[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
UNEMPLOYMENT COMPENSATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 7, 2000
__________
Serial 106-58
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
66-964 CC WASHINGTON : 2000
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Human Resources
NANCY L. JOHNSON, Connecticut, Chairman
PHILIP S. ENGLISH, Pennsylvania BENJAMIN L. CARDIN, Maryland
WES WATKINS, Oklahoma FORTNEY PETE STARK, California
RON LEWIS, Kentucky ROBERT T. MATSUI, California
MARK FOLEY, Florida WILLIAM J. COYNE, Pennsylvania
SCOTT McINNIS, Colorado WILLIAM J. JEFFERSON, Louisiana
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of August 31, 2000, announcing the hearing.............. 2
WITNESSES
U.S. Department of Labor, Raymond J. Uhalde, Deputy Assistant
Secretary, Employment and Training Administration, accompanied
by Grace Kilbane, Administrator, Office of Workforce Security.. 6
______
American Federation of Labor-Congress of Industrial
Organizations, David A. Smith.................................. 16
Interstate Conference of Employment Security Agencies, Inc., and
Utah Department of Workforce Services, Robert C. Gross......... 11
UWC-Strategic Services of Unemployment & Workers' Compensation,
and Tyson Foods, Inc., Chuck Yarbrough......................... 19
SUBMISSIONS FOR THE RECORD
American Federation of State, County and Municipal Employees,
AFL-CIO, statement............................................. 46
National Governors' Association, Hon. Jim Hodges, Governor, State
of South Carolina, and Hon. Bob Taft, Governor, State of Ohio,
letter and attachment.......................................... 49
National Payroll Reporting Consortium, statement................. 50
National Retail Federation, statement............................ 52
Rhode Island Department of Labor and Training, Lee H. Arnold,
letter......................................................... 53
Screen Actors Guild, Bethesda, MD, statement and attachments..... 54
Society for Human Resource Management, Alexandria, VA, statement
and attachments................................................ 55
Taft, Hon. Bob, Governor, State of Ohio, statement............... 60
UNEMPLOYMENT COMPENSATION
----------
THURSDAY, SEPTEMBER 7, 2000
House of Representatives,
Committee on Ways and Means,
Subcommittee on Human Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:07 a.m., in
room B-318, Rayburn House Office Building, Hon. Nancy L.
Johnson (Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HUMAN RESOURCES
CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
August 31, 2000
No. HR-24
Johnson Announces Unemployment Compensation Hearing
Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on
Human Resources of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing on reform of the Unemployment
Compensation (UC) system. The hearing will take place on Thursday,
September 7, 2000, in room B-318 Rayburn House Office Building,
beginning at 10:00 a.m.
Oral testimony at this hearing will be from invited witnesses only.
Witnesses will include representatives from the U.S. Department of
Labor, the business community, State government, and organized labor.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
The UC program provides benefits to unemployed workers who have a
history of employment. Within a broad Federal framework, each State
designs its own benefit program and imposes taxes on employers to pay
for regular unemployment benefits. A Federal tax is also imposed on
employers to fund the Federal parts of the system, including State and
Federal administration, the U.S. Employment Service which helps
unemployed workers find new jobs, loans to States with bankrupt
programs, and half of extended unemployment benefits for workers in
States with very high levels of unemployment. All funds are kept in
Federal trust funds that are part of the unified Federal budget.
In February of this year, the Subcommittee held a hearing that
covered both introduced legislation and proposals to reform and improve
the UC program. Major provisions of these proposals included
eliminating the temporary 0.2 percent surcharge on the Federal
Unemployment Tax Act (FUTA) taxes paid by employers, allowing more
workers to qualify for unemployment benefits, providing incentives for
States to improve the solvency of their benefit accounts, making the
extended benefits program more accessible, and helping State programs
get more money back from the FUTA taxes paid by their employers.
Both before and since that hearing, a coalition of groups with an
interest in UC, consisting of representatives from the Administration,
organized labor, the business community, and the States, has met to
work out a consensus reform proposal and is now prepared to present
this proposal to the Subcommittee.
In announcing the hearing, Chairman Johnson stated: ``The
unemployment program currently provides real peace of mind to millions
of hardworking Americans. However, it is also a system in need of
reform and improvement. I am committed to preserving and strengthening
these benefits for workers. That is why it is so encouraging that a
broad coalition of interested parties has now developed a proposal to
make these much needed reforms. This is a unique opportunity for the
Subcommittee to learn more about this proposal.''
FOCUS OF THE HEARING:
The hearing will focus on the UC reform proposal developed by a
broad coalition of interested parties.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Thursday,
September 21, 2000, to A.L. Singleton, Chief of Staff, Committee on
Ways and Means, U.S. House of Representatives, 1102 Longworth House
Office Building, Washington, D.C. 20515. If those filing written
statements wish to have their statements distributed to the press and
interested public at the hearing, they may deliver 200 additional
copies for this purpose to the Subcommittee on Human Resources office,
room B-317 Rayburn House Office Building, by close of business the day
before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette WordPerfect or MS
Word format, typed in single space and may not exceed a total of 10
pages including attachments. Witnesses are advised that the Committee
will rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.''
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Johnson. Welcome. The hearing will come to order.
Unfortunately, the Subcommittee has a bill on the floor and a
number of other things going on so we are going to have to move
right through. Those who have come to testify, thank you very
much.
As always let me start by welcoming our guests. Not only
are you distinguished but you have achieved something that the
Subcommittee greatly admires. That is a bipartisan agreement on
a very important policy issue. So I commend all of you from
labor, business, State administrators and the Administration
for working hard to formulate a very interesting and promising
proposal to reform the Unemployment Compensation Fund. We look
forward to hearing your comments today and having a little
opportunity to gain a better understanding of the depth of your
proposal.
Ben and I are going to make only brief statements so that
we will have a chance to maximize our questioning time on a
complicated day. Thank you.
[The opening statement follows:]
Opening Statement of Chairman Nancy L. Johnson, a Representative in
Congress from the State of Connecticut
I begin as always by welcoming our distinguished guests.
Not only are our guests distinguished, but they have worked
together for over a year to achieve something that this
Subcommittee greatly admires--bipartisan agreement on an
important policy proposal. I commend each of you, representing
labor, business, State administrators, and the Administration,
for working so hard to formulate this very interesting and
significant proposal on reform of the nation's Unemployment
Compensation program.
The purpose of our hearing today is to provide your
Coalition with a forum to carefully explain your proposal and
to answer questions members of our Subcommittee have about the
proposal. Ben Cardin and I are going to make only brief opening
statements because we have a bill on the House Floor later this
morning and we want to give you the maximum time possible to
explain your proposal.
The biggest question before this Subcommittee is whether we
intend to take action on the Coalition proposal this Fall. The
major reason we are conducting this hearing the first week back
from recess is that we want to talk both with our witnesses and
among ourselves about the feasibility of trying to enact
legislation this Fall based on the Coalition proposal. We must
all begin with the realization that even under the best of
circumstances, it would be very difficult to enact legislation
of this magnitude in just four weeks.
Even so, the problems of the Unemployment Compensation
system are serious. We need more money for administration. We
need more money for the U.S. Employment Service. We need more
State control of administrative funding and the Employment
Service. And many of us think we need to allow benefits to
workers who are available only for part-time work and to create
a better trigger for the Extended Benefits program.
My intention is to learn as much as we can about the
Coalition proposal this morning and then decide, based on
today's testimony and questioning, and of course on
consultation with my colleagues on both sides of the aisle,
what our next step should be.
Mr. Cardin. Thank you, Madam Chair. It might seem strange
to some that we are here today to discuss Unemployment
Insurance when the number of jobless Americans is lower than it
has been anytime in the last 30 years. However, despite the low
unemployment rate it is worth remembering that 2 million
Americans still depend upon Unemployment Insurance every week
and many more require services to upgrade or change their job
skills.
Furthermore, none of us should be under the delusion that
we have repealed the business cycle. Madam Chair, I can tell
you an experience that I had when I was Speaker of the Maryland
General Assembly, and we thought things were going rather well
and we hit a bump in the road and all of a sudden our
Unemployment Insurance funds were inadequate to deal with the
problems of our recession. It required a special session of the
General Assembly and a lot of pain for our State in order to
overcome.
And as the name suggests, the Unemployment Insurance system
is one of our best insurance policies to counter the negative
effects of an economic slow down. I am, therefore, very pleased
to see the major stakeholders in the UI system including groups
representing workers, business, the States and the Federal
Government have agreed to a comprehensive plan to improve the
program. One of the most important contributions of the
consensus proposal is the recognition that there are
unnecessary barriers now standing between low wage workers and
UI coverage.
The GAO currently is assessing the extent of this problem
but its preliminary data suggests that workers earning eight
dollars or less an hour are only one-half as likely to receive
UI when they become unemployed compared to higher wage workers,
even when working for a similar length of time. To address this
inequity the consensus UI plan would require States to use the
most current work information when making eligibility
decisions. It would make the extended benefit program more
sensitive to changes in the economy and would prevent States
from denying UI benefits to otherwise eligible part-time
workers solely because they are seeking part-time rather than
full-time employment.
This last provision is very similar to legislation I
introduced called the Parity for Part-Time Workers Act. Its
purpose is to prevent discrimination against workers who have
earned the right to benefits based on part-time employment. To
help States finance the cost of the coverage improvements,
which will help more than 500,000 laid off workers every year,
the plan suggests slowly reducing the amount of funds in the
Federal UI loan account and then providing the proceeds to the
States' UI systems. As long as such proposals leaves adequate
resources in the fund to respond to recession, this approach
warrants our careful consideration.
The consensus UI proposal also recommends new financing
structures for the administration of both the UI and Employment
Services System. The impetus for this proposal is easily
identified, the growing shortfall between the administrative
needs of the State employment security agencies and the level
of funding appropriated by Congress. A bipartisan group of this
committee's members have already expressed its concern about
this funding shortfall in a letter to the Appropriations'
committee. So I think it is safe to say that there is a fair
amount of sympathy here for addressing this issue.
Finally, Madam Chair, let me talk about the acceleration of
the repeal of the 0.2 percent FUTA surcharge. I agree that it
is time that this tax repeal has come, as long as such changes
occur in context to comprehensive plans to improve the UI
system. The debt for which the surtax was designed to reimburse
has long since been paid, so we should take this opportunity to
provide employers with a $1.75 billion annual tax cut.
Madam Chair, I look forward to hearing from our witnesses
today and hopefully working out consensus bipartisan
legislation that can move forward the recommendations of this
task force. And I yield back my time.
[The opening statement of Hon. Mark Foley follows:]
Opening Statement of Hon. Mark Foley, a Representative in Congress from
the State of Florida
Madam Chairwoman, I know that the issues we are discussing
today are of great importance to all Americans and especially
to those Americans who need to access Unemployment Compensation
benefits in times of need. But there is another area of
Unemployment Compensation that I hope we will also direct our
attention to in the future and this is the Federal Unemployment
Tax Act of 1986 as it relates to Native American Tribes. As
sovereign bodies, it is only right that federally recognized
tribes receive equitable treatment under the provisions of the
1986 Act.
Under current provisions of the law, the fifty States and
federally tax-exempt organizations are permitted a reimbursable
rate while Native American tribes are treated as private
entities and are compelled to pay unemployment taxes at a flat
rate. The result is millions of tribal dollars that could be
used for development, job training, education, housing and any
number of other projects that strengthen a tribe's self
reliance are taken off the reservation and sent to the
government.
Madam Chairwoman, again, I hope that the Committee will
take the time to investigate this important issue before the
end of the 106th Congress.
Chairman Johnson. Thank you. If other members have
statements they would like to offer, they can submit them to
the record. Let us open our hearing by recognizing first Mr.
Raymond Uhalde, the Deputy Assistant Secretary for Employment
and Training at the Department of Labor.
STATEMENT OF RAYMOND J. UHALDE, DEPUTY ASSISTANT SECRETARY,
EMPLOYMENT AND TRAINING ADMINISTRATION, U.S. DEPARTMENT OF
LABOR, ACCOMPANIED BY GRACE KILBANE, ADMINISTRATOR, OFFICE OF
WORKFORCE SECURITY
Mr. Uhalde. Thank you. Madam Chairwoman and members of the
Subcommittee, I will abbreviate my remarks. Thank you once
again for the opportunity to address the Subcommittee on the
reform of the Unemployment Insurance and Employment Service
programs. With me today is Grace Kilbane, Administrator of the
Office of Workforce Security who is the Department of Labor's
principal participant in the discussions that led to this
historic agreement.
Although your last hearing on this topic was not very long
ago, just February 29th, there have been positive developments
since then. As you can see, we are all sitting at the same
table. That is certainly symbolic of what has happened over
this last several weeks. I believe that the last hearing and
the efforts of this Subcommittee contributed greatly to the
progress that has been made, and I would like to acknowledge
and thank you for your role.
I am extremely pleased and excited to be here today because
this is a historic event, an event that many believe could not
happen. On June 27th, with the participation of the Department
of Labor, the Interstate Conference of Employment Security
Agencies, UWC, organized labor and representatives from a
State-Business Employment Security Reform Coalition reached
agreement on the elements of the comprehensive reform proposal
that could garner bipartisan support. The Administration
believes that the hard work and policy accommodations made by
the parties who worked on this proposal have resulted in a
package that meets the objectives established for the reform
effort. We are eager to work with Congress to move this forward
to enactment and work out the technical details.
As you know, reform of the UI and ES systems has been a
topic of discussion at the national level for some time. My
prepared statement outlines many of these efforts. This
proposal sets a sound framework to secure program reform and
adequate funding because it addresses the major concerns of the
partners and stakeholders, and, we anticipate, will garner
broad and bipartisan support. This is a unique agreement in the
history of these programs. The advantages of this proposal
include: helping about 600,000 more of today's workers each
year, especially women and low-wage workers, access
unemployment benefits--without increasing State taxes in the
near term; ensuring that about 600,000 more unemployed workers
annually receive the reemployment services they need; improving
the recession readiness of the UI program; cutting employers'
Federal unemployment taxes by $1.75 billion per year--nearly
$13 billion over the next 7 years; and providing adequate
resources to fund the program service needs for UI and
Employment Services within the one-stop system of America's
Workforce Network.
My written testimony describes why the Administration
believes this proposal meets the objectives of the reform
effort. The key features include making extended benefits more
responsive during recessions, expanding benefits to many part-
time workers, making more recent wages available for
determining benefit eligibility, repealing the 0.2 percent
Federal unemployment tax surcharge and improving administrative
funding.
Changing the budget structure presents challenges for both
the Congress and the Administration, but we recognize, as you
do, that these programs have unique features, a separate
dedicated Federal payroll tax is levied to fund their
administration. When the Federal accounts in the UTF exceed
their ceilings, these ``surplus'' funds are distributed to
State accounts in the UTF, can be used for administration, and
are from the mandatory side of the budget. The benefit side of
the UI program is self-financing through State taxes; many
other federally supported social benefit programs are fully
financed by Federal taxes.
We believe these unique features justify moving the funding
for these programs out from under the discretionary caps to the
mandatory side. We would add that if such changes are made, we
believe it is essential that the proper budgetary review and
accountability exercised by the department and Congress
continue. I also note that the Senate Appropriations Committee
acknowledged the problem of UI benefits being classified as
mandatory while operational costs are discretionary, and
included report language in the fiscal year 2001 budget seeking
a solution to this problem with the authorizing committees.
Clearly this is an ambitious package of proposals, and we
recognize the challenges that face us in making these reforms a
reality. Time is short, and there is much legislative business
to be completed. However, with the work group's enthusiasm and
bipartisan support, we believe that it should be possible to
achieve enactment this year. We pledge to work with the
Congress, this committee in crafting legislation to secure
these reforms this year.
Before closing I want to thank you, Madam Chair and members
of the Subcommittee, for your support in this very important
endeavor and also for your request to Appropriations
Subcommittee Chairman Porter urging the Subcommittee to provide
increased funding for the administration of our Nation's
employment security system.
Madam Chair, this concludes my formal remarks and I look
forward to testimony of my colleagues, and I will be glad to
respond to some questions.
[The prepared statement follows:]
Statement of Raymond J. Uhalde, Deputy Assistant Secretary, Employment
and Training Administration, U.S. Department of Labor
Madam Chair and Members of the Subcommittee:
Thank you once again for the opportunity to address the
Subcommittee on reform of the Unemployment Insurance (UI) and
employment service (ES) programs. Although your last hearing on
this topic was not very long ago--just February 29th--there
have been positive developments since that time. As you can
see, we are all sitting together today instead of on separate
panels. I believe that the last hearing and the efforts of this
Subcommittee contributed greatly to the progress that has been
made, and I would like to acknowledge and thank you for that.
I am here today to testify on a proposal developed by a
broad group of stakeholders in the UI and ES system that I
believe was presented to you early last month and now is in the
process of being converted to legislative language. With me
today is Grace Kilbane, Administrator of the Office of
Workforce Security, who was the Department of Labor's principal
participant in the discussions that resulted in this agreement.
I am extremely pleased to be here today because this is an
historic event--an event that many believed could not happen.
On June 27, the Interstate Conference of Employment Security
Agencies (ICESA), UWC, and organized labor, with the
participation of the Department of Labor, reached agreement on
the elements of a comprehensive reform proposal that they
believed could garner bipartisan support. I realize that there
is a long way to go, but the Administration believes that the
hard work and policy accommodations made by the parties who
worked on this proposal have resulted in a package that meets
the objectives established for the reform effort, and we are
committed to working with Congress to move this forward and
work out the technical details.
I will begin with some brief background comments on the
importance of the UI and ES programs for America's Workforce
Network--which is the brand name we use to identify workforce
investment activities administered through the Department--and
then discuss the reform effort.
Background on the UI and ES Programs
UI is the primary source of temporary, partial wage
replacement for eligible unemployed workers--it literally helps
put food on the table. It is also the Nation's leading
automatic stabilizer during economic downturns--according to
our analysis for every $1.00 spent on benefits, the economy
gains $2.15. Even in this unprecedented economic expansion, the
UI system helps about 7 million workers annually bridge the
financial gap between jobs, and will pay an estimated $22
billion in benefits in fiscal year (FY) 2000. During
recessions, these benefit payments soar as UI plays its role of
stabilizing the economy in communities hard hit by
unemployment.
The UI program operates as a Federal-State partnership
under which Federal law defines broad requirements for the UI
program and State law sets forth most benefit provisions and
the State tax structure. The UI program is administered in
connection with the ES program which helps unemployed workers
and others find jobs and assists employers in finding new
workers. In program year 1998 (the latest data available), 17.3
million job seekers contacted ES offices to obtain services.
The UI and ES programs are major partners in the One-Stop
delivery system that was established by the landmark,
bipartisan Workforce Investment Act of 1998. This new system
was designed in partnership with employers, labor
organizations, education, and community groups. Each of the
participating One-Stop partner programs make certain applicable
core services (e.g., skill assessments and job search
assistance) available through the One-Stop system. As a result
of WIA, the labor exchange services provided by the ES have
been revitalized and integrated into the One-Stop system. In
fact, ES is the ``backbone'' of the One-Stop system. Its
services are available to all jobseekers and employers. It
provides a major share of the operating costs of One-Stop
centers nationwide. Finally, the ES offers electronic tools
that were unimaginable just 10 years ago. For example,
America's Job Bank provides the public with access to about 1.7
million job vacancies on a daily basis, allows job seekers to
develop and post resumes on the Internet and employers to
review those resumes.
Reform Efforts
Reform of the UI and ES systems has been a topic of
discussion at the national level for some time. As you know,
Congress authorized the bipartisan Advisory Council on
Unemployment Compensation in 1991. The Council issued findings
and recommendations in 1994, 1995, and 1996 that concerned many
of the same issues addressed by this reform proposal.
This Administration's efforts to reform the UI and ES
programs began in early 1998 with legislation proposed by the
Administration as a ``down payment'' on more comprehensive
reform and we were pleased that the legislation was introduced
on a bipartisan basis by Representatives Levin, English, and
Rangel. But these reform efforts, like others initiated by only
one of the partners or stakeholders of this system, were not
successful because they were neither sufficiently comprehensive
nor did they have sufficiently broad-based stakeholder support.
The reform effort continued in mid-1998, with the
Department of Labor convening 65 dialogue sessions throughout
the country to provide the public opportunities to offer
suggestions for reform; over 3,800 individuals participated.
What we heard from employers, workers, and State officials in
these sessions informed development of principles for reform
which were articulated in the President's proposed budgets for
FY 2000 and 2001.
In these budgets, the President committed the
Administration to working with stakeholders and Congress to
develop a comprehensive, bipartisan legislative proposal of
system reforms centered on the following five principles:
expand coverage and eligibility for benefits;
streamline filing and reduce tax burden where
possible;
emphasize reemployment;
combat fraud and abuse; and
Improve administration.
To meet this considerable challenge, ICESA convened a
workgroup comprised of employer and worker representatives,
State agency and Department of Labor officials which has been
meeting for over a year. Subsequent to the Subcommittee's
February 29 hearing on reform, the ICESA-convened workgroup was
joined by another group representing a coalition of States and
employers, and since that time group members made intensive
efforts to reach a comprehensive agreement.
The Reform Agreement
On June 27, a group representing the ICESA-convened
workgroup and the State-business coalition reached agreement on
a comprehensive proposal for UI and ES reform. This proposal
sets a sound framework to secure program reform and adequate
funding for services to workers and employers because it
addresses the major concerns of the partners and stakeholders
and, we anticipate, will garner broad and bipartisan support.
This is a unique agreement in the history of these programs.
The advantages of this proposal include:
helping about 600,000 more of today's workers,
especially women and low-wage workers, access unemployment
benefits--without increasing State taxes in the near term;
ensuring that about 600,000 more unemployed
workers receive the reemployment services they need;
Improving the recession readiness of the UI
program;
cutting employers' Federal unemployment taxes by
$1.75 billion per year--nearly $13 billion over the next seven
years; and
providing adequate resources to fund the program
service needs for UI and ES within America's Workforce Network.
We believe that the proposal addresses all of the
principles presented in the President's budgets for FY 2000 and
2001, and I would like to take a few moments to tell you why
the Administration believes this proposal meets the objectives
laid out for the reform effort.
Make extended benefits available sooner during
recessions. The proposal lowers the extended benefit (EB)
trigger rate to 4 percent insured unemployment from the current
5 percent threshold. This trigger rate was increased from 4
percent to 5 percent in 1982, and in the recession of the early
1990s only 10 States met that 5 percent trigger. In reaction to
this limited economic response, a special Federal program was
enacted that made benefits available in all States, not just
those that had higher unemployment. We believe that this reform
element will improve the responsiveness of EB in future
economic downturns, will target benefits where they are most
needed, and as a result will also be less costly to the Federal
budget.
Expand benefits to part-time workers. This element
will ensure that most part-time workers who lose their jobs
will be able to qualify for benefits while they seek new part-
time work. In most States laid-off part-time workers are not
eligible for benefits solely because they are not looking for
full-time work. We believe that this does not reflect the
importance of part-time work in today's labor market and is
inequitable since unemployment taxes have been paid on these
workers' wages. These workers must meet the same requirements
with respect to their wages and work history as other workers
who qualify for benefits under this proposal. We believe this
provision, in combination with the next, would help 600,000
workers gain access to unemployment benefits.
Make more recent wages available for determining
benefit eligibility. This element would require that States use
wage data for the most recently completed quarter in making
benefit eligibility determinations when unemployed workers
would not otherwise qualify for benefits and when the data have
been received by the State agency from employers. Currently in
many States some unemployed workers do not qualify for benefits
simply because their work and earnings are too recent and,
although reported to the States, are not entered into automated
systems. We believe that this time lag should not result in
denial of benefits and that improved technology will help to
make wage data available more quickly.
Repeal the 0.2 percent Federal Unemployment Tax
Act (FUTA) surcharge. The 0.2 percent FUTA surcharge long ago
fulfilled the purpose for which it was originally enacted--to
pay back loans that were made to States in the 1974-75
recession. The remaining permanent 0.6 percent tax aligns
program revenue with program need and avoids build up of
balances in the Federal accounts in the unemployment trust fund
(UTF) beyond apparent need. We believe that in the context of
this comprehensive proposal the 0.2 percent should be
eliminated in 2001. This change would save employers $1.75
billion annually.
Improve funding for UI and employment services.
The proposal would establish statutory funding formulas for UI,
ES and Veterans' Employment and Training Services, which would
determine the national total amount available each year for
these activities. The formulas would reflect projected
workloads and make adjustments for inflation. This funding
would be moved from the discretionary to the mandatory side of
the budget.
State administration of the UI and ES programs have been
under-funded for too long due to Federal budget rules and
constraints. Under-funding is affecting services to unemployed
workers in a number of ways: benefit payment and appeals
timeliness have declined; benefit overpayments have increased;
and services were provided to only one-third of UI
beneficiaries who were identified as likely to exhaust benefits
and in need of reemployment services under State worker
profiling systems. In addition, States are spending an
increasing amount, about $250 million a year, to supplement
Federal funding to keep local offices open and UI and ES
services available statewide--especially in rural communities.
We believe that these programs--which are of vital importance
to the labor force and the economy--should be adequately
funded.
Expanded services and improved administrative funding would
include:
new tools to detect and prevent fraud and
overpayments; ability to provide universal core services
through the One-Stop system so that more WIA funds can be
targeted to intensive and job training services;
Increased audits of employers, eligibility reviews
of claimants, and other integrity activities;
the provision of a significant proportion of the
reemployment services necessary to meet the President's
commitment to make such services universally available to all
who need them; and
adequate funding for the administration of UI, ES,
and Veterans' Employment and Training Services.
Changing the budget structure presents challenges for both
the Congress and the Administration, but we recognize, as you
do, that these programs have unique features:
A separate, dedicated Federal payroll tax is
levied to fund their administration.
When Federal accounts in the UTF exceed their
ceilings, these ``surplus'' funds are distributed to State
accounts in the UTF, can be used for administration, and are
from the mandatory side of the budget.
The benefit side of the UI program is self-
financing through State taxes; many other federally supported
social benefit programs are fully financed by Federal taxes.
We believe these unique features justify moving the funding
for these programs from the discretionary to the mandatory side
of the budget for purposes of the Budget Enforcement Act.
I would also note that the Senate Appropriations Committee
acknowledged the problem of UI benefits being classified as
mandatory while operational costs are discretionary, including
report language in the FY 2001 budget seeking a solution to
this problem.
Clearly this is an ambitious package of proposals, and we
recognize the challenges that face us in making these reforms a
reality. Time is short, and there is much legislative business
to be completed, but with bipartisan support, we believe that
it should be possible to achieve enactment this year. We
recognize the budget challenges this proposal faces. However,
we believe that these challenges can be met successfully, and
the Administration is committed to achieving these reforms
within a balanced fiscal framework.
I believe I have touched on the five major provisions in
the package, but there are changes that we have not discussed
today. We look forward to working with Congress on these issues
as well, which include topics such as: needed privacy
protections as we address fraud and abuse, particularly related
to access to the National Directory on New Hires; streamlined
tax filing; and improved administrative procedures.
In sum, we believe this proposal sets a sound framework for
securing reform and meets the Administration's objectives for
reform of the employment security system. We pledge to work
with the Congress in crafting legislation to secure these
reforms. I am encouraged by the workgroup's enthusiasm and your
leadership, and sincerely hope that we will cap this historic
event with the passage of a reform bill by year's end.
Before closing, I want to thank you, Madam Chair, and
Representatives English, McCrery, Cardin, and Levin for your
request to Appropriations Subcommittee Chairman Porter urging
the Subcommittee to provide increased funding for the
administration of our Nation's employment security system.
Funding a larger portion of each State's projected total
workload in the base grant at the beginning of the year will
certainly enhance State operations. We would also like to thank
the members of the Subcommittee for the bipartisan interest you
have shown in the sponsorship of a reform bill that reflects
the efforts of the workgroup.
Madam Chair, this concludes my formal remarks. I look
forward to the testimony of my colleagues, and I will be glad
to respond to any questions you or Members of the Subcommittee
may have.
Chairman Johnson. Thank you very much, Mr. Uhalde.
Mr. Gross.
STATEMENT OF ROBERT C. GROSS, PRESIDENT, INTERSTATE CONFERENCE
OF EMPLOYMENT SECURITY AGENCIES, INC., AND EXECUTIVE DIRECTOR,
UTAH DEPARTMENT OF WORKFORCE SERVICES
Mr. Gross. Madam Chair, Members of the Subcommittee, thank
you for the opportunity and the invitation to be here. My name
is Robert Gross. I am currently serving as the President of the
Interstate Conference of Employment Security Agencies on a
part-time basis and full-time serve as the Executive Director
of the Utah Department of Workforce Services. ICESA or the
Interstate Conference of Employment Security Agencies, Madam
Chair, just to refresh your memory, generally serves the
State's workforce service agencies in general and in particular
those State agencies responsible for the Employment Security
programs consisting of Unemployment Insurance and the
Employment Service.
A growing number of States are also linking or tying to
those efforts welfare-to-work provisions or the entire area of
welfare reform, including my own State of Utah, States such as
Wisconsin, Ohio and so on.
As Mr. Uhalde indicated, and as I believe members of the
Subcommittee are well aware, we do believe that we have
achieved what we would refer to as an historic compromise in
terms of bringing these four broad constituency groups together
to essentially effect a workable solution to today's problems
and challenges with the Unemployment Insurance Administration
and Employment Service systems.
You have copies of my prepared testimony. I would like to
spend the balance of my time essentially addressing
particularly the concerns from the aspects of State
administrators. As Mr. Uhalde indicated there are four broad
provisions that make up this compromise. One, improved
administrative funding for both Unemployment Insurance and the
Employment Service. Two, repealing the 0.2 surtax and reducing
employer tax filing burdens. Three, expanding eligibility to
low-income, part-time workers, and former welfare recipients.
And four, improving certain technical aspects of the program.
As I indicated the most important part of this compromise
for State administrators is certainly the adequacy of
administrative funding. In terms of what this particular
compromise would do is it would insure adequate administrative
funds for Unemployment Insurance. Many States are currently
experiencing shortfalls in their Unemployment Insurance
administration. They have essentially gone to their State
legislatures in which general funds from those States have been
appropriated to supplement the Unemployment Insurance
administration system. This compromise would restore integrity
to that funding system and allow States to move into ever
greater technological advantages and changes which serve
today's employers and job seekers. In particular, such things
as Unemployment Insurance call centers and other kinds of
technology are greatly and rapidly facilitating the interchange
and exchange in terms of today's workers and employers.
A second major component that I want to talk about is the
impact that this would have on adequate funding for the
Employment Service which has been grossly underfunded since at
least the 1980s. Now, as Mr. Cardin indicated, the question
often arises why do we need adequate funding at a time of
perhaps our lowest unemployment in many years? And Madam Chair,
I would indicate that now is the time to make the investment
but I would also point out the critical nature of the
Employment Service and the constituent groups that it serves.
It is essentially the backbone of what we call the one-stop
delivery service system.
Madam Chair, you may recall that a couple of months ago I
was invited to testify on the status of today's one-stop
centers under the Workforce Investment Act since its adoption
in 1998. We are finding from discussions among State
administrators a complete linkage and an unqualified necessity
to look at the Employment Service as the backbone of today's
emerging workforce development system. Without adequate funding
for the Employment Service, that system is simply crippled and
is not performing as effectively as it otherwise could.
This particular compromise program will restore the
integrity of that funding and allow us to make the complete
linkage of the spectrum of job seekers from those people who
are leaving welfare roles to those employees who may be
unemployed through no fault of their own and are collecting
Unemployment Insurance. A portion of the Employment Service
funding will be dedicated to reemployment services so that
unemployed workers will be served as well as supplementing the
funding available under the Workforce Investment Act or at
least leveraging with that funding to insure adequacy of the
job connection function which is now important in our emerging
one-stop service delivery system.
I guess I would indicate in conclusion, Madam Chair, that
this is an anomaly as far as States are concerned, and it is an
interesting anomaly. As we look at the funding that is
currently available in terms of the taxes paid by employers or
employees depending on how you view that, and we look at the
amount of money available currently the view I believe that
States and many of our States' governors share is that Congress
is inequitably impounding those funds for other purposes and
under this particular compromise, those funds would be restored
and the integrity of the Unemployment Insurance and Employment
Service systems would be adequately served.
Thank you for the opportunity of being here and thank you
for your continued support.
[The prepared statement follows:]
Statement of Robert C. Gross, President, Interstate Conference of
Employment Security Agencies, Inc., and Executive Director, Utah
Department of Workforce Services
Madame Chair and Members of the Subcommittee on Human
Resources, I am Robert C. Gross, President of the Interstate
Conference of Employment Security Agencies (ICESA) and
Executive Director of the Utah Department of Workforce
Services. Thank you for inviting me to testify today on behalf
of ICESA and its 53 State and territorial members. ICESA
represents State workforce agencies in general and the
Unemployment Insurance (UI) and Employment Service (ES)
programs in particular. Virtually all of our State members
administer the full array of workforce services; many also
administer welfare-to-work programs and some administer other
public assistance programs, such as TANF, under the
jurisdiction of the Subcommittee on Human Resources.
I want to thank and commend the Chair for scheduling a
hearing on the historic comprehensive UI and ES reform package
worked out this summer by business, labor, States, and the
Federal government. When I last testified on UI and ES reform
on February 29, 2000, I thought we had reached an impasse.
Employer representatives wanted a repeal of the Federal
Unemployment Tax Act (FUTA) 0.2 percent surtax, but could not
agree to UI eligibility expansions. Employee representatives
could not agree to repeal the FUTA 0.2 percent surtax without
including UI eligibility expansions in the package. However, at
your urging, we went back to the table and were able to reach
an agreement in our workgroup on June 27, 2000. Since then, we
have been explaining the agreement to our constituents and
others, and gaining support almost daily.
Today, I want to describe the most important components of
the reform package from the perspective of ICESA, and then I
want to address two major issues.
The ICESA Leadership Supports Fully the UI and ES Reform
Package
The ICESA leadership supports fully the comprehensive UI
and ES reform package. It is a balanced package that takes into
account the interests of business, labor, States, and the
Federal government. It reflects the very nature of a
compromise. There are elements that each of the parties likes,
and there are elements that each of the parties dislikes. As a
whole, however, all of the parties in our workgroup support
this package.
The comprehensive UI and ES reform package has four main
components:
Improving administrative funding of UI and
employment services.
Repealing the FUTA 0.2 percent surtax and reducing
employer tax filing burden.
Expanding UI eligibility for low-wage workers,
part-time workers, and former welfare recipients.
Improving certain technical and administrative
aspects of the UI program.
Improving Administrative Funding of State UI Programs and
Funding of the ES Program
The most important component of this package for State
administrators and ICESA is improving administrative funding
for UI and funding of employment services.
Administrative Funding of State UI Programs
Improving administrative funding of State UI programs
includes:
Fully funding State administration of State UI
programs.
Enacting a statutory formula based on workload and
cost for determining the total amount available to States for
administration of State UI programs.
Distributing funds available to States for UI
administration under current law, which delegates to the
Secretary of Labor the authority to determine the funds States
need for ``proper and efficient'' administration of UI.
According to preliminary U.S. Department of Labor (USDOL)
estimates, the package would provide about $2.52 billion for
the administration of State UI programs if it were in effect in
fiscal year 2001. This is about $275 million more than the
estimated amount under current appropriations levels. This
total amount would fund the ``proper and efficient''
administration of State UI programs as required by the Social
Security Act. It also would allow States to reallocate to other
State priorities nearly $120 million per year of their own
funds they have appropriated to fill the gap between what is
needed to administer UI and what is currently provided. Since
1994 when ICESA first began surveying States about their
efforts to fill this funding gap, States have spent nearly $600
million on State administration of UI programs. We can only
imagine what States could have done with these funds if they
had not been forced by Federal under-funding to spend these
amounts on administration of State UI programs.
With additional resources to properly and efficiently
administer the UI program, States would be able to better serve
UI claimants and employers. For example, States could meet the
demand for more and better service delivery channels, including
telephone call centers and the internet. Additional resources
are also needed to rebuild aging Unemployment Insurance
information technology systems to ensure the timely
determination of eligibility and payment of claims as well as
detection of fraudulent claims to preserve the integrity of the
system. And, to hasten UI claimants' return to work, States
need to expand the worker profiling initiative to better
connect unemployed workers to necessary reemployment services.
The statutory formula for determining the total amount
available to States for administration of State UI programs
would be updated to adjust for under funding of UI workloads
and ``real'' or inflation-adjusted costs since fiscal year
1995. Beyond fiscal year 2000, this revised base amount would
be indexed to inflation and projected workload, measured by the
number of covered employers and the number of covered workers
claiming benefits. As under current law, additional amounts
would be available if unemployment rose above projected levels
during the year.
The amount available to States for administration of State
UI programs would be distributed among the States according to
current law. Title III of the Social Security Act delegates the
authority to the Secretary of Labor to distribute these funds
to States. Further, the Act states the formula must be based on
population of the State, an estimate of covered employment in
the State, the cost of proper and efficient administration of
the State UI law, and ``such other factors as the Secretary of
Labor finds relevant.'' In addition, ICESA is forming a
workgroup to work with USDOL in the next few months to update
the methods the Department uses to execute this authority.
Funding for Employment Services
Improving funding of employment services includes:
Restoring the purchasing power of ES grants to
levels reached in the late 1980s.
Enacting a statutory formula for determining the
total amount available for State ES programs based on the size
of the civilian labor force and cost of administration.
Distributing funds available to States for the ES
program based on the current formula in the Wagner-Peyser Act
that uses State shares of the civilian labor force and
unemployment.
According to preliminary USDOL estimates, restoring the
purchasing power of ES grants to levels reached in the late
1980s requires an initial increase of about 40 percent to about
$998 million if the package were in effect in fiscal year 2000.
This increase is comparable to the increase authorized under
the business-State coalition bill (H.R. 3174) introduced by Mr.
McCrery last year. These sums would pay for services for
employers looking for qualified workers and workers searching
for work through the new local one-stop career centers created
by the Workforce Investment Act (WIA). In addition, this will
allow States to reallocate to other State priorities nearly
$140 million per year of their own funds that they have
appropriated to fill the gap in what is needed to provide these
critical services and what is currently made available. Since
1994, ICESA surveys show States have spent over $1 billion in
State funds to provide employment services, labor market
information, and other services for employers and workers.
As States have aggressively sought to implement their one-
stop employment and career centers, local flexibility adapted
to local labor market conditions has been an essential
principle. However, as service delivery systems have been
retooled, one truth has emerged anywhere you go--the core
function of the one-stop system is ``job connection.'' That is,
at the very heart of a one-stop center is the ability of an
employer to find an individual who is ready for work and can
play a productive role in that business.
Only one funding source supports the core function, job
connection, and is universal--all customers can access it
regardless of income or household size. It is the Wagner-Peyser
Employment Service. The Employment Service literally serves as
the ``heart'' of the one-stop employment center. The rest of
the one-stop employment center cannot function as an
integrated, cohesive whole without the Employment Service
functioning properly.
In addition, one-fourth of the increase in funding for
employment services, or about $74 million, would be earmarked
for reemployment services for UI claimants. State
administrators want to assure employers that sufficient amounts
will be spent on reemployment of UI claimants in suitable jobs.
This would benefit workers by helping them go back to work
sooner in good jobs, and it would cut UI costs and employer
taxes by reducing UI claims and the average duration of
unemployment. The amount available for State ES programs would
be distributed by the current formula in the Wagner-Peyser Act.
Under this formula, two-thirds of the funds are distributed
based on State shares of the total civilian labor force and
one-third of the funds is distributed based on State shares of
total unemployment.
State officials have been disappointed and baffled by the
lack of support in the Nation's capitol for employment services
for employers and workers. Outside of the U.S. Capitol and
inside State capitols, there is so much support that States
have filled part of the resource gap with their own funds. Why
has this happened? We asked a few States, and here are some of
the answers:
North Carolina added nearly 20 percent to its
Federal grants in fiscal year 1999 to avoid closing local
offices in communities across the State. Also, this
supplemental State funding allowed the State to fill 130
positions providing job search assistance to workers.
Iowa imposed an administrative surcharge on
employers in the State to avoid closing local offices. These
supplemental State funds added nearly 25 percent to the Federal
grants in fiscal year 1999, and currently finance 56 of the 71
local offices in Iowa. With this surcharge expiring in June
2001, Iowa faces either extending the surcharge on employers or
closing most of the local offices that deliver services to
constituents in the State.
South Carolina added nearly 15 percent to its
Federal grants in fiscal year 1999. Employers in South Carolina
strongly supported this supplemental State funding as an
investment in reemployment services. The South Carolina
Employment Commission said these reemployment services would
save the State $3 for every $1 spent. The savings was derived
from reduced UI benefit duration and taxes paid as a result of
new employment.
Repealing the FUTA 0.2 Percent Surtax and Reducing Employer Tax
Filing Burden
As I testified in February, the Federal government has
collected excessive Federal unemployment taxes for sometime.
This package corrects this problem by repealing the unnecessary
FUTA 0.2 percent surtax. The ICESA leadership supports
repealing the FUTA 0.2 percent surtax and reducing employer tax
filing burden as part of this package.
Expanding Eligibility
The ICESA leadership compromised on one of ICESA's most
important principles when it agreed with business, labor, and
the Federal government to establish certain Federal mandates
expanding UI eligibility as part of the package. ICESA members
believe eligibility for State UI programs should be determined
in individual State UI laws, not Federal law. However, the
ICESA leadership told the workgroup it could agree with Federal
UI eligibility expansions if business and labor could agree,
and the eligibility expansions were part of a comprehensive
reform package that met States' program funding goals. Because
the comprehensive package meets States' goals, the ICESA
leadership supports the eligibility expansions as part of the
package.
Improving Certain Technical and Administrative Aspects of the
UI Program
The ICESA leadership supports the technical amendments in
this package that improve the operation of the Unemployment
Trust Fund specifically and State UI programs generally.
Granting State UI programs access to the National Directory of
New Hires (NDNH) is an important provision. As I testified in
February, this provision will help States reduce UI
overpayments to individuals who have not informed the UI
program that they have gone back to work and are no longer
eligible for UI benefits. I am pleased the House of
Representatives passed this provision last year in the
``Fathers Count'' bill.
Madame Chair, ICESA, its Federal partner, and business and
worker representatives are very proud of this proposed
comprehensive UI and ES program reform. Please pass this
historic reform package this year.
Thank you.
Chairman Johnson. Thank you, Mr. Gross.
Mr. Smith?
STATEMENT OF DAVID A. SMITH, DIRECTOR, DEPARTMENT OF PUBLIC
POLICY, AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL
ORGANIZATIONS
Mr. SMITH. Madam Chair, members of the Subcommittee, I am
delighted to be here today representing the AFL-CIO and
delighted to be here with Ray and Bob and Chuck to sing the
same song. I am reminded at times like this, of a time when I
worked on the other side of Capitol Hill. I approached Senator
Bumpers one night, he was managing a debate. I asked him how
long he thought it would go on and his answer was that he did
not know because while everything has been said but not
everybody has said it. I am going to try to avoid saying what
Ray and Bob have said and simply associate myself with it.
We were here in February and addressing this same subject
and I suggested to the Committee that at that point it looked
very difficult to come to an agreement. An enormous amount of
hard work and, Madam Chairman, a lot of that work occurred, at
your urging has gone on since then.
We have reached an agreement, an agreement that actually
gives me a chance to use an arcane construct I learned in
graduate school and never figured out how to use. Economists
talk about pareto optimality. It is that moment where you
cannot make anybody better off without making somebody else
worse off. I think this agreement fits that description. None
of us have achieved everything in this agreement that we came
to the table seeking. There still will be work to do for this
Subcommittee, and for all of us, but the agreement carefully
balances a set of important objectives. It enhances
eligibility. It improves funding. It secures that funding. It
allows the Employment Service to do the important job that it
has to do both for our members and for Chuck's colleagues. This
is an historic deal.
We appreciate your support and look forward to being able
to celebrate enactment later this fall. Thank you.
[The prepared statement of follows:]
Statement of David A. Smith, Director, Department of Public Policy,
American Federation of Labor-Congress of Industrial Organizations
On behalf of the American Federation of Labor-Congress of
Industrial Organizations, (AFL-CIO), I want to thank you for
holding this hearing to discuss the historic agreement between
labor, business, State governments and the Department of Labor
(DOL) that we all believe will result in dramatic reforms to
the Unemployment Insurance (UI) and Employment Services (ES).
It is a carefully balanced approach that will make many more
workers eligible for UI benefits at a vulnerable economic time
in their lives, and provide all workers facing unemployment
with services that will help them get back to work sooner at
good jobs. I am especially pleased to be here with colleagues
from all of the stakeholder groups whose hard work over many
years made this agreement possible.
You will remember on February 29, 2000, I along with my
colleagues representing the States and business frankly
testified that despite the tremendous need for comprehensive
UI/ES reform legislation, we had been unable to reach a
consensus. Ultimately, however, the recognition of each of us
that this opportunity may not present itself again in the near
future has brought us to a place where key goals were achieved
and modest concessions made resulting in the proposal we
discuss today.
Even during this period of relatively good economic health
the Federal-State partnership that is the basis of UI and ES
does not adequately addresses the needs of unemployed workers
or employers seeking new workers. Although worker advocates did
not achieve all of the changes to the UI/ES program that we
believe are necessary to serve workers well in the new economy,
the eligibility enhancements are significant advancements,
especially when coupled with administrative funding to provide
``proper and efficient'' services to those workers. On balance
this is a strong package and puts the program on a strong
footing for the next century.
Worker advocates have long fought for changes in the UI/ES
system that would make more workers, especially low wage
workers, eligible for UI benefits, and for adequate funding for
ES programs to provide services to those workers to help them
get back to work as soon as possible. Because the package
before us takes significant steps towards meeting those goals,
the AFL-CIO strongly supports the proposal and urges Congress
to move the bill in its entirety before the current session
ends.
Eligibility Expansion
The proposal includes three significant expansions of
worker eligibility: Using a worker's most recent wages to
determine eligibility; coverage of part-time workers seeking
part-time work; and reforms that make the Extended Benefit (EB)
program more responsive to economic downturns. These three
eligibility enhancements will provide economic stability for
low-wage workers, their families and communities, and also
provide a bridge to re-employment services to help workers find
a new job.
For far too long, many U.S. workers has been denied
eligibility for UI benefits despite the fact that they have a
strong attachment to the workforce. As wages have fallen and
work patterns became increasingly irregular, the old monetary
requirements for UI benefits no longer accurately reflect a
worker's commitment to work. The most significant bar to UI
eligibility is the failure of many States to use wage and
employment information from the most recently completed quarter
of worker, instead counting the first four of the last five
quarters worked, to determine minimum monetary eligibility.
This method discounts a worker's most recent wages, which is
usually the period when workers make the most money. With only
11 States using the most recent earnings to calculate
eligibility, more workers are denied eligibility for UI
benefits for this reason than any other criteria. The
comprehensive proposal makes it a conformity requirement for
States to use the most recent wages to calculate monetary
eligibility when a worker fails to qualify under an alternative
calculation. DOL will provide administrative funding for the
cost of technology changes making it easier for employers to
report and State agencies to post accurate wage and employment
information. Some 6 percent of the unemployed , estimated by
DOL at 320,000 workers annually, will become eligible for UI
benefits because of this provision.
In the recent publication The State of Working America,
2000-2001, the Economic Policy Institute reports that 17
percent of all workers were employed on a part-time basis in
1999, including 3.3 million who wanted full-time work but could
not find it. Currently, most State eligibility standards do not
reflect this working relationship. The prohibition against
part-time worker eligibility in most States has had a
dramatically detrimental effect on the eligibility of women,
who comprise 68 percent of all part-time workers. Only 13
States currently pay benefits to part-time workers seeking
part-time work, even though in many instances, workers are
confined to part-time work not by choice, but by the dictate of
employers or dependent care obligations. The comprehensive
reform proposal would require all States to pay UI benefits to
part-time workers seeking suitable and comparable part-time
work who are otherwise eligible for benefits. DOL estimates
that 260,000 workers currently ineligible under State UI
programs would be eligible for benefits under this provision.
The proposal addresses the trigger for the Extended Benefit
(EB) program prior to a recession by adjusting the EB trigger
to better reflect economic downturns. Moving the EB trigger to
4 percent of a State's Insured Unemployment Rate will enable
730,000 additional workers to receive EB under's situation
similar to the last recession, while also streamlining
eligibility requirements to mirror those in the standard UI
program. The last time Congress attempted to provide a
temporary fix of the EB trigger during the middle of the
recession, additional benefits were paid in all States, some of
which were not facing as severe an economic situation as
others. This band-aid approach was far more expensive than fine
tuning the EB trigger to target funds to States hardest hit
during a recession.
States will not have to raise employer taxes or raid other
State funds to pay for these eligibility enhancements. The
proposal uses the funds from a special Reed Act distribution to
offset the cost of the eligibility enhancements during the
first 5 years of the proposal.
Administrative Finance Reform
The first item in the proposal that was unanimously agreed
upon by all the parties was the decision to move UI/ES
administrative funding to the mandatory side of the budget. The
longstanding bargain that was struck by those who proposed the
UI/ES system years ago was meant to ensure that workers would
receive the help they needed to find jobs as quickly as
possible in order to minimize benefit costs and pressure on
employer taxes has been compromised by severe under funding. To
equal the FY 85 appropriation adjusted for inflation, FY 99
spending would have to be over $1.2 billion. ES staffing levels
have dropped more than 50 percent. During the same period that
the civilian labor force grew by approximately 20 percent. UI
as well as ES funding has been flat for the last 5 years. This
inadequate level of funding has destabilized State
infrastructures and compromise service quality. As highly
trained ES staff have been laid-off, States have closed
offices, and adopted methods of service where UI claimants
often never speak directly to an ES worker during the entire
time they are eligible for UI benefits and service. In person
assistance for job seekers has declined substantially--replaced
by automated systems, which may usefully augment certain
services, but are hardly a substitute for personal assistance
for unemployed workers.
Expansion of UI eligibility to hundreds of thousands of
workers will not be meaningful unless it is accompanied by full
funding for UI and ES programs. This is especially important to
those hundreds of thousands of newly eligible workers who can
serve as a ready trained and available source of workers for
employers with openings to fill. The proposal uses a formula
for distribution of administrative funding that is based on
workload, which will result in States that provide good,
comprehensive services to workers receiving additional funds to
support their work. The AFL-CIO supports increased resources
for the employment service to rebuild the system because we
recognize the importance of these services to business and to
the workers who want and need more effective help finding new
employment.
The remainder of the package includes provisions that
either the AFL-CIO has either been noncommittal about in the
past (such as technical amendments allowing States to access
the Directory of New Hires to track UI claimants), or even
opposed, such as repeal of the .02 percent employer surtax.
These provisions would not be supported individually, or in a
different package. However, because the proposal includes
significant advancements in worker eligibility and
administrative financing, the AFL-CIO is fully supportive of
this proposal in its entirety.
Again, the AFL-CIO strongly States its support for the
comprehensive UI/ES reform proposal, and we look forward to
working with the Subcommittee towards passage and
implementation of reforms that are essential to U.S. workers.
Chairman Johnson. Thank you, Mr. Smith.
Mr. Yarbrough?
STATEMENT OF CHUCK YARBROUGH, CHAIRMAN, BOARD OF DIRECTORS,
UWC-STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS' COMPENSATION,
AND DIVISION PERSONNEL MANAGER, TYSON FOODS, INC., SPRINGDALE,
ARKANSAS
Mr. Yarbrough. Thank you. Good morning. It is certainly
exciting to be here today and this is a privilege to be back
before this Committee.
Madam Chairman and members of the Committee, my name is
Chuck Yarbrough. I am Division Human Resource Manager for Tyson
Foods. I am testifying today on behalf of UWC which is
Strategic Services of Unemployment and Workers' Compensation. I
am proud to serve as Chairman of the UWC Board, which was
founded in 1933 and is the only business organization
specializing exclusively in public policy advocacy on national
Unemployment Insurance and Employment Services.
I am a 25-year user of the system. I think it is extremely
important to realize that the unemployment and Employment
Services that are out there are definitely needed in this day
and time for the war on workers, trying to get folks in to work
and trying to work. And using this agency and using the
services is what a lot of us that are Federal contract
employers must do and want to do. And so we are excited about
the opportunity.
I will tell you that when we came together in a meeting
after your urging for us to get back together we had to check a
few egos at the door. We had to leave a few agenda items
outside and as I said we were loosely holding hands. And today
I think we basically got our arms almost on each other's
shoulder marching forward trying to come to you seeking reform.
I do have some I guess history as far as using. I have
served as the National Employers Council representative of
Region VI working with the Secretary, Department of Labor of
Arkansas, Louisiana, New Mexico, Oklahoma, and Texas and feel
like as a user of the system and hopefully, as Chairman of UWC,
will say that after coming to the last hearing we realized that
maybe we were the ones that needed to extend out and ask for us
to sit back down at the table together.
And with a lot of encouragement and a lot of support by
Grace and Bob and other folks where we actually sat down and I
think hammered out an excellent agreement. It is something that
we feel like that we can support as a group. I would like to
begin by reviewing the development and say that when we sat
down together as UWC, DOL, ICESA and organized labor we knew we
had to come to an agreement.
Time is short. This is the opportunity that we need to move
forward. This is the time to fix it because it is really not at
a point in time that unemployment is such a high level that we
are using the dollars. This is time to really take a good hard
look at it and dissect the problem. Unfortunately, the current
system is not working effectively. Workers are underserved,
employers are over-taxed and we are only getting about 50
percent, whichever side you want to look at that, of the
dollars returned that are paid up here.
Because of the chronic underfunding of the agencies, we are
in the midst of a labor work shortage, collecting more weeks of
unemployment benefits at employer expense. The States are
reaching into their own general revenues, employer pockets or
levying add-on taxes and making up the shortfall for FUTA fund.
The good news is we have a chance and historic opportunity
to enact a joint comprehensive UI reform package and therefore
improve the efficiency and streamline the system. Now, for
jobless workers reducing taxes on employers and alleviating the
financial pinch on State administrators. And that is what we
call a win-win-win situation around this table.
A couple of things that this does is, of course, eliminates
the 0.2 percent FUTA tax, 1.6 billion savings for a year to
employers. It improves the UI/ES funding. If we do not get this
turned around, my State alone I know is asking for additional
taxes and additional money to provide the funding. We are
looking at a lay-off of full-time, permanent people working in
the agency just to be able to afford cost of living increases.
That is sad. My particular company because of a lack of
funding, we have actually written checks for rent to keep the
Employment Services open in the State of Texas and east Texas
just so we had a local office that could provide the Employment
Service to our company as well as many others in that small
community.
Finally, on top of paying higher taxes many employers have
been forced to expend additional resources of Employment
Service that they have already paid for through FUTA but have
not received. Lots of employers have opened up Employment
Services with their own money. You cannot drive up and down
Main Street, America, finding help wanted signs everywhere but
yet the Employment Service, the place where we should be
sending people, the cornerstone of the one-stop is definitely
underfunded.
The ES partnership and one-stop will insure employers'
input in decisions about using additional ES fund and increased
ES funding will also aid in implementing the Workforce
Investment Act. We will see Reed Act distributions back to
normal. We will see dedicated funding for reemployment services
strictly for UI claimants to help them get back to work sooner,
increased access to the National New Hire database. We feel
like that will definitely help prevent some fraud. Reduce tax
complication costs. And the joint comprehensive ES/UI reform
package also contains UI benefits expansion, previously opposed
to in this package but we believe they are acceptable as part
of this comprehensive package.
My grandfather reminded me do not forget where you come
from and in my career in human resources we have used the
Employment Service. And I am here today to tell you that we
need to continue to use those services and we need proper
funding to help those people do what they do best and that is
serve as a labor exchange for those people seeking.
Thank you very much for the opportunity to be here today.
[The statement of Mr. Yarbrough follows:]
Statement of Chuck Yarbrough, Chairman, Board of Directors, UWC-
Strategic Services on Unemployment & Workers' Compensation, and
Division Personnel Manager, Tyson Foods, Inc., Springdale, Arkansas
Good morning, Madam Chairman and members of the committee.
My name is Chuck Yarbrough, and I am Division Personnel Manager
for Tyson Foods, Inc., the nation's leading producer, processor
and marketer of poultry and poultry based food products, as
well as other convenience food products.
I am testifying on behalf of UWC--Strategic Services on
Unemployment & Workers' Compensation. I am proud to serve as
the Chairman of the UWC Board of Directors. UWC, which was
founded in 1933, is the only business organization specializing
exclusively in public policy advocacy on national Unemployment
Insurance and employment services (UI/ES) and workers'
compensation issues. UWC is intimately acquainted with UI laws;
our research arm, the National Foundation for Unemployment
Compensation & Workers' Compensation, publishes numerous
materials on UI, including the annual Highlights of State
Unemployment Compensation Laws. In addition to UWC, I have
extensive experience with UI/ES issues through the National
Employers Council (NEC). I served as NEC's elected
representative for employers in the Department of Labor's
Region VI (Arkansas, Louisiana, New Mexico, Oklahoma, and
Texas). In this capacity, I represented employers before the
Department of Labor (DOL) and State employment security (ES)
administrators.
UWC supports a strong UI/ES program through which employers
provide fair and affordable insurance benefits for a temporary
period of time to workers with a strong attachment to work who
are temporarily and involuntarily jobless when suitable work is
no longer available. UWC believes that a sound UI program is
best embodied through the State UI/ES system, with a limited
Federal role where uniformity of State law is considered
essential.
UWC has a long history as the voice of business on UI/ES
reform. UWC led the Coalition for Employment Security Financing
Reform, a coalition of more than 100 business organizations and
32 States who supported H.R. 3174, the Employment Security
Financing Reform Act, introduced by Rep. Jim McCrery with 35
bipartisan co-sponsors.
I would like to begin by reviewing developments on UI
reform subsequent to the hearing in this Subcommittee on
February 29, 2000. As you will recall, at the hearing Chairman
Johnson urged that all interested parties--business, States,
labor unions and DOL--come together on one proposal. Late last
spring, when it became clear that H.R. 3174 would not move
forward this year, UWC approached DOL and requested that we
meet in order to craft a compromise on UI reform. A workgroup
consisting of representatives from UWC, DOL, ICESA and
organized labor convened in May. After intense discussions, the
work group reached consensus on a package of comprehensive UI
and ES reforms. Subsequently, UWC's UI Committee and Board of
Directors actively debated the package and voted to support it.
UWC believes that the swift enactment of the joint
comprehensive UI reform proposal is essential to strengthen the
Federal-State (UI/ES) system and the workers and employers whom
it is designed to serve. The comprehensive UI reform proposal
will improve the method by which Federal Unemployment Tax Act
(FUTA) taxes are collected and funds are provided to administer
the State UI and ES programs. This proposal will fix serious
problems with the State UI and ES system resulting from the
Federal government's failure to provide adequate funding, and
it will also provide funds needed to implement the Workforce
Investment Act.
Unfortunately, the present UI/ES system is not working
effectively. Workers are under-served, employers are over-
taxed, and State UI/ES agencies are under-funded. Under the
current system the Federal government collects 100 percent of
(FUTA) receipts but returns only 50 percent to the States.
Because of the chronic under-funding of UI/ES agencies,
workers in the midst of a labor shortage are collecting more
weeks of unemployment benefits--at employer expense--and States
are reaching into their own general revenues--and employer
pockets--by levying add-on taxes to make up for the shortfall
in FUTA funds coming back to the States.
The good news is that we now have at hand a historic
opportunity to enact H.R. 3174 the joint comprehensive UI
reform package and thereby improve efficiency and streamline
the system by funding UI/ES administrative costs. This funding
is necessary to improve services for jobless workers, reduce
taxes on employers, and alleviate the financial pinch on State
administrators. Now that's what I'd call a ``win-win-win''
situation.
Under the joint comprehensive UI/ES reform package, the 0.2
percent FUTA surtax will expire at the end of this year rather
than the year 2007. UI/ES funding will be moved to the
mandatory side of the budget, and statutory funding formulas
will be used to determine the national total amount available
each year. The formulas will reflect workload, and funding
levels will be adjusted for inflation. These formulas, in
conjunction with the fiscal controls currently utilized by
State UI/ES agencies, will ensure increased accountability for
the funding given to the States.
In addition, FUTA and State unemployment taxes will be
payable no more often than quarterly, and the FUTA tax form
will be simplified. This approach will reduce unnecessary
paperwork.
Specific advantages to employers in of H.R. 3174the joint
comprehensive UI/ES reform proposal are as follows:
Elimination of 0.2 Percent FUTA Surtax
Employers will save $14 per worker per year, starting in
2001. Aggregate savings will be $1.6 billion or more per year
(a total of $12.8 billion through calendar year 2007). Under
current law, the Federal Unemployment Tax Act (FUTA) rate is
0.8 percent. This rate is 25 percent too high as the result of
a 0.2 percent ``temporary'' surtax which is no longer needed
and which is now being collected only because inclusion of FUTA
surpluses in the unified Federal budget allows the Federal
government to meet budget targets for other spending programs.
Federal law expressly limits the use of FUTA funds to UI/ES
functions spelled out by statute. The practice of counting FUTA
funds for spending on other programs, leaving only an IOU and
an accounting entry behind, is contrary to the very reason why
Congress placed these funds in the Unemployment Trust Fund in
the first place. In effect, the budget rules allow the misuse
of FUTA funds for purposes unrelated to the UI/ES system.
Congress originally imposed the 0.2 percent FUTA surtax in
1976 to pay for a temporary Federal program of supplemental
benefits for workers who had exhausted the 6 months of regular
State UI and the 3 month extension under the permanent Extended
Benefits (EB) program. Although we believe the supplemental
extension should never have been an employer obligation in the
first place, the deficit created by this program was retired in
1987, yet the surtax has been extended until 2007.
Improved UI/ES Administrative Funding
To serve its customers effectively, UI/ES agencies must be
efficiently administered. In recent years, this goal has been
frustrated. Employers pay more than enough in FUTA taxes to
provide proper funding. FUTA revenue is legally dedicated to
funding the operations of State UI/ES administrative agencies
and paying for 50 percent of the permanent EB program.
Nevertheless, in practice the budget laws and the
appropriations process force State UI/ES administration to
compete for funding against other programs that are funded from
general revenues. As a result, appropriations for State UI
agencies have been severely inadequate, leading to a reduction
in services for workers and employers. Failure to provide
adequate UI/ES funding, in turn, results in indirect State tax
increases.
As a business organization, UWC understands the importance
of balancing the Federal budget, but the budget rules are
fatally flawed as applied to UI/ES financing, creating
unintended adverse consequences. The inadequate Federal grants
have directly increased the State tax burden on employers--and
Federal budget outlays--in several ways. Employers have been
required to pay a second, third, and fourth time--quadruple
taxation. This indirect taxation comes about partly because the
average UI claim duration is longer (and thus benefit costs are
higher) than necessary.
For example, inadequate funding to combat fraud and abuse
and provide reemployment services also adds to results in
workers collecting additional weeks of UI benefits. DOL
estimates that UI claims on average now last 2 weeks longer
than expected in this tight labor market.
Another indirect tax arises because many States have been
forced to dip into their own general revenues or impose new
add-on payroll taxes on employers--above and beyond the State
tax used to finance UI benefits--to make up some of the
shortfall in FUTA funding from Washington. As ICESA has
reported, since 1994, States have spent more than $1.6 billion
of their general revenue. Most of the resulting additional tax
burden falls on employers.
Finally, on top of paying higher State taxes, many
employers are forced to expend additional resources for
employment services they paid for through FUTA but did not
receive because States have been forced to close offices and
eliminate employment counselors and other services. For
example, Tyson Foods has actually paid the rent to keep the
local employment service office open in Carthage, Texas.
The joint comprehensive UI reform package begins will
correct this situation. UI/ES funding will be moved to the
mandatory side of the Federal budget, and statutory funding
formulas will be used to determine the amount of funding. The
first year the formulas are implemented (estimated to be fiscal
year 2002), funding will increase by approximately $450 million
for UI and $240 million for ES. The increased funding will
reduce or eliminate the need for separate add-on State taxes
for administration. Dedicating part of ES resources to UI
claimants will reduce UI claim duration by getting unemployed
workers employed sooner. If average duration is reduced by one
week, annual savings are approximately $1.5 billion at current
unemployment rates. Increased funding for ES will provide
additional services to employers, UI claimants and others in
the labor market. Increased funding for UI will increase
accuracy and quality of UI benefit payments, which will result
in fewer under/overpayments. Increased funding for UI
administration will also increase ``integrity'' activities--
e.g., periodic eligibility reviews of claimant work search
activities and benefit payment control activities, which in
turn will help claimants make realistic assessments of what
they need to do to return to work. ES partnership in One-Stops
will ensure employer input into decisions about use of
additional ES funds. The increased ES funding will also aid in
implementing the Workforce Investment Act.
Reed Act Distribution Returns to Normal
The joint comprehensive UI/ES reform package returns about
$5 billion in excess FUTA dollars to State UI trust funds from
2002 to 2007. These funds will reduce the State UI payroll tax
burden and provide additional funds for improved
administration. When the FUTA accounts are all at their
statutory maximum, as they are today and into the foreseeable
future, a law known as the ``Reed Act'' requires any surplus to
be distributed into the State UI benefits accounts. However,
instead of making this disbursement, under current law the Reed
Act distribution has been limited to $100 million a year.
Consequently FUTA funds are building up despite the statutory
ceilings.
Dedicated Funding for Re-employment Services for UI Claimants
The comprehensive UI/ES reform proposals provides
approximately $74 million dedicated for re-employment services
for UI claimants. Employers believe this provision is a very
important piece of the proposal, as it will aid in getting UI
claimants--who traditionally are often the last to receive re-
employment services--back to work sooner.
Increased Access to National New Hire Database
Consistent with similar provisions in the Fathers Count Act
(H.R. 3073) introduced by Chairman Nancy Johnson, State UI/ES
agencies will have multistate access to the National Directory
of New Hires. This proposal provides a powerful new tool for
States to prevent, detect and recover overpayment of UI
benefits to workers who have returned to work, at no additional
burden to employers.
Reduced Tax Compliance Costs
The FUTA tax is not only too high, but compliance is
needlessly complex and burdensome. The joint comprehensive UI/
ES reform package will reduce the complexity and burden by 1)
prohibiting collection of FUTA or State UI taxes more often
than quarterly; 2) simplifying the complex FUTA tax form
without affecting the amount of tax or changing the definitions
of wages and employment; and 3) enabling the Federal government
and States to share information which will remove an impediment
to allowing employers to file combined Federal and State wage
reports.
The joint comprehensive UI/ES reform package also contains
UI benefit expansions. UWC previously opposed these expansions,
but believes that they are acceptable as part of this
comprehensive reform package. The benefit expansions have been
crafted in a way that minimizes the burden on employers. The
specific benefit expansions and their impact on employers are
as follows:
Federal Extended Benefits (EB) Requirements
The joint comprehensive UI/ES reform package will repeal
special eligibility requirements for EB claimants. It allows
States to establish and use their own eligibility requirements
instead.
The joint comprehensive UI/ES reform package will also
restore the standard State EB ``trigger used until 1981. It
does not change the other optional triggers or use the Total
Unemployment Rate (TUR), which would be opposed by employers.
Use of More Recent Wages
In most States, workers who are otherwise eligible may be
denied UI benefits simply because earnings reported by the
employees are too recent and have not been entered into the
automated data systems used by State agencies. The joint
comprehensive UI/ES reform package responds to this
administrative problem and improves the fairness perception for
these workers who must wait a quarter to receive benefits. As
crafted, the provision will not impose an additional
administrative burden on employers. Moreover it will not
require States or employers to use affidavits or wage requests
unlike many ``alternative base period'' (ABP) proposals. It
gives States more latitude, as it does not dictate a specific
ABP or procedures. It does not change frequency or deadlines
for reports. Nor does it change benefit calculations. To assist
in covering the cost of system modifications necessary to
effectuate this provision, the joint comprehensive UI/ES reform
package gives ``technology grants'' to States.
UI Benefits for Part-Time Workers
The joint comprehensive UI/ES reform package will require
States to pay UI benefits to otherwise eligible unemployed
workers who (1) have met monetary eligibility requirements on
the basis of their part time work and (2) are seeking and
available for suitable and comparable part time work. The
purpose of this provision is to eliminate the disqualification
of a part time worker solely for being unavailable for full
time work.
UWC believes the benefit expansions have been drafted to
minimize Federal intrusion in areas traditionally and
appropriately the province of the States. Funding adjustments
in the package will provide financing to States, to ensure no
State will need to raise UI taxes in the near future to cover
the costs of these benefit expansions.
Conclusion
Employers, who finance the UI program through Federal and
State payroll taxes, regard UI as an integral part of the array
of the employee benefits they provide. Because employers pay
for UI, UI costs are a part of business overhead. UWC believes
it is important to keep UI costs as low as possible consistent
with its basic goals: prompt return to suitable work by workers
with a strong work attachment who lose their jobs through no
fault of their own, as the result of action taken by their
employer in managing its workforce. By design, UI allows such
workers to collect benefits partially replacing wages during
short-term unemployment, while they are able to work and are
actively seeking suitable full-time employment. How much work
constitutes ``attachment,'' what percentage of lost income is
sufficient ``partial wage replacement,'' how long is ``short-
term,'' what makes unemployment ``involuntary,'' and which work
is ``suitable,'' are all key issues that bear on the cost of
the program to employers. We believe these questions are best
resolved by each State under its own UI statute, in light of
its own needs and economic circumstances.
UWC advocates responsible funding for the UI system and
opposes over-taxation. Payroll taxes for UI should be at the
minimum level necessary to provide the protections promised,
because unnecessary taxes harm corporate competitiveness in the
United States. It is especially important for the counter-
cyclical UI program to be mindful of this principle, because
benefit improvements instituted during periods of low
unemployment could create damaging cost increases when the
economic cycle turns, as it eventually will.
UWC supports a strong UI/ES system and the concept of a
Federal-State partnership, under which the UI system has been a
general success. However, the present UI/ES system is not
working effectively. The Federal budget process as now applied
to FUTA taxes and UI/ES administrative funding is detrimental
to a sound, efficiently administered program. The joint
comprehensive UI/ES reform package was developed with these
concerns in mind. It is the most expedient and workable way to
fix some of the most significant problems facing the UI/ES
system.
Today the UI program is not perceived to be in a ``crisis''
mode. Consequently, this is the most propitious time to
institute meaningful reforms that can improve service for
jobless workers, save money for the Federal government, free
resources for the States, and reduce the tax burden on
employers. I therefore urge that you actively work to enact the
joint comprehensive UI/ES reform proposal on a bipartisan
basis. It is sound public and fiscal policy, and we
respectfully urge you to support and actively work for its
speedy enactment.
Chairman Johnson. I thank the panel very much for their
comments and congratulate you on your hard work. Honestly, in
February it did not look possible and I am very pleased to have
you back here with a proposal that you agree on. Personally, I
want to see our job service become not just a job placement
bureau but an arm of government capable of helping people
develop their careers. So it is not just a job but the next job
and the next job and linking an advisory capacity that enables
people to link training and career development.
So I do consider this a very important initiative but I do
also consider it a first step. As one also who really deeply
believes in the importance of parents being home with their
children, I think we as a Nation have to do a much better job
supporting part-time work. And for a part-timer to be compelled
to be available for work full-time because their part-time job
is eliminated is really a disservice not only to that person
but to the concept of raising strong children.
So I think both the part-time compensation aspect of this
proposal and the new links that it will provide to our
Workforce Investment Act and welfare reform are extremely
important. Although I think the latter links may not be
adequate.
There are a couple of questions that I want to pursue and
then I am going to turn it over. I am trying to keep each of us
to five minutes in questioning so we will get through everybody
that is here at least once. I do have a deadline but I can let
others go on after that.
But very briefly, first of all, very shortly in terms of
the business community do you have letters of endorsement of
this proposal from, for instance, small business organizations,
the chamber, other business organizations?
Mr. Yarbrough. UWC is a recognized authority on
Unemployment Insurance and a lot of the companies have asked us
to carry this ball for them. So as far as actual letters, we
have educated those people and currently have no opposition
that I am aware of. A lot of questions about expansions and
things of that nature but everybody realizes it is a
comprehensive package.
Chairman Johnson. We will need to plumb that.
Mr. Yarbrough. Yes.
Chairman Johnson. On the same line, Mr. Smith, have you had
any contact with the non-union workers segment in terms of
their interest in this proposal?
Mr. Smith. I think, Madam Chair, all workers were
represented on the stakeholder group, colleagues representing
workers in general participated in the development of the
compromise. We have not had any contact with unorganized
workers because it is hard to do that. But I cannot imagine
that the show of support that you have gotten from women's
organizations, from organized labor, and from both users of the
system and beneficiaries of the system do not speak very
broadly for the amount of support out here.
Chairman Johnson. We do need to plumb that issue, both
those matters. Mr. Uhalde, does the Administration have any
views on moving this funding from discretionary to mandatory?
Mr. Uhalde. The Administration supports moving it from the
discretionary side, out from under the discretionary caps, to
the mandatory side, but wants to do it in a manner where budget
review and accountability are maintained. So the details of the
how to do that, to determine those mechanisms, are to be worked
out.
Chairman Johnson. So they do have some refinements that
they would like to see in that section of the bill?
Mr. Uhalde. Yes.
Chairman Johnson. Have those been shared with the other
members of the working group?
Mr. Uhalde. We have spoken verbally. We have nothing in
writing at this time, but that is something to be worked out.
Chairman Johnson. At this point in the session I would
advise you to get things in writing.
Mr. Uhalde. We are working very hard, but it is a historic
move to get the Administration to move in this direction.
Chairman Johnson. Yes, I appreciate that. There are a
couple of bigger issues I want to raise. There are some
industries that are using the Unemployment Compensation system
as back-up income for laid off workers whom they will need to
rehire and we know that. Could these companies incur any extra
costs for taking advantage of the system for this purpose as
opposed to other employers who really take advantage of it only
when they have to layoff permanently?
In other words, there are companies who use this for
seasonal income for employees that they actually do not want
rehired by other people. And we know that. We know that these
companies sometimes send out clear messages to the Employment
Service not to place their employees in other jobs because they
really want them back.
Now I am not saying this is illegitimate. First of all,
there are a lot of family needs that lead people to be more
comfortable and be more capable of handling seasonal work but I
wonder whether in thinking this through you have thought
through any greater obligation of an employer who wants to use
the system that way than the employer who does not want to use
the system that way?
Mr. Yarbrough. Madam Chairman, there are other programs
like shared work programs where folks might be having a
retooling of a plant or redoing something new inside their
facility and they do not want to lose that core worker and,
therefore, they allow that person to draw out of their
unemployment account while they are off, while that tooling
change is being made or for short turn downs.
The point is that all of those dollars are charged to that
employer's account. His experience rating and all of his taxes
that he pays are based upon that. So anyone that uses the
system in the means, methods in which you are describing, their
experience ratings are greatly impacted and affected on how
many more dollars----
Chairman Johnson. I do appreciate that, Mr. Yarbrough.
Sorry to cut you off but I want to stay to my five minutes too.
I do appreciate the experience rating and how that affects
employers who do that. Nonetheless, where there is a pattern of
seasonal use have you had any discussion about whether or not
the experience rating actually ought to be upped for those
employers who repeatedly year after year have a certain pattern
of lay-off and reemployment? The answer to that I assume is no
so let us go on. But I think this is a significant issue and I
just wanted to raise it.
Another significant issue that I want to be sure to raise,
there are several others but I will not have time to raise them
all, is one of the problems with the current unemployment
system is that it is very different from a number of our other
systems in the sense that you actually have the right to
receive unemployment for a certain number of weeks. And while
there are requirements that you must be available to work and
demonstrate that you are looking for work, we all know that
those requirements can be met artificially.
So if we are going to open the program to part-time workers
and move into an age in which everyone's skills are going to
have to grow, have you given any thought to an obligation for
unemployed people to participate in any kind of job training
until they do find a job? In other words, is the old system of
yes, you can draw unemployment and do nothing really in
anyone's interest anymore? Or if you are not able to find
another job or if there is not a job at your pay level, is
there any obligation to participate in education programs or
training programs?
And have you made any improvement in this bill in enforcing
our ability to implement the availability to work requirements?
They are going to be harder to implement when we include part-
timers. So what thought did you give to how we oversee
availability of work requirements? How have you thought about
that time of unemployment in the context of all workers' needs
for employment improvement?
Now, go back to the seasonal worker and if those seasonal
workers had an opportunity to receive unemployment benefits
while receiving training they may not go back to that seasonal
job. They might go to a higher paying job--or a higher paying
part-time job. Did you try to address this issue of
implementing the availability for work requirements and linking
that to skill development?
Mr. Uhalde. Madam Chairman, this was a central feature of
the conversation and the proposal addresses that. There is a
provision for worker profiling and reemployment services which
requires that workers as they apply for Unemployment Insurance
are profiled and determined whether or not they are likely to
exhaust their benefits and whether they will, therefore, need
reemployment services in order to avoid that.
Currently, about 2.2 million workers or claimants are
judged in need of reemployment services based on this
profiling. And the problem is the funding for reemployment
services has been able to take care of about a third of those
workers. This proposal in addressing the reemployment services
would make sure that the large majority of those workers who
are profiled, essentially identified ahead of time as likely to
exhaust and needing assistance, will be able to get the
services.
Chairman Johnson. Yes. Thank you very much. That is very
helpful. My time has run out. I have also been told by the
staff that the lights were not done properly so I really am
overtime. So we will come back to this issue of profiling and
how it could perhaps be better employed. Mr. Cardin?
Mr. Cardin. Thank you, Madam Chair. And let me join with
you in offering my congratulations to those that are at the
table, the stakeholders not only for your testimony today,
which I found very helpful, but for the hard work that you did
in bringing consensus in this area.
UI has been an area that historically has been very
difficult to reach agreement between the different
stakeholders. So we congratulate you on that. And we have a
rather large attendance of our Subcommittee here which I think
speaks well to this issue. There is a lot of interest. And I
hope that we can get this package moving, but it is a package
and I would just urge you in dealing with your constituencies
to make it very clear that this package comes together as a
package and if you start fooling around with any of the
different parts, there will be no opportunity to enact
legislation this year.
I particularly just want to make one observation as to the
people that are affected, and I agree with Mr. Smith that all
workers are going to be benefitted by this recommendation, but
particularly women who make up a larger percentage of the part-
time workers, and the lower wage workers. I think this proposal
is going to be particularly beneficial to them, and I think we
should acknowledge that.
I want to deal with one part of the proposal. The package
deals with administrative costs. It deals with removable
barriers and reimbursing the States for the cost of those
removable barriers and the permanent removal of the 0.2 percent
surtax. But on the changing from the discretionary to mandatory
spending there seems to be broad consensus that we do not want
it subject to the budget caps. I am somewhat concerned by what
you mean by budgetary review and the purpose for budgetary
review.
I think all of us agree that Congress needs to oversight
whether the formula is correct and whether the dollar amounts
are correct for reimbursing the States or the administrative
costs of the programs. I am not exactly sure what benefit,
other than perhaps the internal politics of this institution
would be served by subjecting this to an annual appropriation
review. And I would just appreciate your thoughts as to what is
meant by adequate budgetary review. If you are referring to
review by Congress on oversighting the formula, you have my
complete understanding and support, but if you are talking
about subjecting the States to some form of an annual
appropriation, I would like to be convinced as to why that is
necessary.
Mr. Uhalde. Mr. Cardin, I do not have the details of that.
As I told Madam Chair, I do not have the language to provide
but there is an interest beyond establishing one time the
formula, interest in making sure and having some ability for
the Congress to be able to review whether those funds are
appropriate and adequate for purposes and whether there are
other special needs. For example, are there special technology
needs that need to be funded additionally and so forth. The
important feature of the Administration's commitment is that we
need to get them out from under the caps. We need to adequately
fund the system which we acknowledge has not been done either
on UI or the Employment Services for a number of years.
Mr. Cardin. We are in agreement on that. We are in
agreement. I guess my concern is that we do not set up a system
that subjects the States to unnecessary Congressional politics
unrelated to the performance of the UI administrative system.
Mr. Uhalde. I do not believe that is the intention at all.
There will be an extensive review, as currently exists between
the department and the States, of the expenditures as we
release monies on a quarterly basis to States and whether they
need additional funds. And that process about proper
expenditure will continue.
Mr. Cardin. We will come back to that because I am very
concerned that we do not overdo and make this too bureaucratic
on how these funds are going to end up being released.
The second point I would raise, and just get anyone's
thoughts on this as to whether there was any thought given by
the stakeholders. There is a system to reimburse the States for
the cost of removing these barriers by reducing the Federal cap
and then getting those funds back to the States. I take it in
some cases States would then have monies freed up or in some
cases we might be reimbursing more than the cost. Was there any
thought given that the States should have some expectation of
using these funds in this area to improve the solvency of their
UI systems?
Mr. Uhalde. I will also let some of the others discuss
this. It is true that some of the benefit extensions already
exist in some States. So in the reduction of the cap on the FUA
account and the distribution back to the States, some of those
States may be able to use that money to improve their solvency.
But I cannot say that there was a requirement as to how beyond
the benefit extensions the funds would be used. Maybe some of
my colleagues would know.
Mr. Gross. I might respond, Mr. Cardin, that the interest
of the States as you might imagine do vary on this. And the
States as Mr. Uhalde suggested are in various kinds of
condition in terms of the adequacy of their funding in
particular area.
In attempting to represent the States, and there were a
number of us at the table that attempted to do so, we tried to
take in the divergence of opinions and needs of the States as
part of forging this compromise. I would suggest to you that I
think some of your assumptions are correct. But as I indicated
in my verbal testimony where one State may benefit, for
example, from the provisions of Unemployment Insurance
administrative funding additions in the area of technology
another State may use those funds for something else.
Mr. Cardin. But the States are going to have extra revenues
and they have a problem on solvency on their funds currently.
It would be useful if some of that money was used to improve
solvency; wouldn't it?
Mr. Gross. Yes. But there is nothing in the recommendations
to deal with that. A considerable amount of discussion took
place and there was I think a tacit understanding that, again,
those questions in the attempt and spirit of attempting to
reach a compromise there were some issues, while they were
discussed, they were essentially taken off the table for
purposes of this compromise with the tacit understanding that
the general framework and structure of the system would remain
intact in terms of State authority.
Mr. Cardin. It would seem to me something should be in the
legislation to at least raise the expectation that States that
are getting extra resources then have problems of solvency
should be working to improve their solvencies. Thank you, Madam
Chair.
Chairman Johnson. Thank you. Mr. McCrery?
Mr. McCrery. Well, here we are again. And I have to say I
like my proposal better but I do congratulate all the
participants in this effort in getting together what appears to
be a reasonable proposal, although there are some questions I
think that need to be answered.
One, Mr. Smith, let me start with you. I would like to know
what you did not get in this? You said that if anybody gets
anything else, the whole thing falls apart. Can you list for me
some things that you would like to have that you did not get?
Mr. Smith. Sure. Some of the things that were on our list,
Mr. McCrery, and still are frankly, mandatory solvency
standards for State funds. We would like to see the taxable
wage base raised. We would like to see UI benefits available
more generally for circumstances where an employee leaves for
family health or dependent care reasons. Those were some of the
issues where we hoped that this agreement might make progress
where it did not.
And as I said in both in my written and verbal testimony I
think we are in a situation where had we pressed, and made any
of those do or die issues, this agreement would have fallen
apart. And I think my colleagues can probably recite a similar
list.
Mr. McCrery. Well, for some of those things that you
mentioned indicate a desire to get the UI benefit up. And it
seems to me that by mandating that we include part-time workers
you risk in some States dampening the enthusiasm for raising
benefits for full-time workers because isn't this going to cost
something? I mean if we expand this, if we mandate that all
States cover part-time workers, isn't it going to cost
something to employers?
Mr. Smith. Well, employers and employees already pay
Unemployment Insurance premiums for their employees. We were
more concerned at the end of the day at extending the reach of
the system to larger numbers of men and women and as
Representative Cardin points out a disproportionate number of
women are currently excluded from benefits.
Our primary objective was extending benefits to those
millions. Some 30 million part-time workers are potentially
affected who the system does not currently serve adequately. It
is not as if these workers do not pay taxes and their employers
do not pay taxes. They already do so there is both a justice
issue but there is also a dealing with the realities of our new
economy issue.
The pattern of attachment to the labor force is changing.
There are more workers who are employed part-time. There are
more workers who are employed for short periods of time, serial
employment, contract work. It is important to update the system
to reflect those realities. And again, extending the reach of
the benefits was our priority rather than extending the value
of the benefits. It does not mean that we would not like to do
that and we will not come back and raise those issues at
another time.
Mr. McCrery. And I appreciate that and I appreciate your
being frank about that being a higher priority than raising
benefits generally. But somebody else maybe can answer my
question. Don't we expect this proposal to cost employers when
we mandate in all States that part-time workers are covered?
Won't that cost employers in terms of their UI taxes?
Mr. Uhalde. Mr. McCrery, the two issues, one, in the
aggregate, the proposal is designed such that there is money
that would be distributed out of the Federal unemployment
account so that States would not have to raise taxes in order
to be able to do this expansion of benefits or access to the
benefits. However, it is true that for any individual employer
who disproportionately uses part-time workers, because of the
experience rating nature of the system, will eventually pay
higher taxes because of that. But that is the part of this
system that is right if you accept the fact that part-time
workers are, in fact, a major part of this economy, are, in
fact, having taxes already paid on their behalf, are laid off
through no fault of their own and, but for the fact that they
are part-time, qualify in every other respect for benefits,
then they ought to be able to get their benefits. And the
experience rating would hit those who hire part-time workers
disproportionately harder.
Mr. Smith. Ray is absolutely right but it would only affect
employers who hired and laid off part-time workers
disproportionately. And the experience rating is not affected
by whether or not the worker is part-time or full-time but by
whether or not the employer lays off workers.
Mr. McCrery. Madam Chair, I have a lot more questions and I
would like to explore this a little bit longer but I will wait
until the second round.
Chairman Johnson. I appreciate the gentleman doing that. I
would like to get through once. But the issue he raises and the
response, Mr. Uhalde, that you gave him, the experience rating
hitting equally whether it is a part-time layoff or a full-time
layoff is an issue we do need to address, I mean in fairness.
So that is one. And we will try to get through everyone.
I am going to have to leave at 10 after for a few minutes
but Mr. English is going to take over because there are a lot
of questions and we need to get through them. Next I will
recognize Mr. Coyne.
Mr. Coyne. I have no questions.
Chairman Johnson. Mr. Foley?
Mr. Foley. Thank you very much, Madam Chairman. First, I
would just like to remind the Committee an issue that is
important to me and that is Federal Unemployment Tax Act of
1986 as it relates to Native American tribes. And we discussed
it at the last hearing and I hope the Committee will continue
to give consideration for exempting them from the taxes much
like we do for Federal agencies and State agencies.
The questioning that was just taking place on the
unemployment, the rating if you will and the concern I have at
least from a part-time position, UPS for instance probably
hires a great deal of people in the seasonal months, Christmas,
for shipping purposes, to help packaging because of the volume
if you will of orders that will occur around that period. In
fact, when I was in high school a lot of my friends would go to
UPS for two, three, four six weeks prior to Christmas. And it
was substantially good income for them. A large company like
that obviously would then put those people out of work if you
will after the season.
How will that affect somebody like UPS's rating in
insurance purposes, if these potential part-timers become
eligible for the benefits as if they were full-time? Maybe Mr.
Smith can help?
Mr. Smith. I cannot help, Mr. Foley, with the details of
any particular company but the example of seasonal work and of
a couple weeks here or there really is not much affected by
this proposal. The people who will be affected by this proposal
are the some 30 million full-time part-time workers.
And the language here gets a little awkward but there are
today slightly in excess of 17 percent, 18 percent of all
workers who are permanent part-time workers. Three and a half
million I think, Ray, of those workers suggest that they would
rather work full-time and are looking for full-time employment
but that still leaves a very large number of people who by
their choice, or because of family obligations, or because of
employer preference are permanently working part-time. That is
who this proposal would affect; those men and women currently
pay into the system.
Their employers pay into this system. They are subject to
the same labor market vicissitudes that full-time employers
are. They are a critical part of our economy and the UI system
ought to pay attention to them. Ray can help me here but with
respect to the occasional couple weeks work at Christmas time
or busy order time, the arrangement would not create additional
burdens for companies where those were the employees that we
are talking about. UPS does have a large number of full-time
part-timers and depending on their experience rating they might
be affected.
Mr. Foley. Could it have an adverse affect on a company
willing to hire part-time workers if it does cause their
experience ratings to go up? Could that diminish the number of
part-time full-time jobs that may be available in the market
place?
Mr. Smith. No, I think we need to remember here that it is
not the part-time, full-time ratio that affects their
experience rating. It is laying people off. To the extent that
the experience rating is in part designed to deter an employer
from using the system in precisely the way that the chair
described, as sort of a sink to pick up labor costs that they
do not want to pay during a slack period of time.
The experience rating system is designed to deter that
behavior. Perhaps we need to take a look at it and see whether
or not it does it adequately. But we should not assume I think
that the choices of either employees for full or part-time work
or of employers for how they manage their work force are very
much likely to be affected by the Unemployment Insurance
system. That is a relatively small fraction of overall labor
costs and generally these costs do not drive hiring or layoff
decisions.
Mr. Foley. Let me also underscore the concerns of Mr.
Cardin as expressed relative to solvency because I believe when
we were here in February the testimony from Connecticut was
they were still paying out bonds as it related to the 1990-1991
recession that was experienced in their State and we were
concerned about any additional unfunded commitments or
liabilities that would be involved with that.
Now if we are going to have Federal resources available it
would be my hope that we would, in fact, solidify the financial
underpinnings of their system before they go on a spree of
buying technology or other things in order to make themselves
competitive. And that is a concern. Now, Mr. Gross, can you
quickly, I know my yellow light is on, tell us how this
proposal is different from those discussed on the February 29th
hearing?
Mr. Gross. Essentially, in the February 27th hearing, Mr.
Foley, there were a number of issues that the four constituents
were still at variance with, primarily with respect to the
eligibility of workers, which we have just been discussing and
a number of other provisions. And essentially at the direction
or as a result of comments of the Chair and others on the
Subcommittee we essentially got back together as has been
indicated and we are willing in the spirit of compromise to lay
aside our differences recognizing that this package does not
achieve many of the complete or concrete objectives that we all
have or that we each have individually but in the spirit of
compromise it achieves the things that we are outlining for you
today.
So I guess the easiest way to say that would be that we
were not in agreement on February 27th on some key provisions
and we are today.
Mr. Foley. Thank God for palm pilots. It was February 29th.
Mr. Gross. 29th. Leap year. I beg your pardon.
Mr. Smith. We were not in agreement on the 27th either.
Mr. Gross. June 27th is the date that sticks in my mind
which was the day we reached our compromise. Thank you very
much. Madam Chair?
Chairman Johnson. Mr. English?
Mr. English. Thank you, Madam Chair. Madam Chair, this is a
very positive development to have these four very diverse
viewpoints coming before us. In speaking with a fair degree of
unanimity the proposal that they have put before us I think is
a solid move in the right direction and I think is achievable.
I would like to though ask about a number of issues that
have not been focused on today. And first of all, I would like
to associate myself with Mr. Foley's remarks. I think at some
point it would be appropriate that we take a look at the status
of Native American tribes as sovereigns and the way they are
treated under the Unemployment Insurance system.
But there are a number of other issues that have not come
up here that I would like to get some response on. I like the
idea of codifying the availability of an alternate base year as
one of the ways to extend part-time workers the opportunity to
participate in the UC system and not be excluded arbitrarily
because of one aspect of their work history. But I also am
concerned about the potential cost to certain kinds of
employers of the reporting requirements that might be imposed.
And Mr. Yarbrough, for example, I suspect many retailers
might be concerned if some States were permitted to move to an
alternate base year. Did anyone look at the potential costs to
certain kinds of employers of allowing this option?
Mr. Yarbrough. There were lots of discussions over that,
but in the spirit of compromise we felt like that if you will
notice in the proposal using the information that is most
current. You have large employers who file their information
electronically and therefore, it is more readily available to
the system. You have a lot of small employers who still go
through the quarterly process of filing with their local
bookkeeper in getting their taxes paid.
We did not look at the alternative base period because we
felt like it was probably going to be a deal killer in the
retail area and a lot of other areas but we felt like the right
thing to do was make the information that is currently in the
system available to those people in determining their benefit.
Mr. English. And in ratifying the idea of quarterly
reporting you as a group have moved away from a position
previously expressed by the administration that there should be
monthly reporting. Many of us viewed this as actually a one-
shot revenue source to plug a hole in the budget. Mr. Uhalde,
is the Administration now comfortable with the idea of sticking
with the quarterly reporting?
Mr. Uhalde. Yes.
Mr. English. Good answer. One of the proposals made years
ago by the Advisory Committee on Unemployment Insurance, and I
would like you all to comment on the extent to which you looked
at some of their past recommendations, was to impose new
requirements on States that in order to benefit from the system
that States would be required to maintain an actuarially sound
balance in their UC funds in order to take full advantage of
Federal support in the event of a downturn.
Mr. Gross, you are here representing States. Was this
proposal or was this idea explored at all in your discussions?
Mr. Gross. Mr. English, let me indicate that a number of
proposals were explored over nearly a 2-year period of time.
Essentially the process worked this way. We began with
essentially identifying all of the issues.
Mr. English. Can I focus you, Mr. Gross, specifically did
the group explore the idea of imposing any new requirements on
States to maintain actuarially sound reserves?
Mr. Gross. Yes. We looked at a number of those provisions.
The State administrators I think collectively are steadfastly
against the imposition of a lot of new kinds of actuarial
reporting requirements or review requirements. And again in
working our way through essentially all of these provisions
those were among the things that were left on the table
essentially by the various parties.
Mr. English. My time has expired. Madam Chairman, I
appreciate your indulgence and I will have further questions.
Thank you, Mr. Gross.
Chairman Johnson. Thank you. Mr. Lewis?
Mr. Lewis of Kentucky. Thank you, Madam Chairwoman. Mr.
Smith, I think you touched on this a little while ago with Mr.
Foley. But can you give me a clear definition of part-time
work, what the definition would be? How many hours are we
talking about? Is it 20 hours, 30 hours? Is it an average of a
12-month period?
Mr. Smith. There is not a precise, of course, national
definition of part-time work. Those definitions now exist
State-by-State.
What we are looking for here is a system, Mr. Lewis, which
treats permanent part-time employment for purposes of
determining eligibility in a way that is comparable to and
equivalent to the way in which permanent full-time employment
is treated. Those workers have the same relationship to the
system, have the same relationship to their employer's
contributions to the system and we believe ought to be treated
in an evenhanded way. We are not arguing that part-time workers
ought to get full-time benefits. We are arguing that part-time
workers ought to get benefits which are appropriate to the
number of hours that they put in on a permanent basis in this
economy.
Mr. Lewis of Kentucky. Thank you.
Chairman Johnson. Mr. Levin?
Mr. LEVIN. Thank you.
Chairman Johnson. Not a member of the Subcommittee but you
were a member of the Subcommittee during the consideration of
this issue in the past and we are pleased to have you with us.
Mr. LEVIN. Glad to be here. I appreciate the chance to
participate. I hope we can seize the moment here of a coming
together.
And let me just say one thing. We sometimes confuse low
wage and part-time workers. And I think we should realize they
are not one and the same. A number of us asked GAO for an
analysis of UI benefits for low-wage workers and the study has
not come out, their full-scale final analysis, but
preliminarily it can be said that based on their study of data,
and I take it was the most recent available, the low-wage
workers were nearly twice as likely to be unemployed as higher-
wage workers and they were only one-half as likely to be
receiving UI benefits.
So part of what you have worked on is an attempt to address
this issue as well as the needs of part-time workers who often
cannot receive benefits because they have to, as I understand
it in many States, say that they are seeking full-time work
though they were working part-time and for family reasons are
not able to work full-time.
And I will close because we have to vote because I think
Mr. McCrery as usual has asked a salient question of Mr. Smith.
And I would like to if I might supplement the answer in terms
of what this agreement does not cover. For example, the
Extended Benefit Programs, there has been some agreement here
that would move it along but I think we found out in the last
recession how inadequate the Extended Benefit Program is. And
we were forced as a result to come back here time after time
rather painfully to improve the system. And I think it is just
one example of why this consensus is a step forward but there
are some unresolved issues out there.
And lastly, I would like to say that I think one of the
important aspects of this consensus is that it once again
reemphasizes the importance of the Employment Service's
program. I think in this time of prosperity we have forgotten
how important and effective Employment Service can be for
employers and employees. And there has been some diminution in
its effectiveness in some places. And I think that what we have
before us is an urgent statement that we need to have an
effective set of services in time of prosperity but surely we
need to prepare for the day which will come sooner or later
when we do not have the high level of employment that we have
today.
So, Mrs. Johnson, I think your hearing today is really of
critical importance and I hope it will spark re-attention to
this issue to act on what has come out of these discussions
with the help of this Subcommittee as well as our continuing to
work on some of the larger unresolved structural issues. Thank
you very much.
Chairman Johnson. Thank you, Mr. Levin. And I would like to
say since I will have to go as we proceed with other questions,
and Mr. English did go vote so he can come back and we can keep
moving, that I appreciate the difficulty of your coming
together around this package. It is also true that we are
elected and this package has to serve all the States and so it
is unlikely that it will move forward with no change.
We will certainly work with all of you to make sure that
the changes are harmonious with your thinking but as you have
seen from the questioning there are very big matters at stake
in this program and in this bill. And the way business is done
here in Washington is that if we do a major bill in a subject
matter area we do not work on it again for five years. That is
just the way it is whether it is daycare or whether it is
welfare. So we will not come back to this for awhile and that
is why we really do need to look more carefully at the impact
of experience rating on employers for part-time people. Is
there a way we should be modifying that to reduce the impact?
There is a role in any economy for very temporary part-timers.
We now have built into our economy sort of a permanent part-
time employment system and it is that permanent part-time
employment system that we want to include in the Unemployment
Compensation system.
I would generally say some of us are not nearly as
knowledgeable as you are about the interaction of all the
requirements to be eligible for unemployment and the way you
have structured that for part-time employees. So we do need to
look at the part-time employee issue. That is why I asked you,
I would have loved it if you said yes, here is a letter from
NFIB saying we agree absolutely, here is a letter from so and
so. So we do need to see these letters. We do need to see that
this will serve the non-union sector as well as you think it
will serve the union sector because after all, that is America.
So I think there are issues we need to get into. I think
this issue of seasonal employment and the use of the
Unemployment Compensation system for actually an alternate wage
base, it is not illegitimate. We ought to recognize it but if
that is the way you want to use it, maybe you ought to be
contributing more. So what is that trigger? Is it a pattern of
2 years of seasonal pattern of layoffs that is similar in 2
years then your experience rating, your tithe goes up?
So let us look at those things. Are there ways that we
should be responding? It is perfectly legitimate for employers
to use Unemployment Compensation as an alternate wage but they
ought to be paying more than the employer who is trying
desperately. I have manufacturers in my district who have
people paint the walls just to keep them employed during a
downturn, even during those awful years in Connecticut of the
early 1990s.
So those guys ought not to have to share the burden of
sectors that are consciously using the Unemployment
Compensation as an alternate wage base during seasonal layoffs.
And we are going to see more and more of this with part-time
employees because a lot of part-time permanent employees are
seasonal employees-at least that is my experience, cafeteria
workers in schools and things like that. So we will have to get
into some of those issues.
I am interested in this issue of coordination of services
between the Workforce Investment Act and TANF. In many States
that coordination has not been adequate. Are you doing anything
in this bill to force better coordination? In the States where
there has been the best coordination welfare reform has worked
best. In the States where there has been the least
coordination, welfare reform has worked poorly.
Mr. Gross. Madam Chair, I think the thing that this bill,
while it does not directly impact that or offer mandates on
States, the thing that it does do is provides adequate funding
for the Employment Service. And as I have previously testified
and testified as well again today in a State like Utah which
has, in fact, consolidated its TANF or assistance related
services with the traditional workforce development system
including employment security, we are finding, as has been
indicated I think by my colleagues as well as myself, that the
employment exchange or labor exchange or job connection,
however you want to refer to that, is critical to that spectrum
and that population to be served as well as others. And by
simply providing adequate funding we will begin to address some
of the issues that you refer to in terms of not only
reemployment services but that next job beyond just an entry
level job. Those are the kinds of things currently that the
Employment Service in virtually every State is unable to get
itself involved in currently.
Chairman Johnson. Thank you very much, Mr. Gross. And
thanks to all of you for your determination and tenacity. And
we look forward to working with you and I will turn the chair
over to Mr. English. Thank you.
Mr. English [presiding]. Thank you, Madam Chair. One of the
questions that I wanted to pose to you as a group has to do
with an issue that has come up occasionally in the past and too
often has been excluded from the discussions of structural
reform in the UC system. That is the taxation of employment
compensation benefits.
As all of you are aware in 1986 for the first time we
started to treat UC benefits as taxable. The system was not
originally designed for UC benefits to be taxed and as a result
many people who became unemployed subsequently discovered that
they had a large tax liability the following year in lieu of
withholding. Some have proposed as a solution, and I know this
is an option for States now, the withholding of part of the UC
benefits. But as I said UC benefit levels were set with the
idea that they would not be taxable.
This is to me a very difficult issue and one that I think
needs to be resolved by restoring the tax exempt status of UC
benefits. I know that in the past both labor and business
organizations have come out in favor of making UC benefits tax-
free. Other organizations have not taken a position. My
question to you as a group is, was the taxation of UC benefits
one of the issues that you considered as part of your
discussion? Or is it something outside of the purview of what
you were looking at and something that could be yet addressed
at another forum? Who would like to start?
Mr. Gross. I will respond, Mr. English. Yes, it was
considered, discussed at some length. When we weighed the
relative advantages and disadvantages of including this I
believe that we came out with the conclusion that the relative
costs of that sort of enactment and repeal was just something
that we were not interested in, while we were interested in it
we were not interested in making it a part of this package. We
just thought it was too problematic.
Mr. English. You were concerned primarily about revenue
loss?
Mr. Gross. That is right.
Mr. English. Okay.
Mr. Uhalde. About $3-4 billion a year.
Mr. English. Right. That is one of those things that might
be called reckless in a certain context, although with the
surplus we are running I would probably be less concerned but I
take your point. It is something that would certainly attach a
very substantial cost to a UC reform package. Would any of the
rest of you like to comment on it? Were there any other reasons
why you felt obliged----
Mr. Yarbrough. No other reasons other than the budget
constraints. I mean we are in support of the elimination of
that. That is nothing more than taxing employer benefit for
folks who really, truly need it at the time in which needed and
then it seems like when they get right back on their feet in
the safety net, here comes the tax again in another form in
which most people do not anticipate.
Mr. English. Mr. Smith?
Mr. Smith. As you know, Mr. English, we have long supported
repeal of the tax liability on unemployment benefits. We
continue to have that position and hope we will be able to
address it as you all consider other tax measures. But the cost
concerns drove it off the table for the stakeholders group.
Mr. English. Very good. Were there any other issues that
you would care to bring before us that were a point of
discussion and where there was substantial support but for one
reason or another you were reluctant to include them as part of
this package?
Mr. Smith. Let me very briefly, I indicated in response I
think it was to Mr. Foley's question some of the things that we
had put on the table at the beginning of these conversations a
couple of years ago that did not find their way into the
agreement. I could expand on that list but I would hesitate to,
Mr. English. I really want to echo something that Mr. Cardin
and Mrs. Johnson said, this package was very carefully put
together and with enormous difficulty individually and
collectively. I do not think I would be doing justice to the
process if I started to detail all the things I was unhappy
about.
Mr. English. Sure.
Mr. Smith. This is an important historic agreement that
makes progress on a number of issues which all of us care
deeply about and I think that is why we are all here today
saying essentially the same thing. This package is not entirely
satisfactory to any of us but it makes such important progress
on major issues that we are asking you to join us in taking it
and enacting it as drafted.
Mr. English. Mr. Smith, do you know of any labor
organizations which have specifically registered concerns about
any element of this package?
Mr. Smith. No, I do not and we have consulted very widely
with our affiliates during the process, both during the process
of discussion and subsequent to the agreement in June. So it is
not only that I do not know, Mr. English, but I think I can say
that there is no opposition from any part of organized labor.
And again there are things which some of us wish had been in
here and are not but we have agreed that this package ought to
go forward.
Mr. English. Mr. Yarbrough, are you aware of any in the
employer community who have so far registered a strong
objection to any components in this package or reservations
about the package as a whole?
Mr. Yarbrough. Let me just say that there probably are
some. I think the point being that we took this package in its
entirety back to our constituents in our group and there were
some bumps but we did get commitment from our Subcommittees. We
did get commitment from our board to go forward in support. So
although maybe this quilt of colors is weaved together by
thorns, and there might be some things that we all do not agree
upon, we do think that as from an employer community and UWC
that we are in support of this package in its entirety.
There are things that we would like to see. There are
things that we do not necessarily agree with in some of the
expansion areas but here is the real cost. The cost is
integrity. The cost is in credibility. The cost is in the
number of dollars that are not getting back to the States to
provide service to the employer community and to those
employees who are seeking job opportunities. The real cost is
the dollars that are not coming back currently. And if we do
not make some change and if we do not hold hands together to
move forward for some change, the system is never going to have
the status that it had in the past nor the status that it
deserves in its future of the one-stop and bringing the labor
exchange together.
Mr. English. Mr. Gross, are you aware of any State
governments or State administrations, any of your colleagues
who have registered any concerns or reservations with regard to
this agreement?
Mr. Gross. In all honesty, Mr. English, yes. There are
States which have expressed concerns. And I would echo the
sentiments of my colleagues if you look at the timing in which
we achieved the compromise of this package and the fluid nature
of the way this package sort of rolled forward, we have been in
the education of our constituents' process at the same time we
have been discussing this with members of staff, members of
Congress and so on. So yes, there are State administrators or
those in the States who have expressed concerns. We are dealing
with those concerns. And as we go through that education
process what we find again is that most of our State
administrators understand that what we have achieved here is a
compromise. We did not get everything we wanted, neither did
anybody else at this table.
Mr. English. And a final question, Mr. Uhalde, has the
Administration shared this proposal with the Advisory Committee
on Unemployment Insurance and have you received any reaction
from them?
Mr. Uhalde. That was the commission, I believe, chaired by
Dr. Norwood?
Mr. English. That may be. It is a statutory committee that
exists. It was created under the Federal Unemployment Tax Act.
Mr. Uhalde. I do not know. The commission is defunct. We
did not continue funding the commission. We have had
conversations with Dr. Norwood and some of the members of it
during the course of the process. We did put on the table
during the 2 years of discussion all 100 or so ACUC
recommendations as part of the dialogue we conducted around the
country and the conversation with the stakeholders.
Mr. English. I appreciate knowing that. I guess my final
question has to do with services for employees who have been
laid off and who are looking for work. You may have already
answered this question in another context but I appreciate your
patience. Under this proposal how would coordination be
advanced between the Employment Service, the Workforce
Investment Act and TANF? That to me is a very important issue
and I wonder if any of you would like to speak to how this
proposal would improve that interaction?
Mr. Uhalde. Let me address a couple aspects and my
colleagues can certainly add. A key feature for welfare reform
and this proposal is the coverage for part-time workers;
welfare recipients oftentimes are emerging in the labor market
and taking part-time work as their first steps; this is great,
but sometimes those first or second jobs are lost. If they do
not have access back to the regular labor market systems
including Unemployment Insurance benefits, the alternative is
to fall back to the welfare system. We believe that this system
will keep people in labor markets and labor market systems.
Secondly, as Bob mentioned, with the limited funding in the
Employment Service, in the one-stop systems what has happened
is that TANF dollars and other Workforce Investment Act dollars
have been diverted to labor exchange to supplement the ES. And
it has been shorting the training that can be provided to
welfare recipients, dislocated workers and the like. So with
this proposal, more training would result in the other
programs, too, I believe.
Mr. English. Would you like to add to that, Mr. Gross?
Mr. Gross. I would only add again that the provisions do
provide a portion of the funds for the Employment Service would
go toward reemployment activity, specifically for unemployed
workers.
And I would just add to what Mr. Uhalde suggested again
representing all of the States but particularly coming from a
State which has consolidated the TANF or assistance functions
as part of an overall consolidation of welfare reform with
other employment and workforce development systems that the
whole thing is really emerging and changing in terms of the
continuum as far as employees. Just as you have heard us all
collectively and individually testify this morning definitions
in terms of part-time workers and such other things have
changed dramatically with the workforce as it is emerging
today.
I would just add that the most fundamental difference that
we have found in assistance programs under welfare reform is
essentially the focus on employment. And so if you consider the
backbone of the system, the welfare reform system as employment
you can readily understand the linkage between the Employment
Service and the activities that are generated. And as Mr.
Uhalde said we are finding increasingly States which are using
and leveraging dollars back and forth in allowable ways to
supplement the shortfall in the Employment Service.
Mr. English. That is an excellent perspective and I thank
you. And I would like to yield to Mr. McCrery who I understand
has a number of additional questions.
Mr. McCrery. Thank you, Mr. Chairman. I think the
Chairwoman, Ms. Johnson, summed up what I was getting to on the
question of industries that do regularly hire part-time workers
on a seasonal basis and I think we do have to look at the
impact of this proposal on those industries. It may be that
there is nothing we can do about that. But I think it clearly
will be a cost imposition on those industries. And certainly if
anybody wants to discuss that further, feel free.
Mr. Uhalde. Mr. McCrery?
Mr. McCrery. Yes?
Mr. Uhalde. If I might just add on that point, those
provisions that apply to what States have for full-time workers
governing seasonal aspects would also apply equally to part-
time workers. For example, individuals, I think the example was
given, hired over the Christmas season--students would be
returning to school, whether they are hired part-time or full-
time, they would not then be eligible.
Workers hired for a short period of time often do not
qualify monetary. Also other seasonal provisions of State law
would apply to part-time as they do full-time. So there are
protections already built in the part-time work and 13 States
already have part-time coverage. So we can look to those for
some experience and guidance on this.
Mr. McCrery. What has been the experience in those 13
States that allow part-time workers to qualify, since you
brought it up, what has been the experience in those 13 States?
Mr. Gross. I was just going to indicate that we have heard,
in terms of the agency that represents all States, no
substantial problems in and among those States.
Mr. McCrery. It is easy for the State to say there is no
problem but what about the industries that are affected; what
has been their experience?
Mr. Yarbrough. I guess I would like to say that we realize
especially in the retail field there is a lot of folks that are
going to be entering and leaving, especially in peak times of
year, back-to-school sales.
Mr. McCrery. Or maybe they are working part-time most of
the year and then in that peak season they work full-time.
Mr. Yarbrough. They work full-time. And I think what we
need to say here is that there are attachments to the
workforce. And there are as we say whenever folks are going to
leave and then become eligible, they are going to still be
seeking comparable work.
If that employer has been offering a 20-hour work week, a
30-hour work week, in order for that person to be eligible they
are still going to need to be seeking employment of that same
type of work. And they are not going to receive maybe a full-
time benefit that a 40-hour person is going to receive but they
are going to receive a reduced benefit. And there are dollars
being paid into the system currently to make sure at the same
tax rate for that individual as it would be for a full-time
person.
We need to be aware that the employer community is offering
signing bonuses. They are offering full-time medical benefits
to folks that are working in a normally perceived temporary-
type work area or a part-time work area. I think that we have
to be aware that there are a lot of folks that have been
recruited to the workforce today that were normally not even
involved in the workforce. We have got a lot of employers that
are providing shared work or job sharing or different types of
activities out there that when those people lost their job due
to no fault of their own they had no safety net. They had
nothing to fall back upon.
Now I think in a lot of areas that there is a need for that
type of benefit. And we need to be aware of that. We do not
believe that we answer all questions with our compromise. In
fact, we left several questions unanswered on the table. We do
not necessarily feel good about that but I will say that I feel
like that the cost to the system, the loss of credibility
because of no dollars being funded back in there for people who
use the system the extended dollars that not only retail but
hospital groups, employer manufacturer groups are spending
additional dollars out of their own budgets and their own
pockets because we cannot get dollars out of the system back to
do what needs to be done.
Mr. McCrery. Don't get me wrong, I am not pooh-poohing this
whole thing. I think it is incumbent on us though to explore
these questions that you did not answer and at least get some
information on the table before we move forward because this is
a fairly substantial break with traditional Unemployment
Insurance at the Federal level. So don't get me wrong. There
are a lot of good things in this proposal. And I am not saying
that the part-time worker mandate is a bad thing. I just think
we need to talk about it openly and see who is going to be
disadvantaged, if anybody, and to what extent and is there
anything we can do about that.
Let us go to the alternative base period. This is something
that we discussed in February. I do not know that we have
clarified it very much since that discussion. I still have some
concerns about that. I agree that we ought to allow the States
to use the latest available information. Do we define in this
legislation what types of information can be used by a State or
is it just general, is it wide open, can an employee just
provide information that he has got pay stubs or whatever it
might be and can the State rely on that until it gets more
official documentation from the employer? What are we using
here?
Mr. Uhalde. The proposal does not dictate any particular
base period. It does say that they have to use the wage record,
the automated wage record that is available. It does not
require the States or prohibit them--it doesn't require States
to say go after pay stubs or call the employer or make any
additional efforts on that.
Mr. McCrery. So the State has to have something from the
employer; is that what you are saying?
Mr. Uhalde. Yes, sir.
Mr. McCrery. An official work record from the employer to
base the calculation on. Okay. So really, correct me if I am
wrong, it sounds like in your legislation we are merely giving
the States the opportunity to collect data faster from
employers and use that if they want to?
Mr. Gross. Yes. Mr. McCrery, one of the discussion points,
and I think my colleagues may have their own perspectives but
again speaking from the State's perspective one of the things
that drove us in terms of this discussion point was what will
this do in terms of the administrative burden and how fair
would that be to not only the State administrators but to
employers as well as workers. And the key point I think on
behalf of States is that we believe this is a self-correcting
issue over time with technology and the other kinds of wage
records and wage information availability. And I think that we
achieved a fairly broad consensus as a discussion point among
the four constituency groups and that is the reason that the
discussion more or less turned the way it did in terms of this
particular area.
Mr. McCrery. Can you tell me exactly what the legislation
does with respect to the alternative base period? Does it
mandate that the States do this or is it an option?
Mr. Uhalde. It requires that the States use wages in
employment from the most recently completed quarter under
certain conditions. It also provides $60 million to assist
States with the cost of technology to be able to do this. As
Mr. Gross said, we think this is soluble with the technology.
Once wage record information is available to the State, then
they would be required to use it.
Mr. McCrery. So we are giving $60 million to the States to
help them with this conversion. What about employers; are they
going to be required to do anything in terms of technology or
anything to hasten their getting the information to the States?
Mr. Gross. There are no additional requirements for
employers under this provision.
Mr. McCrery. So you are saying under this provision the
employers can do exactly what they are doing now?
Mr. Gross. Yes.
Mr. McCrery. They do not have to speed up their reporting?
Mr. Gross. No.
Mr. English. Would the gentlemen yield?
Mr. Uhalde. Beyond delinquency I mean they have to adhere
to the regular reporting----
Mr. English. Would the gentlemen yield?
Mr. McCrery. Sure, be glad to.
Mr. English. Mr. Gross, on that point would there be an
opportunity for States to individually step in and impose any
additional reporting requirements; and was that discussed
within your group?
Mr. Gross. Yes, I believe there would be an opportunity and
it was discussed.
Mr. English. I thank the gentlemen.
Mr. McCrery. Is that possible under current law?
Mr. Gross. Yes.
Mr. McCrery. So you do not change current law with respect
to this?
Mr. Gross. No, we do not, not in this area.
Mr. Smith. Just briefly on this point, Mr. McCrery. The
obligation is to use the most current available data. The
commitment is to assist States in acquiring and installing the
technology that makes that the best data available. This is a
virtuous circle. There is no reason, and you and I talked about
this in February, to the extent that we have data available to
us and can improve our ability to use the most recent wage
records we should, and it will have an eligibility impact.
There is no question about that. But we ought not to think
about that as an additional cost but as finally the system
being able to catch up with the work that people have already
performed.
Mr. McCrery. Yes. I do not disagree. We do need to
acknowledge that there will be an additional eligibility
because of this but I think the rationale is sound. So I do not
have any problem with it, unless we cause some burdens on the
employer community that they do not currently have, then I
would have to have some concerns about that.
Mr. Yarbrough. I would just like to say it is important to
realize that the part-time provision is indeed going to
increase some costs. And we need more information to see how
much that is going to impact especially those people that use
part-time. But I think companies like Penney's, Wal Mart, folks
like that that use part-time folks also use a lot of full-time
people. And we realize there are going to be some cost impact
upon those people.
But hopefully what is gained here is that the number of
dollars that are going to come back are going to positively
impact the system because currently as I might have mentioned
earlier it is losing credibility. It is not getting the dollars
back in the system upon the timely manner in which it needs to
be there.
Mr. McCrery. Yes. And I am sure Penney's and Wal Mart and
all those folks would agree with you on that. I do not think
they have any quarrel with the States being underfunded and the
administration of their services.
Mr. Yarbrough. Right. Definitely, and we would agree too.
Mr. McCrery. They just do not want to have to pay the bill
for improving those services. And you can understand that. What
is the trend? We have 13 States now that include part-time
workers. Is there a trend that is out there? What has been the
rate of States changing their law to include part-time workers?
Do you know, Mr. Smith?
Mr. Smith. I do not know the answer to the pace as which it
has occurred, Mr. McCrery. We can try to find that out for you.
[The following was subsequently received:]
Part-Time Workers
Eligibility of part-time workers for Unemployment Insurance
(UI) is an administrative determination based on the
application of State law, rules (or regulations), and court
decisions. For this reason, a review of State laws alone will
not give an accurate account of which States pay part-time
workers. Therefore, the Advisory Council on Unemployment
Compensation undertook a survey of all State UI agencies in
1994 to determine how States treat part-time workers. The
survey results showed that part-time workers who meet the
monetary eligibility requirements are:
eligible in only 13 States (CO, DE, FL, IA, LA,
NE, NY, PA, PR, RI, SD, VT, WY);
precluded from receiving UI in 31 States; and
may or may not (varies with specific
circumstances) be eligible in 9 States.
The Department of Labor has not discerned any changes in
the eligibility of part-time workers since the 1994 survey.
Note: Total of States adds to 53-50 States, plus DC, PR,
and VI.
Mr. McCrery. Finally, let me just talk about the trust
funds for a moment because there is some concern about how this
mandating the distribution to the States will affect the trust
funds. Are you all satisfied, and particularly I guess Mr.
Smith, since labor has traditionally expressed concern about
the soundness of the trust funds and so forth. Are you
satisfied that this legislation does not imperil the soundness
of the system?
Mr. Smith. Two answers, Mr. McCrery. Yes, we are satisfied
that the legislation does not imperil the State funds, and we
are concerned that the legislation does not go as far as we
would have liked to go toward a mandatory solvency requirement.
That is one of the issues I mentioned earlier. It is something
that remains on the table for all of us and all of you.
Mr. McCrery. But you are satisfied with this?
Mr. Smith. That this proposal does not jeopardize and, in
fact, will strengthen both the solvency and the capacity of the
system in the ways that Mr. Yarbrough and Mr. Gross have talked
about.
Mr. McCrery. The only other concern I have is the formula
for distribution. It is somewhat different from my bill and I
have not had a chance to really dive into the particulars of
your approach but I am told that the States will receive a
distribution that will serve as a base period and then that
will be increased by inflation. It will not necessarily be
determined by the factors that currently determine the
distribution; is that right?
Mr. Uhalde. I think what you just described is the formula
in determining the aggregate amount for each year.
Mr. McCrery. For the trust funds?
Mr. Uhalde. For distributions say on Unemployment Insurance
administrative costs. There would be a base amount, and then it
would be increased each year based on aggregate workload and an
inflation indicator. I thought you were starting your question
with the distribution formula back to the States?
Mr. McCrery. Yes.
Mr. Uhalde. From that aggregate amount. And maybe one of
the others would like to comment on that formula.
Mr. Gross. There was considerable discussion both about the
formula in terms of--your question specifically is about
distribution and I think what this bill would do is essentially
leave in place the current distribution methodology, although
there are concerns that the four constituent groups or the
parties at the table have and there are a couple of areas where
we intend to work in reviewing that methodology. In terms of
the distribution it leaves pretty much in place the current
distribution.
Mr. McCrery. Okay. Then I misunderstood the information I
was given because I thought you had a different formula for
distribution to the various States but if you do not, then I do
not have that concern. Thank you very much, gentlemen, for your
participation here and your work on this product.
Mr. English. Mr. Camp?
Mr. CAMP. Thank you, Mr. Chairman. I know some of these
questions have been asked before and I am coming in a little
late to this hearing but I do have a concern, and whoever
thinks it is appropriate chime in here, please.
I am a little concerned about the part-time work issue and
the definition of eligibility for Unemployment Compensation and
particularly as that relates to seasonal workers, especially in
agricultural areas where we have a lot of seasonal workers.
Could somebody comment on how you think this compromise might
affect those issues or this legislation?
Mr. Uhalde. I think some of the discussion we had
previously, first, that the provisions in State laws now that
govern seasonal activity amongst full-time workers would also
apply typically in States for part-time workers as well. And
things like students working and then returning to school
typically they are not eligible whether they work full-time or
part-time. So I think those provisions would apply. Also to the
extent that the work is of such a short duration that does not
qualify again whether it is full-time or part-time under base
period monetary requirements. Those would apply as well.
Mr. Smith. We have, Mr. Camp, as you suspected talked about
this at some length. I would just make two points quickly. This
proposal catches up with an important reality in the labor
force and that reality is the emergence and persistence of
permanent part-time employment for a variety of reasons. Both
the demands on the business side, in many cases the schedule
preferences of workers and because the system was designed with
an architecture that assumed that most of us worked full-time
permanently it left an important hole that has grown in its
urgency to repair as the pattern of labor force attachment has
changed. And the coverage of part-time workers goes a long way
to curing the problem of lack of eligibility for that large
group of people.
But it is important just to underscore what Ray Uhalde
said. The casual attachment to the labor force, whether it is
permanent or part-time is not affected by this proposal. So
when my daughter comes home from school and works at a store
for a couple of weeks over Christmas her eligibility is not
changed or employers' liability is not changed. Nothing happens
to the system whether or not she works 4 hours a day or 12
during that period.
Mr. CAMP. Thank you. Thank you, Mr. Chairman.
Mr. English. Thank you. Would anyone else like to inquire?
If not, I would like to thank the panel. This has been an
excellent presentation and certainly has brought some focus to
a very important issue that I hope we will be able to move
quickly forward on. And I thank all of you for participating.
The meeting is adjourned.
[Whereupon, at 11:55 a.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Federation of State, County and Municipal
Employees (AFSCME)
The American Federation of State, County and Municipal
Employees (AFSCME) submits the following statement in support
of the Unemployment Insurance (UI) and Employment Service (ES)
reform package. AFSCME has 1.3 million members who work in
Federal, State, county and local government offices, health
care and educational institutions and other non-profit agencies
across the country. Our members include the State employees who
process unemployment benefits, adjudicate claims, collect
employer taxes and help workers find jobs and employers find
workers. We also represent a broad cross section of the
American workforce from doctors to engineers, home health aides
to school crossing guards, and clerical personnel to laborers.
AFSCME is proud to have been one of the organized labor
representatives to the stakeholder dialogue process that
produced agreement in June on this bipartisan consensus package
of reforms to the nation's employment security system. The
package would look different if we had written our own reform,
and we continue to oppose some individual parts of the
package--especially the Federal unemployment surtax (FUTA
surtax) repeal--as freestanding proposals outside of
comprehensive reform. Nonetheless, we think the package strikes
a fair balance among the interests of all of the parties,
contains important improvements for workers and should be
enacted this year.
The UI/ES reform package is the product of over a year of
negotiations among parties that have deep policy and
ideological differences. Our discussions were not always easy
and at times threatened to break down. Ultimately, the
compelling need to strengthen this vital employment security
system led us to set aside our ideological differences in the
interest of seeking a pragmatic consensus that respects the
primary interests of each stakeholder. While this process may
be novel at the Federal level, it is in fact, a familiar one at
the State level where UI changes frequently move as part of a
package in which business and labor each gain policy changes.
For AFSCME and organized labor, the benefit enhancements
are a critical part of the UI/ES reform package. Workers have
been slow to reap the benefits of the healthy economy, and
recipiency rates still stand at an historically low level of
about one-third of all unemployed workers. In contrast, as
State trust fund balances surged, employers have realized
automatic tax reductions through the experience rating system
and have secured additional tax cuts through State
legislatures.
The inclusion of the benefit enhancements provides
reasonable balance in the reform package to the surtax repeal
sought by employers and will allow workers to share more
equally in the fruits of the current economic expansion. These
enhancements include the following improvements to the extended
benefits program, base period changes and part-time worker
provisions:
Extended Benefits (EB)--Effective July 1, 2002,
the Federal EB program would activate sooner during economic
downturns with the lowering of the required Insured
Unemployment Rate (IUR) trigger from five percent to four
percent. In addition, Federal work search requirements, which
were imposed in the early 1980s, would be eliminated, and the
Federal program would conform to State law in each State.
Impact--In the early 1990s recession, extended benefits
were paid in only 10 States. The proposed trigger would have
activated the program in 15 States, making EB available to an
additional 730,000 workers and getting an additional $1.4
billion to workers and the economy during the peak year of
unemployment and reducing the need to enact a special Federal
supplemental benefits program.
Using more recent based period wages--Otherwise
eligible workers can be denied benefits simply because their
most recent earnings are not considered, or their earnings are
not yet entered into automated systems. Since most States count
the first four of the last five completed quarters of earnings
to determine eligibility, up to 6 months of a worker's most
recent earnings may not be counted, depending on when that
worker files for benefits. Under the proposal, the Department
of Labor will provide technology improvement grants to
accelerate access to wage and employment information. Effective
January 1, 2003, if individuals are initially ruled ineligible,
and the State agency has received more recent information from
employers, the State must use that information to determine
eligibility. In most cases, the most recent completed quarter
of earnings will be available.
Impact--An estimated 320,000 more workers per year will
receive benefits under current economic conditions. Individuals
most affected would be workers in low-wage, high turnover or
seasonal employment, including those in construction and
service sector jobs, and low wage single women with children
who have entered the workforce as a result of welfare reform.
Part-time workers--Effective July 1, 2002, States
will be required to pay UI to otherwise eligible laid off part-
time workers who seek suitable and comparable part-time work
under provisions of State law. Most States currently deny
benefits to individuals who are not seeking full-time work,
even if they had worked part-time and met State earnings
requirements for eligibility.
Impact--An estimated 260,000 more workers, many of them
low-wage and women workers, annually will receive benefits in
the current economy.
The provisions strengthening Federal financing of State
unemployment insurance and employment service operations are a
goal sought by all of the stakeholders, and agreement on
increasing funding levels and converting the financing from
discretionary to mandatory spending was achieved early in our
discussions.
Underfunding had reached a critical stage in recent years
and threatened to destabilize both State operations and the
longstanding political consensus on the appropriate Federal and
State roles in the system. For example, ES funding has been
flat funded for five years and, at $762 million, is $15.7
million less than the 1985 appropriation. ES staffing levels
dropped more than 50 percent, while the civilian labor force
grew by approximately 20 percent since 1985. UI funding has
been flat for the last five years as well.
Continued deterioration of State operations drove some
States to use their own money to shore up the system even as
Federal Unemployment Trust Fund surpluses grew and were used to
offset Federal spending on other programs. It was not without
good reason that some of them concluded that nothing short of
devolution was the answer even though organized labor strongly
opposed that solution.
The bipartisan consensus package breaks the stalemate
created by ideological disagreement among States, labor, and
business on a solution to the underfunding problem. It is also
a necessary companion to the benefit enhancements. The
agreement assures States that they will have enough money to
process a larger unemployment claims workload. It also shores
up the employment service, thus strengthening the long-standing
consensus shared by business and labor that unemployment
insurance claimants will receive help returning to work as
quickly as possible.
The UI/ES reform proposal creates a rational way to spend
UI Trust Fund dollars in contrast to the arbitrary way in which
the Federal Government now sets funding levels, which produces
amounts well below what the system needs and ever increasing
Trust Fund balances to offset spending elsewhere. UI and ES
[including Veterans Employment and Training Service (VETS)]
appropriations will be based on statutory funding formulas to
determine the national total amount available each year. The
formulas will adjust annually for changes in workload and
inflation, and funds will be provided automatically instead of
being subject to the annual appropriations process.
The reform proposal creates a new dedicated appropriation
for reemployment services to UI claimants in order to restore
the ability of the employment service to administer the
program's job search requirements, commonly known as the UI
``work test.'' States currently do not have the resources to
administer a meaningful work test and provide targeted
reemployment services to UI claimants.
The combination of the targeted funding and the general
strengthening of the employment service infrastructure will
allow States to rebuild key functions that have been eliminated
as a result of severe underfunding. These include a staff of
employer representatives who used to maintain a network of
relationships with employers in local communities to help serve
their workforce needs as well as personalized assistance for
unemployed workers seeking new jobs.
In addition, to the benefit enhancements and administrative
financing provisions, the reform package also simplifies
employer filings and repeals the unemployment surtax, a key
objective of business which organized labor has strongly
opposed for over a year. We made this concession in the context
of this reform package because we believe that the final
package is reasonable and fair.
While the time remaining in this session of Congress is
short, we have a historic chance to revitalize and modernize an
important part of our economic fabric. We urge you to seize
this opportunity and pass this historic reform proposal this
year.
National Governors' Association
Washington, DC 20001-1512
September 6, 2000
The Honorable Nancy L. Johnson
Chair, Subcommittee on Human Resources
Committee on Ways and Means
U.S. House of Representatives
2113 Rayburn House Office Building
Washington, D.C. 20515
Dear Madam Chair:
As your Subcommittee considers proposals to reform the Unemployment
Compensation (UC) system, we want to share with you the position of the
National Governors' Association on this issue. During our annual
meeting this summer, we approved an ``Employment Security System
Policy.'' A copy of our policy is attached for your review and possible
inclusion for the record at your Subcommittee hearing on this matter.
Sincerely,
Governor Jim Hodges
Chair
Committee on Human Resources
Governor Bob Taft
Vice Chair
Committee on Human Resources
Enclosure: HR-35. Employment Security System Policy
National Governors' Association
H.R.-35. EMPLOYMENT SECURITY SYSTEM POLICY*
The Governors support a national system administered by the
States, of unemployment benefits, employment service, and labor
market information. Such a system of benefits serves an
important public function to unemployed workers, job seekers,
and the nation's business community.
---------------------------------------------------------------------------
* Identical to Policy EDC-17. The Committee on Human Resources and
the Committee on Economic Development and Commerce have joint
jurisdiction over this policy.
---------------------------------------------------------------------------
The Governors are concerned with inefficiencies in the
current system of collecting taxes from employers to support
the employment security system and in the current system of
distributing administrative funds. Under current law, States
collect taxes to support program benefits, while the Internal
Revenue Service collects taxes to support program
administration and certain extended benefits programs. Over the
past several years, the return of taxes paid from States to
fund important employment security services has decreased to an
average of only 51 percent, with some States receiving back as
little as 32 percent.
In addition, the Governors are concerned that the
``temporary surtax'' of 0.2 percent, enacted in 1976, is still
being collected today despite the fact that Federal trust funds
have extraordinary balances-more than $30 billion by the end of
fiscal 2000-and not all of the funds are being used for the
purposes for which they were collected. Program flexibility has
also been reduced by the fiscal 2000-2002 restrictions on Reed
Act funds, which can only be used for administering the
unemployment compensation law. These funds should be
distributed to the States pursuant to the original intent of
the Reed Act with maximum flexibility to also support the
Employment Security System.
The Governors' legislative priorities include repealing the
Federal Unemployment Tax Act (FUTA) surtax, preserving
protections for workers, funding administration adequately,
promoting reemployment, reducing fraud and abuse, increasing
State flexibility, ensuring economic stabilization, and
improving efficiency in FUTA tax collection.
The Governors are aware of and support discussions aimed at
reaching consensus among workers, employers, and State and
Federal entities to develop comprehensive recommendations for
Congress to address these priorities and inadequacies in the
current system.
The Governors call on Congress and the President to enact
comprehensive legislation that is consistent with the
Governors' priorities.
Time limited (effective Annual Meeting 2000-Annual Meeting
2002).Adopted Annual Meeting 1996; revised and reaffirmed
Annual Meeting 1998; revised Annual Meeting 2000.
Statement of the National Payroll Reporting Consortium
The members of the National Payroll Reporting Consortium
(NPRC) appreciate the opportunity to submit this statement for
the record of the Subcommittee's September 7, 2000, hearing
concerning unemployment compensation reform.
NPRC supports the comprehensive Unemployment Insurance
(``;UI'') / Employment Services (``;ES'') proposal recently
presented to the Subcommittee by the joint government (Federal
and State) / business / labor workgroup (``;Workgroup''). We
commend the unprecedented cooperative effort by these groups,
and believe that the reforms proposed by the Workgroup are
critical for the future of the UI and ES programs.
NPRC represents businesses providing payroll processing and
employment tax services directly to employers. NPRC members
(``;reporting agents'') serve more than 800,000 employers with
a combined total of more than 35 million employees, process
payroll for more than one-third of the private sector
workforce, and are responsible for paying more than 25 percent
of all Federal payroll taxes received from private industry by
the Treasury. The following companies are members of NPRC:
Automatic Data Processing, Inc.; Advantage Business Services
Holdings, Inc.; Ceridian Corporation; Compupay, Inc.; Federal
Liaison Services, Inc.; Fidelity Employer Services Company LLC;
Interpay, Inc.; Intuit, Inc.; Paychex, Inc.; Payroll People,
Inc.; Primepay, Inc.; ProBusiness Services, Inc.; and Zurich
Payroll Solutions, Ltd.
This country's UI system is complex, inefficient and costly
for business and government to administer, and our
organizations have long supported its reform. By strengthening
funding for UI and ES programs, modernizing UI benefits to
reflect today's workforce, and streamlining employer UI filing
requirements, we believe that the Workgroup proposal
appropriately balances the interests of business, labor, the
Federal Government, and State governments alike, and would
significantly improve the operation of the UI system for all
involved. The Workgroup's efforts in this matter have produced
an important proposal, and we encourage the Subcommittee to act
expeditiously to promote its enactment.
The following describes some of the major complexities of
current UI tax administration faced by employers and highlights
some of the benefits of the Workgroup's reform proposal.
I. Current Tax Collection System
The current UI tax collection system involves a two-tier
process to collect the Federal Unemployment Tax Act (FUTA) and
State Unemployment Insurance (SUI) tax. This process includes
the calculation and payment of the tax at two levels of
government, and the determination of an ``offset credit'' as
part of an annual reconciliation of State and Federal UI taxes
paid. This annual reconciliation is filed with the IRS Form
940.
Under the current tax structure, employers make FUTA and
SUI tax deposits on a quarterly basis. The 6.2 percent FUTA tax
(which includes the 0.2 percent ``surtax'') is reduced by the
offset credit for States with laws conforming to Federal
requirements (currently all 53 UI jurisdictions). The offset
credit allows 5.4 percent of the FUTA tax to be offset by
qualifying SUI tax paid with respect to a covered employee.
This complex structure was intended to provide an inducement
for States to participate in the UI program. The manner in
which the credit is calculated on Form 940 also was intended to
provide the Federal Government sufficient data to impose the
full Federal tax on employers in States that fall out of
conformity with the program.
The primary purpose of Form 940 is to allow the Federal
Government to track what employers would owe if States did not
have conforming programs. This determination can be made
without the complex reconciliation of an employer's State and
Federal UI tax payments provided on Part II of the form.
The same information collected from employers in Part II of
Form 940 is provided electronically by the States to the IRS in
an annual summary by employer of wages reported and UI taxes
paid. Additionally, the 1996 welfare reform bill (PRWORA)
requires the States to report wage information quarterly to the
Federal new hire directory. These alternative sources of
employee wage information, along with other redundancies, allow
for the simplification of Form 940.
II. The Workgroup Proposal
The Workgroup's proposal embodies the goals first set forth
in 1998 at the commencement of its dialogue: expand coverage
and eligibility for benefits; streamline filing and reduce tax
burden where possible; emphasize reemployment; combat fraud and
abuse; and improve administration. While our organizations'
interests are especially focused on streamlining tax filing, we
are also supportive of the rest of the goals of the proposal.
The following provisions of the Workgroup proposal are of
particular interest to our organizations:
A. Provide for quarterly collection of FUTA and State UI
taxes.
Before reaching agreement on this proposal as part of the
Workgroup, the Administration had on several occasions proposed
changing Federal law to require monthly UI collection rather
than the quarterly schedule currently set forth in regulations.
This would have increased from 8 to 24 the number of UI payment
deadlines imposed on virtually every employer. NPRC, other
employer organizations, and States have repeatedly expressed
strong opposition to this acceleration proposal. This
acceleration proposal is fundamentally inconsistent with
streamlining the operation of the UI system and reducing
paperwork and regulatory burdens. Further, imposing monthly
collection of Federal and State UI taxes would have generated
only a one-time artificial revenue increase for budget-scoring
purposes and real, every year increases in both compliance
costs for employers and collection costs for State unemployment
insurance administrators. Congress has recognized the many
weaknesses in this proposal and has consistently refused to
enact it. As such we very much appreciate that as part of this
Workgroup proposal, the Administration has directly reversed
its position and agreed to support a statutory requirement that
would prescribe quarterly collection of both FUTA and State UI
taxes.
B. Simplification of IRS Form 940.
Form 940 is likely the most complex employment tax form
with which employers have to comply. The IRS has estimated that
employers take an average of 12 hours and 31 minutes to
complete and file the FUTA tax return on Form 940. Thus, annual
compliance costs associated with FUTA reporting for the six
million FUTA-paying employers easily exceed $1 billion. By
amending the Federal Unemployment Tax Act to reflect the
current taxing practices in all States, the proposal would
allow the IRS to simplify significantly Form 940 without the
need for State law changes. Specifically, since all States
currently have a maximum rate of at least 5.4 percent, amending
FUTA to make the 5.4 percent maximum rate a conformity
requirement would make certain calculations unnecessary, and
allow for the elimination of five columns from the Form 940
based on this change alone.
C. Enable the Federal Government and States to share
information to remove an impediment to allowing employers to
file combined Federal and State wage reports.
By amending Federal law to permit the disclosure of minimal
IRS information to State tax agencies for combined Federal and
State employment tax reporting, the proposal would remove the
major statutory impediment to consolidated Federal and State
employment tax reporting.
D. Repeal the 0.2 percent FUTA surtax.
Congress imposed the ``temporary'' 0.2 percent FUTA surtax
in 1976 to pay for supplemental unemployment benefits for
unemployed workers who had exhausted their six-month State
unemployment benefits and their three months of extended
benefits. The deficit created by the supplemental benefit was
retired in 1987, but the FUTA surtax was recently extended
until 2007. In recognizing that the FUTA surtax achieved its
purpose and is no longer necessary to pay for supplemental
benefits, the proposal would repeal the 0.2 percent FUTA
surtax.
NPRC believes that the consideration of comprehensive
restructuring of the UI system offers an important opportunity
to improve the UI/ES system in general, and, specifically, to
simplify the tax administration aspects of the system. We
appreciate that each party to these discussions had different
reform priorities and that every party had to make concessions
to achieve a balanced compromise. The political challenges of
reforming the UI system are complex, and the issues are often
arcane. While our national UI system is not in crisis, we
encourage the Congress to use this balanced proposal to make
valuable improvements in the system. It is unfortunate that, in
the past, employers, workers and government have only focused
on the UI system in times of economic crisis and high
unemployment. Our organization believes that we should utilize
the opportunity created by our current strong economic
condition to improve and modernize the system so that it will
be strengthened for times of future need. The NPRC supports the
enactment of the Workgroup's carefully crafted compromise and
looks forward to working with the Subcommittee in this
endeavor.
Statement of the National Retail Federation
Retail Industry Comments on Proposed Unemployment Compensation (UC)
Reform Proposal
On behalf of the U.S. retail industry, the National Retail
Federation (NRF) would like to take this opportunity to express
its concern with the Unemployment Insurance-Employment Service
Reform Proposal that is the subject of today's hearing. As
background, NRF is the world's largest retail trade association
with membership that comprises all retail formats and channels
of distribution including department, specialty, discount,
catalogue, Internet and independent stores. NRF members
represent an industry that encompasses more than 1.4 million
U.S. retail establishments, employs more than 22 million
people--about 1 in 5 American workers--and registered 1999
sales of $3.1 trillion. In its role as the retail industry's
umbrella group, NRF also represents 32 national and 50 State
associations in the U.S.
While the Human Resources Subcommittee and Chairwoman Nancy
Johnson (R-CT) should be commended for holding a hearing on the
status of the Unemployment Compensation (UC) system and ways to
improve and reform the current program, the joint proposal
developed by the Conference of Employment Security Agencies,
organized labor, the Department of Labor, and the Strategic
Services on Unemployment & Workers' Compensation (UWC) could
drain valuable UC resources and impose significant burdens on
employers, and leaves many critical questions unanswered.
Moreover, the retail industry believes that many of the issues
addressed in this proposal, including eligibility and benefit
level threshold determinations, are best left to the States to
decide rather than being imposed by Washington D.C.
Given the broad implications of this proposal, the retail
industry encourages Members to consider all possible
consequences, intended or not, before moving forward with
legislation in this area. Several provisions in this
``compromise'' proposal should be more thoroughly vetted among
industry groups before additional Congressional action is
taken. Areas of concern include, among others:
Changing the Eligibility of Part-Time Workers
One aspect of this proposal that concerns not only
retailers, but any industry that faces seasonal fluctuations in
their part-time workforce, is substantial payroll cost
increases due to unforeseen or unintended consequences. Under
this proposal, part-time workers who decide to put in more
hours during a ``peak season'' (e.g. the November-December
holiday period) could actually become eligible for unemployment
benefits once they return to their normal hourly workload in
January, sapping UC system resources from those who truly need
this assistance and placing a significant burden on employers.
In many States, the determination for claims under UI for
weekly benefit awards (WBA) are based on an individual's high
quarter earnings. Increased hours during the peak season make
this quarter's wages noticeably higher than wages for the other
three quarters (the rest of year) and would result in an
individual qualifying for an artificially inflated WBA. During
such peak seasons part-time employees work additional hours
thus increasing their wages in the 4th quarter. For example, if
a person only worked 20-hour weeks in the first three quarters
of a year, and then decided to work 30-hour weeks in the 4th
quarter (holiday season), their WBA payout could be based on
their 4th quarter earnings. Once this employee returned to
their normal 20-hour workweek in January, they could actually
become eligible to receive UC benefits, even though they are
currently employed and as long as they remain available for
part-time work. In addition to their hourly part-time pay, they
could also receive UI benefits for the ``cut'' in hours they
voluntarily undertook as they continue to work.
There are many questions that must be answered before this
proposal moves forward. For example, what is the requirement
for part-time work? Is it 20 hours, 30 hours, or 22.5 (the
average of the 12-month base period)? Will States look at the
hours worked to determine benefits such as the high quarter of
earnings that then means the claimant would have to be seeking
a 30-hour part-time job to receive benefits? Many retailers
determine their part-time jobs based on sales, averaging
between 15 to 25 hours. If a claimant seeks a 20-hour workweek
job, could they refuse such a position and still collect
benefits? What defines part-time work and how will this
proposal impact those employees who resume a 20-hour work week?
Alternative Base Period
This proposal also provides a new alternative base period
for unemployment insurance (UI) eligibility. This could
significantly drain UC resources and could impose a substantial
administrative burden on employers trying to respond to wage
verification requests. There are a number of questions in this
area that must also be answered before legislation moves
forward. For example, what documentation would be used to
provide wage and employment information? How would such
information be verified? This proposal also includes language
stating, ``nothing in this paragraph shall be construed to
prohibit a State from using any additional wage or employment
information considered by such State for monetary
eligibility.'' It is unclear what this language means. It
appears States can still utilize other information. Does it
mean that if a claimant provides wage information that States
can then use this information until the employers wage
information is reviewed? If so, how would differences in base
period wages be handled, especially if the claimant is already
receiving benefits?
Economic Impact
Under this proposal, it is estimated that an additional
320,000 workers would receive $800 million in benefits due to
the change in alternative base period eligibility. In addition
260,000 additional part-time workers would qualify for $320
million in benefits. These estimates are based on current
economic assumptions. It is unlikely, unfortunately, that this
period of economic growth will continue indefinitely. In order
to understand the true ramifications of this proposal, it would
be beneficial to know the projections for claims, benefits,
administration costs, and the associated State tax rate
increases during more traditional levels of unemployment as
well as during levels of high unemployment. Utilizing
unrealistic assumptions will only lead to further strain on the
UC system and place additional burdens and costs on employers
in the future.
Retailers appreciate the time and effort the Subcommittee,
Members of Congress, and the participants in today's hearing
have spent on this important issue. There are several
provisions in the proposal that would increase the efficiency
of today's UC system. However, the retail industry submits that
there are a number of critical issues that must be resolved
before any legislative action is taken on this UC reform
proposal.
Rhode Island Department of Labor and Training
Cranston, RI 02920-4407
September 19, 2000
A.L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Dear Mr. Singleton:
I wish to express my support for the comprehensive Employment
Service and Unemployment Insurance (ES/UI) Reform Legislation that was
heard in your committee on September 7, 2000. Please include this
letter in the written record of the hearing.
Enactment of the Unemployment Insurance/Employment Service reform
package is especially critical to the funding base and service capacity
of the Rhode Island Department of Labor and Training. The reform
package was developed as a bipartisan effort that included business,
labor and State workforce agency representatives, working closely with
the United States Department of Labor. The core elements of the
resultant comprehensive, bipartisan reform proposal are these:
Reduce employer taxes by repealing the temporary 0.2
percent Federal surtax
Establish statutory formulas for aggregate Unemployment
Insurance and Employment Service grants to States and make them
mandatory instead of discretionary
Improve the Extended Benefits program which activates
during recessions
Expand eligibility for workers who only have recent
earnings or who work part time
Reduce fraud and abuse and help States manage their trust
funds more efficiently
Reduce employer wage reporting and tax filing burden
We fully endorse the compromise ES/UI reform package, knowing that
it will benefit employers and our job-seeking customers, and will
improve the administration of our core programs of Unemployment
Insurance and the Employment Service. It is my hope that after
reviewing all the available information and hearing testimony from
expert witnesses, you will be convinced, as I am, that these items
warrant your support.
Thank you for the opportunity to comment on this very important
legislative proposal.
Sincerely,
Lee H. Arnold, DPA
Director
Statement of the Screen Actors Guild, Bethesda, MD
The members of the Screen Actors Guild appreciate the
opportunity to submit testimony before the Committee on Ways
and Means, the Subcommittee on Human Resources regarding
``Unemployment Compensation Reform.'' We submit these comments
on behalf of colleagues in the entertainment industry, in
particular the senior performers represented by the Screen
Actors Guild, and the American Federation of Television and
Radio Artists.
The reforms which you will consider will affect
unemployment insurance policy and will have a direct impact on
the lives of many Americans, including members of the Screen
Actors Guild. We submit this testimony to bring to your
attention a problem which adversely affects senior members of
the entertainment community. We believe that this problem is
the result of certain unintended consequences of Section 3304
of the Federal Unemployment Tax Act. We need your help in
dealing with these consequences.
Our senior members find themselves in a predicament which
is the result of a combination of factors. These factors
include the unique nature of entertainment work, the rules of
our pension plan, and the current interpretation of Federal
law.
While some actors are financially well off, most are not.
Entertainment professionals work many short-term jobs and face
prolonged periods of unemployment. Like many other hard-working
Americans, some senior members of the entertainment community
have earned a modest pension after working twenty or more
years. Still, these actors have years of productive work ahead
of them and often continue to seek roles portraying senior
citizens in a positive, active and vigorous light. There is a
harsh penalty for those who continue to work.
Performers are participants in various multi-employer
pension plans which were established through collective
bargaining. Under the terms of those plans, a worker who has
met the minimum requirements to qualify for benefits can take
normal retirement at age 65, or an early retirement option with
reduced benefits at as early as age 55.
However, it is very common for a performer once they have
begun to receive a modest monthly pension, to continue to seek
work in motion pictures or television. When such work is
obtained, the performer's employer will, in compliance with the
collective bargaining agreement, contribute to the pension
plan. Under the plan's rules, such contributions will result in
an increase in the performer's monthly pension check.
Subsequently, while the performer has met the qualifications
for unemployment benefits, Section 3304 of the Federal
Unemployment Tax Act requires that an individual's unemployment
insurance benefit be offset by the pension benefit when:
1.The person works for any employer-member of a multi-
employer unit which contributed to the pension, and
2.where that work results in an increase in benefits.
Section 3304 of FUTA as currently interpreted reduces the
total amount of the unemployment benefit not by the amount of
the pension increase, but by the total amount of the pension.
The penalty for accepting short-term work is indeed severe, and
harsh.
For example, assume that as a result of a short-term acting
job, a worker's monthly pension benefit increases by $7, from
$400 to $407 per month. Also assume that the determined
unemployment insurance benefit is equal to $450 per month.
Under current law, the monthly unemployment benefit of $450
would be reduced by $407, leaving a net benefit of only $43 per
month.
We would respectfully suggest to the Committee that a
reasonable approach would be to limit the unemployment benefit
offset to the amount of the pension increase. Section 3304 of
the Federal Unemployment Tax Act must be clarified. The statute
refers to identical base-period employers, but does not mention
multi-employer plans. Actors, writers and other workers in the
television and motion picture industries are participants in
various multi-employer pension plans. The pension offset rule
was designed to discourage individuals from going back to work
for the same company which employed them previously. The law
did not contemplate an adverse effect on people such as
performers who receive a pension increase for the same pension
plan, not the same company. The current dilemma is unique to
the entertainment industry because these individuals work well
beyond normal retirement age and work for the same multi-
employer plan. Under current interpretation, these workers are
returning to the same company, when in fact, they are merely
seeking short-term work in a diverse industry with many
employers. Our recommended change enjoys bipartisan support.
We are also submitting for the record the results of our
efforts to resolve this issue administratively through the
Department of Labor. We thank the members of the Committee for
the opportunity to bring this issue to your attention.
[Attachments are being retained in the Committee files.]
Statement of the Society for Human Resource Management
Madam Chair and Members of the Subcommittee:
The Society for Human Resource Management (SHRM) is the
leading voice of the human resource profession. SHRM provides
education and information services, conferences and seminars,
government and media representation, online services and
publications to 140,000, professional and student members
throughout the world. The Society, the world's largest human
resource management association, is a founding member of the
North American Human Resource Management Association (NAHRMA)
and a founding member of the world federation of Personnel
Management Associations (WFPMA). On behalf of NAHRMA, SHRM also
serves as president of WFPMA.
On February 29, 2000, SHRM filed testimony with this
Subcommittee supporting the swift enactment of H.R. 3174, the
bipartisan Employment Security Financing Reform Act. In the
testimony, SHRM explained that ``H.R. 3174 is essential to
strengthening the State unemployment insurance and employment
services (UI/ES) system and the workers and employers whom it
is designed to serve.'' The Society urged the members of this
Subcommittee to ``actively work to enact H.R. 3174 on a
bipartisan basis.'' SHRM also expressed opposition to the
Administration's proposal as presented in the Unemployment
Compensation Amendments of 1999, H.R. 1830.
SHRM is a member of the Coalition for Employment Security
Financing Reform, an informal coalition of business
organizations and 32 States that has been working over the last
year and a half with organized labor and Administration
representatives to discuss the possibility of a consensus
legislative proposal on overall unemployment insurance reform.
SHRM also serves on the Board of Directors for UWC-Strategic
Services on Unemployment & Workers' Compensation.
While our preferred approach to unemployment insurance
reform would be the swift enactment of H.R. 3174, SHRM also
recognizes that due to the widespread interest in the
unemployment insurance system and the need for support from all
involved parties, a consensus proposal, such as the one
developed by the coalition, is highly desirable. The compromise
proposal developed by the Coalition for Employment Security
Financing Reform, the Administration and organized labor
currently contains the following provisions:
repeal of the FUTA .2 percent surtax
shifting the unemployment insurance administration
and employment security (ES) funding from a discretionary
spending item to the mandatory side of the Federal budget
expanding unemployment insurance benefits to
include part time workers
guaranteed funding for extended benefit (EB)
funding with lower EB triggers
require States to pay UI benefits to otherwise
eligible unemployed workers who have met monetary eligibility
requirements on the basis of their part time work and are
seeking and available for suitable and comparable part time
work. The purpose of this provision is to eliminate the
disqualification of a part time worker solely for being
unavailable for full time work
simplifying the FUTA tax form without requiring
changes in State law or an additional tax
FUTA funds in excess of caps would flow into State
trust funds granting States access to the National Directory of
New Hires for UI fraud investigations
administrative financing reform with funding
distributed to States according to a formula
The full text of the Society's Board-approved position on
the important issue of overall unemployment insurance reform is
attached to this statement. (See attachment #1.) This position
also includes a statement that addresses the Administration's
Birth and Adoption Unemployment Compensation Rule (BAA-UC).
SHRM found it unsettling and surprising that, during the
September 7, 2000 hearing on overall unemployment reform
hearing, a related and highly controversial issue--the
Administration's Birth and Adoption Unemployment Compensation
(BAA-UC) Rule--did not receive a single mention by any of the
participants. This is troublesome since allowing the
misdirection of unemployment benefits for family and medical
leave or other non-employment benefit purposes has a direct
bearing on the unemployment insurance system and could
undermine progress achieved through any type of UI reform
legislation. SHRM member Kimberly Hostetler eloquently
described the negative implications of the Administration's
BAA-UC rule during the March 9, 2000 hearing before this
subcommittee.
SHRM is extremely concerned about the impact of the BAA-UC
or baby UI rule on the unemployment insurance system and has
taken a leadership role in urging Congressional opposition to
the measure. We have commended Subcommittee Chair Nancy Johnson
for her leadership in opposing the Administration's proposal. A
Letter to all SHRM members from the Chairman of the Society's
Board of Directors was published in the May issue of HR News
commending Subcommittee Chair Nancy Johnson for her courageous
actions to protect Unemployment Insurance trust funds from the
Administration's ``Baby-UI'' raid. (See attachment #2.)
While SHRM strongly agrees that paid leave is a desirable
benefit and encourages its members to provide a whole host of
work-life benefits to employees, including leave for the birth
or adoption of a child, we take strong exception to the
approach taken in the BAA-UC rule. We strongly disagree with
the President's May 23, 1999 statement that, through the BAA-
UC: ``We can do this in a way that preserves the soundness of
the unemployment insurance system and continues to promote
economic growth.'' May 23, 1999 Statement of President William
J. Clinton at Grambling State University.
Unfortunately, despite tremendous opposition and amid
enormous controversy, the Administration has chosen to finalize
the BAA-UC rule through the regulatory back door. The rule
became effective on August 14, 2000. States may now move
forward to raid their unemployment insurance trust funds to
provide paid family leave. Accordingly, SHRM has joined with
the U.S. Chamber of Commerce and the LPA, Inc. to file a
lawsuit in Federal district court challenging the legality of
the ill-conceived proposal. A press release announcing our
lawsuit is attached. (See attachment #3). While we expect that
the rule will soon be struck down in court, the
Administration's actions in this area have had a direct bearing
on ability of parties to address issues related to the overall
unemployment reform system and should not be ignored.
We agree with Subcommittee Chairman Nancy Johnson's
characterization of the unemployment reform compromise as a
``very interesting and significant'' proposal on reform of the
nation's unemployment compensation program. Rarely do such
diverse interests form agreement on issues of such magnitude.
As characterized during the hearing, the agreement is clearly
an impressive product of compromise and contains elements that
the parties would not support separately or outside of this
delicately crafted agreement.
However, given statements made by Subcommittee members
during the September 7, 2000 hearing, we understand that
members of Congress are expected to make some changes to the
delicately crafted coalition compromise agreement. Accordingly,
SHRM would like to express the following specific comments on
the various elements of the proposal for your consideration as
you finalize legislation in this important area.
1.SHRM finds the provision that repeals the FUTA .2 percent
surtax as a particularly attractive element of the agreement.
In 1976, Congress established the 0.2 percent ``temporary''
surtax to pay a debt arising from repeated supplemental
extensions of unemployment benefits. This ``temporary'' tax has
been extended numerous times and is now scheduled to continue
until December 31, 2007. SHRM has historically supported the
repeal of the FUTA 0.2 percent surtax and supports the
provision in the coalition agreement and other pending
legislation that would quickly accomplish this important goal.
2.SHRM is pleased that the new coalition proposal will fix
serious problems with the State UI and employment security (ES)
system resulting from the Federal Government's failure to
provide adequate funding. SHRM supports proposals to allow for
faster and more efficient employment security services and to
shift decision making closer to home where unemployment
services/training can be customized to local conditions. SHRM
supports the efficient collection of employment taxes and is
pleased that the new proposal does not accelerate FUTA and
State unemployment tax collections since they would impose
unnecessary paperwork burdens.
3.SHRM believes tax dollars that employers pay to finance
America's employment security system should not be used to
artificially offset the Federal deficit. Accordingly, SHRM is
pleased with the provision in the agreement that shifts the
unemployment insurance administration and ES funding from a
discretionary spending item to the mandatory side of the
Federal budget. Although the Federal budget is now described as
balanced, some of that balance has been achieved over the years
by offsetting balances in trust funds, including those within
the employment security system. Consequently, employer payroll
taxes are underwriting Federal general revenue and providing
funds for domestic spending unrelated to employment security.
During the September 7, 2000 hearing Administration
spokesperson Ray Uhalde expressed support for moving program
funding from the discretionary to the mandatory side of the
budget for purposes of the Budget Enforcement Act. We are
pleased with this development and are interested in the
Administration's desire for ``proper budgetary review'' and how
the details of that review will be worked out.
4.SHRM has historically opposed mandated benefits as a
policy issue and has some reservations with the agreement's
provision expanding unemployment insurance benefits to include
part time workers. Given our concerns in this area, SHRM would
like to see the final legislative language on the full
compromise and be afforded the opportunity to review the final
proposal with our members in the context of the overall package
prior to passage.
Conclusion
SHRM commends all parties for their good faith efforts to
forge a compromise proposal on unemployment insurance reform
since such a proposal is certainly needed. We only wish that
the Administration had exercised such good faith in the
development of the BAA-UC proposal since it has a direct impact
on the soundness of the overall unemployment insurance system
and the reforms discussed in this hearing. Since the two issues
are inherently related, ultimately, a better process with the
latter would have resulted in more goodwill toward the former.
Thank you for the opportunity to express our views on the
important issue of unemployment insurance reform compromise
legislation. We hope that you will contact Julia Bellinger at
(703) 535-6061 if you have any questions regarding the
Society's position on unemployment insurance reform as you work
to finalize legislation in this area.
Attachments: 1. SHRM Position Statement on Unemployment
Expansion and Reform
2.Letter to SHRM Members from the Chair, SHRM Board of
Directors as Published in May 2000 HR News
3.Press Release on the Lawsuit on the BAA-UC (Birth and
Adoption-Unemployment Compensation) Rule
Attachment #1
July 2000
Society for Human Resource Management
Position Statement on Unemployment Insurance Expansion and Reform
Issue: Policymakers are considering landmark unemployment
insurance (UI) proposals that would change the nature of the UI
program.
Background: For more than 60 years, employers have paid
payroll taxes to fund programs collectively known as the
Employment Security System. The program is a Federal-State
partnership that provides four major programs:
Employment Services,
Unemployment Insurance,
Veterans' Employment Services, and
Labor Market Information
The programs are operated by State Employment Security
Agencies (SESAs) using Federal grants financed from a Federal
payroll tax on employers. In addition, States collect a
separate payroll tax for the State to finance unemployment
insurance benefit payments. The Federal Government establishes
the overall legal framework, provides technical assistance,
collects and allocates funds for administration and provides
oversight. States provide services to customers and establish
laws for the collection of State unemployment taxes and payment
of benefits.
The Employment Security System is founded on a ``compact,''
by employers, workers and the State and Federal government
through which employers provide financing through payroll
taxes. Workers receive unemployment benefits along with re-
employment services to shorten their spells of unemployment.
Employers also receive services to assist them in meeting their
needs for skilled workers.
Although the Federal budget is now described as balanced,
some of that balance is believed to have been achieved over the
years by offsetting balances in trust funds, including those
within the employment security system. Consequently, employer
payroll taxes are underwriting Federal general revenue and
providing funds for domestic spending unrelated to employment
security.
In 1976, Congress established the 0.2 percent ``temporary''
surtax to pay a debt arising from repeated supplemental
extensions of unemployment benefits. This ``temporary'' tax has
been extended numerous times and is now scheduled to continue
until December 31, 2007.
SHRM Position:
Changes are needed to improve efficiencies in the
Unemployment Insurance (UI) program. Unemployment Insurance
reform can be accomplished without taking away any legal
protections or benefits for workers under current law and
without creating unnecessary burdens on employers. Legislation
is crucial to reduce burdensome paperwork for employers,
promote efficiencies in returning UI claimants to work, weed
out fraud, and promote greater government accountability and
efficiency in the use of FUTA funds. Many of the tax dollars
that employers pay to finance the nation's Employment Security
System are being used to artificially offset the Federal
deficit. For example, in 1997 alone, employers paid over $6
billion in FUTA taxes and only $3.5 billion came back to pay
for programs. The remaining $2.5 billion is being used to
artificially offset the Federal deficit.
States should determine the circumstances under which
unemployed workers collect benefits under State Employment
Security programs and how much they receive. However, the
fundamental nature and purpose of the UI system should not be
changed to allow individuals who are not unemployed to collect
funds from the Unemployment Insurance Trust Fund. The UI Trust
Fund should be reserved for involuntarily unemployed
individuals who are able and available to work, and should not
be diverted for other purposes, regardless of the merits of
that purpose. Allowing States to divert funds away from
unemployed individuals is short sighted and would
inappropriately change the fundamental nature and purpose of
the UI system. Allowing the misdirection of unemployment
benefits for family and medical leave or other non-employment
benefit purposes will shred the safety net that the
unemployment insurance system is designed to provide to
workers.
SHRM supports proposals to allow for faster and more
efficient employment security services and to shift decision
making closer to home where unemployment services/training can
be customized to local conditions. SHRM supports the efficient
collection of employment taxes and opposes proposals to
accelerate FUTA and State unemployment tax collections due to
the unnecessary paperwork burdens that would be imposed.
Moreover, SHRM believes tax dollars that employers pay to
finance America's employment security system should not be used
to artificially offset the Federal deficit.
SHRM opposes the extension of the 0.2 percent FUTA
surcharge because it represents a breach in the 1976
congressional commitments that the tax would be temporary.
Attachment #2
SHRM chair lauds representative for stand on issue of using UI funds on
family leave
LETTER FROM THE CHAIR
To SHRM Members:
Political honesty is an uncommon virtue in an election
year. It is all too rare that we witness a courageous action
from politicians on sensitive issues.
Such action occurred in March in a House Ways and Means
subcommittee hearing chaired by Rep. Nancy Johnson, R-Conn., on
a key HR issue--Family and Medical Leave Act expansions.
Throughout the hearing, Johnson, a moderate Republican and
vocal supporter of the original Family and Medical Leave Act
(FMLA), strongly criticized the U.S. Department of Labor for
issuing a proposed rule that would allow States to raid their
unemployment insurance (UI) trust funds for workers on family
leave.
Throughout the televised hearing, Congresswoman Johnson
took the stand that ``the implementation of the Family and
Medical Leave Act has revealed some serious problems'' that
have been ignored by the Labor Department and said that it is
irresponsible to expand the act without addressing the existing
problems. She refused to allow the threat of election-charged
rhetoric to disguise bad policy. She explained her strong
record of commitment to family issues and that she would not
allow the issue to be portrayed as ``I like children and you
don't. I like women and you don't.'' She cut beyond the
rhetoric and described the Labor Department's lack of FMLA
oversight as ``shockingly irresponsible'' and ``unthoughtful.''
By sheer coincidence, the evening after the hearing I was
on my way to speak to a senior HR group in the congresswoman's
State when I received a phone call from SHRM Executive Vice
President and COO Susan Meisinger, SPHR. She told me of
Johnson's courageous statements and the success of SHRM member
Kimberley Hostetler's testimony and, within minutes, I was
sharing the news with the HR executives who were Johnson's
constituents.
The human resource profession is scoring major victories in
Congress. As a profession, we have demonstrated that we can act
and react to shape the laws that affect our daily lives and
those of the workers and employers we serve. The SHRM-founded
FMLA Technical Corrections Coalition's work has borne
tremendous fruit. We have now had five congressional hearings
with numerous SHRM members providing expert testimony
documenting the FMLA's unintended consequences.
The SHRM staff, the SHRM-founded FMLA coalition and
numerous SHRM members have demonstrated tremendous commitment
to our profession with these legislative successes. However, it
goes beyond this. At the heart of these actions is a driving
desire to get beyond the rhetoric to improve the workplace for
employees and employers alike. We thank Congresswoman Nancy
Johnson for her courage to do the same.
Michael J. Lotito, SPHR
Chair
SHRM Board of Directors
Attachment #3
SHRM Denounces Clinton's New Paid
Family Leave Rule by Announcing Historic Lawsuit
Alexandria, VA, June 12, 2000--The Society for Human
Resource Management (SHRM) today announced its intention to
file a lawsuit in the D.C. District Court to stop the
Administration's new rule that will allow States to dip into
Unemployment Insurance Trust Funds for paid family leave.
Joining in the lawsuit is LPA and the U.S. Chamber of Commerce.
SHRM has coordinated business community opposition to the
effort since May of 1999. Since that time, individual human
resource professionals have sent thousands of comments to the
Department of Labor and Congress warning that the rule was
illegal and urging that the proposal be withdrawn.
``It is astounding that the Administration would finalize
this rule after receiving strong warnings from Congress, and
reportedly their own attorneys, that this back door attempt is
likely to be struck down in court,'' said the SHRM Chair,
Michael J. Lotito, SPHR. In several DOL internal documents
discovered recently, the department's Solicitor's Office
reportedly discusses the department's decision to circumvent
legislative action saying that, ``the court is likely to
invalidate such a DOL regulation as an arbitrary agency
action.''
The rule allows States to use their unemployment insurance
(UI) trust funds to pay workers taking leave for the birth or
adoption of a child. SHRM urges State legislators to freeze any
State legislative actions until the issue is settled in court.
``The Department has clearly exceeded its authority in
attempting to push through this rule when it will most
certainly be struck down. States acting abruptly could find
themselves in a situation where they are out of conformity with
unemployment insurance law, subjecting employers to significant
payroll tax increase,'' Lotito.
``SHRM has made stopping this executive branch rule a top
priority,'' said SHRM's Executive Vice President and COO, Susan
R. Meisinger, SPHR. ``This action is necessary given the costly
nature of the new rule.''
In February, SHRM submitted extensive comments to the Labor
Department warning that the ``back door Family and Medical
Leave Act expansion'' is ``not only illegal, but it is
inappropriate given the documented problems with the Act's
existing implementing regulations and interpretations.''
``As it already stands, human resource professionals face
significant challenges in complying with the FMLA, as
demonstrated in five congressional hearings on the matter,''
said Lotito.
In addition, States which may move forward to implement
such a program face the possibility of insolvency, thereby
jeopardizing the individuals whom the system was designed to
protect--the unemployed. An indication that the DOL is not
concerned with insolvency issues, it notes in its rule slated
to be published this week, that ``we have never interpreted
Federal law to require 'solvency'.''
DOL ATTEMPTS TO DEFLECT PAID LEAVE LAWSUIT
Groups Resolve to Continue the Fight to Preserve Jobless Program
Washington, D.C., August 31, 2000--In a tacit
acknowledgment of the weakness of its case, the U.S. Department
of Labor is attempting to deflect the legal challenge brought
by the Society for Human Resource Management (SHRM); LPA, Inc;
and the U.S. Chamber of Commerce to its Birth and Adoption
Unemployment Compensation (BAA-UC) program through procedural
maneuvering.
The lawsuit, filed in late June, is an effort to overturn
the regulation that allows States to dip into their
unemployment insurance (UI) trust funds to pay workers taking
leave for the birth or adoption of a child. Instead of
attempting to resolve the legality of a program in which it
claims there is widespread interest, DOL has filed a motion to
dismiss the case, claiming it is not ``ripe'' because no State
has yet acted.
``We are extremely disappointed in the Department's
position that an employer must be harmed before a court can
decide that it acted illegally,'' said SHRM President and CEO,
Michael R. Losey, SPHR. ``If the Department is so confident in
the legality of its position, why is it engaging in delay
tactics?''
``In promulgating BAA-UC, the Department claimed it was
something the States were clamoring for,'' said Jeffrey C.
McGuiness, President of LPA, Inc. ``If that is the case, why
doesn't the Department want to address the question of legality
as soon as possible? We feel confident we will inevitably
prevail. Cluttering up the case with procedural hurdles only
delays the inevitable.''
``No amount of legal motions or procedural delays can hide
the facts in this case,'' said Randel Johnson, Chamber Vice
President of Labor and Employee Benefits. ``The Clinton
Administration is unlawfully jeopardizing a critical program
for laid-off workers to subsidize people who already have jobs.
If this Administration wants to provide paid leave to employees
away from their work, it should finance it honestly--not rob a
fund that has been paid for by employers and set aside for
unemployed workers.''
By dictating a fundamental change in the country's jobless
assistance program, the challenged regulation circumvents
Congress, and breaks a 65-year-old covenant between the
government and the jobless, according to the plaintiffs. In
addition, this move marks a departure from the original Family
and Medical Leave Act (FMLA) as passed in 1993, which rejected
proposals requiring employers to pay employees taking family
leave. Reportedly, DOL's own lawyers have advised that this
action is of questionable legality and would likely be struck
down in court.
LPA is a public policy advocacy organization representing
human resource executives. Collectively, LPA members employ
more than 12 percent of the U.S. private sector workforce.
The U.S. Chamber of Commerce is the world's largest
business federation representing more than three million
businesses and organizations of every size, sector and region.
Statement of the Hon. Bob Taft, Governor, State of Ohio
Thank you for the opportunity to submit a statement
expressing my strong support for repeal of the ``temporary''
Federal Unemployment Tax (FUTA) surcharge and reforms to the
employment security financing system to provide full funding
for the unemployment insurance and employment service programs.
Reform of this system is an issue that is extremely
important to employers, workers and States administering
unemployment insurance and employment service programs. I was
pleased to testify before the Ways and Means Committee in June
of 1999 and to submit a statement to this subcommittee in
February of this year in support of badly needed reforms to
this system.
The FUTA surcharge was enacted by Congress in 1976 to
provide funds to reimburse depleted trust fund accounts that
have long since been restored. The Tax Relief Act of 1997
extended this surcharge much longer than necessary through the
year 2007.
The current system overtaxes employers and underfunds the
unemployment insurance program and employment services which
are critical to provide needed access to jobs and support for
families in the workforce of the new century.
In 1997, 49 of the 53 States and jurisdictions received
less in administrative funding than their employers paid in
FUTA taxes--many States significantly less. Since 1990, less
than 58 cents of every employer FUTA tax dollar has been
returned in administrative funding for States.
An examination of the taxes paid by employers in comparison
to administrative funds provided to the States paints a
compelling picture. From 1993 to 1998, annual FUTA tax
collections increased from $4.23 billion to $6.45 billion while
administrative funding was cut from $3.81 billion to $3.47
billion. Although the latest data is only available through
1998, the trend line has continued in 1999 and 2000, further
diminishing the percentage return of employer taxes to the
States each year.
This grossly inadequate return to the States is striking,
as is the unjustified continuation of the ``temporary''
surcharge. In Ohio, where we receive 39 cents on the dollar,
the lack of adequate funding has required the closing of local
offices, reductions in staff, and the use of State general
revenue to make up for cuts in Federal funds.
Not only is there no justification for the continuation of
the FUTA .2 percent surcharge to fund the system, but the funds
appropriated are insufficient to meet the costs of supporting
the State adequately in administering the unemployment
insurance and employment service programs. Ohio employers are
paying too much in FUTA taxes, and the differential between the
amount of Federal administrative funds appropriated and actual
costs of administration by the States continues to increase.
We must do a better job of supporting State efforts to
ensure the ability of American families to adjust to the
demands of the workforce in the coming century by providing
adequate funding for employment services for those who become
unemployed. In Ohio, we have merged the Bureau of Employment
Services and the Department of Human Services into the
Department of Job and Family Services to develop the
comprehensive system we need to address workforce development.
We need a system which properly funds States for
administration, minimizes the tax burden on employers, and
provides States with the flexibility to design and effectively
run workforce development systems.
Since 1997, a coalition of 32 States and more than 100
State and national employer organizations representing hundreds
of thousands of employers have joined together to seek reform
of employment security financing. The Western Governors
Association and the Southern Governors Association have passed
resolutions urging reform of the system, and the National
Governors' Association has adopted a policy statement outlining
specific areas where reform is needed.
Congressman McCrery and Senator DeWine have been
instrumental in bringing the need for reform to the attention
of Congress by introducing legislation earlier this session.
Their efforts and those of the reform coalition have now been
joined with reform initiatives from representatives of
organized labor and the United States Department of Labor to
develop a bi-partisan reform proposal.
The bi-partisan proposal now under consideration was
crafted to address appropriate administrative funding levels
and employer taxes. The proposal includes provisions to:
Repeal the .2 percent FUTA surcharge;
Provide adequate dedicated funds for
administration of unemployment insurance, public employment
services and veterans employment services; and
Streamline employer tax reporting requirements to
reduce employer reporting burdens and the costs of
administration.
I urge you to favorably consider this bi-partisan proposal
for reform.
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