SB 25-UNEMPLOYMENT; ELEC.FILING OF LABOR INFO  5:15:50 PM CHAIR DUNLEAVY reconvened the meeting and announced the consideration of SB 25, "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." He noted this was the first hearing on the bill which was requested by the Governor. 5:16:47 PM BRYNN KEITH, Acting Deputy Commissioner, Department of Labor and Workforce Development (DOLWD), Juneau, Alaska, said SB 25 does four things: 1) it allows for the electronic filing of reports and documents; 2) it improves the ability to recoup fraudulent unemployment insurance payments, 3) it adopts minor changes to bring state law into compliance with federal law governing the unemployment insurance program; and 4) it changes how the unemployment insurance tax rates are set in order to keep more money in the hands of Alaska employers and employees while protecting the integrity of the unemployment insurance trust fund. 5:18:00 PM PAUL DICK, Director, Division of Employment Security, Department of Labor and Workforce Development (DOLWD), provided the following sectional analysis of SB 25:   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. Sections 3 adds a new section, AS 23.20.279, that brings 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 two percent or more of all requests, whichever is greater, during the prior year. MR. DICK emphasized the serious impacts of not being in conformity with federal law. Because the state is in compliance, Alaska employers receive a 90 percent credit on Federal Unemployment Tax Act (FUTA) tax contributions for each employee. If the state were to fall out of compliance it would mean a substantial burden on employers in addition to the loss of administrative funding, which is $21 million this year. SENATOR MICCICHE asked when the state would be out of compliance. MR. DICK replied the federal requirements must be in place by October 21, 2013. He continued the sectional analysis. Section 4 repeals and reenacts AS 23.20.290(f), replacing a table method for determining unemployment insurance trust fund solvency adjustments with a more precise calculation method. It also eliminates a restriction on how far the fund solvency adjustment surcharge can fall in a single year. Surcharges are currently calculated to tenths of a percent and the bill would provide for surcharges to be calculated to hundredths of a percent. Currently, the statutes allow the solvency adjustment to only increase or decrease a maximum of .3 per year. This removes the .3 limitation on decreases in solvency adjustments. In decreasing situations this will provide more tax relief to employers. Section 5 adds a new section, AS 23.20.291, authorizing the commissioner to eliminate or reduce increases in unemployment insurance 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. There is also a requirement to consult with the department's actuarial staff. This provides unemployment insurance tax relief to employers during economic downturns. Section 6 amends section 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 percent of the unemployment insurance penalties collected due to misrepresentation be deposited into the state's unemployment trust fund account. Section 7 adds a 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. This would allow the state to offset unemployment insurance debts against federal income tax return refunds. The offsets are projected to bring in $500,000. Section 8 amends AS 23.20.520 by adding a new paragraph to define "covered unemployment compensation debt" in accordance with the federal statutory definition. Sections 9 amends state uncodified law by specifying that AS 23.20.279, section 3, applies to overpaid benefits established after October 21, 2013. Section 10 specifies that the department will adopt necessary regulations to implement changes. Regulations will not be effective prior to July 1, 2013. Section 11 establishes that Section 10 takes effect immediately. Section 12 establishes the effective date for the remaining sections of the Act as July 1, 2013. 5:23:18 PM SENATOR MICCICHE asked if it would be possible to go below the previous year's unemployment insurance tax rate. MR. DICK said no because this only applies to an increase in a given year. 5:24:21 PM CHAIR DUNLEAVY opened public testimony. 5:24:31 PM BARBARA HUFF TUCKNESS, Director, Governmental and Legislative Affairs, Teamsters Local 959, said Local 959 represents about 7,000 members statewide who are affected by SB 25. Local 959 is also an employer of 35 people, and in 2012 paid about $37,000 into the unemployment insurance trust fund. Those employees paid a little over $8,300. She noted that Alaska is one of three states in which employees and employers both pay into the trust fund. MS. HUFF TUCKNESS said she sent a letter to Commissioner Blumer on February 12, 2013 to voice concerns about the bill, specifically Section 5. She read the question she posed and the answer she received as follows: Q - If the rate increases are suspended, as referenced in Section 5 of the bill, and the average high cost multiple falls below the trigger, won't employers and employees be required to pay more than what they would have had the earlier rate increase been suspended? A - If rate increases are suspended, employers and employees would be required to pay slightly more in subsequent years than they would have if the increased had not been suspended in the earlier years. Over the long term, however, the amount paid by the employers and employees would be about the same, or slightly less, than if increases were never suspended. MS. HUFF TUCKNESS questioned the wisdom of changing the system if employers and employees end up paying the suspended increase anyway. The current system is tried and true and has been working, as opposed to the 30-35 unemployment trust funds in the Lower 48 that have gone through insolvency and had to borrow money from the federal government to fund those plans. The state ultimately is required to pay back the loan. MS. HUFF TUCKNESS said, other than Section 5, the provisions of the bill are positive changes that are for the good of everybody and the betterment of the fund. 5:30:10 PM PAUL GROSSI, Lobbyist, Alaska State Pipe Trades UA Local 375, and Ironworkers Management Progressive Action Cooperative, stated support on behalf of the union for SB 25 except for Section 5. That is the section that allows the commissioner to eliminate or reduce the increases in unemployment insurance tax rates. Since the formula was implemented in 1980, the Alaska trust fund has never been insolvent. He said he didn't want to sound like the sky is falling, but if the increases have been suspended for a period of time and there is a downturn in the economy, there could be insufficient funds to make up for the increased claims. That is a slight problem for the claimants because the benefits may be delayed, but the federal government will step in and make the claimants whole. The employer is then responsible for making the fund solvent. The question is whether the risk is worthwhile if the funds have to be reimbursed anyway, and the current formula is proven. If the department is concerned about overfunding, he suggested tweaking the formula as opposed to throwing it out. He reiterated support for the bill with the exception of Section 5. 5:34:02 PM ANDY ROGERS, Deputy Director, Alaska State Chamber of Commerce ("Alaska Chamber"), testified in support of SB 25. He said this is a membership organization comprised of private sector businesses. Each year the membership discusses the challenges facing businesses and selects positions for the staff to advocate for. This issue got members attention. The Alaska Chamber asked Deputy Commissioner Keith to address the membership and give a sectional analysis of the bill and responded to questions. The membership reviewed Section 5 and supports giving the commissioner the option of providing relief to Alaskan businesses when the fund is solvent and there are economic reasons to do so. Section 2 provides some protections because the legislature can make an appropriation to make the fund whole. The Alaska Chamber believes that a majority of the bill provides good clean up provisions and he applauds the administration for doing good business on behalf of the state and looking for areas to optimize and seek efficiencies in the way it conducts business. That's what [SB 25] does. SENATOR MICCICHE commented that he agrees with Mr. Grossi that the sky probably isn't falling, but the concerns about Section 5 are legitimate. He asked Ms. Keith and Mr. Dick if Section 5 needed some adjustment or if they felt it would remain solvent under relatively challenging conditions. MS. KEITH said the department believes that Section 5, as currently written, maintains the solvency of the fund while allowing businesses and employers to keep a little more money in their pocket and churning through the economy and creating jobs. It strikes a good balance and is a good move forward for employers and employees. SENATOR MICCICHE asked the typical increase from year to year over the past 10 years. MR. DICK said he didn't have the information, but the rate goes up and down and that's what it's done over the history of the trust fund as the economic times and benefit requirements have changed. SENATOR MICCICHE asked if the trust fund would be managed for a relatively smooth ride as opposed to a roller coaster. MR. DICK emphasized that this legislation does not change the formula. He reiterated that over the history of the fund there haven't been dramatic increases or decreases. 5:41:40 PM SENATOR MICCICHE requested the 10-year trend. MR. DICK acknowledged the request. CHAIR DUNLEAVY stated he would hold SB 25 in committee.