HB 142-UNEMPLOYMENT INSURANCE BENEFITS  4:04:11 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of HB 142 relating to unemployment insurance benefits. She requested a motion to adopt the proposed committee substitute (CS). 4:04:38 PM SENATOR MEYER moved to adopt the work draft Senate CS for CSHB 142, labeled 30-LS0530\T, as the working document. 4:04:52 PM SENATOR GARDNER objected. CHAIR COSTELLO noted who was available to answer questions, and asked Ms. McClanahan to go through the explanation of changes. 4:05:39 PM NATASHA MCCLANAHAN, Staff, Senator Mia Costello, Alaska State Legislature, Juneau, Alaska, stated that she would introduce the CS and then walk through the explanation of changes document. She explained that the CS for HB 142 increases the current maximum weekly benefit from $370 to $434. It also raises the total gross income an individual must earn over two calendar quarters of the base period from $2,500 to $3,000. These changes strike a balance in providing additional benefits to the unemployed while recognizing the impacts to the economy when businesses face higher taxes. MS. MCCLANAHAN paraphrased the following explanation of changes document for HB 142, version R to version T: Page 1, line 5 & Page 2, line 4 Changes the base required for eligibility to $3,000 from $2,500 for the base period covered by this chapter. As the benefit is increased, the base for eligibility is also increased to offer balance to employees and employers who are the premium payers. Page 8, lines 8 & 9 Changes the increase in the maximum qualifying wage scale to $50,000. This allows for an increase to those unemployed who qualify for benefits while lessening the fiscal impact to employees and employers. Alaska would move to the top half of states' maximum benefits. Version T removes Section 2 of version R regarding the automatic calculation and administration of yearly increases to the state's maximum weekly benefit amount. This preserves the Legislature's authority to examine increases. 4:07:21 PM SENATOR GARDNER removed her objection. CHAIR COSTELLO found no further objection and version T was adopted. She opened public testimony on version T of HB 142. 4:08:06 PM AL TAMAGNI Sr., Chair, Alaska Chapter of the National Federation of Independent Businesses stated support for the proposed changes appearing in version T of HB 142. SENATOR MICCICHE asked if he was stating support for the changes or the bill itself. MR. TAMAGNI clarified that NFIB supports the Senate CS for HB 142, version T. 4:10:37 PM HEIDI DRYGAS, Commissioner, Department of Labor and Workforce Development, Juneau, Alaska, said she appreciates that the committee recognizes that the current maximum weekly benefit amount is insufficient, but the $64 increase reflected in the CS is woefully inadequate, particularly when there is no provision for upward adjustment. It means that Alaska will go from 52nd in the nation on the wage replacement ratio to 49th. This is the first increase in 10 years and it could be another 10-12 years before the legislature addresses this issue again. Further, increasing the minimum amount of the base year wages from $2,500 to $3,000 basically means that 100 Alaskans who would have received a maximum weekly benefit of $56, will now get nothing. She highlighted that the department's economist calculated that the latter change wouldn't result in much savings to the trust fund. 4:12:34 PM SENATOR MEYER asked about the current status of the trust fund. COMMISSIONER DRYGAS deferred the question to Mr. Weller. SENATOR MEYER asked, based on the CS, how much more an employee who makes $100,000 a year will have withdrawn from their check each month. COMMISSIONER DRYGAS deferred the question to Mr. Weller. SENATOR MEYER said he'd be concerned if employees take a big hit each month. 4:14:15 PM LENNON WELLER, Economist and Actuary for the Unemployment Insurance System, Research and Analysis Section, Department of Labor and Workforce Development (DOLWD), Juneau, Alaska, advised that the fund was solvent. At the end of February the trust fund had a balance of $442.7 million. That equates to a 3.64 percent reserve ratio. He reminded members that the goal was to have between 3 percent and 3.3 percent of wages in reserve. He opined that the current balance was sufficient to cover the array of potential costs that the system may face. SENATOR MEYER asked how the change proposed in the CS impacts the trust fund. MR. WELLER explained that changing the maximum weekly benefit from $370 to $434 will not change employer and employee costs for the next two years. In 2021, an employer will pay a maximum additional $52 per employee making at or above the taxable wage base. This is reduced to $47 in 2022 and increases to a $128 maximum difference in 2023. SENATOR MEYER asked if that was per month. MR. WELLER clarified it would be an annual difference. He continued saying that the maximum difference between their base line projection with this change is about $116 per employee making at or above the taxable wage base for the average rate tax class, which is classes 10 and 11. SENATOR MEYER asked the additional amount an employee making $100,000 in 2021 would pay. MR. WELLER explained that wages are only taxed up to the taxable wage base so the foregoing is the maximum they would pay for the average tax class. 4:18:24 PM COMMISSIONER DRYGAS added that Alaska's Unemployment Insurance (UI) Trust Fund has been healthy since it was created. The way the rates are calculated and solvency is determined has been used as a model by other states. "It is a very well operating trust fund." SENATOR MEYER asked if in her opening comments she said that the CS may jeopardize the health of the trust fund. COMMISSIONER DRYGAS replied she did not say that. The trust fund will remain healthy if the maximum weekly benefit is either $434 or $510. 4:19:42 PM SENATOR MICCICHE calculated that the annual wages in Alaska are somewhere around $12.159 billion if the $442.7 million in the UI fund represents 3.641 percent of wages. MR. WELLER agreed. SENATOR MICCICHE asked if funding to 3 percent to 3.3 percent was based on a national model. MR. WELLER said a 3 percent to 3.3 percent reserve ratio was determined to be adequate based on Alaska's history with unemployment insurance. He explained that the federal Department of Labor uses two official values for trust fund adequacy. One is an average high cost multiple that determines whether the reserves are sufficient to handle three of a state's highest cost years as a percentage of wages. The other value is the high cost multiple which is essentially the year in which a state had the highest costs as a percentage of wages covered throughout its entire history. For Alaska, it was about 4.2 percent in the mid-1970s. But over the last 30 years, the 3 percent to 3.3 percent reserve ratio has been sufficient to handle the claims loads the UI System has experienced. He opined that the targets for fund solvency and financing have stood the test of time. 4:23:08 PM SENATOR MICCICHE commented that recessions obviously matter because statewide earnings are down about $1.5 billion over the last couple of years. 4:23:36 PM SENATOR STEVENS said he appreciates the Commissioner's concern that the CS only boosts Alaska from 52nd to 49th in the nation on the wage replacement ratio. He asked what it would take to be 25th in the nation. MR. WELLER calculated that the average replacement rate would th need to be 42 percent to rank 25. He noted that the current average replacement rate was just under 29 percent. With the CS, the replacement rate would be 32 percent to 33 percent. 4:26:08 PM At ease 4:26:13 PM CHAIR COSTELLO reconvened the meeting and asked Ms. Kloster to comment on the CS. 4:26:48 PM KENDRA KLOSTER, Staff, Representative Chris Tuck, Alaska State Legislature, Juneau, Alaska, said she agreed with Commissioner Drygas's assessment of the CS. She expressed appreciation that the committee recognized that UI benefits need to be increased. However, the sponsor was concerned about removing Section 2 (the automatic adjustment for wage replacement) because it had only been updated once in 22 years. He was also concerned about changing the base rate from $2,500 to $3,000. It will affect about 100 Alaskans, mostly from rural areas. CHAIR COSTELLO said your comments are noted. 4:28:21 PM SENATOR MEYER moved to report the Senate CS for CSHB 142, version T, from committee with individual recommendations and attached fiscal note(s). 4:28:46 PM CHAIR COSTELLO found no objection and SCS CSHB 142(L&C) moved from the Senate Labor and Commerce Standing Committee.