to explain the 73/27 percent split between employer and employee and trying to save money for employers without harming anyone's interest significantly. He also asked her to put the cost savings into context, especially since Governor Palin announced the system was being changed on the federal level to show savings anyhow. MS. SCAVARA deferred to Mr. Wilson for the answer. 2:25:18 PM JAMES WILSON, Unemployment Insurance Actuary, Research and Analysis Section, Department of Labor and Workforce Development (DOLWD), said over the last few years Alaska has been enjoying lower-than-average tax rates and in the last three years they have come down significantly. Figures from 2008 show they were the lowest employer tax rates in 30 years. Unemployment and the cost of the program are both at low levels and he sees that trend continuing. He said the bill attempts to increase the maximum benefit amount. The existing schedule qualifies workers for an increased benefit of $2 per each $250 increment; this bill adds additional steps on top of that schedule. The last modest benefit increase was in 1997. He said that Alaska has fallen further down the ladder in past years at being able to replace wages compared to other states. This bill would move Alaska up more toward the center. 2:29:31 PM MR. WILSON explained that it increases the benefit maximum to $370; it also increases the cost per worker for the average employer from $470 to $548. It would take until 2013 for that cost to work its way into the financing system, a result of the WBA increase. The new CS dropped the disqualifying issue. Also the tax share was changed significantly in the new CS from 80/20 employer/employee contribution to 73/27, a $7 million shift. MR. WILSON said the proposal to raise the minimum qualifying wage from $1000 to $2500 was a modest increase that would result in $.8 million of savings, an additional savings to the employer of $5 per worker. 2:32:48 PM SENATOR STEVENS asked how many employees did not reach the $1000 minimum and how many won't reach the $2500 minimum. MR. WILSON answered that approximate 1466 claimants were between the $1000 and $250, and he didn't have a number for those who weren't able to reach the $1000 point. 2:34:05 PM CHAIR ELLIS asked if the department would get an updated chart on employer figures for the committee. MS. SCAVARA replied she didn't have enough time to put the charts together for today, but she would have it ready later in the week. She asked Mr. Wilson to comment on how much the employer pays now compared to the changes in the bill. MR. WILSON explained that under the proposal, by 2013 the full cost of the benefit increase to employers would be $548 per worker. Factoring in the change of going from 80/20 to 73/27 would make that go down to $498. The employee portion alone, with the WBA increase by 2013, would amount to $157, which is essentially what they are paying currently. That would go up to $197. These numbers are before factoring in the $.8 million that would result from changing the minimum qualifying wage from $1000 to $2500. He speculated it would amount to about $1/hr. increase on the employee side. CHAIR ELLIS asked Ms. Scavara to "do a commercial" about the confidentiality provisions in this legislation and explain how important it is for the state to comply with federal law. MS. SCAVARA responded that sections 1-8 conform state law to federal law; without them, the state would be sanctioned by the U.S. Department of Labor for millions of dollars. 2:38:49 PM SENATOR STEVENS asked if something is happening on a national level for people who are fired for misconduct and if other states successfully address the issue of denying benefits to those people. 2:40:09 PM BILL KRAMER, Chief, Unemployment Insurance, Department of Labor and Workforce Development (DOLWD), explained that the current law puts the responsibility on the employer to show that there was actually misconduct in connection with the work. Simple incompetence on the job does not rise to misconduct and a worker wouldn't be denied benefits. Typically an employer has to show that a policy was explained and that the worker understood it - like for drinking or drugs or treating customers rudely. He said 45 or 46 other states disqualify benefits indefinitely if someone is discharged for misconduct in connection with their work. The person is denied indefinitely or until he goes back into the workforce and earns wages and gets laid off again. Alaska's current statute denies benefits to people who are discharged for misconduct for six weeks from the date of the discharge. Their benefits are reduced by three times the weekly benefit amount, and they are ineligible for any federal extensions that may be available. SENATOR STEVENS commented that this bill basically says the state is going to deal with people who are fired for misconduct and that will cost $5.4 million, but it is going to deny 1460 people benefits who earn between $1000 and $2500. Denying those benefits saves $.8 million, but the state is losing $5.4 million by giving benefits to people who have been fired for misconduct. He wasn't sure this was where the state wants to go. MS. SCAVARA said the department didn't draft this bill. SENATOR STEVENS asked her why the misconduct language shouldn't be deleted. MS. SCAVARA replied that the department is neutral on the bill after the first 8 sections, and it will follow whatever policy decisions the legislature makes. 2:46:26 PM SENATOR DAVIS said she appreciated some things in the bill, but she also understood where Senator Stevens was coming from. CHAIR ELLIS remarked that this bill would not change the status quo for misconduct dismissal. 2:48:05 PM VINCE BALTRAMI, President, AFL-CIO, said he was not happy with some of the compromises in SB 120 because he didn't want to see anything that was more punitive to the employees. He saw some punitive things in light of the fact that the employers got such a break on their taxes. However he supported this bill because he didn't think they could do much better at this point. 2:49:29 PM REPRESENTATIVE HARRY CRAWFORD said sometimes it's hard to tell who is at fault when someone is fired. He has been fired a number of times for his union organizing activities. And while he got back wages for it, they came two or three years down the road. Other states have found that the misconduct provision gives employers the incentive to fire people when the job is almost finished rather than laying them off. Six weeks is a pretty severe penalty as it is, and he didn't want the state to go to a longer penalty and give an unscrupulous employer that additional incentive to fire people. WAYNE STEVENS, President/CEO, Alaska State Chamber of Commerce, said he appreciated all the efforts made on this issue. He pointed out that while the rates have virtually stayed the same, the taxable amounts have increased every year for the employer. Since 1996 the taxable amount to the employer and the employee has gone from $24,400 to $31,300. He said the state is in a period of low unemployment, and as a result the contributions to the trust fund have gone up. He saw no benefit to employers other than that the draw on the fund has been reduced; so this notion that perhaps employers are getting an unfair advantage was not correct. He encouraged them to make SB 120 revenue neutral, because he understood the need to make the change. 2:54:30 PM SENATOR STEVENS moved to adopt CSSB 120(L&C) version L. There were no objections and it was so ordered. 2:55:01 PM at ease 3:03:06 PM 3:03:10 PM DENNY DEWITT, State Director, National Federation of Independent Business (NFIB), commented that he appreciated their efforts on this issue also. He said the NFIB has not been supportive of employees being charged more nationally, and this moves more in that direction and away from eliminating benefits for workers discharged for cause. He wanted something as close to revenue neutral as possible, and appreciated changing the $1000 to qualify for benefits to $2500. In general, he said that he supported the direction in which the bill was going, but he also wanted to look at it more closely and get back to the committee with a more coherent response. 3:05:06 PM CHAIR ELLIS recapped and asked for further testimony. 3:05:58 PM SENATOR DAVIS moved to report CSSB 120(L&C) version L from committee with individual recommendations and updated and attached fiscal notes. SENATOR STEVENS said he didn't object to moving it on to Finance, and he recommended that it would be amended because he was still concerned about people being fired for misconduct and the additional 1400 people being denied benefits who make between $1000 and $2500. CHAIR ELLIS saw no further discussion or objection and the bill moved from committee. There being no further business to come before the committee, he adjourned the meeting at 3:07:40 PM.