[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
UNEMPLOYMENT COMPENSATION AND THE FAMILY AND MEDICAL LEAVE ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MARCH 9, 2000
__________
Serial 106-114
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
69-340 DTP WASHINGTON : 2001
_______________________________________________________________________
For sale by the U.S. Government Printing Office
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20402
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
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C O N T E N T S
__________
Page
Advisory of March 2, 2000, announcing the hearing................ 2
WITNESSES
U.S. Department of Labor, Raymond J. Uhalde, Deputy Assistant
Secretary, Employment and Training Administration.............. 39
______
Connecticut Hospital Association, and Society for Human Resources
Management, Kimberley K. Hostetter............................. 61
Connecticut House of Representatives, Hon. Christopher G. Donovan 16
Gregg, Hon. Judd, a United States Senator from the State of New
Hampshire...................................................... 7
Michigan Unemployment Agency, Jack F. Wheatley................... 89
National Employment Law Project, Maurice Emsellem................ 70
U.S. Chamber of Commerce, and North Central Massachusetts Chamber
of Commerce, Todd L. Shinkus................................... 80
UWC-Strategic Services on Unemployment & Workers' Compensation,
Eric J. Oxfeld................................................. 49
SUBMISSIONS FOR THE RECORD
Associated General Contractors of America, Inc., Alexandria, VA,
statement...................................................... 110
Employment Policy Foundation, Edward E. Potter, letter and
attachment..................................................... 114
LPA, statement................................................... 122
Maryland House of Delegates, Hon. Richard La Vay, and Hon. Van T.
Mitchell, letter............................................... 125
Mechanical Contractors Association of America, Inc., Rockville,
MD, John McNerney, letter...................................... 126
National Partnership for Women & Families, Judith L. Lichtman,
statement and attachments...................................... 127
National Restaurant Association, statement....................... 135
Wilson, Mark, Heritage Foundation, statement..................... 136
Woolsey, Hon. Lynn, a Representative in Congress from the State
of California, statement....................................... 138
UNEMPLOYMENT COMPENSATION AND THE FAMILY AND MEDICAL LEAVE ACT
----------
THURSDAY, MARCH 9, 2000
House of Representatives,
Committee on Ways and Means,
Subcommittee on Human Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:01 a.m., in
room B-318, Rayburn House Building, Hon. Nancy 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
March 2, 2000
No. HR-17
Johnson Announces Hearing on Unemployment
Compensation and the Family and Medical Leave Act
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 Unemployment Compensation
and the Family and Medical Leave Act. The hearing will take place on
Thursday, March 9, 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 State legislators as well as representatives of
business, labor, and State Unemployment Compensation administrators.
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:
On December 3, 1999, the U.S. Department of Labor issued a Notice
of Proposed Rulemaking that outlined an Administration proposal to
allow States to use Unemployment Compensation funds to provide partial
wage replacement to parents on leave following the birth or adoption of
a child.
The nature of the American workforce has changed since the
Unemployment Compensation program was founded in 1935. Today's
workforce contains many more mothers, especially of young children,
than at any time in the past. The Family and Medical Leave Act of 1993
(P.L. 103-3), gave opportunities to working mothers and their families
by requiring certain employers to provide up to 3 months of unpaid
leave to parents of newborn babies and to parents who adopt. The
Administration proposal to allow States to use Unemployment
Compensation funds would pay a stipend to parents to take such a leave.
The proposal does not require States to provide this benefit but leaves
it to the States' option. Current rules allow Unemployment Compensation
benefits to be paid during training, illness, jury duty, and temporary
layoffs.
A basic tenet of the Unemployment Compensation program is that only
involuntarily employed workers are covered. Expanding these benefits to
voluntarily unemployed workers would represent a major expansion of the
program. Any increase in benefits would in the long run use more money
than is in the trust accounts that support State programs. To replace
these funds, a tax increase would be needed to provide the additional
revenue to finance the new benefit. Families rely on unemployment
compensation to help them during periods of involuntary unemployment.
Any changes to this important system requires careful consideration by
Congress in the appropriate legislative process.
In announcing the hearing, Chairman Johnson stated: ``The Family
and Medical Leave Act has served many families well by giving them
opportunities to take time off from work during periods of urgent
family or medical need. However, in order to expand this important
program, we should not jeopardize another essential public program such
as the Unemployment Compensation system. We do not want to pit out-of-
work Americans against their neighbors who have jobs and we do not want
to open the nation's Unemployment Compensation system to uses for which
it was never intended. Instead, we should have legislation brought
before the Congress for open and honest discussion.''
FOCUS OF THE HEARING:
The hearing will focus on whether using Unemployment Compensation
funds to pay cash stipends to parents taking family leave is good
policy and whether using the rulemaking process to impose these changes
is appropriate.
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,
March 23, 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.
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noted above.
Chairperson Johnson. Senator, I know you do have a markup
going on. Do we have time to start with our opening statements
or do you really need to make your testimony?
Mr. Gregg. Would it be possible for me to give my
testimony?
Chairperson Johnson. Yes. We will accommodate you.
Mr. Gregg. If it's inconvenient.
Chairperson Johnson. Well, it changes the flow, but it's
not something that our minds can't grasp.
Mr. Gregg. I don't want to usurp the committee, so, please,
proceed however the Chairman wishes to proceed.
Chairperson Johnson. I appreciate you coming over,
especially when you're in the middle of a markup. Those are
important meetings.
So let me thank you for joining us this morning. I
appreciate your experience in this area and I'm looking forward
to your testimony.
You may proceed. Your entire statement will be included in
the record.
Mr. Gregg. Thank you, Madam Chairman, and I appreciate your
courtesy. It is very kind of you to allow me to proceed. I do
apologize for upsetting the flow of the hearing.
I would like to hear your opening statement, so if you
don't mind. Would it be all right?
Chairperson Johnson. It would be fine. If you have time,
we'd prefer it that way. Thank you very much.
I thank all of our guests for coming this morning to
testify at this hearing. We greatly appreciate your willingness
to prepare testimony, knowing that it takes a lot of time, and
share your views with us.
Let me state plainly that I do not support using the
unemployment compensation system to pay cash benefits to
parents taking parental leave.
Chairman Archer and I wrote the President last June, when
he first announced his decision to allow such payment, to
oppose his backdoor raid on the unemployment compensation
system. We also wrote to Secretary Herman, responding to the
initial draft of the regulations implementing the President's
decision.
Although I am a firm supporter of parental leave and voted
for Family Medical Leave at a time when it was very
controversial in 1993, I cannot support using money intended
for unemployed workers to pay benefits to families choosing to
take parental leave, especially when no provision for funding
those new benefits is being made.
For 65 years, everyone assumed that the unemployment
program was intended to help those involuntarily unemployed.
All of our thinking about the trust funds, coverage, and the
level of benefits was based on the assumption that only
involuntarily unemployed workers were eligible for benefits.
To suddenly change such a basic feature of this extremely
valuable program, without hearings or providing a source of
funding, is shockingly irresponsible. This decision has serious
implications for the unemployment compensation trust fund and
for taxes on American businesses and workers.
Any state that adopts this action will spend more money
than it currently does on unemployment benefits. If more money
is spent from the state trust funds, taxes will be increased.
It's a mathematical certainty that if more people get benefits,
taxes must be increased. I must point out that I have been very
perplexed by the contradictory message on trust fund balances
that the Democratic proposal sends.
For years, we have heard from the Department of Labor that
trust funds are too low. Now the Department publishes a
regulation that would substantially deplete the trust fund of
any state that follows the regulation. Is the Department no
longer concerned about the balance in state trust funds?
Another consideration is that the implementation of the
Family and Medical Leave Act has developed some serious
problems, revealed some serious problems with the statute and
its regulations. We will have clear and convincing testimony on
these problems later in this hearing.
Again, it is simply irresponsible to expand the program
without addressing the problems that exist in the program and
funding its benefits.
The Family and Medical Leave Act is a vital strand in our
domestic safety net. It is a major domestic program that has a
long and distinguished history. It deserves thoughtful reform
and a process that sincerely addresses the problems that have
developed with its functioning, a full consideration of
expansion possibilities, and honest attention to the funding
required to support expansions.
Administrative fiats, unthoughtful and unfunded, sound good
in the political bumper stickers of this world, but they will
undermine the unemployment compensation system, which I
consider to be one of the most important components of that
safety net.
I am disappointed that the Clinton Administration and the
Department of Labor has not seen fit to submit legislation that
could be considered by this committee and would contain in it
some of the solutions to the problems with the current law, as
well as a proposal to pay for new benefits.
I will listen carefully to all the testimony today,
including testimony in support of the President's policy,
because I, too, would like to be able to move in the direction
of some paid leave. But bad procedure creates bad law and,
frankly, I am, as a legislator and as a public policy person of
23 years experience, outraged to see a political leader
proposing expansions without the money to support them and
expansions that fly in the face of the fundamental focus and
concern and support system that our unemployment compensation
system represents in our nation.
So this is an important hearing. We're going to have
excellent testimony across the range, and I hope that we will
be able to get on the record some of the basic facts, like how
many states are still in debt in their unemployment
compensation, what is the level of the trust fund. We need some
nuts and bolts and we think we have the people here who will be
able to provide that information.
Mr. Cardin.
Mr. Cardin. Thank you, Madam Chair. Let me first thank you
for holding these hearings and applaud your leadership on this
committee to work in a bipartisan manner. We have produced, I
think, some very constructive legislation, working together,
Republicans and Democrats.
We disagree on this issue, at least as I've heard you frame
the issue for our subcommittee.
Madam Chair, over the last few years, there has been
considerable debate on Congress on two issues--helping families
raise their children and increasing flexibility to our states
in order to deal with these issues and these social programs.
I am, therefore, puzzled by the opposition expressed to a
policy that directly promotes both of these goals. After all,
we are talking about a regulation that will give states the
option--the option of providing unemployment compensation to
workers on parental leave. That seems to me very consistent
with the policy that we have taken to give our states more
flexibility in dealing with the problems in their own
community.
Objecting to this policy seems tantamount to opposing the
flexibility of states to promote family values.
This is not to say that the unemployment insurance system
is necessarily the best mechanism in every state to provide
paid leave to workers. States may prefer a different approach
to addressing the issue of paid leave, such as establishing
temporary disability insurance system.
But for some states, providing unemployment compensation to
workers who need time away from work to care for an infant
represents a sound investment in the future.
I'm sure, as the Chair indicated, some will question the
Department of Labor's authority to implement this change
through a regulation rather than through a statutory approach.
Let me point out that historically we have used the regulatory
approach to make many of the changes in our unemployment
insurance system.
For example, the requirement that recipients be able and
available for work was established by regulation. States have
created numerous exceptions to these requirements over the
years, including for individuals who are in training and who
are subject to recall by a former employer, or those that are
on jury duty.
As our subcommittee considers the proposed regulation
allowing states to provide unemployment insurance benefits to
workers on leave for birth or adoption of a child, it may be
instructive to remember that our nation's workforce has changed
dramatically since the unemployment insurance system was
created more than six decades ago.
Just consider this one statistic. Ten years after the
creation of the UI system, only 12 percent of mothers with
young children were in the workforce. Today, that percentage
has increase five-fold to 62 percent. It is time for us to look
at our UI system to make sure it is meeting the needs of the
people in our communities, and those needs are different around
the nation and states should have the flexibility to be able to
respond to that.
Recognizing the changing nature of the workforce has placed
severe strains on families. Congress passed the Family and
Medical Leave Act, which guarantees employees in certain
businesses three months of unpaid leave when they become
parents. The fact remain that many middle and modest income
families cannot afford to go without a paycheck, even for a few
months, meaning that they are unable to take time away from
work under the Family and Medical Leave Act because they will
not have compensation.
The proposed regulation from the Department of Labor allows
states to experiment with one more method for helping these
parents care for a newly born child or for an adopted child. In
short, it allows the states to pay unemployment benefits to
workers who are temporarily unemployed through no fault of
their own.
Madam Chair, I agree with you, I think these hearings can
be extremely helpful to us as we look at our unemployment
insurance system, but let me just underscore one point. There
are many differences in the status of the funds around the
nation. Some states do have problems with solvency, other
states don't have problems with solvency.
I don't see a danger in allowing the states to experiment
to see whether they can't use the social programs that we have
to meet the needs of their community, and I look forward to
hearing from our witnesses, particularly our distinguished
Senator.
Chairperson Johnson. Senator Gregg. It's a pleasure to have
you with us morning.
STATEMENT OF THE HON. JUDD GREGG, A UNITED STATES SENATOR FROM
THE STATE OF NEW HAMPSHIRE
Mr. Gregg. Thank you, Madam Chair. I appreciate the
opportunity to appear before the committee. As I mentioned
earlier, I think this is a very important issue. It is an issue
which arises on a number of levels in its significance. First
off, of course, is the issue of jurisdiction; the fact that the
Department of Labor is pursuing an avenue which is clearly
reserved for the Congress.
We do have a separation of powers in this nation. We do
have the authority to legislate residing in the Legislative
Branch, not in the Executive Branch, and what the Department of
Labor is attempting to do here is clearly to legislate and, in
doing so, is trampling not only on the rights of the Congress,
but more importantly, it's treading on the Constitutional
rights of citizens who are protected by the separation of
power, and that is a critical point which must be considered.
The proposed rule also has a dramatic impact on two very
significant pieces of legislation which this Congress spent a
lot of time on and has spent a lot of time on and I know this
committee has committed huge amounts of time to. One, of
course, is the Family and Medical Leave Act and the other is
the unemployment insurance laws.
I chair the Senate Subcommittee on Children and Families.
We have jurisdiction over the Family and Medical Leave Act, and
have held a number of hearings on this bill and in the present
way in which the Department of Labor is pursuing the
institution of that legislation. We found that there are some
significant problems with the Family and Medical Leave Act.
We do feel that the Department of Labor is ignoring these
problems and that it has an obligation to address these
problems first, before it decides to expand the Family and
Medical Leave Act dramatically. Some of the problems we've
identified are a significant unintended administrative burden,
costs to employers, resentment that has grown up in some
workplaces by coworkers because the Act has been misapplied,
the invasion of privacy by requiring employers to ask deeply
personal questions about employees and family members in
planning to take their family leave, unnecessary record-keeping
and unworkable notice requirements, and conflicts with the
existing policies.
These are serious problems which the Family and Medical
Leave Act already have and which the Department of Labor,
regrettably, is not adequately addressing. Yet, they want to
significantly expand the role of the Family and Medical Leave
Act in this proposal which they have come forward with.
Unlike the Family and Medical Leave Act, the unemployment
laws have been on our books for over 65 years, and the
structure of the unemployment accounts are very significant and
have a history, a history which is critical to review and which
is important in this decision-making process.
The key to it is, I think, to recognize that unemployment
insurance is for unemployed people and it is an insurance
account which is set up based upon the concept that we would be
able to help people out in hard times, as well as good times.
The proposal which comes to us today reflects a good time
proposal. The economy is doing well. Yes, the unemployment
insurance accounts are, therefore, quite strong. But as a
practical matter, this is not a time when the unemployment
insurance accounts are at their most critical need. When they
are at their most critical need are periods of recession and,
unfortunately, as well as we have done for the last ten years,
I seriously doubt that we have stepped out of the business
cycle as an event in our nation's history, because it has been
with us for the 200 years that we have been in existence.
And in fact, the Department of Labor itself recognizes that
if we go into another severe recession, say a recession of the
nature that we had in 1980 or '82, we would see that over 25 to
30 states would have to borrow 20 to 25 billion dollars from
the Federal Government in order to maintain their unemployment
insurance accounts.
That means that these accounts are not as strong as you
might think they are or as they might appear today, but they
are really quite fragile and, in fact, as a governor, which is
a job I also had in prior history, I had the regrettable
experience of governing my state during the most severe
recession, it was actually a depression, that the New England
region has gone through in the last 15 years to 20 years, and
that was a period when our own unemployment funds throughout
New England went into bankruptcy.
Luckily, New Hampshire was able to avoid that type of a
bankruptcy, but the other funds did not and they had to come to
the Federal Government and they had to borrow money, and as a
result, the Federal Government had to bail out the states.
So I think we must recognize that the unemployment
insurance accounts play a very unique role in our society. They
are there as the buffer during hard times. And to suddenly
invade those accounts for the purposes of what may be a good
polling initiative, which is the proposal which is being put
forward here today, but for a purpose which has no relationship
to the original intent or purpose of the unemployment insurance
accounts, is a very serious public policy error.
The unemployment accounts were structured for the purposes
of benefiting people who are able and available for work. Now,
if you're on family leave, you are not available for work. They
were structured for the purposes of assisting people, the
unemployment insurance accounts, for people who had been
involuntary separated from their jobs, people who had lost
their jobs, not because of any conscious decision that they had
taken, but because they had unfortunately been put in an
economic situation where their job had either been eliminated
or where they themselves had simply become unemployed because
of a decision that was made by their employer.
A person who is obviously participating in the Family and
Medical Leave Act has not involuntarily lost their job. They
have, by definition, simply left their job for a period of
time, at their own volition, in order to pursue a family
decision, which is a very appropriate and good family decision,
but which is not tied to unemployment. It is tied to a decision
to take a period of leave.
And most people who are on leave in our society today under
the Family and Medical Leave Act do receive some sort of
compensation from their employer because they are actually on
leave.
So those are two very significant legal and structural
reasons why we should not cross-fertilize these two programs.
The simple fact is that the unemployment insurance accounts are
structured for the purposes of benefiting an individual who has
lost their job as a result of a separation and who finds
themselves still being available for work. The Family and
Medical Leave Act, on the other hand, is structured for the
purposes of a person who decides, as a matter of their own
volition, to take a break from their job in order to raise a
family, which is a very reasonable decision, but it is not tied
to unemployment.
And it all comes back to the issue of or the question of
public policy. The public policy of this government is that we
will have unemployment insurance accounts which are solvent,
which are available for people during hard times. If we
suddenly start using those accounts for other activities, no
matter how well those activities may poll or no matter now much
they may be a nice way of saying that this is a good purpose to
pursue in your life, if we start using the unemployment
insurance accounts for other activities than benefiting those
people who are unemployed, we will find that we will soon drain
those accounts and that we will not have a solvent system as we
move into the next recession, which regrettably is inevitably
going to occur.
In fact, the Labor Department needs to only look at its own
statistics to confirm this position. They can look at what
happened in 1982, they can look at what happened in 1991 during
the recession then, or they can look at their own projections
as to what would happen if we had another recession of the
nature either of the '82 recession or the '91 recession, when
we know that the insolvencies occurred.
Now, there are some that argue, well, this should be left
up to the states and the states should be able to make this
decision and there should be an opportunity for the states to
experiment in this area. That argument might make sense and, of
course, it's an attractive argument to a states' right person
as myself, except for the fact that it is the Federal
Government that is the insurer of last resort here. It is the
Federal Government that has to come in and protect these
unemployment insurance accounts if they are not fully solvent.
So we, the Federal Government, end up paying the bill when
these accounts have been drained, which is what will occur of
this policy of the Department of Labor is pursued. My
suggestion to the Department of Labor is that rather than
opening up this brand new drain on the unemployment insurance
accounts, that they might want to consider going back an taking
a look at their mismanagement of the present Family and Medical
Leave procedures and correcting the errors which they are not--
which we have now documented in this program, which have
created a huge amount of bureaucracy and, unfortunately, some
tensions in many working places, and that would be a more
appropriate exercise for the Department of Labor.
I thank the Chair.
[The prepared statement follows:]
Statement of Hon. Judd Gregg, a United States Senator from the State of
New Hampshire
Madam Chairman, Members of the Committee, first, I want to
thank you for extending the courtesy of allowing me to testify
on this very important topic--the Department of Labor's
proposed rule to expand unemployment insurance for unrelated
purposes.
As you know, I chair the Senate Subcommittee on Children
and Families which has jurisdiction over the Family and Medical
Leave Act (FMLA) and related legislation. I am here today to
express my very strong opposition to the administration's
proposal.
In issuing the proposed rule the Administration has ignored
Congress' actions in the Family and Medical Leave Act area.
This thinly veiled back door FMLA expansion circumvents the
legislative process and violates the constitutionally protected
rights of citizens that we, as elected officials, represent.
The proposed rule violates the clear and unambiguous intent of
the letter and the spirit of two significant measures passed by
Congress: the Family and Medical Leave Act and unemployment
insurance laws. Additionally, the rule violates a number of
good government regulatory reform laws that Congress has passed
that have been specifically designed to stop back door efforts
to legislate through the Executive branch.
The Department of Labor is well aware of Congress'
continued interest and jurisdiction over FMLA-related issues.
In fact, the Department testified before the Subcommittee on
Children and Families on July 14, 1999 at a hearing entitled
``the Family and Medical Leave Act: Present Impact and Possible
Next Steps".
During that hearing we received testimony pointing to the
fact that, as implemented by the department of Labor, the
Family and Medical Leave Act has resulted insignificant
unintended administrative burden and costs on employers;
resentment by co-workers when the act is misapplied; invasions
of privacy by requiring employers to ask deeply personal
questions about employees and family members planning to take
FMLA leave; disruptions in the workplace due to increased
unscheduled and unplanned absences; unnecessary record keeping;
unworkable notice requirements; and conflicts with existing
policies.
In addition, the proposed rule states that the proposal has
been assessed in accordance with section 654 of pub. L. 105-
277, 112 stat. 2681, for its effect on family well being. The
DOL concludes that the proposed rule will not adversely affect
the well being of the nation's families.
Given the ambiguous nature of the proposed rule and its
inevitable misapplication and abuse, we can expect to see an
extension of the FMLA's documented negative effect on coworkers
and their families. Co-worker resentment and unnecessary
litigation have resulted from the Department's confusing FMLA's
regulations and interpretations and will be increased by the
proposed expansion of unemployment insurance.
Unlike the Department's attempt to manufacture authority to
overturn a 65 year old policy requiring persons receiving
unemployment compensation to actually be unemployed and not
merely on leave, the Department clearly has a responsibility to
ensure that the laws within its jurisdiction are being
implemented as intended by Congress.
Yet, rather than addressing a single one of these well
documented problems, the Department of Labor is now proposing
to create more burden by diverting resources away from the
unemployment insurance system to pay for persons on FMLA leave.
Though perhaps politically expedient, this policy is
irresponsible and extremely short-sighted.
The unemployment insurance program is designed to be self-
financing. Funds accumulated during periods of economic growth
support benefit payments during economic downturns. Because
unemployment rates have been low for the past few years, some
states (approximately 30) are currently running large surpluses
in their UI trust funds. This was the same situation in the
1980s recessions when over half of all states did not have
sufficient funds to pay legally mandated benefits. According to
a report issued last summer by the Department of Labor, an
economic downturn of the magnitude of the 1980-82 recession
would force 25-30 states to borrow $20-$25 billion in order to
pay UI benefits.
Madam Chairman, as you know I served as Governor of the
State of New Hampshire from 1989 to 1993. Though unemployment
in New Hampshire was relatively low (6.6%) as compared to other
states we still felt the impact of the 1990-91 recession. I had
an opportunity to see first hand how important unemployment
compensation is to jobless Americans as thousands of New
Hampshire residents found themselves without jobs, without any
income at all. All they had was unemployment compensation--and
that for a limited duration.
During the 1990-91 recession more than half the states
depleted their UI reserves and had to borrow from the federal
government. Many states had to cut back on their UI benefits
and eligibility to keep their unemployment insurance accounts
solvent. Congress was forced to pass a 13-week extension of
unemployment benefits for people whose benefits had run out.
Over 6,000 New Hampshire residents applied for and received
benefits under this extension.
In New Hampshire, we were the only northeastern state that
avoided insolvency necessitating loans from the federal
government to provide UI benefits to workers during the 1990
recession.
This track record was accomplished by asking the
Legislature to adjust the tax system when necessary to avoid
insolvency. Essentially, we increased the amount of funds that
had to be maintained in the trust fund before employers could
qualify for a payroll tax discount. This amount was raised
twice while I was Governor, and resulted in our being able to
maintain a solvent trust fund account without sacrificing
benefits to families in need. However, had we been paying
family leave benefits at the same time it is very doubtful we
would have been able to maintain our benefit levels without
borrowing from the Federal Government or significantly
increasing employer payroll taxes.
This is what we risk repeating if the Administration has
its way. In fact, the Labor Department's own statistics show
that if another similar recession occurs, and by most estimates
the 1991 recession was relatively mild, states will need to
borrow an additional $2-4 billion. If we experience a more
severe recession like what we experienced in the 1980s those
numbers would increase dramatically.
Madam Chairman, the Administration does not, despite it's
contentions to the contrary, have the authority claimed in the
proposed rule to re-interpret 65 year old Federal unemployment
compensation requirements that individuals be ``able and
available'' for work, to permit providing wage replacement to
employees who take approved leave or otherwise leave employment
to be with their newborns or newly-adopted children. That
decision must appropriately rest with Congress.
The Department of Labor should rather, focus its attentions
toward implementing FMLA as originally intended and re-visiting
areas where it has created unnecessary confusion and
administrative burden on those who are attempting to carry out
the letter and spirit of the Act. I urge the Administration to
rethink its position in this matter, to include Congress in a
significant way in addressing the future of the FMLA and to
withdraw the proposed rule.
Chairperson Johnson. Thank you very much, Senator. Senator,
when were you governor, was there any impediment to you passing
a law that would have provided paid family leave and funding
it, if you had chosen to do so?
Mr. Gregg. Of course not.
Chairperson Johnson. So there is no impediment in Federal
law for a state doing this, if they want to do it. The issue
here is not whether states can do this. They can. The question
is should they be funding family medical leaves, which is a
voluntary kind of unemployment, with money that has been
explicitly set aside under the law to guarantee benefits to
people who are involuntarily unemployed. So there is no
impediment right now.
Mr. Gregg. That is absolutely correct, Madam Chairman. It's
a succinct statement of it. The states have the rights to, if
they want, set up another account which would be able to
benefit those people who take a family leave, totally separate
from the unemployment insurance accounts, and obviously it
should be separate from the unemployment insurance accounts,
because you're talking about two entirely different events.
One is a person taking voluntary leave from their job, the
other is a person who has involuntarily left their job and is
still available for work. In the first instance, the person is
not available for work, because they're on leave raising their
child.
Chairperson Johnson. Now, what did you do? Because you were
one of the few, maybe the only New England governor, to avoid
bankruptcy insolvency and heavy borrowing in your unemployment
compensation system.
You mention in your testimony that you asked the
legislature to adjust the tax system in order to avoid
insolvency.
Mr. Gregg. We had traditionally in New Hampshire an
extremely conservative unemployment insurance fund and we had a
very solvent and strong fund going into the recession, which
was probably our biggest advantage. It was extremely strong,
which is an example of why you do not want to weaken it by
throwing other programs into it, which would cause it to be
weakened prior to a recession occurring.
The governors can't predict recessions. I'm not sure who
can predict recessions, but I can assure you governors can't,
nor can state legislatures.
That was our best advantage. We had a strong fund. Then we
did have to, unfortunately, raise taxes twice during the period
of our downturn in order to keep the funds solvent, but we
decided to do that rather than come to the Federal Government.
Chairperson Johnson. And once you got through the crisis,
did you continue those tax increases or did the legislature
then reduce taxes?
Mr. Gregg. I believe the legislatures rolled those back. I
left and I suspect somebody took credit for that.
Chairperson Johnson. I really commend you on increasing the
taxes to fund the benefits. In my estimation, the unemployment
compensation system is simply one of the most important pieces
of the safety net we have in America, because it supports hard-
working people who are, through no fault of their own,
unemployed.
So I commend you on your handling of that crisis. I yield
to my colleague, Mr. Cardin.
Mr. Cardin. Thank you, Madam Chairman. Let me compliment my
colleague on his passion on this issue and on the management in
his own State of New Hampshire.
I also would like to acknowledge Lynn Woolsey, our
colleague from California, who is here today, who has done so
much work on this issues of family issues and parents having
time with their children, particularly when they are very
young, the children are very young.
It's very interesting, Senator, I listened to your
testimony and I think we at least need to point out this not
new ground. This is not the first time that states have used
the unemployment insurance system to deal with problems in our
community. We are dealing with involuntary separation and we
know that the unemployment insurance system traditionally pays.
But there are many exceptions to involuntary separation
that states have used in order to deal with social needs in
their community. This is not the first time. In fact, all
states have at least some exceptions to involuntary separation.
Let me just mention some that are--that some states have
recognized and allow that a worker be able to still get
unemployment insurance.
A worker who quits following a spouse who has transferred
to a new job, in some states, is still considered to be in the
labor market. A woman who quits work because of her abusive
spouse can be entitled, in some states, to unemployment
insurance. A worker who quits to care for an ill parent, who
may be forced to relocate, in some states, is eligible for
unemployment insurance. A worker who quits to care for an ill
child may be considered still available for work because of a
shift change that parent must make.
So we have exceptions already in the unemployment insurance
law to deal with these types of circumstances. I'm somewhat
bewildered by the shock that all of a sudden we are
jeopardizing the solvency of our unemployment insurance funds.
Your testimony I hope we will make part of the record of
our last hearing of this committee, where we talked about
devolving some of the unemployment insurance systems to our
states, a proposal that I have very, very serious reservations
about, because of the exact reasons that you pointed out in
your testimony.
That is, it doesn't take much change in our economy to
affect the solvencies of our unemployment insurance funds at
the state level and we need to be able to have a strong Federal
backstop, whether it's administrative costs or whether it's to
be able to deal with extended benefits, to deal with changes in
our economy.
You are correct. New Hampshire has been one of the best
managed states. Your solvency, I think, ranks number fourth in
the nation as far as solvency. But I think you would
acknowledge that there is something strange that the United
States is the only industrial nation in the world that a parent
is not able to get paid leave when they have a child or when
they adopt a child.
My daughter hopefully will have a child in the next couple
days. She works for an employer that gives her paid leave. If
that employer didn't give her paid leave, it would have had an
impact on her staying at home, which I think is true with many
parents around the nation.
I don't know why we would want to restrict you, as
governor, to decide when you were governor and your legislature
to decide that you wanted to follow Mrs. Johnson's suggestion
of enacting some form of paid leave requirements, but then you
may have run into some problems with your chamber, with the
employer saying, gee, maybe we'll move to Vermont rather than
New Hampshire because of that mandate at the state level.
Mr. Gregg. And they're not apt to do that.
Mr. Cardin. Well, maybe it was Maryland rather than
Vermont. But why you would want--why you wouldn't want, as a
governor, to have the maximum flexibility to deal with the
concerns of the people of your own state. There is nothing in
this regulation that mandates that New Hampshire need to give
unemployment insurance benefits to those that are out because
they have adopted or had a child.
But why wouldn't you want to have the full arsenal of
opportunities available to you to deal with the problems of the
people of New Hampshire? Sounds very Republican to me to allow
the states to have full flexibility here.
Mr. Gregg. You've raised a lot of good points, Congressman,
from your perspective. Unfortunately, I have a markup and I'm
going to have to head off, and I don't want to--but I would
like to engage in a debate at some point.
But let me just make a couple points. First, under our
studies in our committee, 74 percent of the people who have
family medical leave are presently receiving some compensation
from their employer. I think that if you set up this new
structure, you're going to find that employers pass the buck
over to the public insurance and you're going to see an adverse
selection process occurring, where basically you basically
change the marketplace dynamics so that employers aren't
creating--no longer have--
Mr. Cardin. Experience rating rates, so some of that will
be compensated for.
Mr. Gregg. Well, but not really. As you know, you end up
with the good employers paying an awful lot of the unemployment
insurance and people who are not aggressively participating in
the marketplace and may be in and out of the marketplace take
advantage of it.
Mr. Cardin. But they're the same employers that are
providing the paid benefits.
Mr. Gregg. So they get hit twice, and that's the problem. I
do think you create an atmosphere which is probably going to
undermine what has been a fairly significant movement towards
employers compensating for family leave, which I think is a
good movement, but I think it should be done between the
employer and the employee and in the private sector marketplace
rather than in the public sector marketplace.
So the question which you asked, which I think is most
appropriate to me in my role, is why, as a governor, shouldn't
I have this flexibility. Because I, as a United States Senator,
end up picking up the bill.
Thank you.
Chairperson Johnson. Thank you very much, Senator. I would
like to point out, particularly since this hearing is being
televised, that this committee has no jurisdiction over the
Family and Medical Leave Act. That is under the jurisdiction of
another committee.
So we cannot rewrite that law. Our jurisdiction and the
purpose for this hearing is to protect the unemployment
compensation system. This committee has direct responsibility
to assure that there is an unemployment compensation system in
place in every state that can fund unemployment compensation
benefits, to provide loans when those states run out of money,
that then, of course, do have to be paid back, and to share
with the states the cost of extended benefits during times of
prolonged recession.
So my job as chairman is to guarantee the strength and
solvency of our unemployment compensation system. That's why I
think it's very important to point out that members of this
committee have very different opinions on the Family and
Medical Leave Act. I was a very strong advocate of it in 1993
and remain a strong advocate of it, and would like to see
hearings that would look at expanding it, but would also deal
with the problems.
I dare say I have spent more time talking to employers on
factory floors and employees about some of the problems that
have developed in this, making it unfair, than most members of
Congress, and I'm disappointed that neither the Administration,
the Department of Labor, nor the Congressional committee has
taken on the nuts and bolts.
This committee has taken on lots of oversight. So far, we
have held an in-depth oversight hearing on almost every aspect
of the welfare reform bill and have passed major legislation to
deal with the problems that developed in the welfare-to-work
program that was specifically focused on the people who were
hard to place. And as it got out there operating, we found
there were problems with it that were preventing it from
accomplishing the very goals we intended to achieve.
So we have taken our oversight responsibilities very
seriously, and so it is extremely disappointing to me, as
chairman, that the Administration didn't have the courtesy to
introduce legislation that addressed the problems and opened up
the benefits. That's legislative opportunity.
Also, I think it's very important to really note for the
record clearly that states can do this. There is no impediment
to states doing it.
There is impediments to states doing it with funds that
have been raised for the purposes of our unemployment
compensation system, which has had a long history of a very
focused responsibility.
Mr. Cardin. Would the gentlelady just yield on that point?
I appreciate it.
Chairperson Johnson. Yes.
Mr. Cardin. It is true, the states can pass laws requiring
employers to provide paid leave, if they want to, or the state
can develop their own program, if they want to, although I
would suggest that's extremely difficult with states that
border other states, which is true of almost every state in our
nation, to develop this type of a policy.
It's interesting that the regulation that was issued, as I
understand, was in response to a request by one of our states
to be able to move in this direction. They thought they had the
authority to do it and it was questioned as to whether they had
the authority.
There's at least two states that were interested in
implementing this policy and that the Department of Labor, in
response to requests from the states, issued the regulation
basically to clarify the authority of the states to be able to
implement their unemployment insurance system.
I don't think this was a power grab by the Department of
Labor. It was in response to flexibility asked by our states in
administering their unemployment insurance laws.
Chairperson Johnson. Well, states that do this will
certainly be different from adjoining states that don't, no
matter what authority they do it under, and we are having this
hearing here because there is disagreement with the
Department's decision. Some of us feel that it does not reflect
the content of the law.
It certainly, without question, does not reflect the
legislative background of the law or any of the statements that
were made around the law.
So we will proceed with the hearing. I'm very pleased to
invite next to the table the Honorable Christopher Donovan, who
is a member of the Connecticut House of Representatives. It's a
pleasure to have you, Representative Donovan. He is also a co-
chair, as I understand it, of the Labor Committee of the
Connecticut Legislature.
STATEMENT OF THE HON. CHRISTOPHER G. DONOVAN, REPRESENTATIVE,
CONNECTICUT HOUSE OF REPRESENTATIVES
Mr. Donovan. Thank you, Chairman Johnson, nice to see you
again, and members of the committee.
Chairman Johnson, I want to thank you again for inviting me
here this morning. I want to say that I appreciate your candor
on the issue and I also appreciate your willingness to listen
to us on the issue, as well.
I'm certainly excited that the states and Federal
Government are taking a serious look at an issue dealing with
one of our, I guess, most precious institutions, which is the
family, and--a lot of noises here going on. I would certainly
say that precious institution is--time's up already. That
precious institution is going through a number of--is under a
lot of strain recently.
I guess that goes on forever.
Chairperson Johnson. Just ignore it.
Mr. Donovan. I'll try to ignore it, thank you.
Chairperson Johnson. Sorry. We don't--after the first bell,
it means we have 15 minutes to vote. So there will be another
series of bells and we will have ten minutes to vote.
Mr. Donovan. I'll talk as I can, ma'am.
Chairperson Johnson. And when I think that we really have
to go, we will suspend the hearing for a few minutes and leave
and come back.
Mr. Donovan. Thank you. As I said, the American family is
under a lot of strain during these times. I hear from young
couples who are trying to balance raising children, giving
birth to children, tough enough under two incomes, when one of
those individuals has to stay home, it's even tougher with a
loss of income.
I also hear from those families in so-called sandwich
generation who are also dealing with raising their children and
also dealing with aging parents.
So what do we do about this strain on our families? Well,
it's also an issue of time. Time has become a precious
commodity and for a lot of families, they just don't have it.
When I was a kid, Little League was where my family would
say go to Little League, get out of the house, we don't want to
see you. Now, Little League is I will make an appointment to
see you at Little League, if that's what time I will be able to
see you.
I think that's a shame. I think it has done harm to that
institution and we need to do something about it.
Also, the whole issue of paid family leave and family leave
is before us because there is a real need to have time to be
with our family members in time of need. Certainly, with the
birth or adoption of a new child, we all recognize that that's
a time for families to be together, but in some cases, they do
not have that ability.
I know a young woman who, after giving birth, she asked her
doctor when is she physically able to get back to work after
giving birth. The doctor said two weeks. She had to go back to
work after two weeks. She did not want to go back after two
weeks, but economically that was the only choice she had, to go
back to work.
Now, that time with her child cannot be replaced. That's
lost. But we can do something about it. Other countries have
done something about it. I think the President's proposal has
spurred the states to look at what we can do about it. It's not
a question, to me, of whether we should do it, but when we can
do it and how we can do it.
So as House Chair Labor Committee, I worked with my Senate
co-chair and this fall and winter, we held a series of
meetings, hearings, a task force that looked at the issue of
paid family leave. We heard from a number of groups, we heard
from children advocates, women advocates, business communities.
We heard from the sterling Professor Ed Zigler from Yale, award
winner, considered the father of Head Start, and he told us
about the need for families to be together at special times and
also the inability of families to be together.
We held hearings. We commissioned the UConn economists and
said give us a preliminary estimate of the costs of providing
paid family leave. And, finally, we voted out a bill just
Tuesday, in our committee, that would provide 12 weeks of paid
family leave for families for birth or adoption, as well as for
family needs.
As a part of that bill, for the parental needs, birth or
adoption, we utilized the unemployment insurance fund as the
funding mechanism, the funding stream, and we feel that is
appropriate. One of the reasons is, as stated earlier, our
state already allows individuals to receive unemployment funds
while not looking for work.
As stated earlier, our state allows workers who are
temporarily unemployed through seasonal shutdowns to collect
unemployment. According to the State Department of Labor, these
seasonal shutdowns, which may last as long as eight weeks, the
state does not pursue those workers to find out whether or not
they're looking for work. The state assumes that they are not
working and not looking for work and the company assumes that
they're not looking for work, because the company needs those
workers back once the down season is over.
They don't want to lose those valuable workers that they
trained to work for them.
We also allow for apprenticeships and job training, workers
involved in apprenticeships and job training, to stay on being
trained and educated and not find work. We want those workers
to be trained and to be able to make a living, a more decent
living than they did previous to job training.
Just last year, we passed a law that allows individuals who
fear domestic violence to leave their job and collect
unemployment. That law was signed by our Governor John Roland
and is in place today.
So individuals may temporarily leave the workforce,
voluntarily leave the workforce, for non-work-related issues
and we would still fund them through unemployment.
Also, we allow for individuals to quit their job and
receive unemployment to care for a seriously ill family member,
as well as if there is changing in the workplace, that are
serious enough to cause disruption in their own lives. For
instance, if there is transportation, unrelated to work, ends
to a certain area, that individual may be eligible for
unemployment.
Also, other industries in our state rely on unemployment as
a regular mechanism to keep that industry humming. The
construction industry relies on the building trades to be out
of work and collect unemployment when the job is done and be
available for the next job. Temporary agencies would be
devastated without an unemployment fund which pays people while
they're not working for the temporary agency.
So we've seen that and our state exemptions reflect some
state values that we have. One is we want the workforce to be
tied to the business, so we allow for temporary layoffs and we
want them to stay connected and just receive benefits for a
short period.
We also understand the need for training and how we should
make sure that people get the training and not jeopardize that
education or to get a better job, and we understand family
responsibility and caring for the sick family member, and also
family safety by providing for people to take domestic
violence.
People talked about our fund. Well, our fund had been in
trouble in the years past, but we've set up a mechanism whereby
we have instituted a solvency target for our unemployment fund,
and I would like to say that we have certainly reached that
target.
That target this year is for 448 million dollars. Our fund
has in it 838 million dollars. So we have 390 million dollars
over the target amount. During the last few years, employers
have received unemployment tax cuts of 275 million dollars,
almost a little bit less in tax cuts than is in access of the
solvency fund.
Also, as unemployment is going down, the experience rates
for employers is going down, as well. So employers have seen
decreases in their unemployment tax that continue to go down.
Why did we use unemployment insurance, beside the fact that
we have the funds available? It's a familiar system to both
employers and employees. We don't need to create a new
bureaucracy. It's already in place. People are familiar with
the procedures, the appeal rights, and it can be easily adapted
to add one more exception to the rule in terms of a value that
Connecticut holds, which is taking care of our families.
The Unemployment Insurance Compensation Act was passed in
1935, just 15 years after women received the vote, the ability
to vote in our country. Congress may have not had family issues
on its mind when it put together the unemployment insurance
fund, but the Congress did, in its wisdom, create the fund, but
left it to the states to administer.
And since that time, the states have implemented different
unemployment insurance policy. I think this is another. The
pattern has been the Federal Government sets the minimum
standards and states may expand on that, and I think the issue
of job training is exactly one. States had exemptions for job
training. The Federal Government had not. Then the Federal
Government adopted it and said all states must have exceptions
for job training.
I certainly welcome Congress to address this issue and I
will welcome--actually would love to see the Federal Government
pass a universal paid family leave system. But as you consider
that, don't hold back, I implore you, don't hold back the
states that are trying to relieve the strain on our American
families and working for proposals that would provide those
families with the needed time to be with their children, to be
with their family in time of need.
You only ground around this life once and if you miss those
opportunities, you'll miss them forever.
Thank you.
[The prepared statement follows:]
Statement of Hon. Christopher G. Donovan, Representative, Connecticut
House of Representatives
Good morning Chairwoman Johnson and members of the
Committee on Ways and Means, Subcommittee on Human Resources. I
want to thank you for inviting me here this morning to provide
testimony on the use of Unemployment Compensation funds to pay
for family leave benefits.
I am excited that our states and our federal government are
taking a serious look at proposals that would provide needed
support for our most vital institution. . .the American family.
The hardworking, productive American working family is feeling
the strain. Young working couples are finding it hard to afford
to stay home with their newborns. The sandwich generation is
balancing work demands while caring for their children and
assisting their aging parents. Time is a precious commodity for
American families these days and many just don't have it. No
time for the newborn, no time for the ill family member and no
time for family life. If one unforeseen problem occurs, the
balancing act collapses and misfortune falls on the American
family. Loss of wages, loss of a job, loss of a home, loss of
precious time with a loved one in their time of need-time that
can't be replaced.
We can bolster our American and Connecticut families with a
paid family leave system. All of Europe and Canada support
their working families and have been doing so for decades. We
can too. It's not a matter of should, but it's only a matter of
when and how.
In terms of the when. . .it can be now. President Clinton
has authorized the Department of Labor to draw up regulations
concerning the use of states' unemployment funds for paid
family leave. That action has spurred states like Connecticut
to consider initiating paid family leave proposals that
uniquely fit the needs and economic structures of that state.
These states are holding hearings, getting input and looking at
possible funding mechanisms and funding streams.
I am honored to serve the State of Connecticut as House
Chair of the Labor and Public Employees Committee and recently
the committee had the opportunity to listen to Connecticut
about the need for wage replacement for workers temporarily
leaving the workforce in order to care for a newborn, an
adopted child or a seriously ill family member.
We heard from the grandmother worried about her
granddaughter having the burden to care for her own children
and her at the same time. We heard from the young man who is
taking unpaid leave to care for his very ill mother. We heard
from the young mother, holding her squirming daughter, about
how difficult it was to make ends meet with one income in the
family. We heard from experts such as a professor from the
University of Connecticut who issued a report on the benefits
of paid family leave, and from Dr. Edward Zigler, Sterling
Professor of Psychology at Yale, noted child development
scholar and nationally recognized as the father of Head Start,
who elaborated on the societal benefits of family caring for
newborns and the necessity of paid family leave.
And we listened to business leaders who, though open to the
idea, were concerned about costs. So we charged economists at
the University of Connecticut to provide us with a preliminary
estimate of the cost for paid family leave proposals in order
to determine the expenses related to such a program. The cost
estimate was within a reasonable range of $2.08 to $75 a year
per employee. . .the cost of a cup of coffee a week or the cost
of paper towels in the company bathrooms.
I am here to report that on Tuesday of this week, having
listened to the testimony and studied the reports, our
committee submitted legislation and voted favorably to assist
Connecticut families by providing compensation for wages lost
when taking necessary parental and family leave.
Connecticut House Bill 5619, An Act Concerning Paid Family
and Medical Leave, provides up to 12 weeks of wage replacement
per year for workers temporarily leaving the workplace after
the birth or adoption of a child, for serious illness or to
care for a family member with a serious illness. A key
provision of this proposal is the use of Connecticut's
Unemployment Compensation Fund to provide benefits for workers
taking the leave to care for a child following birth or
adoption. I have enclosed the legislation with my testimony.
In Connecticut, using our democratic and legislative
system, state elected officials voted out a proposal that
includes the use of the unemployment fund for workers
temporarily leaving the workplace. I believe use of the UI fund
is appropriate and reflects both the original intent as well as
the ongoing understanding of the purpose of the fund.
Connecticut's unemployment fund already provides benefits
for workers who temporarily leave the workforce. For example,
companies that have seasonal shut downs must temporarily
displace their workers and rely on the unemployment system to
sustain those workers until work is resumed. Neither the
company nor the administrators of the fund wish those workers
to seek other jobs. The company needs those experienced workers
and expects them to return. It is understood that the
compensation is temporary and that the workers will return to
work. According to the Connecticut Department of Labor any
temporary layoff of 6 weeks or less is treated as a recall and
workers may collect benefits without looking for work.
Approximately 60,000 Connecticut workers receive benefits for
temporary layoff each year. Compare that figure with the much
smaller number of workers taking unpaid family leave in
Connecticut -20,000.
Here's another example: According to Connecticut law, a
worker is not disqualified for unemployment benefits if the
worker quits employment to care for a seriously ill family
member. However, the workers in this case cannot collect
benefits until they are ready, once again, to look for work.
This old-fashioned rule leads to the ironic result that while
the workers are considered justified in seeking unemployment,
they cannot collect it when they need it the most. We make
other important exceptions in determining eligibility: Just
last year, the Connecticut General Assembly passed legislation,
signed by Governor Rowland into law, that permits a worker to
quit a job and collect unemployment in order to avoid domestic
violence. In neither of these provisions is the employer
charged for the claimant's benefit.
Unemployed workers, engaged in approved training or
apprenticeships are also permitted to collect benefits and not
be required to look for work.
Other industries utilize the unemployment fund as a way of
business. The construction industry depends on workers in the
building trades collecting unemployment during slow times so
that they will be available to work. And the temporary
businesses would be decimated without a flexible unemployment
system.
Our state recognizes the value of these exceptions. These
provisions reflect our state's needs and values: keep good
workers linked to their jobs during temporary layoffs, allow
workers to obtain needed retraining skills, reflect family
responsibilities and provide for family safety.
Providing unemployment benefits so that a family member may
temporarily leave the workplace to care for a new born or
adopted child is consistent with other uses of the fund.
But what about drawing on the fund for family leave?
Connecticut's fund is solvent and can easily withstand the
drawing of benefits for parental leave. According to the
Connecticut Department of Labor, the Unemployment Insurance
Fund balance as of December 31, 1999 was estimated to be $838
million. The targeted fund reserve, the amount required by law
to be maintained in the fund, for the same period was $448
million, leaving $390 million over the target fund reserve
amount.
The preliminary estimate on the cost of parental leave is
approximately $40 million per year. Given these estimates,
Connecticut's UI fund could provide paid parental leave at no
cost to Connecticut employers.
In the past few years, Connecticut employers have received
big UI tax cuts-approximately $275 million dollars. As the good
economy rolls on, experience rates for companies drop as well.
Using the unemployment fund for paid family leave works for
Connecticut. It may not work for every state but it is an
option we have in our legislation. The UI system is familiar to
business and employee. We don't have to create a new
bureaucracy. The benefits are clear, the payment system is in
place and the overall system can easily be adapted for family
leave.
Unemployment Compensation was enacted in 1935, only 15
years after women permitted by our government to vote. But
although family issues may not have been on the minds of
Congress, it is clear that states were given the authority to
administer the fund. Since that time states have initiated many
additions to the program. The pattern has been that the federal
government sets minimum benefits and the states may expand on
those benefits.
Our country needs to support its working families. The
choice is ours. Do we ignore our common family experiences and
make no room for our newborns, no time for ailing parents or do
we develop a system that balances the needs of the workplace
with the responsibilities of being a family member?
I welcome Congress to devise such a system. As you consider
these ideas, please do not hold back those states, like
Connecticut, that are ready to experiment and implement
innovative strategies. We believe in and support our
hardworking, responsible American families.
Thank you.
State of Connecticut
General Assembly
February Session, 2000
Proposed Substitute
Bill No. 5619
LCO No. 2598
An Act Concerning Paid Family And Medical Leave.
Be it enacted by the Senate and House of Representatives in
General Assembly convened:
Section 1. Subdivision (4) of section 31-51kk of the
general statutes is repealed and the following is substituted
in lieu thereof:
(4) ``Employer'' means a person engaged in any activity,
enterprise or business who employs [seventy-five] fifteen or
more employees, and includes any person who acts, directly or
indirectly, in the interest of an employer to any of the
employees of such employer and any successor in interest of an
employer, but shall not include the state, a municipality, a
local or regional board of education, or a private or parochial
elementary or secondary school. The number of employees of an
employer shall be determined on October first annually.
Sec. 2. (NEW) (a) Effective July 1, 2001, any individual
who (1) meets the monetary eligibility requirements set forth
in chapter 567 of the general statutes, and (2) takes a leave
of absence from employment (A) in order to care for the spouse,
or a son, daughter or parent of the individual, if such spouse,
son, daughter or parent has a serious health condition, or (B)
because of a serious health condition of such individual, shall
be entitled to receive family and medical leave benefits from
the Family and Medical Leave Insurance Fund established under
section 3 of this act for a maximum of twelve weeks during any
twelve-month period, such twelve-month period to begin with the
first day of leave taken. For purposes of this section: (i)
``Parent'' has the same meaning as in subdivision (7) of
section 31-51kk of the general statutes; (ii) ``serious health
condition'' has the same meaning as in subdivision (10) of said
section 31-51kk; (iii) ``son or daughter'' has the same meaning
as in subdivision (11) of said section 31-51kk; and (iv)
``spouse'' has the same meaning as in subdivision (12) of said
section 31-51kk.
(b) Except as provided in subsection (c) of this section,
the weekly benefit amount of family and medical leave benefits
payable to an individual under this section shall be equal to
such individual's total unemployment benefit rate, calculated
pursuant to section 31-231a of the general statutes, plus a
dependency allowance in an amount equal to that provided under
section 31-234 of the general statutes, as amended by public
act 99-154 and public act 99-1 of the June special session.
(c) Any individual whose weekly benefit payable under this
section is less than forty-seven per cent, rounded to the next
lower dollar, of the average weekly wage of production and
related workers in the state, as determined by the Labor
Commissioner pursuant to subsection (b) of section 31-231a of
the general statutes shall be entitled to receive a weekly
benefit equal to the lesser of (1) one hundred per cent,
rounded to the next lower dollar, of such individual's total
weekly earnings, or (2) forty-seven per cent, rounded to the
next lower dollar, of the average weekly wage of production and
related workers in the state, as determined by the Labor
Commissioner pursuant to subsection (b) of section 31-231a of
the general statutes.
(d) (1) No individual may receive family and medical leave
benefits under this section for a week in which the individual
receives a wage replacement equal to or greater than the weekly
benefit provided by this section under any of the following:
(A) Any government program or law, including, but not limited
to, the unemployment compensation program established under
chapter 567 of the general statutes, the workers' compensation
program established under chapter 568 of the general statutes,
other than for permanent partial disability incurred prior to
the claim for family and medical leave benefits, or under other
state or federal temporary or permanent disability benefits
law, (B) a permanent disability policy or program of an
employer, (C) a temporary disability policy program of an
employer, or (D) a paid sick, vacation, family or medical leave
policy of an employer.
(2) For a week in which an individual receives a wage
replacement less than the weekly benefit amount provided by
this section, the individual shall receive family and medical
leave benefits equal to the difference between the weekly
benefit amount provided by this section and the amount of wage
replacement received by such individual.
(e) On or before January 1, 2001, the Labor Commissioner
shall adopt regulations, in accordance with the provisions of
chapter 54 of the general statutes, to establish procedures and
guidelines necessary to implement the provisions of this
section, including, but not limited to, procedures for the
filing of claims, procedures for hearings and redress and
procedures for the periodic reporting by employers to the
commissioner of their current experience with leaves of absence
taken pursuant to this section.
Sec. 3. (NEW) (a) There is created in the office of the
State Treasurer a special segregated fund to be known as the
Family and Medical Leave Insurance Fund. Said fund shall
consist of all contributions and moneys paid into or received
by it for the payment of family and medical leave benefits
pursuant to section 2 of this act, of any property or
securities acquired from the use of moneys belonging to the
fund, all interest earned thereon and all money received for
the fund from any other source. All moneys in said fund shall
be expended solely for the payment of benefits and expenses
provided for by section 2 of this act. The Labor Commissioner
shall maintain a separate record of the deposit, obligation,
expenditure and return of funds so deposited. The State
Treasurer shall be liable on the Treasurer's official bond for
the faithful performance of the Treasurer's duties in
connection with the Family and Medical Leave Insurance Fund.
All sums recovered on any surety bond for losses sustained by
the Family and Medical Leave Insurance Fund shall be deposited
in said fund.
(b) Effective June 30, 2000, and annually thereafter, the
Labor Commissioner shall determine the contribution rate for
each employer, except employers that secure family and medical
leave benefits for employees in any of the following ways:
(1) By insuring and keeping insured the payment of
employment leave benefits with a stock, mutual, reciprocal or
other insurer authorized to transact the business of disability
insurance in this state, provided the benefits under the policy
are at least equivalent to the benefits provided by section 2
of this act and such policy does not require contributions from
any employee or class of employees;
(2) By a private plan or agreement that the employer may,
by the employer's sole act, terminate at any time, provided the
benefits under the plan or agreement are at least as favorable
as the benefits provided under section 2 of this act and the
policy does not require contributions of any employee or class
of employees; or
(3) By any plan or agreement in existence by agreement or
collective bargaining agreement between an employer and an
employee organization, provided the benefits under the
agreement are at least equivalent to the benefits provided
under section 2 of this act and do not require contributions
from any employee or class of employees.
(c) All contributions made in accordance with subsection
(b) of this section and all other moneys payable into this
fund, upon receipt thereof by the Labor Commissioner, shall be
paid to the State Treasurer, who shall deposit them in the
Family and Medical Leave Insurance Fund.
(d) The State Treasurer, as treasurer of the Family and
Medical Leave Insurance Fund, shall, as directed by the Labor
Commissioner, requisition from the Family and Medical Leave
Insurance Fund such amounts, not exceeding the amount standing
to this state's account therein, as the Labor Commissioner
deems necessary for the payment of benefits in accordance with
section 2 of this act. Upon receipt thereof, the Treasurer
shall deposit such moneys in a depository designated by the
Treasurer in an account to be known as the family and medical
leave insurance account, from which account the Labor
Commissioner shall pay the benefits provided by section 2 of
this act. The Labor Commissioner shall be liable on the
commissioner's official bond for the faithful performance of
the commissioner's duties in connection with the family and
medical leave insurance account. All sums recovered on any
surety bond for losses sustained by the family and medical
leave insurance account shall be deposited in the family and
medical leave insurance account in the office of the State
Treasurer.
Sec. 4. (NEW) (a) In addition to the leave provided in
sections 5-248a and 31-51ll of the general statutes, an
employee shall be entitled to take unpaid leave not to exceed
four hours in any thirty-day period and not to exceed twenty-
four hours in any twelve-month period. An employer may require
that leave be taken in a minimum of two-hour segments and may
be taken for any of the following purposes:
(1) To participate in preschool or school activities
directly related to the academic educational advancement of the
employee's child, such as a parent-teacher conference;
(2) To attend or accompany the employee's child or the
employee's parent, spouse or parent-in-law to routine medical
or dental appointments;
(3) To accompany the employee's parent, spouse or parent-
in-law to other appointments for professional services related
to their care and well-being;
(4) To respond to a medical emergency involving the
employee's child or the employee's parent, spouse or parent-in-
law; or
(5) To respond to a medical emergency involving the
employee's child or the employee's parent, spouse or parent-in-
law.
(b) An employee taking leave under this section shall make
a reasonable attempt to schedule appointments for which leave
may be taken under this section outside of regular work hours.
In order to take leave under this section, an employee shall
provide the employer with the earliest possible notice, but in
no case later than seven days, before leave is to be taken,
except when the required seven-day notice could have a
significant adverse impact on the family member of the
employee.
(c) At the employee's discretion, the employee may
substitute accrued paid leave, including vacation, sick and
personal leave, for leave taken under this section.
Sec. 5. (NEW) (a) An individual who is on a leave of
absence from employment or who has left employment to be with
the individual's child during the first year of life, or during
the first year following placement with the individual for
adoption, shall not be denied unemployment compensation
benefits under the provisions of section 31-236 of the general
statutes, as amended by public act 99-123, for failing to
either apply for or accept available, suitable employment or
for voluntarily leaving suitable employment, provided such
individual is otherwise eligible to receive unemployment
compensation benefits under the provisions of chapter 567 of
the general statutes.
(b) Unemployment compensation benefits shall be payable
under chapter 567 of the general statutes to an individual who
is on a leave of absence from employment or who has left
employment to be with the individual's child during the first
year of life, or during the first year following placement with
the individual for adoption for a maximum of twelve weeks per
year. Such benefits shall be in addition to the maximum
limitation on total benefits set forth in section 31-231b of
the general statutes.
(c) The amount of unemployment compensation payable to an
individual who is on a leave of absence from employment or who
has left employment to be with the individual's child during
the first year of life, or during the first year following
placement with the individual for adoption shall be reduced by
the amount of the deductions specified in subsections (g), (h)
and (j) of section 31-227 of the general statutes and
subdivision (4) of subsection (a) of section 31-236 of the
general statutes, as amended by public act 99-123.
(d) Notwithstanding the provisions of section 31-231a of
the general statutes, any individual entitled to receive
unemployment compensation benefits under this section whose
weekly benefit is less than forty-seven per cent, rounded to
the next lower dollar, of the average weekly wage of production
and related workers in the state, as determined by the Labor
Commissioner pursuant to subsection (b) of section 31-231a of
the general statutes shall be entitled to receive a weekly
benefit equal to the lesser of (1) one hundred per cent,
rounded to the next lower dollar, of such individual's total
weekly earnings, or (2) forty-seven per cent, rounded to the
next lower dollar, of the average weekly wage of production and
related workers in the state, as determined by the Labor
Commissioner pursuant to said subsection (b) of section 31-231a
of the general statutes. Such individual shall not be entitled
to receive a dependency allowance under section 31-234 of the
general statutes, as amended by public act 99-154 and public
act 99-1 of the June special session, if the dependency
allowance plus the individual's total weekly benefit exceeds
such individual's total weekly earnings.
(e) No individual employer's experience account shall be
charged with respect to unemployment compensation paid to an
individual who took a leave of absence from employment or who
voluntarily left employment to be with the individual's child
during the first year of life, or during the first year
following placement with the individual for adoption.
(f) Each employer shall post at each site operated by the
employer in a conspicuous place, accessible to all employees,
information relating to the availability of unemployment
compensation to any individual who takes a leave of absence
from employment or who otherwise leaves employment to be with
the individual's child during the first year of life, or during
the first year following placement with the individual for
adoption.
(g) Not later than two years following the effective date
of this act, the administrator shall issue a report to the
Governor and the General Assembly evaluating the effectiveness
of making unemployment compensation benefits available to any
individual who takes a leave of absence from employment or who
leaves employment to be with the individual's child during the
first year of life, or during the first year following
placement with the individual for adoption.
Sec. 6. This act shall take effect from its passage.
Chairperson Johnson. Thank you very much, Representative
Donovan. We do only have about five minutes left, so I will
just ask one of two questions, and then we'll go. It will take
us quite a while, because we have two votes. So it will be
about a 20-minute break.
First of all, you mentioned that the law you passed has two
parts to it.
Mr. Donovan. That's correct.
Chairperson Johnson. And only the leave for the birth or
adoption of a child would be funded out of the unemployment
compensation system. And leave for other purposes would be
funded through what mechanism?
Mr. Donovan. We would set up a family leave insurance fund,
which would be a temporary disability insurance program. We
would like--I mean, we--
Chairperson Johnson. Would that be funded also through a
tax on employers?
Mr. Donovan. That would be funded through a tax on
employers.
Chairperson Johnson. Not general revenues.
Mr. Donovan. No. Tax for employers. Our understanding is
that given--using the access in the unemployment fund, at this
point, and the estimates from the University of Connecticut,
that the parental part of the paid family leave would
approximately be 40 million dollars.
So we could implement the paid family leave for birth and
adoption at no cost to employers for the next several years.
Chairperson Johnson. It's my understanding, I was very
pleased to hear that your unemployment compensation fund has
reached and exceeded its target. It is, however, my
understanding that you still owe the Federal Government 530
million dollars in unemployment compensation loans that you
borrowed during the early '90s recession. Is that not true?
Mr. Donovan. I don't believe that's true. I believe the
state actually took out bonds and paid the Federal Government.
So we have a bond.
Chairperson Johnson. Okay. I will restate that. You were
still paying on the bonds that you took out to repay the loans.
So you are still, in a sense, repaying the loan for the early
'90s recession.
When will you complete the bond repayments on that loan?
Mr. Donovan. My understanding is August of this year.
Chairperson Johnson. That's very good. It was originally a
530 million dollar loan, as I understand it. I have really just
two short questions. One you'll probably have to answer when
you come back.
Did the law you passed address any of the problems that
we're seeing in the Family and Medical Leave Act?
Mr. Donovan. The law--no, the problems that you brought to
us today, we did not address that.
Chairperson Johnson. Did you have any testimony on those?
Mr. Donovan. We had no testimony on the problems of the
current unemployment--the paid family medical leave.
Chairperson Johnson. Well, I pride myself on really
inclusive testimony, and you will see today that we are
covering the waterfront, and I would urge you to hold some
hearings and try to clean up the problems in the existing
program, because they are really real out there on the floor.
Mr. Donovan. Congresswoman, my answer to that is that our
hearings, different from this, is that we open it up to
everyone, everyone who signs may testify, and--
Chairperson Johnson. I can't believe then you didn't hear
any of the problems.
Mr. Donovan. And I am surprised, as well, and I don't know
why.
Chairperson Johnson. I'm seeing from some of the witness
that they feel they--
Mr. Donovan. I just want to say, too, that some of the
people who have spoken to me, actually some business people who
have come out and--who have come out and opposed it, have
pulled me aside and say personally they think it's a good idea.
Chairperson Johnson. See, I think that this is not about
the concept. This is about the functioning. That's why I'm
surprised that you didn't deal with the functioning, because
you can't have good policy without a workable system. I see
heads nodding when I say did the committee hear about the
problems. So I'm disappointed that you didn't actually address
the problems as well as new benefits. I'm disappointed in that.
Unfortunately, I now--
Mr. Donovan. The policy seems to be working fairly well.
Chairperson Johnson.--have one minute left to vote. Now,
there's always a two minute grace period, so I know what I can
do, but I do have to leave.
Mr. Donovan. Thank you.
Chairperson Johnson. Thank you.
[Recess.]
Chairperson Johnson. Thank you. I apologize for that
interruption. My colleague, Mr. Cardin, will be back in a
minute. But meanwhile, let me proceed with a couple of other
questions. Mr. Donovan, what are the usage statistics in
Connecticut?
In other words, we've now had a family leave policy in
place for a number of years. What percentage of that leave is
being taken for post-delivery for newborns and adoption, how
much of it is being taken for other purposes? Could you give us
that information?
Mr. Donovan. I don't have the actual figures, but I have
some round ballpark figures for you. The total number of leaves
in our state for family leaves is approximately 20,000 and
about a third of those are for birth and adoption.
I just want to add to that, too, is that when I mentioned
earlier about people taking temporary or recall unemployment,
that figure is 60,000. So three times as many people are on
unemployment temporarily under recall than take unpaid family
leave.
Chairperson Johnson. And the separate fund that's going to
fund the Family and Medical Leave Act, with the exception of
the birth and adoption, is going to be funded by new tax.
Mr. Donovan. Correct, by new tax, and we--
Chairperson Johnson. See, I think both Senator Gregg and
you are doing the right thing. If you have new benefits, you
should provide a new resource for payment of those benefits.
As to the state unemployment comp system, I've been
thinking over, during the break, your solvency target of $448
million. It is my understanding that the $530 million doesn't
represent the total cost of the recession in the early '90s,
but only that part that was eventually bonded by the
government.
Mr. Donovan. And, again, that will be--
Chairperson Johnson. What was the total cost, Mr. Donavan?
Mr. Donovan. The bonds that we had will be paid off this
August and--
Chairperson Johnson. Well, our information, what we were
told by the state is that they won't be paid off until November
of 2001.
Mr. Donovan. I think the last assessment is August.
Chairperson Johnson. The assessment, but the actual debt
will not be--
Mr. Donovan. The last cost to employers will be in August.
The last cost to employers will be in August.
Chairperson Johnson. I appreciate that, but the debt won't
be retired until November. It's odd to me that the last
assessment will be in August of 2000 and the debt will not be
retired until November of 2001. So I don't know, we'll find out
a little more about that.
Mr. Donovan. Okay.
Chairperson Johnson. But what was the total cost of that
recession to--what was the Reserve's and Connecticut's
unemployment comp system going into that recession and what was
the total cost to the state of that recession?
Mr. Donovan. Congresswoman, I don't have those figures. I
could get those figures for you. It was previous to when I was
at the General Assembly.
Chairperson Johnson. I would like to have those. I
appreciate that. I appreciate that, but as chairman of the
committee, I thought you might know.
The reason I ask that is because if 530 million is the
remainder and that's not actually going to be retired to the
Federal Government until 2001, it makes your solvency target of
448 million look not as powerful as it sounded to begin with.
I would note that in the President's own budget document,
he assumes that the unemployment rate will go up from 4.1
percent to 5.3 percent in the next three years. I don't know
whether you have factored any kind of increase in unemployment
into your estimates of fund solvency in the course of
considering this new benefit. Have you done that?
Mr. Donovan. Well, one of the things we have actually
simultaneous--there's a couple things going on, Congresswoman,
if I may. When we ran into the debt in the early '90s, we
instituted a new system that bases our solvency fund, the
solvency of the fund on a percentage of total wages. So if that
dips below--the fund dips below that, then there is an
assessment, and because of that, our fund is at a healthy--
Chairperson Johnson. I see. So actually you are funding the
extended benefit, the new benefit under the Family and Medical
Leave Act through this mechanism of an automatic increase in
assessment.
Mr. Donovan. Well, actually, there's two things, and it
actually relate back to an earlier conversation. Our committee
also voted out of committee a legislation that would raise that
percentage, understanding that percentage is not--
Chairperson Johnson. I see. So you actually are increasing
taxes on the unemployment comp fund as well as providing the
new taxes to support the new fund.
Mr. Donovan. It's a question of whether or not do we need
to do the taxes, but we certainly are raising what we can--
we're raising the target fund and we want to make sure of their
solvency.
Chairperson Johnson. You're raising the assessment, right.
Mr. Donovan. And I think I'd agree with you, we want this--
the unemployment fund to be solvent.
Chairperson Johnson. See, that is this committee's concern.
Mr. Donovan. Right.
Chairperson Johnson. You know, I myself have been a very
strong advocate of unpaid leave and I think we should be trying
to find a way to do paid leave. But I don't want to erode the
trust fund.
And what I hear you now saying is that Connecticut has a
mechanism that will automatically increase the assessment if
the fund gets below its solvency goal.
Mr. Donovan. That is correct.
Chairperson Johnson. So even though there will be a greater
drain now on the fund, the effect of that will simply be to
increase taxes sooner.
Mr. Donovan. It's possible. It's possible, absolutely.
Chairperson Johnson. It's not possible. Let's be real about
this.
Mr. Donovan. Well, no, right. If the fund--if the--
Chairperson Johnson. If you're going to pay more benefits--
Mr. Donovan. If the fund dips below that--
Chairperson Johnson.--you're going to need more--
Mr. Donovan. Absolutely. If the fund dips below that--
Chairperson Johnson. I just think you've got to be honest
about this stuff. Okay. Thank you.
Mr. Donovan. And if I may, too, the estimates on the costs
to employers for this system, the estimates are somewhere
around 50 to 75 dollars a year to cover both paid family leave
for birth and adoption, as well as family leave. So that's not
a whole lot of money in terms of--
Chairperson Johnson. I understand there are some questions
about those estimates, but I'm delighted to hear that it would
be that reasonable.
The other thing I just want to mention, some of us in
Congress have been looking very, very hard, because this issue
of parents and children is, in my estimation, as one who raised
my children and I'm a very, very active and involved
grandparent, an extremely important issue in our society.
Mr. Donovan. Right.
Chairperson Johnson. And my party has been very aggressive
in looking at how we change labor law to provide more
flexibility, so parents can be home with their kids and
actually have time off.
Mr. Donovan. I agree.
Chairperson Johnson. And be able to schedule far more
family hours. And I've been the chief sponsor of legislation
that would provide the same subsidy, tax subsidy to families
that stay home and take care of their children as we provide to
families that pay for out-of-home care, because that portion of
the tax law is all income-related.
I want to be sure that the same family earning the same low
income gets help to take care of their own children and that we
recognize the woman's work at home taking care of those
children in the same way we would recognize the cost of her
paying someone else to do it. I feel very, very strongly about
that.
Now, in your debates about this, as you thought about
giving people paid leave, did you think about giving people of
the same income also a benefit the first few months they're
home with their children? I mean, why should we be neutral
when--I mean, I also am prejudiced in this, I have children who
have decided to stay home to raise their children, and I can
tell you, living on one income when you have four boys is a
really, really hard, hard, hard, job, if your husband is in the
military, because that's not big salaries.
So did you at all think about giving--you have to do this
according to income, because, of course, there's no sense in
doing it without regard to ability to pay, but those young
families that are making the sacrifice not to work in order to
be with their children, are you giving any thought to how you
could give them the same benefit, as well? Particularly under
certain incomes.
Mr. Donovan. Madam Chairwoman, we did consider that and I
guess it's--I guess in the best of all worlds, we would really
take a stand and say we want to help every child, but the point
is the people who can't afford it right now are the people who
are not staying home. The people that can afford it--
Chairperson Johnson. See, that, I don't accept that, as a
woman. That is not a true statement.
Mr. Donovan. There are people--
Chairperson Johnson. I do say that I'm glad you thought
about it, but I think it's an extraordinary disservice to women
and children that we are thinking about this in terms of a
workplace issue. It isn't just a workplace issue, it's an
income issue. And those young kids who are sacrificing to live
on 25,000 a year with babies or 30,000 or 20,000 deserve just
as much help and support for those three months as some people
where they're working two jobs and between the two of them
they're earning 35, 40, 45,000.
Mr. Donovan. Our committee also voted out an increase in
the minimum wage, too. We're already at 6.15 and--
Chairperson Johnson. We're going to do that, too.
Absolutely.
Mr. Donovan. And we're looking to reach higher. So they can
afford it, as well.
Chairperson Johnson. But we are going to, and I wish you
would follow our lead on this, my boy, we're going to
compliment the minimum wage increase with tax breaks for small
business, because we don't want them to lay people off, because
you don't want to cost jobs for the very people you're trying
to help through a higher wage.
So I hope that more states will begin looking at combined
packages that compliment these things.
Mr. Cardin.
Mr. Cardin. Thank you very much, Madam Chairman. Mr.
Donovan, it's a pleasure to have you here and I applaud your
efforts in the State of Connecticut to try to provide some
response to these issues.
It's interesting. There's a lot of good intentions around
here and listening to the Chair, the reason we have a marriage
penalty today is because we try to provide some relief for
families where the non-income-spouse stayed at home. We thought
it was only right to try to divide the income.
We provided a bonus basically to encourage or to recognize
the economic contributions of mainly the mother, who stayed at
home and took care of the child.
We provided a bonus under our tax structure. As a result,
we now have a marriage penalty that's causing us all types of
grief here in Congress to deal with the unfairness associated
with getting married and paying more taxes, where both spouses
work.
So we have a lot of great ideas about promoting family
values, to make it easier for a family to make the right
decision concerning what's best for their family. It's driven,
in large part, by economics. You need income in order to be
able to raise your family today and the economic realities of
our current economy is that in most families, both spouses are
going to work.
And how do you deal with that? You want to have a child.
How do you deal with that time when that child is born? I'm
very proud of the Family and Medical Leave Act that we passed
in Congress, but it's unpaid. To the credit of the American
employers, most employers provide some form of paid leave.
That's good. But many employers do not.
And that's what this is about. It's to try to give the
State of Connecticut the ability to deal with the problems in
your state. And I do think it's difficult here for us to
develop a national policy as to how is the best way to deal
with some of these issues. The whole idea of Federalism is to
allow the states to try different ways to deal with a problem
and then for us to develop national policy as a result of that.
I think I might join Mrs. Johnson in criticizing the
Department of Labor and that is, I come at it from a different
point of view, Madam Chair, and I'm going to ask unanimous
consent that Senator Leahy's letter to the Department of Labor
be made part of our record and the Department of Labor's
response, because as I pointed out in my comments to Senator
Gregg, this came about as a result of states believing they had
the authority to do this, they didn't need anything further,
they were going to go enact.
They asked the Department of Labor for advice and
Department of Labor ruled against them and they had to come up
with a regulation in order to give them the authority.
I think I'm going to join with the Chair in criticizing the
Department of Labor for that ruling. It seems to me the states
had this authority. If a state could, for example, determine
that a worker who quits her employment to care for an ill child
may still be available for work during a different work shift,
could be done without a new regulation or a change in Federal
law, why couldn't the State of Vermont move forward and provide
unemployment insurance benefits for someone who is out of work
because of giving birth to a child.
So we might not have had this controversy here or this
hearing here today if the Department of Labor made a ruling
that was a little bit more progressive in allowing our states
to deal with these issues.
But we are where we are and it's clear that the State of
Connecticut wants to take advantage of this additional
flexibility. You're moving forward with legislation to deal
with that, and I really do applaud you for that.
I know my own State of Maryland is interested in this
authority, we know the State of Vermont is interested in this
authority. There's clearly an interest out there to use these
different tools.
Mr. Donovan, I was very impressed by one statement you
made, that this mechanism is already in place. You have an
appeal process, you have a way in which the benefits can be
given easily. You don't have to set a new bureaucracy. There's
no problem with enforcement or making sure the benefits go to
the people who are entitled to it.
I mean, you have that structure in place and that has to
save you a considerable amount of resources by using the
current unemployment insurance system rather than developing a
whole new structure to deal with compensating people who are
out on maternity leave.
Mr. Donovan. Thank you. And I think, again, that makes
sense economically. I would refer to your earlier statement,
too, should this--had this ruling not been put out first, we
may have put our whole bill under the unemployment system, but
this bill was tailored with the proposal before us.
Mr. Cardin. And you have divided it. You're suggesting,
under this authority, that part will go under the unemployment
insurance system--
Mr. Donovan. That's correct.
Mr. Cardin.--and some will be using other resources.
Mr. Donovan. That's right.
Mr. Cardin. To deal with it.
Mr. Donovan. Yes.
Mr. Cardin. And that seems to make the most sense for the
State of Connecticut. It may not for the State of Vermont or
Maryland.
Mr. Donovan. It may not, right.
Mr. Cardin. Thank you very much, Madam Chair.
Chairperson Johnson. Thank you. Mr. Foley.
Mr. Foley. Thank you, Madam Chairman. How long was the last
recession in Connecticut?
Mr. Donovan. I don't--I don't know exactly the numbers. I
was a participant in it, so I would say it was a number of
years, started around 1990 and ended up probably 1996. But I
can't--
Mr. Foley. And the question posed by the Chair, you are
just now getting out of arrearages from paying off that debt to
the Federal Government.
Mr. Donovan. Actually, just, again, a correction, the state
paid that debt off in bonding and actually we're repaying
bonds.
Mr. Foley. You transferred liabilities. You still have a
liability to the system and it took from '95, let's say, when
the economy improved, to the year 2000-2001 to satisfy that
obligation.
Mr. Donovan. There were schedule payments and those
payments are following the schedule that was set up, and in the
meantime, the employers have seen a 275 million dollar decrease
in their unemployment taxes simultaneously.
Mr. Foley. Have you looked at projections of how long this
economy will last or are you doing the kind of projections most
of us in Congress do, it's going to go on forever, happy days
are here again.
Mr. Donovan. Well, happy days are here again, but also, at
the same time, I think the issue here is is family leave
important for us and if it--and I say it is. I think families
do need to spend time, like every other country in the world
pretty much has a system, and how do we then fund that system,
and the unemployment fund seems to be an appropriate one, at a
cost of--for the family, the parental and--the parental leave,
at a cost of, again, somewhere around, I would say, 25 dollars
a year per employee.
So if that is funded with--works within the unemployment
system, it seems that can be a minor cost that would provide a
wonderful, wonderful benefit for the families of the United
States.
Mr. Foley. You, in your bill, indicate it has to be for
employees of 15 or more. Are those under 15 not as important in
the family aspect?
Mr. Donovan. Actually, it--I mean, again, we tried to pass
legislation--and actually there's two parts to that. The 15 or
more--currently, as you know, the Federal Government allows--
requires employers that have 50 or more employees to provide
job protection benefits under family leave legislation. So we
go--we include more employees under that protection.
So those employees of 15 or more--employees in a business
with 15 or more employees would have job protection under
family and medical leave, but we offer the benefits to every
employee who is eligible for unemployment.
So whether or not you were in a 15 or more, if you were in
a business of less than 15, that individual may say I'm not--it
is important for me to be home with my child, I know you can't,
say, hold my job, but I need the benefits. So every individual
who qualifies for unemployment will be eligible for the
benefit, but may not be eligible for the job protection.
Mr. Foley. How do you determine the composition of a
family? Would a man and woman living unmarried qualify? Would
two men living together qualify in domestic partnership?
Mr. Donovan. The state has--it would be the definition
under the Family and Medical Leave Act, as we determined it,
and I'd have to review those statutes. But it's something
that's been in place for a while.
Mr. Foley. Because it talks about parenting laws, it talks
about spouses, it talks about an employee's parent, an
employee's child, and obviously today families are different,
but they do have children, they may be natural birth children.
Mr. Donovan. Right. In terms of family illness, it is
someone who is--a family member who--I guess I don't--I don't
have the actual statutes in--
Mr. Foley. That's what I'm getting at. It's going to be so
convoluted. We're trying to expand the benefits. Unemployment
compensation, and I'm a former small business owner, was
designed for the fact when you have a stalling economy or you
lose your job, there is a safety net.
As you expand the pool of those available in the resource,
you diminish potentially, in a devastating economic period, the
capability of the fund to provide the benefits.
So my concern is when you redefine or add new beneficiaries
to the pot of money available, you say 20,000 added to the 60,
that's 80, that adds, if you will, a liability to the fund.
Now, I, as the employer, am either going to have to raise
rates and let's just say in two years, due to the new internet
economy that everybody's praising, Connecticut suffers tragic
job loss, because everybody's doing it on the internet, nobody
is going to the mall, the retail stores, they're all Yahoo.com,
excitedly buying products and not shopping in the malls.
You have a huge layoff. You now have an added burden of
additional categories added to the list and I'm not certain how
you fund it. If it's taken five-plus years to get out of the
last recession and pay the benefits, I guess I'm--what concerns
me most about all of us in government, we forget the banking
scandal of the late '80s and '90s and assume we'll never have
one again, and we forget the recession in the northeast, where
I come from, and assume now that we've got a few bucks extra,
we can do all these wonderful things.
Well, someday soon we are probably going to see the market
drop well below 10,000, maybe 8,000, layoffs will be certain,
and all of a sudden, the funds that had so much solvency will
now be in arrearance, and you, as a member of the legislature
in Connecticut, are going to have to rapidly raise rates,
borrow more money, put your own debt rating in crisis based on
those scenarios.
I applaud an attempt to try and find a workable solution,
because I agree, there's a problem at home, your family member
has a catastrophic illness, you cannot make clear decisions.
It's to be at that level which is your most important calling.
But I just want to make certain we set up the right and
appropriate mechanism and not put onto a, if you will, already
burdened system. Yes, it's flush with cash, but I can remember
being in the Florida legislature in '92 trying to figure out
how do we make certain we are, in fact, solvent for the next
potential recession, and I'm afraid this opens up Pandora's Box
and you will have a hard time having your UC company describe
for you what is a family today.
Mr. Donovan. If I may, on those two issues, and I think
that's the beauty of kind of the combination combining family
medical leave with unemployment.
Under unemployment, we allow individuals to take time off
to care for a seriously ill family member. That is established,
it's been working within our state for years. So we know what
that is. I don't happen to know it, I'm not the unemployment
comp administrator, but we've worked that and it seems to be
working fine. I haven't heard any complaints from anybody.
As well as we have the family medical leave, which also
deals with family issues, people taking that leave. So that has
been working well, too.
So that's the beauty of combining the two in some respects,
but thank you, I appreciate your comments.
Mr. Foley. Thank you, Madam Chair.
Chairperson Johnson. Thank you, Congressman Foley. Mr.
McCrery.
Mr. McCrery. Representative Donovan, who would administer
the program in Connecticut?
Mr. Donovan. Under our proposal, it would be administered
through the Department of Labor.
Mr. McCrery. So through the current unemployment comp
offices.
Mr. Donovan. That is our hope.
Mr. McCrery. Employer services or employee services
offices.
Mr. Donovan. Correct.
Mr. McCrery. Are you not concerned that that's going to add
to the administrative burden of the offices that have already
been shortchanged by the Federal Government for several years
in terms of getting back tax dollars that you send?
Mr. Donovan. Certainly, I understand that. As part of the
proposal, there will be some administrative funds available to
states that utilize the unemployment mechanism, and that would
be helpful, but I guess it keeps--and actually, it was funny,
flying down here, I met--I was with some representatives of the
Department of Education from the State of Connecticut. They're
down here looking to see if they can bring some funds back, as
well.
So that's always--whenever you see us down here, we're
looking for money, and we're trying to bring some of our tax
money back. And it is always a concern, but I guess what I just
keep coming back to is if this is something that is valuable to
our state and country, we need to figure out the best way to do
it, and I think doing it through an already established system
is better than creating a new one.
Mr. McCrery. What percentage of employers in your state
currently provide paid leave?
Mr. Donovan. Actually, we have asked the industry to give
us that. We don't know at this point. And we have, as part of
our legislation, if you are an employer that provides paid
family and medical leave for your employees that at least match
the benefits, then you do not have to participate in the other
program. We want to reward those good kind of companies that
provide that for their employees.
Mr. McCrery. What do you mean you don't have to
participate?
Mr. Donovan. You don't have to contribute to the other
fund.
Mr. McCrery. You set up a separate fund to fund this?
Mr. Donovan. There's two--because of the regulations, we
set up--if I may be clear. For birth and adoption, under
unemployment, and other family, serious illness, to care for a
serious illness, et cetera, that's done through a family leave
insurance fund.
Mr. McCrery. Well, if you have a high percentage of
employers that provide paid leave, which I suspect you do in
Connecticut, are your estimates of costs to the remaining
universe of employers take into account that you might have a
very small universe of employers that would have to pitch in
for this?
Mr. Donovan. I don't expect it to be a very small universe
of employers. We have a number of large employers that provide
benefits, but we also have a larger number of people who do not
receive the benefit. So it depends on number of employers
versus number of employees.
Certainly, by pooling it, an individual would be able to--
that employer would be able to have--would have to pay less for
their employees than if they did it on their own. And again,
I've said to some smaller employers, if you have a valued
employee that you want and you know needs to take a break to be
with their family, and you agree with that, you cannot afford,
as a small employer, to pay them for 12 weeks of paid leave,
but you probably could afford 65 dollars for that employee,
which would be the cost of paid family leave for that
individual, 65 a year, and that's the cost to them.
Mr. McCrery. If that's the cost to an employer and I'm an
employer who currently provides paid leave, it seems to me that
I'm going to quit providing paid leave and just go under the
state program.
Mr. Donovan. Certainly, if you--you could do that.
Mr. McCrery. It would be a lot cheaper, wouldn't it?
Mr. Donovan. It could be cheaper and we have it built in
that you could then, as well, add additional benefits, if you
desire, above the minimum.
Mr. McCrery. So--
Mr. Donovan. So it may be a savings to you.
Mr. McCrery. Yes, probably. And if so, then you're probably
going to have a lot of employers, in fact, most employers
saying I'm getting out of the business of providing paid leave
and getting under the state program. So essentially you're
going to be replacing private dollars that are doing good right
now with public dollars.
Mr. Donovan. And I would say, I would agree that's true. If
every--if private dollars took care of the problem, we wouldn't
be here today.
Mr. Cardin. Would the gentleman yield just on that point?
Mr. McCrery. Sure.
Mr. Cardin. Just so I understand it. The program you're
talking about has little to do with the regulation that was
issued by the Department of Labor. You're dealing with that
part beyond maternity.
Mr. Donovan. That is correct.
Mr. McCrery. But what the regulation would do is give the
option to the states to create a program using the UC system.
Mr. Cardin. If the gentleman would yield. As relates to a
parent for a child, delivering a child or adopting a child, if
I understand the Connecticut proposal, it's providing
additional paid leave under the Family and Medical Leave Act
beyond just giving birth or adopting a child that is not really
dealt with in the regulation of the Department of Labor.
Chairperson Johnson. Just to clarify--
Mr. McCrery. It's the same concept, though.
Chairperson Johnson. Just to clarify, they do have a two-
tiered program, and so the benefits that are not related to
birth or adoption are paid for now with a new program that has
come out of the committee and funded by new tax. And what I
hear you saying, Mr. Donovan, is that an employer who already
pays those leaves would not have to pay that new tax.
Mr. Donovan. That's correct.
Chairperson Johnson. I think Mr. McCrery's point is he'd be
dumb not to pay the tax, it's a lot cheaper than paying the
benefits.
Mr. Donovan. And that's--
Chairperson Johnson. Right. But I think the other half that
Mr. McCrery is getting at is the half that pays the
unemployment--that makes the payments for the paid leave for
birth. That's a third, according to you, of the people who use
paid leave.
For that, the employer cannot avoid the increase in
unemployment tax that will come from the increased demand for
benefits.
And so he would really almost have to stop his own paid
leave program because he's going to be paying through the state
for the state paid leave program. So you're really forcing
anyone, in their right mind, especially an employer of 16, 17,
18, 19, 20 and 30 employees, to get out of any paid leave
program they already have.
Mr. Cardin. Again, just to complete that, if I might, just
for one minute, I'd like to have you respond, if the gentleman
would continue to yield.
Mr. McCrery. Sure.
Mr. Cardin. If the regulation were not issued and you did
not have the authority to use the unemployment insurance
system, following the Chair's initial comment, Connecticut
could still move forward with this program under the separate
tax proposal, including all the benefits.
But then I would suggest the gentleman's comment from
Louisiana is accurate, almost all employers may very well drop
all of their paid maternity benefits and go into the new state
program, and I question whether that's good or not, but it
would be up to Connecticut to make that judgment, as is
Connecticut now under the new authority offered by Department
of Labor has decided to use some unemployment insurance and
some separate program.
Mr. Donovan. Right. Now, if I may generalize, those
employers that pay a good wage to their employees also pay--
have good health insurance and also provide paid leave
benefits. It's the businesses that maybe can't afford a decent
wage or higher wage, cannot afford medical benefits and maybe
cannot afford to provide paid leave, but understand that these
are important issues for our country and our families, and
maybe a universal system for those companies where they can
afford it for those employees would be a good thing.
Mr. McCrery. I just to conclude. That's the question.
Mr. Donovan. Yes, sir.
Mr. McCrery. And you make my point. I think that is exactly
what Connecticut would end up with, is a universal system
funded through the tax system, rather than employers providing
benefits for their employees in order to make their place of
work competitive and attractive to potential employees, and
that is a fundamental question that I think you need to think
about.
Mr. Donovan. Thank you.
Chairperson Johnson. Mr. Camp.
Mr. Camp. Thank you, Madam Chairman. I just want to take a
minute and associate myself with your remarks, particularly on
the area of stay at home spouses, that I think we have a
growing inequity there and I think we have to watch that very
carefully.
But my main point I'd like to make is I am concerned about
the integrity of the unemployment compensation trust fund under
this proposal, and the reason is I come from a state, I come
from Michigan, we have a cyclical economy and my district is
about the size of Connecticut.
So we have a much larger state, a much more complex state,
I think, in terms of its economy, and we have had a cyclical
economy there in the '50s, in the '70s and the in the early
'80s. And under Federal law, when unemployment rates go very
high and the trust funds are depleted, you're required to
borrow money. Our state had to borrow 2.6 billion dollars,
mandated by Federal law.
It took us years and a change of administrations to get out
of it. We're finally out of it and we have a surplus in our
fund.
But I worry about the integrity of this fund, which was
created to help those who were involuntary unemployed, and that
eroding it, however positive and well meaning your intentions,
could jeopardize not only the people who find themselves
unemployed, but if we get into bad times, would require then
states to borrow money and then higher taxes on employers and
job creators, and, therefore, less jobs being created.
I think it is a very--I mean, I think we have to have a
real concern here and not just do the feel good stuff, which we
all admire and I think it's great there is a debate going on
here, but I am very concerned about the integrity of these very
important funds.
We've seen bad times in our country and in our states and
Michigan is one that is very cyclical and I just want to make
that comment, that I think we have to be very concerned about
it.
Chairperson Johnson. Well, I thank you for your testimony,
Representative Donovan. I am pleased that you have funded both
sets of benefits. It would be better if they were all funded
under the same plan so people could see that.
Mr. Camp's comments about the erosion of the fund are our
concern. Since you have an automatic tax increase, it will be
less of a problem in Connecticut, but not all states have that,
and not all states raise taxes when their unemployment fund
goes belly up.
If we could guarantee that every state that was going to
expand their fund would expand their taxes, that would be a
different matter, but that has not been the history in this
area and our concern is with the solvency of the fund.
I know you have an Office of Fiscal Analysis, having been
one of the legislators in the State Senate that helped create
it many years ago. Have they done a fiscal note on your bill
yet?
Mr. Donovan. Madam Chairman, no, they have not. The bill,
as you remember, the way that we do it here, the bill goes out
of committee, the bill is now sent to the floor of the House
and we'll get a fiscal note, and so everybody can see what
we're looking at.
Chairperson Johnson. If you would be so kind, I would like
a copy of that fiscal note, and if you could provide my office
with the name of the person in the Office of Fiscal Analysis,
because I want to see whether their fiscal note--down here, the
fiscal note would say this is the cost and then this is the
expected behavioral response and, therefore, the additional
cost of the employers who are now providing paid leave, that
shift onto the public burden.
So I am very interested in the cost analysis of the Fiscal
Analysis Department.
Mr. Donovan. I'll be happy to get that to you.
Mr. Cardin. If I might, Madam Chair, just very briefly,
particularly with Mr. Camp still here. I think we all share the
same concern about the solvency of the unemployment insurance
funds and the unpredictability of what could happen in the
future.
That's why we've had a hearing just last week on Mr.
McCrery's legislation to devolve the administrative issues. I
expressed concern at that hearing mainly because I think you
need to have a stronger backstop at the Federal level to deal
with extended benefits and to deal with the administrative
costs when the states are not going to be able to deal with it
during a recession.
But Mr. Camp raised a very interesting point about the
State of Michigan. Well, Michigan has cut its taxes on its
employers because of the fund's balances. According to the
information we have, the overall unemployment insurance cost
for Michigan businesses has been cut by 750 million over the
last five years. So it's one thing to say that you're
interested in preserving the solvency of the trust fund.
It's another thing to say that states are taking action to
reduce the burdens on employers, properly so, properly so
because we're going through a strong economic period, and the
reserves are getting larger and larger. I don't disagree with
that.
We are getting close to repealing the .2 percent FUTA tax
here for the same reasons. That's understandable. But to say
that providing benefits for people who are taking care of a
newborn child is all of a sudden going to create the
insolvencies of our trust funds, I think, is just taking this a
little bit too extreme, and I applaud the State of Connecticut
and Mr. Donavan for your efforts, and I think it's very
interesting.
The part that's under the unemployment insurance is not a
discretionary program for the employer. The employer can't opt
out of that. So Mr. McCrery's point about employers dumping
their benefits in order to get into a new state program, they
can't do that on the unemployment side. They have to stay
within the unemployment insurance side.
I expect that's one of the reasons why Connecticut wants to
use the unemployment insurance system for the benefits for a
newborn child or an adopted child, because that is going to be
uniform for all employers. It's also rate-sensitive to
experience, so you are rewarding those employers that have paid
maternity leave.
So I guess it's difficult for us sitting in Washington to
find a solution. I go back to the whole concept of Federalism.
Way back when, when President Reagan--during President Reagan's
years, I served on a national commission, as a state
legislator, I might say, on the National Commission on
Federalism. At that point, we pushed very heard to allow states
to have the ability to try new programs, to try new ways to
deal with problems that are in our community.
We have a changing society. Why are we so afraid of giving
the states the ability to experiment? That's the whole concept
of our country.
So, Mr. Donovan, I thank you for taking the time. I know
you're in session, and so you gave up some votes in the
Connecticut Legislature to be here, and I thank you very much,
because I thought it was extremely helpful to our committee.
Chairperson Johnson. Thank you.
Mr. Donovan. Thank you.
Chairperson Johnson. And I am pleased that actually this
hearing demonstrates that Federalism works, that you can set up
this independent family leave program and you could have easily
put the other benefits into it. From a national perspective,
there are grave dangers in how states might do this.
It is my pleasure to call next our Deputy Assistant
Secretary of Employment and Training, Raymond Uhalde, the U.S.
Department of Labor. Thank you for being with us, Mr.
Secretary. And you have with you Ms. Kilbane.
Your testimony will be entered in the record in its
entirety, and we look forward to your comments.
STATEMENT OF RAYMOND J. UHALDE, DEPUTY ASSISTANT SECRETARY,
EMPLOYMENT AND TRAINING ADMINISTRATION, U.S. DEPARTMENT OF
LABOR
Mr. Uhalde. Madam Chair and members of the subcommittee,
thank you very much for this opportunity to testify on the
proposed birth and adoption unemployment compensation
experiment, a proposed rule change designed to permit
interested states to experiment with using the unemployment
compensation program to provide partial wage replacement to
parents on leave following the birth or adoption of a child.
Within the Department, Madam Chair, we refer to this as
Baby UI, so if I slip into that verbiage during the testimony,
I apologize.
The Department of Labor believes this proposed experiment
is important to parents trying to balance work and family
responsibilities. As you know, the Department published a
notice of proposed rulemaking last December, seeking comments
on this proposed experiment from all interested parties.
In the interest of time, I will go directly to the
discussion of the proposed rule and just point out to the
committee that Grace Kilbane is accompanying me and she is the
administrator of the office work for security.
Because of the dramatic changes in the workforce and the
economy and the interest among state legislators, worker
advocates, members of Congress and the President, the
Department has proposed allowing states, that choose to do so,
to implement an experiment to use UC as a means for providing
partial wage replacement to employees who desire to take
approved leave or otherwise leave their employment following
the birth or placement for adoption of a child.
To accomplish this, the Department is exercising its
authority to interpret Federal unemployment compensation law
and specifically is extending its interpretation, that workers
be able and available to work in order to collect benefits, to
include new parents.
The Department's birth and adoption proposal is designed to
test whether expansion of this able and available
interpretation to include new parents would promote a continued
connection to the workforce for parents who receive such
payments.
The initial time period during which a new child is
introduced into a home and how that child's care will be
assimilated into the working lives of families is critical. It
is during this period that secure emotional bonds are formed
between children and their parents. It is also during this
period that a system of child care, which will foster the
parents' availability for work, can be firmly established.
These requirements are universal when any working family
has a new child. Addressing these needs is fundamental to
helping families flourish and also connected to sustaining a
stable workforce.
For the above reasons, the Department believes these
parents are an appropriate focus of an experimental extension
of the able and available requirements. Due to this
experimental nature, the proposed expanded interpretation of
the Federal able and available requirements would apply only to
birth and adoption UC. This experiment would build on past
Department interpretations that said, under certain
circumstances, workers need not meet the classic definition of
being ``able and available for work'' to receive benefits.
For example, all states now treat individuals in training
approved by the state agency as meeting the able and available
requirements. The rationale for this interpretation is that the
best route to a strong labor market attachment for these
workers is to acquire new skills through training.
In 1961, the Department interpreted Federal law to permit
states to allow workers to participate in training while
receiving benefits. This strategy was so successful that the
Congress subsequently amended the law in 1970 to accommodate
worker training.
Under our proposal, state participation in this experiment
is wholly voluntary. A state choosing to implement birth and
adoption UC will need to amend its UC law to provide for these
benefits. For guidance purposes, the Department developed an
optional model of state legislation and a commentary on the
model legislation and policy issues. Both were appended to the
notice of proposed rulemaking.
The model state legislation is just that, a model, and in
most cases, the proposed rule is structured to provide states
with the same flexibility they have in other UC program areas.
Some critics of the proposal have argued that Federal law
requires UC recipients to be involuntarily unemployed to
qualify for benefits and that this experiment violates this
requirement by allowing states to provide benefits to
individuals voluntarily leaving employment to be with their
newborns or newly adopted children.
The Department does not interpret Federal law to require
states to disqualify individuals who voluntarily leave their
jobs. For example, some states allow the payment of UC benefits
to individuals who quit their jobs to accompany spouses who
have been transferred to other locations.
Another concern has been raised by some critics about the
impact of the proposal on the solvency of the state
unemployment trust funds. While the Department is concerned
about trust fund solvency and the Department and the
Administration have proposed legislation which includes an
incentive for states to make progress in this area, we fully
expect that a state would be prudent in its decisions and would
not enact changes without first assessing the effect on the
solvency of its unemployment fund. Each state has the
responsibility to assess the cost to its unemployment fund
whenever coverage, benefit expansions or tax changes are
considered within the UC program.
The NPRM for birth and adoption UC was published in the
Federal Register December 3, 1999, with a 45-day comment
period. We believe this period was ample because of the simple
nature of the experiment, and the relatively short length of
the proposed rule. Although, we did receive a number of
requests for additional time. Because the proposal was a new
one and to accommodate the holiday season, we decided to extend
the comment period 15 days, which comports with the President's
Executive Order encouraging agencies to allow a 60-day comment
period, whenever possible.
The Department received over 3,700 timely responses to the
NPRM and we are in the process of reviewing and considering all
the comments. Comments are roughly evenly divided for and
against.
We will then draft the final rule and obtain the necessary
Administration clearances, a process which we anticipate will
allow for publication in late spring.
In closing, we note that state interest in birth and
adoption UC proposals continues this year. In fact, bills have
been introduced in over a dozen states to implement birth and
adoption UC. While not all of these are likely to be enacted,
we are very excited about this opportunity to explore new ways
to support families, balancing responsibilities at home and at
work.
Madam Chair, this concludes my formal remarks and I'll be
glad to respond to any questions you or the subcommittee may
have.
[The prepared statement follows:]
Statement of Raymond J. Uhalde, Deputy Assistant Secretary, Employment
and Training Administration, U.S. Department of Labor
Madam Chairwoman and Members of the Subcommittee:
Thank you for the opportunity to testify on the proposed
Birth and Adoption--Unemployment Compensation program--a
proposed rule change designed to permit interested States to
experiment with using the unemployment compensation (UC)
program to provide partial wage replacement to parents on leave
following the birth or adoption of a child. As you know, the
Department of Labor published a Notice of Proposed Rulemaking
(NPRM) last December seeking comments on this proposed program
from all interested parties. The NPRM generated considerable
response from the public.
I will begin by providing some background information which
may be helpful to the Subcommittee in understanding why the
Department of Labor believes this proposed program is important
to parents trying to balance work and family responsibilities.
With me today is Grace Kilbane, Administrator of the Office
of Workforce Security.
Background
There have been dramatic changes in our society, the
economy, and the workforce since the UC program was designed in
1935. One of those changes is the tremendous increase in women
who work outside the home. Today, almost 60 percent of mothers
with children under the age of one are in the work force.
Evidence suggests that children who have bonded strongly with
their parents early in their lives tend to be healthier both
emotionally and physically. Working parents who are able
financially to take leave from their jobs can spend this
critical time with their children. Yet, too many parents cannot
afford to do so. According to the Commission on Family and
Medical Leave's report ``A Workable Balance: Report to Congress
on Family and Medical Leave Policies,'' nearly two-thirds of
employees who did not take leave to be with their newborns
cited lost wages as the primary reason.
According to the International Labor Organization, more
than 120 nations around the globe provide paid maternity leave
by law. This includes most industrialized countries except for
the United States, New Zealand, and Australia. The United
States is the only country in the North American continent that
does not provide paid maternity leave to its female workers. I
do note that six States and territories provide for paid
maternity benefits through State Temporary Disability Insurance
(TDI) programs.
Interest in expanding the UC program to these workers began
to manifest itself in 1997 through bills introduced in several
State legislatures on a wider issue of family and medical leave
benefits within the UC program. Interest was also expressed by
members of the Congress and worker advocates. Accordingly, the
Department of Labor began to analyze whether we could expand
our interpretations of UC laws to accommodate State interest in
providing such benefits.
On May 23, 1999, in a commencement address at Grambling
University, the President announced that he would be asking the
Secretary of Labor to propose regulations allowing States to
use unemployment fund moneys to provide partial wage
replacement to mothers and fathers on leave following the birth
or adoption of a child, and an Executive Memorandum to this
effect was issued on May 24, 1999.
Notice of Proposed Rulemaking
The Department of Labor has proposed allowing States that
choose to do so to implement an experimental program to use UC
as a means for providing partial wage replacement to employees
who desire to take approved leave or otherwise leave their
employment following the birth or placement for adoption of a
child. To accomplish this, the Department is exercising its
authority to interpret Federal UC law, and specifically is
extending its interpretation that workers be able and available
to work in order to collect benefits to include new parents.
The Department of Labor's proposed experimental Birth and
Adoption-UC program is designed to test whether expansion of
this able and available interpretation to include new parents
would promote a continued connection to the workforce for
parents who receive such payments.
As the number of families with both parents working rises,
the need to test this interpretation increases, and collecting
data under the Birth and Adoption-UC program to test the
existence and magnitude of this group's connection to the work
force, is increasingly important. Indeed, much in the same way
that providing training to laid-off workers enhances their
connection to the workforce by making them more marketable, the
Department of Labor wants to test whether providing parents
with Birth and Adoption-UC at a point during the first year of
a newborn's life, or after placement for adoption, will help
employees maintain or even promote their connection to the
workforce.
The initial time period during which a new child is
introduced into a home, and how that child's care will be
assimilated into the working lives of the parents, is critical.
It is during this period that secure emotional bonds are formed
between children and their parents. It is also during this
period that a system of child care, which will foster the
parents' availability for work, can be firmly established.
These requirements are universal when any working family has a
new child. Addressing these needs is fundamental to helping
families flourish and is also connected to sustaining a stable
workforce.
For the above reasons, the Department of Labor believes
that these parents are an appropriate focus of an experimental
extension of the able and available requirements. Due to the
experimental nature of this program, this proposed expanded
interpretation of the Federal able and available requirements
would apply only to Birth and Adoption-UC.
This experiment would build on past Department of Labor
interpretations that said, under certain circumstances, workers
need not meet the classic definition of being ``able to and
available for work'' to receive benefits. For example, all
States now treat individuals in training approved by the State
agency as meeting the able and available requirements. The
rationale for this interpretation is that the best route to a
strong labor market attachment for these workers is to acquire
new skills through training. In 1961, the Department of Labor
interpreted Federal law to permit States to allow workers to
participate in training while receiving benefits. This strategy
was so successful that the Congress subsequently amended the
law in 1970 to accommodate worker training.
Other special circumstances under which States may permit
unemployed workers to continue to receive UC benefits include
jury duty and temporary illnesses during their spell of
unemployment. The proposed rule would permit States to test
whether these special circumstances should be expanded to
individuals on leave following birth and adoption by
determining whether payment of UC promotes their connection to
the labor market.
Under our proposal, State participation in this experiment
is wholly voluntary. A State choosing to implement a Birth and
Adoption program will need to amend its UC law to provide for
these benefits. For guidance purposes, the Department of Labor
developed an optional model of State legislation and a
commentary on the model legislation and policy issues; both
were appended to the NPRM. Among other things, the model
legislation provides for 12 weeks of benefits for eligible
parents of newborns and newly adopted children. The model
legislation also provides that the costs associated with these
benefits be spread among employers, i.e., benefits not be
charged to individual employers. The model State legislation is
just that--a model--and in most cases the proposed regulation
is structured to provide States with the same flexibility they
have in other UC program areas.
Some critics of the proposal have argued that Federal law
requires UC recipients to be involuntarily unemployed to
qualify for benefits and that this experimental program
violates this requirement by allowing States to provide
benefits to individuals voluntarily leaving employment to be
with their newborns or newly adopted children. The Department
of Labor does not interpret Federal law to require States to
disqualify individuals who voluntarily leave their jobs. For
example, some States allow the payment of UC benefits to
individuals who quit their jobs to accompany spouses who have
been transferred to other locations.
Another concern that has been raised by some critics is the
impact of the proposal on the solvency of State unemployment
funds. While the Department is concerned about trust fund
solvency, and has proposed legislation which includes an
incentive for States to make progress in this area, we fully
expect that a State would be prudent in its decisions and would
not enact changes without first assessing the effect on the
solvency of its unemployment fund. Each State has the
responsibility to assess the cost to its unemployment fund
whenever coverage, benefit expansions, or tax changes are
considered within its UC program.
The NPRM on Birth and Adoption UC was published in the
Federal Register on December 3, 1999, with a 45-day comment
period. We believed this period was ample because of the simple
nature of the experimental program and the relatively short
length of the proposed rule, although we did receive a number
of requests for additional time. In light of the fact that the
proposal was a new one, and to accomodate the holiday season,
we decided to extend the comment period 15 days, which comports
with the President's Executive Order No. 12866 encouraging
agencies to allow a 60-day comment wherever possible.
The Department of Labor received over 3,700 timely
responses to the NPRM and we are in the process of reviewing
and considering all of the comments. We will then draft the
final rule and obtain the necessary Administration clearances--
a process which we anticipate will allow for publication in
late Spring.
In closing, we note that State interest in the proposed
Birth and Adoption UC program continues this year. In fact,
bills have been introduced in over a dozen States to implement
the program. While not all of these are likely to be enacted,
we are very excited about this opportunity to explore new ways
to support families in balancing responsibilities at home and
at work.
Madam Chairwoman, this concludes my formal remarks. I will
be pleased to respond to any questions you or the Subcommittee
may have.
Chairperson Johnson. Thank you very much, Mr. Secretary.
It's a pleasure to have you.
Do you have any national statistics on how many people use
the Family and Medical Leave Act?
Mr. Uhalde. My agency doesn't administer the FMLA and I
don't have the statistics. We will be glad to supply them for
the record.
[The information was not available at the time of
printing.]
Chairperson Johnson. I think they're very relevant to the
issue of what impact this will have on the unemployment
compensation funds of the country.
Mr. Uhalde. We have estimates on the cost of birth and
adoption to the trust fund--
Chairperson Johnson. I'm surprised that you don't know
them, when you extended this policy.
Mr. Uhalde. Well, Madam Chair, first of all, the policy is
not tied directly to family and medical leave. The issues with
regard to birth and adoption will cover populations that are
not necessarily in accord with family and medical leave. And we
do have estimates for the impact with regard to birth and
adoption for this proposal.
Chairperson Johnson. In your regulations, did you require
states to reflect the additional cost by adjusting their
unemployment compensation taxes?
Mr. Uhalde. We don't require the states to adjust uc taxes.
The model legislation and the NPRM spoke to the question of the
states taking into account the solvency and the issues that
they would have to address in order to accommodate this issue.
Chairperson Johnson. But you did not specifically say if
you're going to expand these benefits, you should raise your
unemployment comp taxes to cover the cost.
Mr. Uhalde. No, we did not.
Chairperson Johnson. I think that's unfortunate. In the
President's budget, he assumes that unemployment will rise from
4.1 to 5.3 percent in the next three years, which suggests
that, a cost of, at the minimum, 3.4 billion will have to be
assumed by the states.
What will be the additional cost of this new benefit?
Mr. Uhalde. Well, first of all, it obviously depends on how
many states are going to take this up.
Chairperson Johnson. Yes, but you must have had some guess.
Mr. Uhalde. There is no estimate of knowing how many states
will enact legislation. If all states took this up, which is
highly unlikely, our estimate is that it would cost less than
five percent and closer to probably three percent in terms of
benefits, compared to what is currently paid out of the trust
fund.
Chairperson Johnson. We have been called for a vote, so
I'll just be very brief. In a July letter of 1997--
Mr. Uhalde. Yes.
Chairperson Johnson.--you noted that, quote, ``State laws
must contain able and available for work requirements to
conform with Federal law'' and that benefits will be paid,
quote, ``only to individuals who are unemployed and who are
able to work and available to work.'' That is certainly the
traditional understanding of our unemployment compensation
system.
Did the Department change this legal interpretation of the
law, which, of course, is your responsibility, after the
President issues his Executive Order?
Mr. Uhalde. Clearly, the position that we have now is
different than the position--
Chairperson Johnson. That's right.
Mr. Uhalde.--the agency had in the 1997 letter. I'd be glad
to explain how we got there.
Chairperson Johnson. I think the important point is that
through Executive Order, there has been a change in the law.
Mr. Uhalde. No, that is not correct.
Chairperson Johnson. And I would maintain that level of
change--well, you, the Department of Labor is the Federal
agency responsible for interpreting the law and in 1997--
Mr. Uhalde. Absolutely, that's our authority.
Chairperson Johnson.--you said very clearly that laws must
contain--and you denied states the right to do this very thing.
Mr. Uhalde. I didn't.
Chairperson Johnson. Well, the Department of Labor did.
Mr. Uhalde. Our interpretation in 1997, as has been termed
here before, was the traditional and conservative
interpretation of the able and available provisions.
Chairperson Johnson. That had governed 65 years of the
functioning of the plan.
Mr. Uhalde. That's correct, but it's not without precedent
that we have interpreted able and available and involuntary
unemployment to operate in other instances. As you've heard
from the State of Connecticut and others, for example, the most
telling example is the example with regard to training.
In 1961, the Department, not even by regulation, with the
benefit of comment and publication, but, in fact, by a program
letter, told states that people in training approved by the
state would be considered able and available.
The Congress and the states, over a period of a decade,
thought that operated so well that the Congress and the
Administration, at that time, enacted law requiring that for
all states.
Now, clearly, those workers aren't able and available to go
get a job while they're in training. So that doesn't meet the
classic definition of able and available.
The important thing was that the interpretation by the
Department, subsequently ratified by the Congress, was that
these workers would have a better labor force attachment, more
likely to work and continue work and have more stable workforce
attachment. That is what we are determining here and are
testing with this.
We believe and there is some evidence to suggest that
parents will have a stronger labor force attachment if they are
provided this opportunity.
Chairperson Johnson. I certainly do agree with that and
that's why some employers who can afford it are providing paid
leave. But it is very clear from the course of events that the
Department of Labor changed its interpretation of the law as a
result of the President's initiative.
Mr. Uhalde. Yes, we did change our interpretation. We were
actually party to the discussions in the White House with the
President in that change.
Chairperson Johnson. It was the President's initiative that
changed the law and in the future, I would prefer the
Department of Labor, if they believe something is necessary to
improve the workplace or unemployment compensation system, that
they propose the change in the law, so that we could have been
part of directing states, if they adopt this, to clearly make
provision for its funding.
Now, because Connecticut has this automatic trigger, it
will be clearly funding its benefits.
Mr. Uhalde. That's correct.
Chairperson Johnson. It is also unfortunate that
Connecticut is a very high cost place to do business, and so I
hope they will follow the Congress' lead in offsetting these
costs through some other reduction in the cost of doing
business.
Mr. Uhalde. But this is not a change in the law. This is a
change in our interpretation. It's a different issue.
Chairperson Johnson. That's right, but that is--it is a
change of one of the fundamental principles that have governed
unemployment compensation for 65 years.
Mr. Uhalde. Of which we have done several times.
Chairperson Johnson. And you have written this committee,
the Department of Labor has written this committee repeatedly
about your concern about state solvency.
Mr. Uhalde. Absolutely.
Chairperson Johnson. And yet in issuing this regulation,
you reserved to yourself no right to review a state's plan
before they did that to be sure that they were not going to
make their own position in regard to solvency weaker. You did
not reserve that right, and I think that was irresponsible,
when we're talking about one of the most fundamental and one of
the most important programs to support working Americans.
And to have just issued this regulation, not having the
guts to bring a law up here and talk about it with us, to me,
was a bad process, results in bad policy, and you've got a bad
policy here because you have no power to work with the states
to see that they fund a new and additional benefit.
Mr. Cardin.
Mr. Cardin. Thank you, Madam Chair.
Mr. Uhalde. I'd like to respond.
Mr. Cardin. Mr. Secretary, I'd be glad to have your
response.
Mr. Uhalde. First of all, every state does have an
automatic tax trigger. Secondly, states are all the time
reducing taxes or expanding benefits by state law and they
don't necessarily come and ask the Department's permission
first on whether they have to compensate for an expansion on
eligibility by enacting taxes.
This is a Federal-state system, where the states have
enormous responsibility and authority. We were asked whether or
not this met with an interpretation of law and whether states
had this authority, and our analysis subsequent to obviously
the 1997 letter was yes, we could do that and we could give the
states that authority, and they have the taxing authority to
compensate for this.
Mr. Cardin. I obviously agree with your position, but it
might have been easier if you just did it by letter than
issuing a regulation. It might teach you in the future to act a
little faster on these issues and maybe Congress wouldn't have
noticed. I don't know. Anyway.
Let me just, if I could, I want to give Mr. McCrery an
opportunity before we go vote.
Some of the information I have, I just want to make sure
it's correct. I believe it's from the Department of Labor on
solvency, which we think is a very important point. The
information I have received indicates that you've done a study
in four states about how much of the reserves would be needed
in order to fund this program.
In Maryland, it was 2.79 percent of the trust fund
reserves; Massachusetts, 1.89 percent; Washington, .74 percent;
Vermont, .39 percent.
Is that accurate?
Mr. Uhalde. Yes. Those are very, very close to the numbers
I have. Yes, sir.
Mr. Cardin. And it seems to me that you would have annual
fluctuations in these trust funds that would exceed that
amount. This seems to be a relatively modest amount of the
trust fund balances that would be involved in funding the UI
program that they chose to expand to include the birth issues.
Mr. Uhalde. Yes, absolutely. These are relatively small
amounts of the balances. They are also, when measured against
the benefit payouts, are relatively small amounts, and they are
amounts the states are very well equipped to deal with in
deciding the solvency of the system.
Mr. Cardin. And the last point I just want to put in the
record, it's my understanding that 84 percent of the workers
who go on maternity leave will return to their jobs. So this is
a situation where a person really wants to return to work.
Mr. Uhalde. Yes.
Mr. Cardin. With that, Madam Chair, I would yield back the
balance of my time, and let Mr. McCrery have a chance.
Chairperson Johnson. I do recognize Mr. McCrery.
Mr. McCrery. Thank you. We do have to go vote, but quickly,
I just want to point out that last week, we had a hearing on
devolving the UC system to the states and the Department of
Labor was here expressing grave concerns about the status of
our trust fund, and this week you have a different view.
Mr. Uhalde. No, I have the same view. It differs by the
states.
Mr. McCrery. But it is curious. I just want to point out,
Madam Chairman, that I think we will have witnesses later today
that will give us different estimates as to the cost of this
program and that will be interesting to hear.
I think some are estimating that the cost will be far
higher than the Department of Labor is predicting, so that will
be interesting to hear.
Chairperson Johnson. Mr. Secretary, do those estimates take
into account the cost shift that's going to occur from the
private to the public sector?
Mr. Uhalde. I'm not sure that they do.
Chairperson Johnson. They don't.
Mr. Uhalde. I'm not sure. I don't know.
Chairperson Johnson. I've forgotten the other--that will
have to do for now. I had another question, but we all have to
vote.
Mr. McCrery. That was such a good point, Madam Chairman.
You can quit on that one. Excellent point.
Chairperson Johnson. I know what the other question was.
Has the Department done any research into some of the problems
that are felt in the private sector in implementing this
program?
Mr. Uhalde. Implementing?
Chairperson Johnson. The Family and Medical Leave Act.
Mr. Uhalde. The Family and Medical Leave Act. My agency
doesn't administer that, but I believe we have testified to
that--my colleague, John Frazier, before Senator Gregg--and
we've been working out the issues.
However, as I understand it, I have not been issued any
information central to the birth and adoption segment of family
and medical leave.
Chairperson Johnson. It is disappointing to me that the
Department of Labor of the United States of American didn't
have the courage to bring up a bill that funded family and
medical leave and corrected some of the problems in the
program, which are very, very serious.
If you're there on the floor with small businesses, which I
know you never are, because that's one of the problems of
bureaucrats in Washington, they don't get it; if you were out
there, you would have brought us a piece of legislation. You
would have said this is a perfectly normal expansion because of
these things and that rationale could have been public, and
these are the problems that have to be addressed.
It is very disappointing to me that my Connecticut people
ignored the problems out there and especially when I spent--I
meant to mention that when Mr. Donovan was here. I don't know
whether he's still here.
But the first person who brought to my attention the
seriousness of the problems was the former Democrat mayor of
Bristol, Connecticut, now head of the Chamber of Commerce, and
he brought it to my attention about eight years ago and it's
his state senator who is co-chairman of the labor committee.
Now, why can't you guys listen to the problems, as well as
think through the potential? So if you had brought a bill, we
could have worked through something that would have actually
helped business and given them better resources to comply with,
to address the problems that are really important to their
people.
Just one last issue. Where do you stand on comp time, the
Department of Labor? Do you support the comp time initiative?
Mr. Uhalde. I'll get back to you on that.
[The information was not available at the time of
printing.]
Chairperson Johnson. My impression is you don't. And with
all your rhetoric in this statement about families and helping
them to resolve the tension between work and family leave, I'll
tell you, I want to know from the Department, in writing, why
you do not support a comp time law that only benignly, it's
very benign, it just makes it very clear that employers who
want to offer comp time, so people can go be with their
families or take a day off, that they can do that, and we have
not been able to get that through the floor because of the
opposition of this Administration.
So I loved all your rhetoric, but let's get it together.
Let's be honest about these things. Don't do it by executive
act. Bring the bill to the floor and fix the problems in the
system, as well as meeting the needs of the people, and meet
the needs not just by imposing new money, but by imposing the
flexibility that people in their lives need.
Sorry. End of diatribe. I've got to go. But I had to get on
the record that I cannot believe that the Department of Labor
has been utterly obstinate in looking, but would do this
without requiring in the directives that states recognize that
new obligations require new funding and you've got to do it.
So thank you for your testimony.
Mr. Uhalde. Madam Chair, I take it you don't want an answer
to your statement.
Chairperson Johnson. I heard your answer. You're going to
tell me the states have the automatic trigger. That's not
enough. States need to really think through what the trigger--
Mr. Uhalde. You complimented Connecticut on their automatic
trigger.
Chairperson Johnson. Right. Because at least most if they
had taken out because your directive didn't cover it all and
funded it themselves. They could have done the whole thing
themselves and had a clearly related new tax for new benefits
and government has got to be honest that way. New benefits need
a new resource of money and that's what should have happened.
Mr. Uhalde. And the states are not confused about their
responsibility to fund benefits.
Chairperson Johnson. I hope so. We have to go, I'm sorry.
Bye.
Mr. Uhalde. Thank you.
[Recess.]
Chairperson Johnson. The committee will reconvene. Mr.
Cardin will be with us any moment. If we could have come to the
table now our panel. Eric Oxfeld, of UWC-Strategic Services on
Workers' Compensation and Unemployment; Kimberley Hostetler,
Director of Human Resources Services, Connecticut Hospital
Association, on behalf of the Society for Human Resource
Management; Maurice Emsellem, Policy Director for the National
Employment Law Project; Todd Shimkus, the Vice President of
North Central Massachusetts Chamber of Commerce; Jack Wheatley,
Director of the Michigan Unemployment Agency.
Also, my colleague Mr. Camp will be back. Unfortunately, we
have several hearings going on the Ways and Means Committee, so
members have to be several places at once.
We do, with panels, have the lights that show you where you
are in your five minutes. Your entire testimony will be entered
in the record and after the five minutes, there will be a time
during questions for you to enlarge on points that you felt you
didn't have time to make.
So if we could start with Mr. Oxfeld.
STATEMENT OF ERIC J. OXFELD, PRESIDENT, UWC-STRATEGIC SERVICES
ON UNEMPLOYMENT & WORKERS' COMPENSATION
Mr. Oxfeld. Madam Chairman, I'm Eric Oxfeld, the President
of UWC. We very much appreciate the opportunity to be here this
afternoon and commend you for your leadership in holding these
hearings, as well as the hearings about a week ago.
I would like to make just a few points. First, compensating
workers who choose to take leave while they are unavailable for
work because they are on leave is not, as you have pointed out,
unemployment insurance. Labeling paid leave unemployment
compensation does not change this fact.
If paid leave is unemployment compensation, what isn't;
sick leave, workers' compensation, disability, pensions,
vacation? I would like to make one observation, because some of
the earlier testimony may have blurred the distinction between
someone who quits their job and then can collect unemployment
and someone who is unavailable for work.
Although employers don't think it's good policy to pay
unemployment benefits to people who quit their jobs for
personal reasons, they can collect, it is legal for them to
collect unemployment benefits, provided they are actively
seeking work and are available for work, unlike people who take
leave, who choose to take leave and who, by definition, are not
available for work and cannot work, who hold themselves out of
the workforce. Important distinction.
Changing the fundamental purpose of unemployment insurance
to include paid leave is a decision that should only be made by
Congress, not by Department of Labor through rulemaking while
Congress is out of session and in direct contravention of both
the Family and Medical Leave Act and the clear understandings
behind it, as well as the Federal Unemployment Tax Act.
Using unemployment insurance benefits trust funds to
provide paid leave is contrary to both the letter and spirit of
the FMLA, as well as the Federal Unemployment Tax Act. As
former Representative Pat Schroeder, one of the architects of
the FMLA, said during the debate on FMLA, there is no
unemployment compensation for people who go out on leave. It
was clearly understood.
The Federal Unemployment Tax Act is also clear and
unambiguous. It prohibits withdrawals from state unemployment
trust funds, except for purposes of paying unemployment
benefits. You can only make withdrawals to pay unemployment
compensation.
There are a few statutory exceptions to the FUTA, but paid
leave is not one of them.
When times are good, the temptation to raid unemployment
benefits trust funds in order to provide funding for other
valuable and desirable goals unrelated to unemployment
insurance is a very powerful temptation. That's why the Federal
prohibition in the FUTA against use of unemployment benefit
trust funds for other purposes is just as important and
necessary today as it was when the system was first
established.
I would likeN this situation and I'm a parent myself--the
good practice of telling our children to refrain from
intoxicating beverages while they are under age 18. We tell
them to be responsible and not to do drink alcohol, but we know
that the temptation is powerful and that is why we have laws
that prohibit the sale of alcohol to minors.
This is an analogous situation. The temptation during good
times to use up benefits trust funds for another purpose is
extremely powerful.
The Department of Labor's position of trust us to be
responsible has been proven to be a mistake as demonstrated by
the history of borrowing, which you yourself referred to, and
the fact that Connecticut is still paying for its last loan.
Expanding the permissible use of UI to provide paid leave
will unquestionably add to the payroll tax burden. Our
estimate, if all states do it, will be up to 18 billion dollars
a year. That's in addition to the 30 billion we already pay for
unemployment insurance, even though we have no unemployment. If
we expand it to include all FMLA leave, by our estimate, the
total cost will be up to 84 billion dollars, and that's just
for the 12 weeks the Department of Labor suggests be provided
for parental leave.
Most states, as you know, provide 26 weeks of unemployment
insurance benefits, not 12 weeks, and if they provided all 26
weeks, as they would if this was really truly unemployment
compensation, it would be much more costly.
By the way, all of these new benefits will be scored in the
Federal budget as increased Federal outlays, and I can
elaborate on that later, if I have time.
When if UI is expanded to include paid leave when the
economic cycle turns, UI trust fund balances will be quickly
depleted.
As you will recall from the hearings, and I know I'm out of
time, there are many problems in the unemployment insurance
system, many of them created by the Federal Government's
failure to properly fund the state administrative agencies.
It's why unemployment claims last two weeks longer than they
should, why we don't have the resources for reemployment and
detection and prevention of fraud.
We believe, as employers, that we need to fix those
problems rather than expand the unemployment insurance system
to a new and different purpose. We respectfully ask the
Congress to use all of the powers available to you to prevent
the Department of Labor from pursuing this unwise and
unworkable proposal.
I'm here not only for UWC but also wearing another hat,
which is the co-chair of the Unemployment Insurance Working
Group, set up by SHERM and includes the chamber and the NAM,
the NIFB, and many other business organizations, all of whom
are opposed to this proposal.
We thank you for the opportunity to be here.
[The prepared statement follows:]
Statement of Eric J. Oxfeld, President, UWC-Strategic Services on
Unemployment & Workers' Compensation
Good morning, Madam Chairman and members of the committee.
My name is Eric Oxfeld, and I am President of UWC, the only
business organization specializing exclusively in public policy
advocacy on national unemployment insurance (UI) and workers'
compensation issues. UWC members are employers of all sizes and
industry, national and state business associations, and third
party administrators and accounting firms, all of whom are
concerned about maintaining a sound UI system.
UWC is intimately acquainted with UI laws and public
policy. 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.
UWC supports the UI program, through which employers
provide benefits for a temporary period of time to insured
workers with a strong attachment to work who become temporarily
and involuntarily jobless when their employer no longer has
suitable work available. UWC believes that a sound UI program
is best embodied through the state UI system, with a limited
federal role where uniformity of state law is considered
essential.
UWC, jointly with the FMLA Technical Corrections Coalition,
leads the UI Working Group. The UI Working Group, which was
established in cooperation with the Society for Human Resource
Management, is a coalition of organizations, businesses, and
associations committed to advancing sound UI policy. The UI
Working Group opposes the Birth and Adoption Unemployment
Compensation (BAA-UC) regulations proposed by the U.S.
Department of Labor (DOL) because this proposal allows the
misuse of state UI benefits trust funds to finance a new and
disparate program providing paid parental leave. More
information on the UI Working Group and its mission can be
found on its homepage, www.SAVEUI.org.
The BAA-UC Proposal
The proposed BAA-UC regulation authorizes states to enact
laws enabling workers to collect UI benefits while on leave
following childbirth or adoption of a child up to three years
of age. The proposal is described as an ``experiment'' designed
to ``test the proposition that providing [UI benefits] to the
parents of newborns and newly adopted children who wish to take
approved leave or otherwise leave their employment will
increase their attachment to the workforce.''
UWC and the UI Working Group believe that DOL's BAA-UC
proposal is fundamentally and fatally flawed.
DOL lacks the authority to promulgate the BAA-UC
regulations, which are contrary to the clear and unambiguous
intent of the Federal Unemployment Tax Act (FUTA) and the
Family Medical Leave Act (FMLA).
The proposed BAA-UC regulations are an attempt to
``end run'' Congress and amount to DOL legislating through the
rulemaking process.
The BAA-UC proposal will jeopardize the UI safety
net for jobless workers by eliminating the federal protection
against misuse of UI benefits trust funds for other purposes.
The BAA-UC program violates the clear requirements
of the Federal Unemployment Tax Act (FUTA) and will put
employers in a state with such a program at risk of a 700% FUTA
tax increase.
BAA-UC and UI are different and incompatible
programs.
DOL has exceeded its authority by proposing BAA-UC, which is
contrary to the clear and unambiguous intent of the federal UI
laws and the FMLA.
Allowing payments of UI benefits to workers on parental
leave as proposed in the BAA-UC regulations is contrary to
federal UI laws and the FMLA.
Indeed, former Representative Pat Schroeder, one of the
original sponsors of FMLA, made it clear during congressional
debate on the FMLA that workers taking family and medical leave
would not be eligible for unemployment benefits: ``The leave is
unpaid, so your paycheck will stop. There is not federal
compensation such as unemployment.'' 139 Cong. Rec. E2010
(daily ed. Aug 5, 1993, emphasis added).
The Federal Unemployment Tax Act (FUTA) and related laws
\1\ effectively prohibit expenditures out of state unemployment
benefits trust accounts for any purpose other than payment of
``unemployment compensation.'' \2\ As former Representative
Schroeder clearly understood, BAA-UC payments constitute ``paid
parental leave'' and are not ``unemployment compensation.''
---------------------------------------------------------------------------
\1\ E.g., Federal Unemployment Tax Act [26 U.S.C.A. 3301 et seq]
3304(a)(4). The penalty when a state is out of conformity with the FUTA
is loss of the FUTA ``offset credit'' for all employers in the state--a
more than 700% tax increase from $56/worker to $434/worker.
\2\ Where Congress has decided that it is appropriate to deviate
from this basic UI principle it has done so by a limited number of
express exceptions. For example, under FUTA Section 3304(a)(4) employee
contributions may be used for payment of temporary disability benefits.
FUTA 3304(a)(4) also contains provisions expressly permitting payments
out of state unemployment trust accounts for health insurance premium
payments by UI recipients; repayment of UI over-payments; payment of UI
benefits to workers in approved work-sharing (``;short-time
compensation'') plans; self-employment assistance; and use of Reed Act
funds for UI administrative costs. Parental leave is not covered by any
of these exceptions.
---------------------------------------------------------------------------
The plain meaning of the term ``unemployment'' as used in
the FUTA requires all unemployment compensation claimants to
meet a 3-pronged test. Under this test, UI claimants must be:
(1) Without a job;
(2) Involuntarily unemployed; and
(3) Able and available for work.
These federal requirements are a cornerstone of UI policy,
confirmed by consistent administrative interpretation, FUTA
legislative history, and subsequent action by Congress. These 3
requirements were recognized in the legislative history of
federal UI laws, and they are consistently identified and
applied in administrative interpretations of those laws from
1935 until the current notice of proposed rulemaking.
Payments out of state UI benefits trust funds for workers
who take parental leave are inconsistent with all 3 of these
statutory requirements. A worker on parental leave cannot be
considered to be ``without a job'' because the worker has a
job, either by law or through arrangement with the employer.
When a worker is on parental leave, the worker's absence from
work is not ``involuntary'' because the absence (from start to
finish) is by the worker's choice, not the employer's. Finally,
when a worker is on parental leave, the worker is not
``available for work'' because the worker cannot return to work
until after the leave period expires, which may be 3 months, 6
months, or even 1 year later.
Federal UI law includes the ``able and available''
requirement even though there is no specific reference to this
requirement in the FUTA. Until now, DOL has consistently
recognized and applied the able and available requirement. As
recently as 1997 DOL clearly understood that use of UI trust
funds to compensate workers on family and medical leave would
violate federal UI law. In separate letters from the DOL
regional office to the Vermont Department of Employment &
Training, and from DOL Employment & Training Administration
Assistant Secretary (Acting) Ray Uhalde to Senator Patrick
Leahy, DOL stated that UI payments to workers on family leave
are contrary to the federal requirement that UI beneficiaries
be ``able and available'' to work.
To cite another example, in 1955 DOL described UI as ``a
program--established under Federal and State law--for income
maintenance during periods of involuntary unemployment due to
lack of work'' (emphasis added). When a worker takes leave in
accordance with the FMLA, the employer must hold the worker's
job open. During the leave period, the worker is not
``unemployed'' or ``available for work.''
Commentator Ralph Altman, of DOL's then named Bureau of
Employment Security, noted: ``The availability requirement in
unemployment compensation is universal as an inevitable result
of a program which compensates wage loss'' (Altman,
Availability for Work, Harvard University Press 1950, at 2).
The able and available requirement has also been repeatedly
recognized by Congress. For example, in the 1998 Green Book,
the House Committee on Ways and Means stated: ``All state laws
provide that a claimant must be both able to work and available
for work. A claimant must meet these conditions continually to
receive benefits. 'Available for work is translated to mean
being ready, willing, and able to work'' (1998 Green Book at
336, emphasis added). The BAA-UC proposal makes the
extraordinary assertion that ``able and available'' somehow can
be interpreted to mean ``unavailable now but perhaps available
later.'' This interpretation of the federal ``able and
available'' requirement contradicts the plain meaning of the
word ``available'' by covering employed workers who take leave
from employment when the employer has work available but the
worker cannot, or does not wish to, work.
DOL recommends that a state pay BAA-UC benefits for 3
months. The proposal allows states to use different maximum
durations. Under the BAA-UC proposal, states could provide BAA-
UC benefits for 6 months (standard duration of UI benefits) or
even 1 year. Thus, the BAA-UC proposal requires the conclusion
that a worker who is away from, and unable to, work for a
significant amount of time--up to an entire year--may be
considered ``available'' during the entire leave period because
at the end of this period he or she may decide to return to the
prior job or job market.
It is impossible to understand how a worker who made a
decision to take leave dedicated to the up bringing of a child
can in any way be considered ``able'' or ``available'' for work
during the leave period consistent with sound UI policy. If the
worker were in fact, ``able and available'' there would be no
leave taken.
Even if one accepts the illogical and invalid assertion
that a worker can be considered ``available'' under the federal
``able and available'' test during parental leave because of
the intention to return to work following this leave, we note
that the proposal lacks any provision for demonstrating the
parent's intention to return to the previous employer or other
meaningful attachment to the workforce prior to the conclusion
of the leave period. The only recognition of eventual work
force attachment is that states would be allowed to recover
BAA-UC payments if the worker fails to go back to work. It is
completely ineffective to rely on repayment of BAA-UC benefits
if the worker fails to return to work because the likelihood of
ever fully collecting these funds is remote, and there is no
requirement that states attempt to collect them.
The requirement that a claimant be ``able and available''
for work is critically important in determining attachment to
the workforce. Meeting this requirement demonstrates a clear
and ability and willingness to rejoin the workforce
immediately. Indeed, DOL's Employment and Training
Administration (ETA) web site states: ``Unemployment insurance
pays benefits to qualified workers who are unemployed and
looking for work (emphasis added). In its 1998 UI Dialogue, DOL
stated that the ``basic Federal requirement for eligibility is
that the worker be able to work and available to accept an
offer of work.'' A Dialogue: Unemployment Insurance and
Employment Security Programs, Dialogue Technical Supplement at
11 (1998).
It is noteworthy that during DOL's two year dialogue, which
involved 65 meetings attended by nearly 4,000 individuals
representing business, labor, and government, DOL did not
report any recommendations to extend UI benefit payments to
workers while they are on parental leave or are otherwise
unavailable for work.\3\
---------------------------------------------------------------------------
\3\ See e.g., DOL's February 1999 summary of Unemployment Insurance
and Employment Service Program: A Dialogue, and UI Occasional Paper 99-
5 at 170.
Exceptions to the FUTA ``availability'' test cited in the BAA-
UC proposal do not support misuse of UI trust funds to
---------------------------------------------------------------------------
compensate workers who take parental leave
The proposed rule states: ``Under its authority to
interpret Federal unemployment compensation law, the DOL
interprets the Federal 'able and available' requirements to
include experimental Birth and Adoption Unemployment
Compensation.'' The BAA-UC proposed rule then lists several
examples of interpretations of the federal ``able and
available'' requirement. Contrary to the conclusions drawn in
the proposed rule, however, these examples do not support the
contention that BAA-UC is consistent with the ``able and
available'' test. The examples are materially and legally
distinguishable from BAA-UC.
First and foremost, Congress has specifically recognized
exceptions from the ``able and available'' requirements but has
not chosen to include parental leave.
Unlike the BAA-UC proposal, the exception under UI
for state approved training is the product of congressional
action expressly waiving the ``able and available'' test. In
fact, a worker in approved training is engaged in an activity
that is directly designed to enhance the worker's
employability, and a worker's failure to be available for the
training is disqualifying.
The illness and layoff examples in fact require
denial of benefits to any claimant who demonstrates that he or
she is not available by refusing an offer of suitable work.
Note that Congress has expressly recognized that states can
legally suspend the availability test for EB if a worker is
hospitalized. Federal State Extended Benefit Act of 1970,
section 202(a)(3)(A)(ii)(II).
The final DOL example, jury duty, can also be
reconciled with the able and available test and distinguished
from parental leave. Unlike parental leave, when a worker is
called for jury duty the government itself has compelled the
worker's removal from employment, thus the separation is
involuntary. Most states do not provide UI benefits to
compensate workers while on jury duty because they recognize
that such payments are inconsistent with the basic purposes of
unemployment insurance. However, unlike parental leave,
Congress has expressly recognized that states can legally pay
UI benefit to a worker on jury duty. Federal-State Extended
Benefit Unemployment Compensation Act of 1970, section
202(a)(3)(A)(ii)(I).
BAA-UC is an attempt to legislate through rulemaking
The BAA-UC proposal is a change in the fundamental purpose
of unemployment insurance. Only Congress has the power to make
this change in the basic mission of the UI program. Proposing
BAA-UC through rulemaking amounts to legislating through the
Department of Labor--at the expense of Congress, the states,
and employers. In effect, the BAA-UC proposal is a regulatory
``permission slip'' for states to misuse UI by going through
the ``back door''--the rulemaking process--to achieve what
Congress did not and would not agree to do. DOL delayed
publishing the Notice of Proposed rulemaking until after
Congress adjourned (and most members of Congress left town),
with the public comment period closing before Congress
returned. The timing of the proposed rule appears to be a
conscious decision to avoid an adverse congressional response
to the use of rulemaking to circumvent the federal ``able and
available'' test and the clear intent that the FMLA does not
require paid leave.
BAA-UC is a new and disparate benefit unrelated to legitimate
UI
The proposed regulations and the model state law included
with the proposed rule consistently demonstrate that BAA-UC is
a disparate benefit for a disparate class of recipients which
is functionally and legally different from legitimate
``unemployment compensation.'' As noted above, federal law
requires that a worker be involuntarily jobless and both ``able
and available'' in order to collect UI benefits. This legal
test cannot be met by a worker taking parental leave. Thus, the
proposed rule proposes to create a new parental leave
compensation benefit financed by the misapplication of UI trust
funds. The proposed rule does not demonstrate any nexus between
``regular'' UI benefits and BAA-UC, yet it seeks to finance
these benefits out of UI payroll taxes. BAA-UC is entirely
different from legitimate UI. As state in DOL's Fact Sheet on
Unemployment Insurance, published by the Employment and
Training Administration: ``unemployment compensation is
designed to provide benefits to most workers out of work due to
no fault of their own for periods between jobs.'' BAA-UC
benefits are for employees who have jobs and take leave to be
with a newborn or newly adopted child (see Section 604.2.) BAA-
UC is compensation for voluntary parental leave from work, thus
it cannot be unemployment compensation.
The differences between BAA-UC and UI benefits are
strikingly clear. Unemployment compensation and parental leave
compensation have different and incompatible purposes, and the
UI system is not equipped to handle payment for parental leave.
The UI program is intended to be a re-employment system. The
purpose of UI is to compensate a worker who becomes temporarily
unemployed when the employer no longer has suitable work
available, while continuing to search for suitable work. Family
leave, on the other hand, is in part to ``to balance the
demands of the workplace with the needs of families, to promote
the stability and economic security of families, and to promote
national interests in preserving family integrity'' (see e.g.,
Section 2(b)(1) Family and Medical Leave Act, P. Law 103-3.).
The differences between parental leave and UI are starkly
demonstrated by the number of standard UI elements that should
or could be varied in attempting to fit the ``square peg'' of
parental leave into the ``round hole'' of UI, including the
following:
(1) Voluntary quit disqualification is eliminated
(2) Availability for work eligibility requirement is
eliminated
(3) Ability to work eligibility requirement is eliminated
(4) Refusal of suitable work eligibility requirement is
eliminated
(5) Work search test is waived
(6) BAA-UC benefit duration is recommended for 12 weeks and
may be up to 1 year, unlike the 26 weeks of regular UI benefits
(7) No extended benefits are payable for BAA-UC (although
BAA-UC claimants apparently would be counted as unemployed for
triggering benefit extensions)
(8) BAA-UC benefits can be concurrent with legitimate UI
benefits
(9) BAA-UC costs would be socialized under DOL's
recommendations, not experienced rated
(10) Means testing may be appropriate for compensating
parental leave but are not permissible under BAA-UC because
benefits are delivered and financed through the UI system
(11) An exemption for small business may be appropriate for
compensating parental leave but is not permissible under BAA-UC
because benefits are delivered and financed through the UI
system
(12) Worker contributions, rather than employer
contributions, may be appropriate for BAA-UC but not UI
The fact that all of these basic characteristics of
legitimate UI must be changed to accommodate BAA-UC
compensation makes crystal clear that these are two entirely
separate systems and that BAA-UC is outside the scope of the UI
program.
Section 604.3(b) of the proposed regulations provides
another clear example of the new and disparate class of
beneficiaries which BAA-UC will create. ``Approved leave''
means temporary separation ``after which the employee will
return to work for that employer.'' The assumption that workers
who take leave will return to employment is invalid. Many
workers who take leave choose not to return to work.
Section 604.20 states that ``All persons covered by a
state's UI law must also be covered for Birth and Adoption
unemployment compensation.'' This section demonstrates why UI
and compensation for family leave are and should be separate.
As DOL correctly points out, UI programs have near universal
coverage and cannot be limited by type of industry or other
factors unrelated to a claimant's unemployment. On the other
hand, a state may determine, quite within the bounds of the
law, that certain industries or employers should be exempt from
family leave compensation requirements or that means testing is
appropriate. The policies and mechanics underlying UI and BAA-
UC are disparate and ought not be forced to fit together.
Workers who receive BAA-UC should not be counted as
``unemployed'' for purposes of extended UI benefits
The proposed rule is correct in providing that BAA-UC
benefits cannot be the basis for extended benefits (EB) under
the Federal-State Extended Unemployment Compensation Act
(EUCA). EB is expressly provided to provide additional weeks of
UI benefits for otherwise eligible workers who may need more
time to find suitable work when jobs are scarce during periods
of high and rising unemployment. However, should the BAA-UC
program be allowed to take effect, BAA-UC payments will inflate
the ``insured unemployment rate'' and the ``total unemployment
rate'' which are used to ``trigger'' EB benefit periods.
Workers who are on leave are not unemployed and should not be
counted as unemployed for EB purposes. However, nothing in the
proposed rule provides for such a protection. This is another
example of why BAA-UC is an entirely different benefit from
legitimate UI.
BAA-UC threatens the UI safety net
For more than 65 years, federal law has protected jobless
workers, employers, and the public by assuring that state
unemployment trust funds are used for the sole purpose of
paying unemployment compensation. This protection is so deeply
embedded in the federal-state UI ``partnership'' that federal
law prohibits the use of state trust funds even for the related
purpose of financing the administrative cost of processing
claims for unemployment benefits. By allowing the expenditure
of state unemployment trust funds for the entirely different
and incompatible purpose of compensating employed workers who
take parental leave, DOL's proposed rulemaking will change the
fundamental purpose and nature of the UI program, the safety
net for jobless workers. Elimination of this essential federal
protection for the jobless will abandon the principle that
serves as a cornerstone of the nation's unemployment insurance
system.
Allowing the misuse of UI benefits trust funds to finance
paid leave under the FMLA will eliminate the protection federal
law has always provided against misuse of state UI reserves for
purposes other than payment of unemployment compensation. This
new use for UI benefits trust funds for paid leave will in due
course deplete trust fund balances and lead to increased
payroll taxes on employers and/or cutbacks in protections for
workers who lose their jobs.
DOL Secretary Alexis Herman and other DOL officials have
repeatedly--as recently as February 29, 2000, in hearings
before this subcommittee--expressed concern that the existing
UI program is now under-funded. For example, DOL recognized
that states have not rebuilt their trust fund solvency to pre-
1990-91 recession levels. See, A Dialogue: Unemployment
Insurance and Employment Security Programs, Dialogue Technical
Supplement at 24 (1998). In their fiscal year (FY) 1998 and
1999 budget requests, DOL called for legislation that
encourages states to improve the solvency of their UI trust
funds. At DOL's request, H.R. 3167 was introduced in Congress
last year to give states incentives to raise or maintain high
payroll taxes with the express purpose of enhancing state trust
fund solvency.
In the 1980's and again in the 1990-91 recession, many
states used up their UI reserves and had to borrow from the
federal government. In the 1990-91 recession, more than half
the states were forced to borrow. DOL's own statistics show
that if another similar recession takes place, states will need
to borrow an additional $2-4 billion. That figure increases to
$20-25 billion if the recession is like the one in 1980-82. Id.
The interest on federal loans to state UI trust funds cannot be
paid from state trust funds and is an obligation of state
general revenues at market interest rates--a painful and costly
charge--taking money away from schools, roads, and other state
priorities. As of 1997, states have paid more than $1.7 billion
in interest on UI loans. Id. The State of Connecticut floated a
bond to repay its most recent loan--and has yet to fully pay
off that debt. Employers finance the bond fund through a
special tax (sometimes referred to as a bond assessment)
scheduled to end in 2001.
During the recessions discussed above, many states were
forced to cut back on their UI benefits and eligibility to keep
their UI accounts solvent.
Prior to and following the issuance of the BAA-UC proposed
rule, and as recently as February 29 in hearings before this
subcommittee, DOL has advocated that states expand access to UI
by lowering monetary eligibility, adopting alternative base
periods, and taking other steps that will increase UI benefit
outlays for low-wage workers without any waiver of the
joblessness, involuntariness, and availability requirements of
federal law. UWC does not agree that these DOL expansion
proposals are sound public policy, but we readily agree that--
unlike the BAA-UC proposal--states have the legal authority to
adopt them.\4\ However, we must point out that by expanding UI
to cover workers on parental leave and opening the door to
other new uses of the UI program,\5\ the BAA-UC proposal will
put further pressure on state UI trust funds and work at cross
purposes to DOL's solvency objective as well as its goal of
expanded UI access for low-wage workers.
---------------------------------------------------------------------------
\4\ We believe that the decision whether to lower monetary
eligibility tests or by adopt alternative base periods, as advocated by
DOL, should be a matter for the states and not mandated or
``incentivized'' by the federal government through financial rewards or
penalties.
\5\ At 64 Fed. Reg. 67974, the proposal unabashedly states that the
information from BAA-UC could serve as ``a basis for further expanding
[UI] coverage.''
---------------------------------------------------------------------------
Ironically, the BAA-UC proposal sends a strong signal to
the states not to build up their UI reserves--because any state
that is risk-averse and wants to take a conservative approach
in building up its benefits trust account risks irresistible
political pressure to ``spend it'' now on an unrelated program.
Problems with UI should be fixed before considering changes in
its fundamental purpose such as compensating workers who take
parental leave.
The UI system is experiencing many severe problems, as
outlined in UWC's testimony on UI reform at the hearings before
this committee on February 29. Because of these problems,
employers now pay $30 billion a year in UI taxes when there's
practically no unemployment, and that figure could double or
triple in the future, when the economy goes into recession. We
believe these problems should be fixed, to protect workers and
employers, before considering changes in the fundamental
purposes of UI.
BAA-UC will exacerbate UI problems caused by
inadequate administrative financing. As detailed at length in
our February 29 testimony, the federal government is not
providing adequate financial resources for effective and
efficient program administration by state UI agencies. DOL
statistics show that the average UI claim now lasts 2 weeks
longer than during previous periods when unemployment was low
and there was a severe labor shortage. The extended claim
duration is directly inflating state UI tax costs to finance
additional, unnecessary weeks of benefits. A flood of new BAA-
UC claims for workers on parental leave will further strain
resources need to assist workers who have legitimate UI
claims--and likewise further inflate the cost of legitimate UI
benefits. This problem will grow in severity when the economic
cycle turns.
BAA-UC will exacerbate problems with UI benefit
fraud and abuse. Improper payments under UI are already a
serious problem, but the BAA-UC proposal contains provisions
that will lead to increased fraud and abuse. The BAA-UC
proposal does not condition receipt of benefit payments on any
demonstrable effort to ``bond'' or actually spend any time with
a child. How will UI agencies or employers possibly determine
who is a ``parent'' (per the expansive definition in Section
604.3(f)) and whether he or she is bonding with a child
consistent with the intent of the regulation? \6\ The absence
of any requirement to show contact and interaction with the
child while collecting BAA-UC benefits will lead to large scale
abuses. This defect will result in BAA-UC being little more
than a paid vacation plan during hunting and fishing season,
etc.
---------------------------------------------------------------------------
\6\ This definition create situations ripe for abuse where
``parents'' with little if any actual contact or interaction with the
child would be able to collect BAA-UC benefits contrary to the intent
of the proposed rule.
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BAA-UC will undermine UI return to work
incentives. Under the proposal, payment of BAA-UC benefits can
be concurrent with receipt of legitimate UI benefits if the
worker on parental leave no longer has a job (e.g., because the
FMLA leave has expired or the employer does not provide leave).
This ``double-dipping'' improperly increases the amount of wage
replacement to levels that will frustrate UI return to work
incentives, thus further inflating legitimate UI costs.
BAA-UC will expand over-reliance on socialized
costs. Under DOL's model state BAA-UC law, BAA-UC benefits
would be ``socialized.'' Socialized costs are claim costs are
financed through higher taxes on all employers rather than a
charge to the employer at the time of separation of
unemployment. Over-use of socialized costs for legitimate UI
benefits is already a serious problem for state UI programs. It
is inequitable to socialize costs because all employers are
forced to subsidize benefits paid for claims by another
employer's workers. Socialized costs also reduces the
employer's interest in (1) maintaining a stable workforce, (2)
making sure UI claims are paid properly, and (3) promptly re-
employing laid off workers.
If states adopt DOL's model BAA-UC proposal, the problem of
socialized costs will grow. Employers who already pay the
maximum UI tax will not have to pay any additional taxes. Small
businesses who are unable to hold jobs open for their own
employees will subsidize paid leave by employees of their
larger competitors.
BAA-UC raises a conformity question
The disparate nature of BAA-UC compared to legitimate UI is
highlighted by the fact that it raises a UI conformity
question. If a state passes a law or even promulgates an
administrative provision based on a law allowing BAA-UC
benefits to be paid to this new class of claimants, and DOL's
proposed rule is then struck down in court as violative of FUTA
conformity requirements, that state will be--de facto and de
jure--out of conformity. The BAA-UC proposal puts employers in
such a state at risk of the 700% FUTA tax increase which is the
penalty for being out of conformity.\7\
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\7\ The state will also lose its FUTA grant which finances the
state UI/ES administrative agency.
BAA-UC is not UI, thus studies and the administrative costs of
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BAA-UC benefits cannot be financed from FUTA dollars
Of particular concern is the fact that even though states
are not receiving enough administrative funding, they would be
expected to use FUTA administrative funds to finance the
administration of BAA-UC. By law Congress may appropriate FUTA
funds only for ``UI'' administration and state employment
services. Because BAA-UC is not UI, the direct cost of
administering BAA-UC benefits may not be funded out of FUTA
revenue. In the current context of UI administrative financing,
it is extremely unwise for the federal government to add a new
benefit to the UI system. The proposal cites no authority for
using FUTA revenue to study and evaluate a parental leave
compensation program.
Even if it were a valid use of FUTA to finance the
administration of BAA-UC benefits, an additional appropriation
would be required to cover the increased administrative costs.
If the federal government to provide the additional
appropriation, states will have to cut services. The
administrative costs of state temporary disability insurance
(TDI) programs, which are similar to BAA-UC, are not funded out
of FUTA for the same reason.
DOL's cost estimates and assumptions regarding fiscal impacts
substantially understate the true cost of BAA-UC benefits
The proposal states that the BAA-UC rule could cost between
zero and $68 million, depending on the number of states that
implement BAA-UC (64 Fed. Reg. at 67975). This estimate is
invalid because it understates the cost impact.
An estimate of zero suggests no state will enact a
BAA-UC law. The figure of zero cannot be accepted or valid
because DOL cannot encourage states to adopt BAA-UC laws and
then argue it will cost nothing because no state will take such
action. In addition, how could the proposal be justified as a
response to ``expressed interest by a small number of states''
if no state is expected to act? See 64 Fed. Reg. 67975. In fact
if only one medium size state such as Massachusetts were to
enact any conservative BAA-UC proposal, the cost impact will
easily exceed $68 million.
We believe it is fairer to take into account the
possible impact if all states enact BAA-UC programs as DOL
advocates. In that case, the direct additional state UI payroll
tax burden on employers for compensating parental leave will be
at least $18 billion per year, using conservative estimates.
The calculation is straightforward. The current weekly UI
benefit amount is approximately $200. If a claimant were to
collect 12 weeks of benefits (as recommended in DOL's model
state legislation) the direct price is $2,400 per claim.
Because of the effect of experience rating, the ultimate
additional tax will be $3,000 per claim. DOL has stated that
there are 6 million potential claimants each year, thus the
aggregate impact would be $18 billion. The annual effect of $18
billion is ``economically significant.''
If it is permissible under federal law to pay
compensation to workers on parental leave using I trust funds,
then federal law also permits states to use UI trust funds to
compensate workers who take leave for other reasons. We are
aware of no basis in federal law for making distinctions among
the various possible personal reasons for not being available
for work. The ``door'' is either open or shut--it cannot be
``ajar.''
If states compensate all workers who take family or medical
leave, using DOL's published estimates of the number of workers
who would like to take leave, the additional payroll tax cost
to employers for BAA-UC escalates to $84 billion a year.
The proposed rule requires states to provide BAA-
UC benefits to workers who quit their jobs because they do not
have approved leave. Separation from employment ostensibly for
parental or other types of leave will be considered compensable
even though the worker has completely severed the employment
relationship.
The $18 billion (parental leave) and $84 billion
(all FMLA leave) figures include only the higher payroll tax
resulting from paying compensation to workers who take parental
leave. The calculation doesn't take into account the cost of
lost productivity or the fact states may decide to provide paid
leave for 26 weeks like legitimate UI claims (or longer). Nor
does it consider the impact on employers who will have even
more vacant positions to fill or the impact on remaining
workers who must work longer hours. Ironically, employers may
have greater UI liability if replacement workers hired to
substitute for workers on leave become unemployed and collect
benefits.
The proposed rule incorrectly states there will
not be an impact to ``small entities.'' Given that BAA-UC will
have to be financed through higher taxes on employers, it
stands to reason that there will be a direct impact to ``small
business[es]'' and ``small organization[s].'' Apart from the
statutory definition of ``small entities'' under the Regulatory
Flexibility Act there is a practical concern that small
employers will bear a disproportionate share of the cost of
this proposal. The FMLA and some state leave laws exempt small
employers. On the other hand, BAA-UC will have universal
application because it is paid through the UI system. This
means that small employers must incur the cost of compensating
workers who take leave (in many cases, leave taken by employees
of other employers) in the form of increased payroll taxes.
The proposal makes an incorrect assumption that
this proposal will not impact states in a material way. This
assertion is wrong for several reasons. States themselves are
large employers who must pay the cost of BAA-UC benefits their
workers collect (an added cost to taxpayers, as well).
Furthermore, BAA-UC is a new benefit, calculated on a different
basis than regular UI, which will introduce a new and different
class of beneficiaries into the UI system. State UI agencies
will have to re-program their UI administration systems to
handle this benefit, which will undoubtedly be a ``material''
dollar cost to states. These burdens will divert resources and
attention away from serving workers who lose their jobs and
workers and employers who use state employment services.
All BAA-UC benefits will be ``scored'' for federal
budget purposes as increased outlays. There will also be
increased federal outlays for UI and BAA-UC administration and
decreased federal revenue because more workers will forego
wages subject to federal income tax, FUTA, FICA and state
unemployment tax.
BAA-UC conflicts with FUTA pregnancy provisions (section
3304(a)(12))
The BAA-UC proposal states that weeks preceding the week in
which birth or placement takes place are not compensable. The
FUTA at 3304(a)(12) already specifically addresses UI benefits
during pregnancy. It states that ``no person shall be denied
compensation under ... State [UI] law solely on the basis of
pregnancy or termination of pregnancy.'' [emphasis added] This
provision of FUTA means that states cannot disqualify a
pregnant worker who is able and available to work, and it
clearly preserves the right and necessity to disqualify a
pregnant worker who is unable to work and is unavailable for
work because of pregnancy or any other reason. Nothing in the
BAA-UC proposal provides any legal authority or rational
explanation for qualifying a worker to receive BAA-UC benefits
after giving birth when the same worker cannot receive UI
benefits because she is unable to work and unavailable for work
during the pregnancy itself. Either federal law prohibits
payment of BAA-UC benefits to a worker who is not able and
available to work--the only correct conclusion--or else it
appears that federal law also permits payment of UI benefits to
workers who in fact are unable and unavailable before the birth
occurs--contrary to section 604.21 of the proposal.
BAA-UC is not truly an experimental program
DOL defines BAA-UC as an ``experimental program,'' but
nothing in the proposal distinguishes it from any other
permanent program. There is no termination date, dollar
threshold, data limitation or other factor that would suggest
that this program is truly experimental. On its face, the
proposal discusses the need for data to determine:
(1) whether individuals who are compensated for birth and
adoption leave are more likely to return to employment,
(2) the effects on employers whose employees take
compensated leave,
(3) the effects on all employers in a state who bear BAA-UC
costs, and
(4) the effect on a state's unemployment fund.
There is precedent for developing a Notice of Proposed
rulemaking (NPRM) for a study whereby interested parties could
comment on the form and substance of the study. However, the
proposal skips that step and attempts to collect data at the
same time it expands UI benefits. Nothing in the proposal
demonstrates an emergency situation in which skipping this step
is justified.
Moreover the proposal provides that a comprehensive
evaluation will be performed only when ``at least four [s]tates
have implemented legislation and operated a BAA-UC for a
minimum of three years'' (emphasis added). If only one state
were to enact implementing legislation the impact could be
significant yet no study would be conducted. The proposal
states that, ``the [f]ederal evaluation methodology has not yet
been completed.'' We are greatly concerned that for a proposal
of this magnitude with a ``study'' as its cornerstone, the
proposed rule does not provide even a preliminary burden
estimate. These points demonstrate that there is nothing
``experimental'' about this proposal.
Finally, DOL asserts that state participation is optional.
In practice, however, we foresee significant political and
economic pressure exerted states to enact BAA-UC programs.
The Model's recommendations regarding eligibility for and
financing of BAA-UC are also troublesome. Employers are taxed
to pay for legitimate UI benefits. We believe this is
appropriate because employers are responsible for the
circumstances connected with the unemployment, rather than the
employee. BAA-UC is distinguishable from legitimate UI in that
employers are not responsible for the circumstances connected
with parental leave. To pay for parental leave benefits, states
or employers should be able to impose an employee contribution.
Consequently it is inappropriate to recommend financing of BAA-
UC benefits out of employer contributions.
Paid parental leave is more like temporary disability
insurance (TDI) than UI. Under TDI, state and private programs
require worker contributions for a major part or the entire
amount of the program, including administrative costs. While
employee financing is appropriate for BAA-UC, the UI system is
not equipped to handle collection of employee contributions.
Only two states now have any employee contributions for UI. It
would be a major change in UI administration to now collect
employee contributions for parental leave compensation, and it
would lead to greater use of employee taxes for legitimate UI.
Finally, the Model lacks any effective protection against
abuse. It would allow a state to recover an overpayment for
BAA-UC benefits paid to workers to do not return to work, but
it is important to note that improperly paid benefits are
rarely recovered once they are paid.
Conclusion
Although DOL describes BAA-UC as a form of ``unemployment
compensation,'' in fact BAA-UC will create a new and different
type of benefit program compensating workers who take parental
leave. BAA-UC is contrary to federal UI laws and the FMLA. To
sum up, there are many reasons why the BAA-UC proposal is
contrary to sound public policy and should be withdrawn:
1. ``Unemployment compensation'' is designed to provide
benefits to workers out of work due to no fault of their own.
BAA-UC benefits are for employees who have jobs and take leave
to be with a newborn or newly adopted child. BAA-UC provides
compensation for voluntary parental leave from work, thus it
cannot be unemployment compensation.
2. Allowing states to use UI trust funds for parental leave
compensation abandons the joblessness/involuntarily unemployed/
able and available principles which serve as the cornerstone of
the UI program, nation's social insurance system for jobless
workers.
3. A worker who made a decision to take leave dedicated to
the up bringing of a child cannot in any way be ``able'' or
``available'' for work consistent with sound UI policy
statements. If the worker were ``able and available'' there
would be no leave.
4. If all states adopt BAA-UC, there will be a direct
additional state UI payroll tax burden on employers totalling
at least $18 billion per year using conservative estimates--$84
billion if all FMLA leave is included.
5. DOL says the UI system is now underfunded. Expanding it
for parental leave will put at risk the solvency of the safety
net for workers who lose their jobs.
6. During DOL's two year dialogue which had 65 meetings
attended by nearly 4,000 individuals representing business,
labor, and government, DOL did not report any recommendations
to change the fundamental nature of UI by using it to also
compensate workers while they are on parental leave.
7. Congress has not amended the UI laws or the FMLA to
permit use of UI trust funds for BAA-UC. This puts any state
with a BAA-UC program at risk of being out of conformity with
FUTA--and their employers at risk of a 700% FUTA tax increase.
8. The proposal lacks any provision for demonstrating the
parent's intention to return to the previous employer or other
meaningful attachment to the workforce prior to the conclusion
of the leave period.
9. The proposal does not cite any legal authority why if
BAA-UC payments are permissible under FUTA for leave to be with
a newborn they would not be permissible for older children for
other family or medical purposes.
10. DOL asserts that state participation is voluntary. To
the contrary, significant political and economic pressure will
be exerted on state UI administrators and legislators to enact
BAA-UC programs.
11. BAA-UC will be rife with fraud and there is no
effective manner to recover improper payments.
12. BAA-UC costs will not be distributed equitably among
employers and should not be an employer obligation.
As detailed at the February 29, 2000, hearing on UI reform
before this Subcommittee, the UI system is experiencing
significant problems handling its existing obligations.
Employers now pay nearly $30 billion a year in UI taxes when
there is practically no unemployment. That figure will double
or triple in future recessions. The current method of financing
UI administration exacerbates these problems by providing
inadequate funding for state UI and employment services
agencies. Workers and employers are not receiving adequate
service, and UI claims last longer than they should during this
tight labor market. The UI system is not equipped to take on
another new and entirely different purpose such as BAA-UC.
The cost of BAA-UC benefits plus higher UI costs resulting
from prolonged claims for legitimate UI caused by diversion of
administrative resources for BAA-UC claims, as well as the cost
of lost productivity and new record keeping, will be borne by
employers. Rather than adding new costs to the UI system, DOL
should focus on reducing the inflated FUTA tax burden on
employers and making adequate funds available for UI
administration without putting greater strain on the adequacy
of state UI benefit reserves needed for times of economic
hardship.
By trying to force a new parental leave compensation
benefit into the existing UI system, the BAA-UC proposal would
in effect abolish the federal ``able and available''
requirement, which is a bedrock principle of UI. The BAA-UC
proposal is contrary to the plain and unambiguous intent of UI
law and policy and the FMLA. It will put the UI safety net at
risk and dramatically increase employer cost. Thus, we strongly
urge that these unwise and unworkable regulations be withdrawn.
Chairperson Johnson. Thank you very much. Appreciate that.
Ms. Hostetler.
STATEMENT OF KIMBERLEY K. HOSTETLER, DIRECTOR, HUMAN RESOURCES
SERVICES, CONNECTICUT HOSPITAL ASSOCIATION, AND MEMBER, SOCIETY
FOR HUMAN RESOURCE MANAGEMENT
Ms. Hostetler. Madam Chairman. My name is Kim Hostetler.
I'm Director of Human Resources Services for the Connecticut
Hospital Association, and I also own a sole practitioner human
resources consulting business in Bristol, Connecticut, where
I'm an active member of the chamber.
I'm also a member of the Society for Human Resource
Management, and I very much also appreciate the opportunity to
speak today on behalf of those organizations and their members
and a whole lot of other concerned citizens in Connecticut who
are opposed to the Department of Labor's proposed rule.
This past July, I had the opportunity to speak at Senator
Gregg's subcommittee hearing on issues with family leave
regulations and as I said at that hearing, I am a firm
supporter of FMLA and I think that probably it's one of the
most significant pieces of employment legislation that Congress
has passed.
I am one of those sandwich people that Representative
Donovan referred to before. I'm a working mother with two
daughters. I also have a husband who, in the past 14 months,
has had two heart attacks. So I have some very personal and
compelling reasons for understanding the value and appreciating
the value of the Family and Medical Leave Act.
But I'd ask that if you take just one thing from my
testimony today, what I hope that is the message that there are
some very serious problems with the implementation the
implementing regulations of the Department of Labor for FMLA,
and they've caused serious problems with employers and they've
also hurt employees.
My written testimony has a number of examples. So does my
Senate testimony, real life stories, but the two primary issues
are the very broad definition of serious health condition and
the wide open, uncontrolled use of intermittent leave.
First serious health condition. Congressional intent on
serious health condition was very clear. Minor ailments are not
serious health conditions and the Department of Labor issued
regulations that actually state that, but they have since flip-
flopped on that issue, saying basically sorry for the
confusion, but now if you've got a minor ailment, as minor as a
cold if it lasts more than three days and you see a doctor, you
get a prescription, it's a serious health condition and it
qualifies for a family medical leave protection.
It is wide open now. Connecticut employers and employers
across the country are running into examples of situations
where employees are facing disciplinary action, generally for
chronic attendance abuse, and promptly bring in a doctor's note
for some often vague condition, or they see spikes in FMLA
usage during peak vacation times, for instance.
So like I said, it's wide open at the moment and it invites
abuse as a result.
With regard to the uncontrolled use of intermittent leave,
the Department of Labor's regulations require employers to
track and to provide leave in increments as small as their
payroll system can track. So rather than in periods of half
days, which might be a reasonable approach, these increments
are literally minutes, if that's what your payroll system works
on.
So here, again, the opportunity for abuse is rampant.
There's literally no system for checks or controls. Once an
employee brings in an open-ended certification from a medical
provider that says that time off should be taken as required,
they can come and go as they please. Literally, they could take
a day off a week forever and not exhaust their time.
So once again, there is no incentive to minimize absences
and there is certainly no incentive to avoid abuse.
Another great example is perfect attendance awards. The
time that employees take away from work under FMLA can't be
counted for purposes of determining perfect attendance. This is
impossible for employees to understand.
The fact that employees with perfect attendance are
recognized side-by-side with an employee that nobody has seen
for three months is confusing and frustrating, at best.
So there are real world problems and the problems make
employers understandably nervous about offering paid time or
certainly about expanding paid time, because they've seen
what's happened in the last few years.
And what we're asking really is that the best course of
action at this point would be to address those issues, remove
those obstacles, remove those disincentives and fix the FMLA to
make it as effective as it was designed to be.
If I could take just a minute, and I've just got a minute,
to talk about the Department of Labor's proposed rule and the
use of unemployment insurance. I'd like to say that it's not
just the business community that doesn't think this is a good
idea.
I work closely as a board member with two social service
agencies in the Bristol community, both of whom work closely
with populations that are frequently unemployed. Both are
opposed to this concept and both for the same reason. It's a
bad idea to raid funds from a safety net program for a group of
needy employees or people and use it for a brand new benefit
for another group of people.
Don't jeopardize a safety net for the out of work
population is the message. And, of course, people that are
unemployed don't support the proposal, as well. They don't
support using unemployment funds this way. They're very worried
about the potential of unemployment fund shortages or cutbacks
in benefits, especially if the economy turns bad.
So I think that the idea that just because we're flush with
funds right now and this is an opportunity for using UI funds
is wrong and it's irresponsible.
Local Bristol chamber employers are also opposed. There are
examples in my testimony. Our hospitals and our health care
providers, as you personally well know, are facing severe
fiscal crises at the moment and they are very worried. They
have experienced layoffs, they're continuing to experience
layoffs, and what they are concerned about is that unemployment
resources be available to displaced workers.
And the bottom line of all of this is we think there is a
better way. You've talked about an example earlier in your
statements about the use of tax credits. It's a wonderful idea.
I think first and foremost, we should address the issues with
the FMLA, remove the disincentives from using a program and a
law that's already available. There's current legislation, in
fact, that was proposed on that would be wonderful if we could
see that pass quickly on a bipartisan basis.
And supporting the win-win proposition that you mentioned
before of compensatory time just seems like such a wonderful
idea to increase employee flexibility, to increase employee
choice. What an opportunity. Why haven't we moved forward with
that on a bipartisan basis? Exploring the use of employee pre-
tax accounts, the concept of using a program like a 401(k)
savings account or a dependent care flexible spending account
would be another alternative.
Encouraging flexible work arrangements, things like job
sharing, things like flex time, things like telecommuting,
those are all other options and other good options that are
being explored and could be encouraged.
I think this concept of bonding is such an important
concept, but bonding doesn't just happen in the first 12 weeks.
It's a lifetime commitment and we need to look at long-term
solutions, fixing the laws that we already have in place that
are supportive and providing policies and an environment that
encourages employers to expand policies that are already
available.
So I applaud your holding this hearing and I very much
appreciate having the opportunity to speak. Thank you.
[The prepared statement follows:]
Statement of Kimberly K. Hostetler, Director, Human Resources Services,
Connecticut Hospital Association, and Member, Society for Human
Resource Management
Introduction
Congressman Johnson and Members of the Subcommittee:
Good morning. My name is Kim Hostetler. I am Director,
Human Resources Services, for the Connecticut Hospital
Association (CHA), and in that capacity provide services and
information to our member hospitals and other healthcare
organizations on topics and issues relating to human resources.
Founded in 1919, the Connecticut Hospital Association has been
representing hospitals and health-related member organizations
for over 80 years. CHA's diverse membership includes the 31
Connecticut acute-care hospitals and their related healthcare
organizations, short-term specialty hospitals, long-term care
facilities, nursing homes, hospices, home health agencies,
ambulatory care centers, clinics, physician group practices and
many other organizations. CHA provides legislative and
regulatory advocacy on behalf of our members by supporting
initiatives that are in the interests of our members and their
patients. I also own a sole practitioner human resources
consulting business, Human Resources Management Services, in
Bristol CT, where I am an active member of the Greater Bristol
Chamber of Commerce. The Greater Bristol Chamber has over 1,200
individual and business members from the city of Bristol and
surrounding towns of Plymouth and Wolcott whose common goal is
to advance the commercial, financial, industrial and civic
interests of the community.
In my capacity as a Human Resources professional, I am an
active member of several professional organizations, including
the Society for Human Resource Management (SHRM) and its local
chapter, the Human Resources Association of Central Connecticut
(HRACC). SHRM is the leading voice of the human resource
profession, providing education and information services,
conferences and seminars, government and media representation,
online services and publications to more than 130,000
professional and student members throughout the world. I very
much appreciate having the opportunity to voice the objections
that these organizations and their members have to the
Department of Labor's Proposed Rule on Birth and Adoption
Unemployment Compensation.
This past July, I had the privilege of representing CHA and
the Greater Bristol Chamber at one of the four Congressional
hearings that have been held to examine the impact and
unintended problems with the Family and Medical Leave Act's
implementing regulations and interpretations. Both these
organizations, and their respective members, are firm
supporters of the FMLA as it was conceived and passed. However
the implementation of the law--through the Department of
Labor's complex regulations and contradictory opinion letters--
has moved it far from its original intent, resulting in
substantial unintended consequences for employers and employees
alike. As a result, I testified in July that we would like to
see relatively modest, but very important revisions made to
current FMLA provisions, especially before any further
expansion is discussed.
Now that the Department of Labor's Proposed Rule on Birth
and Adoption Unemployment Compensation (BAA-UC) has been
published, our concern has deepened. Four separate
congressional hearings have documented the substantial issues
that exist with the Department of Labor's current FMLA
regulations and interpretations. We feel strongly that no
expansion of any sort, including this proposal to provide paid
family leave, should be considered before these regulatory and
administrative issues are addressed. We also feel strongly that
tapping into the safety net for jobless workers to provide pay
for an entirely different program--employees on family leave--
will endanger the solvency of unemployment insurance trust
funds, represents an inappropriate attempt to circumvent
legislative authority, and violates both the original spirit of
the Family and Medical Leave Act as well as current
Unemployment Insurance law.
Issues With Current FMLA Regulations
In my work with CHA, with the Bristol Chamber, and with the
Human Resources Association of Central Connecticut, I have
found remarkable uniformity in reactions to FMLA
administration. People repeatedly confirm that while they and
their organizations have a deep and abiding commitment to
meeting the concepts, the purpose and the provisions of the
Act, they face substantial, burdensome administrative
requirements as a result of the Act's regulations. While the
intent of the FMLA seems simple and clear and is fully embraced
by these professionals and their employers, the administration
of the Act is far from simple and clear and has resulted in
confusion, employer and coworker frustration, enormous time
investment and lack of control over attendance policies.
[Note: The differences in eligibility parameters and leave
amounts between the FMLA and our state Family and Medical Leave
Act, passed in 1990, make administering FMLA programs
particularly complex in Connecticut. However, given the state's
tendency to follow federal guidelines in many key areas, we
welcome positive and constructive modifications at the federal
level.]
The purpose of the Family and Medical Leave Act, as defined
by Congress in the text of the Act, is to balance the demands
of the workplace with the needs of families in a manner that
accommodates the legitimate business interests of employers
[emphasis added]. The Department of Labor's implementing
regulations and opinion letters have moved far from that
instruction. There seems to be little accommodation for the
truly legitimate business interests of employers, and there
have clearly been unintended negative consequences for
employers and employees alike.
When the FMLA passed Congress, it seemed straightforward
and simple: employees are provided protected, secure time off
from work to deal with serious medical or family issues. But,
as I noted in my Senate Subcommittee testimony, the devil is in
the details--or, more specifically, the devil is in the Labor
Department's regulations! The primary issues in our experience,
for organizations trying to administer leaves under the FMLA
correctly, are:
the very broad definition of ``serious health
condition''
the uncontrolled use of intermittent leave
the 2-day notice requirement, and
the interference of FMLA with attendance control
policies in questionable cases.
In addition, the inability of employers to count FMLA
designated time for purposes of determining perfect attendance
award eligibility is counterintuitive and perceived by
employers and employees alike as unfair.
Definition of ``Serious Health Condition''
The FMLA was intended to cover ``serious health
conditions'' which implied that hospitalization, extended
lengths of treatment or serious chronic conditions would be
covered by the law, and that employees would be allowed time
away from work to attend to their family's needs, a laudable
goal. However, our experience demonstrates that some employees
seek to use this time for conditions well beyond what a
reasonable person would define as a serious health problem.
Extremely broad Department of Labor regulations and guidance on
the definition result in employers being required to certify
all kinds of mild or minor conditions as FMLA-protected,
including such things as bad colds, simple outpatient
procedures not contemplated by the Congress which do not
require extensive recovery times, and vague diagnoses of
``depression,'' ``stress,'' or ``back pain.'' Despite an
original opinion letter from the Department of Labor indicating
that the cold, flu and non-migraine headaches were not serious
health conditions, the Department issued a contradictory
opinion letter the following year saying they could be. (These
opinion letters are attached to my statement.) The conclusion
of many employers is that the loose definition currently in use
makes the Act a target for abuse. Many Connecticut employers
have experienced the situation where an employee facing
disciplinary action promptly brings in a doctor's form
verifying an often-vague condition requiring immediate time
off. This is extremely frustrating to employers, but it is
equally disturbing to coworkers who are left with the work. One
of the biggest frustrations I hear from supervisors is their
inability to effectively address employee concerns about a
coworker whose manipulation of well-intentioned leave
provisions leaves them with extra work and additional stress.
Intermittent Leave
The FMLA legislation envisioned allowing employees to
attend periodic, intermittent appointments for medical
problems, physical therapy, or family member medical
appointments, or take necessary time off intermittently for
serious chronic conditions, and have this time protected as
FMLA leave time. Unfortunately, instead of keeping records of
this leave in one-half day increments--a reasonable approach--
the Department of Labor has required employers to allow leave
time (and account for it) in the shortest increments of time
tracked by their payroll systems, which can be as little as
single minutes. This has created a world of administrative
problems which can be rectified by simply changing the law to
specify that FMLA leave time can be taken in increments of as
little as one-half days.
Here again, the opportunity for abuse is rampant. Many
organizations can point to chronic attendance abusers being
able to virtually always produce a doctor's statement to cover
periodic absences. The lesson here is that there seems to
always be a small group of employees who will attempt (and
generally succeed) in taking advantage of the loose and vague
provisions of FMLA as it is currently defined. While there will
always be people who look for all the angles, misuse benefits
and abuse privileges, we need not make it as inviting for them
as we have.
Two Day Notice Requirement
The law provides employers two days to designate employee
absences as FMLA time off once the employer knows the leave is
needed for an FMLA required reason. However, in many
organizations, determining if absence is FMLA time most
frequently occurs when time records are submitted for payroll
processing--generally once a week or once every other week; the
result is that the employer representative responsible for
providing FMLA notice doesn't learn of the situation until well
after the two day notice period has expired, and the employer
cannot correct these entries retroactively.
Perfect Attendance Awards
The time an employee takes away from work under the Family
and Medical Leave Act may not be counted for the purpose of
perfect attendance awards. An employee who has taken three
months off under FMLA--or missed 38 days intermittently due to
a chronic condition--may still be eligible for a perfect
attendance award. Coworkers find this impossible to understand.
Morale is affected when those rewarded for perfect attendance
are recognized together with colleagues who no one has seen in
months. The law states ``the taking of leave shall not result
in the loss of any employment benefit accrued prior to the date
of the leave.'' Employment benefits are defined as ``all
benefits provided or made available to an employee by an
employer,'' and the Department of Labor has interpreted that to
mean attendance awards. But the benefits contemplated in the
law are ``group life insurance, health insurance, disability
insurance, sick leave, annual leave, educational benefits, and
pensions''--clearly Congress was concerned about the loss or
reduction of significant health and welfare benefits. To
include perfect attendance programs--when attendance is the
essence of the program--seems to go beyond congressional
intent. Not only is such an interpretation unfair to employees
who do have perfect attendance, but it is also unfair to
employees who may need to miss time for equally compelling
reasons that may not qualify for FMLA (such as having to take
time for the funeral of a family member). We are not suggesting
that absences covered by FMLA be counted for attendance control
purposes or for performance evaluation, but only in the single
instance of attendance award programs where it would make so
much sense to employees and employers alike.
Employer Comments on FMLA Administration
While additional examples and first-hand stories of FMLA
administration issues were included and are available in my
Senate testimony, I also asked for current feedback from a
group of human resources executives who attended a CHA meeting
with me last week to prepare for today's testimony. They
reiterated their concerns and universally expressed opposition
to the Department of Labor's Proposed Rule on Birth and
Adoption Unemployment Compensation. Following that meeting, one
participant sent me the following email message:
This past year was our first year of tracking FMLA leaves
in a credible way. Prior to that it was happenstance. As a firm
supporter of FMLA, I was astounded by the year end report. In
1999, as an organization of 2000 employees with about 1800 who
would meet the hour requirements, we had 194 employees
participate in FMLA. 56% were on medical leave, 25% maternity,
14% intermittent, and 5% family. That represents 1,234 weeks
taken for FMLA and, is equivalent to 24 FTE's. At one point in
the midst of high census where we were reaching to grab anyone
who could come in, we had 54 employees out on FMLA. Staffing
was a nightmare for our nurse managers. We had one specialty
area which has 7 FTE's and it had 3 out on FMLA. So, while I
remain an ardent supporter of FMLA, I also think it needs to be
reviewed in a significant way prior to expansion.
The most prevalent comment and story ``themes'' that
colleagues have shared include the following:
The regulations, which go beyond Congressional
intention, are complicated and difficult to understand,
frequently resulting in costly consultation with an attorney to
determine eligibility, etc.
Intermittent leave is the hardest thing for
managers (and coworkers!) to deal with.
The two-day notice requirement for FMLA
designation is very difficult for employers to meet.
The opportunities for--and examples of--abuse are
rampant.
FMLA makes absence control virtually impossible;
it has become essentially impossible to address many chronic
attendance abuse situations. This is extremely upsetting to
other employees.
There is frequently a correlation between
employees facing disciplinary action and the use of FMLA. FMLA
documentation is often presented at the point when disciplinary
action has been initiated with an employee.
Employers have found a pattern of attendance
abusers taking intermittent FMLA leave on Mondays and Fridays.
Employers report seeing employees using FMLA as a
way of getting time off to which they would not otherwise be
entitled (time off at peak vacation times, for example).
Employees have become increasingly savvy about the
opportunities for abuse available under FMLA (for example,
coming in late and making up the time at the end of the shift
when shift differential is provided).
The common difficult diagnoses include headaches,
back pain, asthma, depression, anxiety, bronchitis, stress, and
stomach problems.
Employers--and coworkers--are hurt by employees
with controllable conditions--like ulcers, for example--when
the employees chose not to follow the treatment regimen and
experience periods of incapacity as a result.
Some employers have reduced benefits as a result
of FMLA (previously open-ended or 6-months leaves are now
limited to 12 or 16 weeks, for example). Some employers have
eliminated perfect attendance awards.
Many employers are finding that the highest usage
of FMLA time used to be for maternity leaves, but it is now
serious medical conditions.
Planned and scheduled leaves, even intermittent or
reduced hours leaves, can be accommodated; it's the surprises
for vague or questionable reasons that are so problematic for
employers and coworkers alike.
The amount of time employers spend on FMLA
administration is growing, and in many cases is consuming large
percentages of staff time.
These experiences and difficulties with FMLA administration
are not unique to Connecticut organizations; similar
experiences have been shared and documented in previous
hearings.
Issues With The Labor Department's Proposed Rule on Birth and Adoption
Unemployment Compensation
Our concerns with the Department of Labor's proposed rule
are two-fold:
We are opposed to tapping into the resources of a
critical safety net program to provide funding for family
leave, leaving the Unemployment Compensation system vulnerable
to insolvency due to its application to situations for which it
was never intended.
We are opposed to the process--the issuing of
Department of Labor regulations rather than an open, thorough
legislative review.
It is not just the business community that has grave
concerns about this proposed bill. I have been an active member
of the Board of Directors of Family Services of Central
Connecticut (FSCC) for many years, serving as Board Chair for
the past four years. Family Services is a 104-year old agency
providing social and behavioral health services throughout
thirteen (13) communities in central Connecticut by providing
services and advocacy on behalf of families and their members.
One of our most significant projects during the past two years
has been the Employment Success Program, a welfare-to-work
initiative operated collaboratively throughout the state under
the auspices of the Connecticut Council of Family Service
Agencies. Its purpose is to assist people who are leaving the
welfare rolls to achieve economic independence by identifying
barriers to employment, developing family plans and budgets,
and providing referrals to specific services. This successful
``safety net'' program is now in its third year. This is third
year that I have also served on the board of the Bristol
Preschool Child Care Center (BPCCC), an organization that has
provided quality, age-appropriate child care services to
economically disadvantaged families in Bristol for almost
thirty years. Currently the program serves one hundred twenty-
three (123) three to five year olds. Both of these
organizations provide services to a population that often faces
unemployment. Both of these agencies oppose using unemployment
insurance trust funds to pay for paid family leave. Their
reasons are similar: let's not drain resources from one needy
population to provide a new support service for another
population. Both favor the concept of financial support for
those who need it to take family leave, but not at the expense
of jeopardizing the safety net for the out-of-work population.
My work with those two organizations has intersected in one
other way. The Connecticut Council of Family Service Agencies
(CCFSA) recently published Families Work: The 2000 Report on
the State of the Family in Connecticut. CCSFA has worked with
the Connecticut population transitioning off welfare through
its Employment Success Program (ESP). In the report they have
identified trends during 1998-99, all of which complicate
attaining employment success. Almost half (44%) of the
referrals into ESP's Safety Net program were families who were
unable to comply with program rules: they were most commonly
sanctioned for loss of jobs, often through lack of daycare. And
hospital HR leaders have commented that one of the most common
reasons employees ask to extend their planned leave period is
not a desire to stay home rather than work, but a lack of
adequate child care. Perhaps the goal of providing support for
working families would be better served by first focusing on
closing the harmful gap between the availability and the need
for quality childcare.
People who are unemployed are also concerned about and
opposed to the Department of Labor's proposal. The Human
Resources Association of Central Connecticut sponsors a ``HR
Lead Group''--a networking and information-sharing group for HR
professionals who have lost their jobs. During a meeting of
this group on March 1st, the Department of Labor's proposed
rule was discussed. The meeting was attended by 15 HR
management level individuals, all in transition and seeking
employment, and all seasoned professionals. The group was
generally well informed on this issue, and all reacted very
negatively to President Clinton's proposal. No one present
supported using unemployment funds this way. Participants were
particularly concerned about potential unemployment funds
shortages or benefit cutbacks, especially if we head into a
period of economic downturn. They also expressed concerns about
increased record-keeping and cost burdens for employers, and
the potential for paid leave to discourage attachment to the
labor force.
In Connecticut, our unemployment insurance system was so
overburdened in the early 1990's that we had to float a bond
worth nearly a billion dollars to cover the deficit.
Connecticut employers have been paying an annual special
employer assessment every year since then, which is just now
expected to end in August 2000. So Connecticut employers and
unemployed individuals are understandably nervous about any
changes that would jeopardize the solvency of the trust fund.
Even the Connecticut Department of Labor is not supportive of
the federal proposal. During a presentation to Bristol Chamber
members in January, a department director said that the general
sense of the Department is that after just coming off the
problems with our program, this isn't the right direction. . .
He said that most state administrators have not warmed to the
idea and that whether paid leave is a good idea or not, state
unemployment funds weren't set up to deal with this.
Local employers who belong to the Bristol Chamber have also
voiced strong opposition:
We're a small business. As part of our benefit
package, we provide short-term disability income insurance for
our employees, which pays up to 13 weeks. Our employees have
taken advantage of this benefit on four separate occasions--
four new babies in our ``family.'' If employees are allowed to
collect unemployment benefits for maternity leave, should I
then consider eliminating short-term disability income from our
benefit package? The working environment in most small
businesses is family-oriented. Flextime, part-time, work-at-
home options are being implemented in small businesses more and
more, particularly during this tight labor market. Small
businesses want to accommodate dependable, loyal employees.
Allowing employees to collect unemployment during family leave
will erode the family-like relationship that exists in many
small businesses. This is not just about an increase in the
FUTA tax rate. It's as much about government forcing small
employers to do things that they might well be doing on their
own--because they want to!
I own a small job shop. We fluctuate between 24
-30 employees and are looking for good people now. Only once in
our history have we had to have a lay off due to slow down in
work and at that time I was proud to know we had unemployment
benefits to offer our laid off workers as they looked for other
employment. The burden of that benefit in this state has become
an enormous weight especially on small business trying to
control the cost but must pay for the interest assessment on
the bond. Times are good now with unemployment low but history
has proved that will change. If employees are allowed to
collect unemployment benefits for FMLA and my small shop must
pay for that with increased taxes and must also pay someone to
replace the employee who is not here how will we survive?
Insurance companies offer insurance to employees for long and
short term disability and my employees gladly of their own free
will offer to pay the premiums in full to make sure they are
covered if they must be out of work. If we must pay to replace
an employee with skilled labor to get the work out the door to
please our customers and we must pay the increased unemployment
insurance and then conceivably pay an assessment because we
didn't pay enough and must borrow again, what incentive is
there to employ people? We as owners take all the risk, borrow
all the money to run a company, invest in new machinery, spend
money on training, etc. just to be taxed out of business. Many
of us have put up our homes, our savings, all that we consider
investing in our future and our children's future and the
future of our employees and their families. Family Leave is a
wonderful idea. . .I would love to see us all be able to take
more time off to spend with our families. . .and not just when
they are sick. But until we find a way to do that that doesn't
put the burden on employers. . . or until we have a society
that is not concerned with OUTPUT and production to make our
economy grow, employers cannot be stuck with this mandate.
I have read that the Department of Labor's
Proposed Rule to alter the existing Family and Medical Leave
Act (FMLA) is under consideration. This change to allow funds
from the existing unemployment funds to be allocated to the
FMLA would be devastating to businesses throughout the United
States. If enacted, it would increase our cost of doing
business, a cost that cannot and should not be passed on to our
customers. As Plant Manager of four facilities in four
different states, I believe the current FMLA has served as a
useful tool for employees to address personal or family
situations. The current practice promotes the proper usage to
the intention of the law. We have finally started to manage our
current unemployment insurance system and have eliminated much
of the abuse. By allowing unemployment funds to those who
qualify for the FMLA, we would be opening the doors to
potential abuse. In addition to the abuse, the cost of hiring
back-up personnel to fill in would jeopardize our ability to
effectively manage the business. THIS WOULD BE DISASTROUS TO
THE BUSINESS CLIMATE!
Using unemployment funds to subsidize FMLA is
wrong. Furthermore the unemployment system is just now starting
to regain its health. The FMLA gives employees a vehicle to use
when they need to deal with specific family related issues.
Let's not turn it into a vehicle that can be used to avoid
work. The only way our economy grows and takes care of the
people of Connecticut is when money is paid for a service. We
do quite poorly when we pay money for nothing.
Our hospitals and other healthcare providers, especially
home health agencies, are facing severe funding shortages, as
Chairman Johnson well knows. In many cases these financial
shortfalls have resulted in staff downsizing. Healthcare HR
leaders and administrators are very concerned that unemployment
compensation resources be available to displaced workers. If
unemployment compensation funds are tapped to provide paid
leave to employees who take family leave, there is no doubt
that the increased costs will be substantial. This will be one
more significant financial burden placed on employers who, in
the case of the healthcare industry, are already struggling to
maintain jobs, minimize layoffs, and in some cases, simply keep
their doors open.
Our recent remarkable economic prosperity may be providing
for some a false sense of security that our communities and
employers can afford to allow current unemployment insurance
funds to be used to pay for an entirely new entitlement
benefit. But we cannot afford to lose focus on what this
important program was established to provide. The decision to
create a new entitlement benefit, as well as the decision on
how to fund it, belongs with Congress.
Summary
We feel strongly that no expansion of FMLA, including the
provision of paid family leave, should be considered before
these regulatory and administrative issues are addressed. The
first step in increasing the provision of paid leave in this
country should be to address the Labor Department's FMLA
regulations and interpretations which are discouraging
employers from implementing or expanding paid leave. Correcting
the FMLA's administrative problems can result in employment
policies which are more fair to all employees and which still
achieve the intent of the original FMLA legislation. And
exploring alternative or incentive approaches to increase paid
family leave would achieve the Administration's objective, but
without causing crisis to our unemployment system in the
process.
We would like to request your consideration of the
following points and suggestions.
A. To address the FMLA's unintended consequences, we urge
Congress to consider the following suggestions on a bipartisan
basis:
1. Restore the FMLA to original Congressional intent by
clarifying and tightening the definition of ``serious health
condition''. Perhaps for all conditions other than chronic
health conditions, the current definition of serious health
condition which includes a minimal period of incapacity (time
away from work) of ``more than three consecutive calendar
days,'' could be changed to 14 days, or minimally, seven days.
This would still protect any serious conditions, but would
eliminate the need to designate and track questionable
situations that may be addressed by a company's sick leave like
minor injuries, earaches, headaches or flu.
2. Given the difficulty in meeting the two-day notice
requirement, change the law to allow employers three weeks,
rather than two days, to retroactively designate absences as
FMLA leave time and provide written notice. This change alone
would simplify the administration of this program immensely.
3. Require that intermittent leave be offered and tracked
in increments of not less than one-half day as Congress
originally intended.
4. Because of the inherent unfairness of exempting FMLA
time from attendance program consideration, clarify that
employers may record FMLA leaves as absences for purposes of
perfect attendance awards only (the only ``employee benefit''
that could be so affected by FMLA use).
5. Address the intermittent leave certification process.
The employee taking intermittent leave now has no
responsibility in the process (e.g., to request FMLA)--the onus
is completely on the employer to deal with the absence. There
is virtually no system of checks or controls. Once an employee
has an open-ended certification from a medical provider
indicating that time off should be taken as required, the
employee can come an go without providing notice and there is
no incentive to minimize absences and avoid abuse.
6. Clarify the eligibility parameters to say 12 continuous
months of employment. Given the unusual and varied staffing
arrangements used by healthcare providers (and now employers in
other industries as well), including sporadic on-call work and
summer/after-school jobs, it is difficult to determine whether
an employee with a history of these kinds of short-term
assignments has met the eligibility requirement.
7. Remove the FMLA restriction that prohibits the use of
certain providers for second opinions. In any case where
employer has reason to doubt the validity of the medical
certification, the employer may require a second opinion. But
the health care provider used for that second opinion cannot be
employed on a regular basis by the employer. That provision is
in conflict with ADA, disability, and workers' compensation
provisions. Use of regular company doctors for second opinions
would be easier, quicker, more practical and reasonable.
B. To address the need for some employees for paid family
leave:
1. First and foremost, address current problems with the
FMLA's regulations and interpretations that are actually
serving as a disincentive for companies to offer or expand paid
leave policies. We urge the speedy enactment of technical
corrections, S. 1530--The Family and Medical Leave
Clarification Act, on a bipartisan basis to remove current
disincentives that actually discourage employers from providing
paid leave.
2. Support the win-win proposition of compensatory time.
Proposals such as H.R. 1, the Working Families Flexibility Act
of 1997, or S. 4, the Family Friendly Workplace Act, would
allow employers to offer and employees to receive overtime
payment in the form of time-and-one-half paid compensatory time
off in lieu of cash payment, enabling employees to bank paid
time off for times when it is needed.
3. Explore the use of employee pretax savings accounts
(such as an IRA or dependent care flexible spending account)
for funding leaves.
4. Encourage flexible work arrangements such as job
sharing, flextime, and telecommuting, perhaps with tax
incentives and certainly by removing current obstacles or
disincentives.
5. For employers that do not provide paid family leave
already, encourage the inclusion of such a benefit as an option
in cafeteria-style benefit plans.
6. Promote utilization of existing tax credits for adoption
assistance which are available for employers to help adoptive
parents.
7. Thoroughly explore all alternative funding options.
Tapping into the security program for jobless workers to
provide pay for employees on family leave will endanger the
solvency of unemployment insurance trust funds and represents
an inappropriate attempt to circumvent Congressional
legislative intent and authority.
Thank you again for the opportunity to participate in this
morning's hearing.
[The attachments are being retained in the Committee
files.]
Chairperson Johnson. Thank you. I appreciate your comments.
Mr. Emsellem.
STATEMENT OF MAURICE EMSELLEM, DIRECTOR OF PUBLIC POLICY,
NATIONAL EMPLOYMENT LAW PROJECT, NEW YORK, NEW YORK
Mr. Emsellem. Good afternoon, Madam Chair, Congressman
Cardin. My name is Maurice Emsellem. I'm Public Policy Director
with the National Employment Law Project. Thank you for this
opportunity to testify in support of the Administration's
proposed regulations and the initiatives in the states to
provide unemployment benefits to workers caring for newborn or
newly adopted children.
In the time I have, I'd like to make a few key points that
are covered in detail in our written testimony.
First, it's important to stress that the program announced
by the Department of Labor serves the purposes of the
unemployment comp system by maintaining and increasing
attachment to the labor market for all workers, but especially
low income working families.
Years of research on family leave policy clearly shows that
paid family leave is strongly associated with increased labor
force attachment. The studies show that those workers with
access to paid family leave work later into pregnancies and
they return to work much sooner.
Second, the initiative has provided an unprecedented
opportunity to educate the public about the unemployment comp
program, which has happened a lot in today's hearing already.
The fact is that the states already cover workers who are
temporarily separated from work for family reasons and many
other circumstances that are not strictly limited to coverage
of the, quote-unquote, involuntarily unemployed, as we discuss
in detail in our testimony.
Therefore, whatever one's view of the merits of the
program, it is not true, in our view, that the states that have
proposed such legislation are acting outside their rights to
expand benefits beyond a narrowly defined group of the
involuntarily unemployed.
Finally, I'd like to spend the last couple minutes I have
to talk about the UC funding situation. Since, as we have heard
today, one of the main arguments often made against the
proposal is that the trust funds can't handle this benefit
expansion.
Let's take a look at what's been going on with the UC
funding situation since the last recession ended in 1992.
First, because of the sustained low unemployment rate, trust
funds have been building fast. In fact, since 1992, trust fund
reserves have literally doubled from 26 billion dollars to over
50 billion dollars in 1999. As a result, most states, 33 at
least count, are now operating at levels above the generally
accepted solvency standard, which says that states should be
able to pay for at least one year benefits at peak recessionary
levels without taking in additional revenues.
Since 1991, the U.S. average high cost multiple, as the
solvency standard is known, increased by almost 50 percent.
Thus, it's clear that most states, but not all, are well
equipped to handle an expansion of UC benefits, including the
Administration's initiative. But the solvency of the state
trust funds is, of course, not just about how much money is
being spent on benefit expansions, like the family leave
program or any other form of reforms now being promoted in the
states.
It's also about what's going on the revenue side, where the
real action has been happening with the UI program.
Just in the past few years, business groups have
successfully lobbied for dramatic cuts in UI taxes in the
states. At least 25, according to our latest count, states,
according to our latest count, that have cost the UI system
literally billions of dollars, far more than what we're talking
about for this program.
For example, Georgia enacted tax cuts of one billion
dollars over four years. Michigan cut taxes by 750 million. New
Jersey cut taxes by 450 million. Washington State cut taxes by
590 million over three years.
As described in the table provided in our testimony at the
end of the table, the average rate of employer contributions to
the UI system has dropped by one-third since 1994, when the
rate started going down. Thus, the average contribution as a
percent of total wages is just 0.57 percent, versus .92 percent
in 1994.
Finally, the real question is how much does the reduced tax
contribution of employers cost the UI trust fund system.
According to our estimates, which are reflected in the bar
graph attached to our testimony, the decrease in the
contribution rate has cost the UC system 34 billion dollars
over the rates as the rate that existed if you calculate the
rate--the contributions at the rate that existed in 1994.
That is, if employers had contributed at the 1994 rate of
.92 percent for the years 1995 to 1999, the trust funds would
have an additional 34 billion dollars available to pay for
benefits expansions or to save for a rainy day.
You will note, as well, the contributions by employers have
also been steadily going down to the point where they are now
less than 20 billion dollars, not counting FUTA taxes.
Thus, since the cost of the program that we're talking
about is nowhere near the cost of those tax cuts and other
reductions in the rates, it's really about choices that states
have to make, whether to continue to provide tax cuts while
businesses are already experiencing record profits or to take
advantage of this opportunity to expand benefits and update the
unemployment system to meet the needs of today's workers.
Thank you again for this opportunity to testify.
[The prepared statement follows:]
Statement of Maurice Emsellem, Director of Public Policy, National
Employment Law Project, New York, New York
Good morning, Madam Chairman and members of the Committee.
My name is Maurice Emsellem, and I am Director of Public Policy
with the National Employment Law Project. Thank you for this
opportunity to testify in support of the Administration's
action, proposing regulations that authorize the states to
provide eligible workers with unemployment benefits while
caring for a newborn or newly-adopted child. For the reasons
described below, we believe that the proposed regulations
represent sound public policy and a critical step forward in
the evolution of the unemployment compensation (UC) system.
The National Employment Law Project (NELP) is a non-profit
organization that specializes in the unemployment compensation
system, the Family & Medical Leave Act of 1993 (FMLA), and
other employment laws that are of particular concern to the
working poor . We provide technical assistance to state
lawmakers and advocates in support of reforms of the UC system.
We have published extensively on the unemployment system,
including several scholarly articles, a popular resource guide
entitled Women, Low-Wage Workers and the Unemployment
Compensation System: State Legislative Models for Change
(Revised 1997), and a recent state report co-authored with the
Institute for Women's Policy Research (IWPR) entitled, The
Texas Unemployment Insurance System: Barriers to Access for
Low-Wage, Part-Time & Women Workers (February 1999). We are
also working with policy-makers in the states as they develop
legislation to establish Birth and Adoption, Unemployment
Compensation (BAA-UC) programs.
In today's testimony, I will address the following key
issues related to the BAA-UC initiative.
1. The BAA-UC initiative is part of a growing movement in
the states to expand access to the unemployment system to meet
the needs of the changing workforce.
2. BAA-UC advances the goals of the unemployment program to
increase attachment to the labor market, especially for low-
wage working families.
3. State unemployment laws cover workers who are
temporarily separated from their jobs for family reasons and
many other circumstances not strictly limited to coverage of
the ``involuntarily unemployed".
4. As set forth in the proposed regulations, the federal
unemployment laws do not preempt the states from enacting BAA-
UC programs.
5. With the sustained low unemployment rate, state trust
funds are well-equipped to support UC eligibility expansions,
including the BAA-UC program.
6. State trust funds are building despite dramatic cuts in
UC taxes.
The BAA-UC initiative is part of a growing
movement in the states to expand access to the unemployment
system to meet the needs of the changing workforce
Over the past several decades, access to the unemployment
system has declined to unacceptably low levels due largely to
the failure of the program to keep pace with the changing needs
of today's workforce. Nationally, the proportion of the
unemployed receiving unemployment benefits has dropped from an
average of 49% in the 1950s, and over 75% during the 1974-75
recession, to just 35% in the 1990s. As documented by the
Advisory Council on Unemployment Compensation and the National
Commission on Employment Policy, low-wage, part-time and women
workers are the hardest hit by this lack of access to the UC
system. The Texas study authored by NELP and IWPR illustrates
how these negative trends impact individual groups of workers
at the state level. In Texas, only 21% of unemployed women
workers received UC. The rate for part-time workers was 8.5%
and only 18.4% for low-wage workers, despite the significant
labor force attachment of both these groups.
As a result of these conditions and the vast growth in
state trust funds caused by the low unemployment rate, a
movement has taken hold to expand access to the unemployment
program. Just in the past few years, states as politically
diverse as Wisconsin, California, New Hampshire, Florida,
Massachusetts, Georgia, Washington, North Carolina, New Jersey
and Connecticut, have enacted or are now actively debating
broad reforms specifically intended to reach more lowwage and
women workers.'' \1\ For example, Governor Thompson of
Wisconsin recently signed a comprehensive package of UC reforms
that included the ``movable base period,'' broader coverage for
workers who leave their jobs due to a wide range of family
circumstances, and the creation of a study commission to
consider options to expand UC for part-time workers.
---------------------------------------------------------------------------
\1\ See, e.g., ``Jobless Insurance Ready to Take Friendly Turn,''
Milwaukee Journal Sentinel, October 24, 1999; ``Labor Seeks to Broaden
Unemployment Eligibility,'' The Wall Street Journal (Florida Edition),
June 3, 1998; ``Texas Ranks Low in Benefits for the Unemployed,''
Dallas Morning News, April 14, 1999; ``Safety Net Repair: Hole in
Jobless Benefits Needs Mending,'' The Sacramento Bee, September 25,
1997; ``Revamping Jobless Benefits Could Ease Welfare Burden,'' The
Sacramento Bee, September 7, 1998.
---------------------------------------------------------------------------
The BAA-UC initiative, now being considered in eight states
(Connecticut, Illinois, Indiana, Maryland, Massachusetts, New
Jersey, Vermont, Washington), is part of this growing movement
to make the unemployment system more accessible to low-wage and
women workers. Although not without its critics, the BAA-UC
initiative has successfully generated an unprecedented public
debate that has begun to address the many misperceptions about
the limits of the unemployment program and spark discussion
about the need for reform.'' \2\ Today's hearing provides
another critical opportunity to publicize the need to reform
the UC system to keep pace with today's workers, and the
opportunities to enact BAA-UC programs consistent with the
purposes of the federal unemployment laws.
---------------------------------------------------------------------------
\2\ For example, a New York Times editorial (``;Paid Leave for
Parents,'' dated December 1, 1999) supported the proposed BAA-UC
regulations stating that, ``Although unemployment insurance is
traditionally seen as helping only those who have been involuntarily
laid off and immediately available for work, many states have granted
benefits to workers who are not in that narrow category.''
---------------------------------------------------------------------------
BAA-UC advances the goals of the unemployment
program to increase attachment to the labor market, especially
for low-wage working families
As stated in the proposed regulations, the goal of the BAA-
UC program is to ``help employees maintain or even promote
their connection to the workforce by allowing them time to bond
with their children and to develop stable child care systems
while adjusting to the accompanying changes in lifestyle before
returning to work.'' 64 Fed. Reg. at 67974. The Labor
Department's position is supported by the legislative history
of the Social Security Act of 1935, reflected in the statement
in the Senate Report emphasizing that unemployment benefits
``should encourage the regularization of employment.'' S. Rep.
No. 628, 74th Cong., 1st Sess. 16 (1935) (emphasis added).''
\3\
---------------------------------------------------------------------------
\3\ Saul Blaustein, in his treatise on the history of the UI
system, also emphasizes the key role that unemployment benefits play in
maintaining a skilled and productive workforce. According to Blaustein,
``The compensation tends to preserve the workforce intact, with its
particular skills, training, and experience, until it can be recalled.
. .. While this support of workforce retention may somewhat restrict
the mobility of labor, it is of value to the employer, as well as to
the worker and the community.'' Saul Blaustein, Unemployment Insurance
in the United States: The First Half Century (W.E. Upjohn Institute:
1993), at 63.
---------------------------------------------------------------------------
As described in President Clinton's speech on May 23, 1999
announcing the BAA-UC initiative, large numbers of working
families cannot take advantage of the 12 weeks of jobprotected
leave provided by FMLA because they do not have the financial
means to support their families while on unpaid leave. As the
report of the Commission on Family and Medical Leave found, 64%
of those who wanted to take advantage of FMLA could not because
the leave was unpaid. The absence of paid family leave has had
a devastating impact on lowincome families in particular. For
example, 21% of those families with incomes of less than
$20,000 a year reported having to resort to public assistance
given the absence of paid leave. The benefits provided by BAAUC
will thus help keep these low-income families who sought to
take family and medical leave from losing their attachment to
the labor market and falling into poverty. See California Dept.
of Human Develop. v. Java, 402 U.S. 121, 132 (1974)
(unemployment benefits are necessary to ``maintain the
recipient at subsistence levels, without the necessity of his
turning to welfare or private charity.'').
In fact, years of research in the United States and abroad
demonstrates empirically the value of family leave policies to
workers and their employers. According to Professor Janet C.
Gornick, an expert in family leave policies in Europe and the
United States, ``paid family leave benefits for new parents
strengthen women's labor market attachment, in both the
shortand longterm.'' \4\ Specifically, the studies show that
access to maternity benefits is strongly associated with new
mothers' probability of returning to work within six months of
giving birth. Women with access to paid leave were also found
to work later into pregnancy and to start working sooner once
the infant was at least two months old. In addition, Canada has
successfully offered family leave benefits through its
unemployment system for many years, covering qualified
employees unable to work ``due to maternity'' (since 1971) and
``due to parental caring'' (since 1990).
---------------------------------------------------------------------------
\4\ Letter of Professor Gornick submitted in support of the BAA-UC
regulations, dated January 14, 2000.
---------------------------------------------------------------------------
The BAA-UC program thus represents a logical next step in
the evolution of the UC system to accommodate the changing
circumstances of today's working families. As documented by the
successful Canadian experience and the empirical research on
paid family leave policies, the BAAUC program will reap
significant benefits for workers, their families and employers
thereby serving the essential goals of the unemployment system.
State unemployment laws cover workers who are
temporarily separated from their jobs for family reasons and
many other circumstances not strictly limited to coverage of
the ``involuntarily unemployed''
The ``involuntarily unemployed'' is a phrase that has been
relied upon often in this debate in an effort to distinguish
BAA-UC recipients from all other claimants who collect
unemployment benefits. For the purpose of this hearing,
therefore, it is appropriate to explore whether it is true that
only the ``involuntarily unemployed'' are entitled to
unemployment benefits. Thus, is it accurate to portray BAA-UC
recipients as somehow ``pitted'' against all other UC
claimants? In our view, the phrase ``involuntarily unemployed''
does not accurately characterize all workers who are covered by
today's state unemployment laws. Nor should it, as this narrow
statement of the purposes of the unemployment program
represents a substantial step backward in the evolution of
state UC programs as they develop the flexibility to serve the
changing needs of today's workforce.
While the phrase ``involuntarily unemployed'' is not found
anywhere in the federal unemployment laws, it is mentioned in
the Senate Report accompanying the Social Security Act of 1935.
Putting aside the legal arguments for the moment, we'll explore
how this phrase has been applied in actual state practice. This
is an important exercise to clarify that the unemployment laws
are open to interpretation by the states and that narrow terms
do not capture the broad range of state unemployment policies
that have been established to respond to the everyday needs of
workers, employers, and the labor market more generally. It is
also important to correct any public misperceptions about the
scope of the unemployment program. Otherwise, fewer workers who
now qualify for unemployment benefits will actually apply for
benefits, thus contributing to the low ``take up'' rate for the
unemployment program. Already, less than half (45%) of the
jobless who have significant labor force attachment apply for
unemployment benefits with many believing, incorrectly, that
they do not qualify.
Accordingly, we begin by examining how the general rule has
been applied to the process of qualifying for unemployment
benefits. First, if workers have to be ``involuntarily
unemployed,'' are they also entitled under federal law to leave
work for compelling family reasons or other reasons not limited
to an employer-initiated layoff? Yes they are, according to the
states. In fact, going back to the early days of the
unemployment program, there are numerous examples of state laws
that consider an employee's initiation of his or her separation
from work involuntary under a broad range of circumstances.
About one-third of the states cover compelling personal
circumstances requiring an individual to leave his or her job,
including many situations that qualify for coverage under
FMLA.\5\ A number of states also provide benefits to striking
workers, which was upheld by the U.S. Supreme Court in the case
New York Tel. Co. v. New York State Department of Labor, 99
S.Ct. 1328 (1979), despite the argument that these workers were
``voluntarily'' unemployed.
---------------------------------------------------------------------------
\5\ Thus, under many state laws, an individual who is unemployed as
a result of compelling family or medical reasons is considered to be
involuntarily unemployed. For example, the Massachusetts unemployment
statute provides that, ``[a]n individual shall not be disqualified from
receiving benefits under the provisions of this subsection, if such
individual establishes to the satisfaction of the director that his
reasons for leaving were for such an urgent, compelling and necessitous
nature as to make his separation involuntary.'' Mass. Gen. Laws Ann.,
c. 151A, Section 25(e), para. 2 (emphasis added).
---------------------------------------------------------------------------
Second, is it always the case that unemployment recipients
have to be ``able and available'' for work to be considered
``involuntarily unemployed'' and therefore qualify for UC?
Again, the states have seen fit to create appropriate
exceptions from this rule especially where, as in the case of
the BAA-UC program, the goal is to increase attachment to the
labor market. For example, as described in the proposed
regulations, at least eight states now provide unemployment
benefits to workers on temporary layoff. Not unlike the
situation of those taking a family leave, the states in this
situation have made the decision that it is not always good
public policy to require workers to accept new work--even a
superior job, with better pay and benefits--when the worker, in
fact, still retains a connection, a commitment of employment,
with his or her current employer. This rationale applies as
well to the 22 states that exempted workers in training
programs from having to meet the work-search rules before this
policy was adopted as the law of the land in 1976.
Finally, by generally limiting unemployment benefits to
those who are ``involuntarily unemployed,'' are states
prevented from providing benefits to workers who are not
necessarily ``unemployed''? Again, states have acted within
their discretion to define these terms broadly. Indeed, there
are many circumstances where workers are entitled to
unemployment benefits while maintaining an on-going
relationship with their employers, as in the case of BAA-UC.
For example, nearly all states operate a ``partial''
unemployment program, meaning that benefits are paid to workers
who are still employed but whose hours have been reduced below
full-time. The same is true of ``short-time compensation'' or
``work-sharing'' programs that have been adopted by at least 17
states, where unemployment benefits are paid to current workers
whose hours were reduced in order to avoid layoffs. The state
courts have also decided several cases in which unemployment
benefits were provided to ``unemployed'' workers who were only
temporarily separated from their jobs yet still received job-
related benefits, as in the case of the BAA-UC program.'' \6\
---------------------------------------------------------------------------
\6\ See, e.g., Donahue v. Dept. of Employment Security, 142 Vt.
351, 355 (1982) (awarding benefits to an ``unemployed'' group of hourly
paid, nonprofessional school employees during the three weeks of
Christmas, mid-winter and spring vacations observed by the Vermont
public schools); Pennsylvania Electric Company v. Board of Review, 450
A.2d 779 (Pa. Cwmwlth. 1982) (awarding benefits to an ``unemployed''
woman who was granted an unpaid leave when she became pregnant and
presented medical certification that her job threatened the safety of
the fetus, during which time she continued to receive holiday pay, life
insurance and hospitalization coverage).
---------------------------------------------------------------------------
While everyone may not agree with all the policy decisions
described above, the point is that many states have expanded
the scope of their unemployment programs to serve not just
those workers who are narrowly defined as the ``involuntarily
unemployed.'' The states have put in place unemployment
programs that expand the flexibility to serve a wide variety of
employment needs, including family and workforce development
needs. By expanding the scope of the program, the states have
not ``pitted'' one group of workers against another. To the
contrary, they have created a situation where the program
benefits a greater proportion of those in need. Similarly, in
the case of the BAA-UC program, the states are taking advantage
of their flexibility to expand the program to serve newly-
defined needs. Thus, while everyone may not agree with the
merits of the BAA-UC program, it is not accurate to conclude
that those states that have proposed such legislation are
acting outside their rights to expand benefits beyond a
narrowly defined group of the ``involuntarily unemployed.''
As set forth in the proposed regulations, the
federal unemployment laws do not preempt the states from
enacting BAA-UC programs
The states have exercised vast discretion in developing
unemployment laws to meet the needs of today's workers,
including unemployment policies designed to reach beyond a
narrowly-defined group of ``involuntarily unemployed'' workers.
Thus, as set forth in the proposed regulations, the federal
unemployment laws also allow for the adoption of BAA-UC
programs. Rather than restate the legal analysis of the U.S.
Department of Labor in support of this position, we take this
opportunity to underscore certain key legal issues.
First, the U.S. Supreme Court has consistently held that
the states are provided with the discretion under the Social
Security Act of 1935 to decide basic issues of eligibility
unless specifically prohibited by federal law. This rule was
upheld most recently in the case of New York Tel. Co. v. New
York State Department of Labor, 99 S.Ct. 1328 (1979), the
decision upholding the right of states to provide unemployment
benefits to striking workers. The Court cited several prior
decisions and concluded that, ``These cases demonstrate that
Congress has been sensitive to the importance of the State's
interest in fashioning their own unemployment compensation
programs, especially their own eligibility criteria.'' Id. at
1340 (emphasis added). Thus, ``when Congress wishes to impose
or forbid a condition for compensation, it did so explicitly;
the absence of such an explicit condition was therefore
accepted as a strong indication that Congress did not intend to
restrict the State's freedom to legislate in this area.''
Accordingly, DOL's interpretation of the federal
unemployment laws as set forth in the BAA-UC regulations is
clearly supported by a consistent line of U.S. Supreme Court
decisions directly addressing the right of the states to
determine the scope of their eligibility rules . The case in
support of the agency's action is even more compelling given
the absence of any explicit reference in the federal statutes
to the terms ``involuntary unemployment'' or ``able and
available'' for work. Finally, the law is clear that the
interpretation of the federal unemployment statutes by the U.S.
Labor Department is entitled to great deference. Certainly, the
agency's action is not ``arbitrary and capricious,'' which is
the standard that applies to overrule a regulation properly
promulgated pursuant to the federal Administrative Procedures
Act (APA).
With the sustained low unemployment rate, state
trust funds are well-equipped to support UC eligibility
expansions, including the BAA-UC program
The decision to expand UC is made by each state legislature
based on a balancing of many factors, including the solvency of
their UC trust funds, the projected funding coming in and
benefits being paid out, the UC tax structure, the size of the
new program, and its projected cost. Based on this analysis,
most states--but not all--are well prepared to support UC
eligibility expansions, including the BAA-UC program.
The cost considerations of the BAA-UC program will vary
significantly from state to state, depending on the scope of
coverage, the number of weeks of benefits provided, birth
rates, UC ``take up'' rates, and each state's benefit levels.
For example, some states have proposed benefits lasting just
six weeks, while others have proposed providing benefits for a
maximum of 12 weeks. DOL, in the proposed regulations,
estimates that the BAA-UC program would cost in the range of
zero to $68 million. The higher estimate optimistically assumes
that all the states which introduced legislation last year will
actually enact the program. In individual states, the cost of
the program ranges from $1 million in Vermont to $34 million in
Massachusetts.
Since the end of the last recession in 1992, state trust
fund reserves have increased significantly as the unemployment
rate has remained consistently low (now at just 4.1%). This
makes it possible to advance a range of UC expansions to bring
the rates of access back up to more acceptable levels,
especially for women, parttime and lowwage workers. State trust
fund reserves have almost doubled since the end of the last
recession, growing from $26 billion in 1992 to over $50 billion
in 1999. And since the economy show no signs of slowing down
significantly, the trust fund reserves are expected to continue
to build as long as the unemployment rate remains low.
As measured by the generally-accepted solvency standard,
most state trust funds are thus well-positioned to handle UC
expansions including the BAA-UC program. The standard, known as
the ``average high cost multiple'' (AHCM), measures the number
of years that a state can pay UC benefits at peak recessionary
levels. The recommended AHCM is 1.0, meaning that a state trust
fund can afford to pay at least one year of benefits during a
severe recession without collecting any additional revenues.
The AHCM for the states has increased by 48% since 1992, now
averaging .93. As of the end of 1999, 33 states were above the
trust fund solvency standard.
State trust funds are building despite dramatic
cuts in UC taxes
The state trust funds would be even more solvent, and even
better equipped to handle long-overdue UC expansions, were it
not for the record level of UC tax cuts that have been enacted
in recent years.
At the same time that U.S. businesses are experiencing
optimal profits, they have also been lobbying aggressively, and
successfully, for dramatic cuts in state UC taxes. According to
a recent tally prepared by NELP, at least 25 states have cut UC
taxes dramatically over the last few years. Not surprisingly,
therefore, the average rate of employer contributions has
dropped by one-third, from .92% of total wages in 1994 to just
.57% in 1999. (See the attached table for more detail on the
yearly drop in the rate and the state figures). According to
our estimates, employers would have contributed almost $34
billion more into the state UC trust funds for the years 1995-
1999 if they had continued to be taxed at the 1994 contribution
rate.
The following examples illustrate the dramatic impact that
UC tax cuts have had on the state trust funds:
In 1998, Georgia enacted a tax cut costing the
trust fund $122 million over the next two years. In 1999, the
Governor signed legislation to further cut UC taxes by $1
billion over the next four years.
In 1998, Idaho enacted legislation that cut UC
taxes by $31 million in 1998 and by a projected $112 million
over the next fours years, reducing the rate of the UC tax by
30%.
In Illinois, the UC tax rate was cut by 16% in
1996, costing the trust fund $128 million. Legislation has been
proposed to reduce the rate this year by another 12%, with an
impact of $150 million.
In 1995, a tax cut was enacted in Maryland that
the Governor estimates will save employers $410 million over
five years.
At the end of last year, the Massachusetts
Governor sought a UC tax cut of $203 million, while the
Legislature agreed instead to freeze a scheduled tax increase
thereby costing the trust fund $120 million.
In 1996, Michigan enacted a 10% cut in its UC tax
rate, costing the trust fund about $500 million over three
years. The 1996 legislation included a provision for future
cuts in the event that the fund balance continued to rise,
causing a second round of cuts costing the trust fund $750
million since 1996.
In 1996, UC taxes were reduced in New Jersey
costing the trust fund $200 million a year, which was followed
by a second round of cuts in 1997 resulting in a total tax cut
of $450 million a year.
In 1998, New York employers received a $420
million tax break, reducing the average UC tax rate by 27%.
In 1998, South Carolina cut its UC taxes by 50%,
costing the trust fund an estimated $50 million.
In 1999, Washington froze its tax base at 1999
levels, stopped an automatic shift to a higher tax schedule,
and provided additional tax reductions for employers in some
rate classes. These tax cuts will cost the trust fund $590
million over six years.
For today's hearing, we have also prepared an estimate that
documents the impact of the reduced tax rates of the past
several years on the state trust funds. We found that, if taxed
at the 1994 U.S. average rate of .92% on total wages, employers
would have contributed almost $34 billion more into the state
UC trust funds for the period from 1994-1999 (i.e., $159
billion as opposed to $126 billion). (7 As reflected in the
attached graph, it is significant that the amount of actual
employer contributions has in fact been going down over these
years, and the gap between actual contributions and estimated
contributions at the 1994 tax rate is growing substantially.
Despite these reduced employer contributions, the state trust
funds are still building as a result of the low unemployment
rate.
---------------------------------------------------------------------------
\7\ These estimates were prepared with data provided by the U.S.
Department of Labor, the only national data documenting UC tax rates
and contributions. We calculated the dollar amount of employer
contributions that would have been deposited in state trust funds had
employers been taxed at the 1994 U.S. average rate of .92% of total
wages, which is the year when the average tax rate started declining
(see attached table). This calculation was then made for each of the
years from 1995 to 1999, and the results were added together to arrive
at the $34-billion figure. The contributions included in the
calculation are only for experience-rated employers, and they do not
include FUTA taxes. graphic*
---------------------------------------------------------------------------
Unfortunately, the data does not exist to document
precisely the impact of tax cuts alone on the trust funds.
Thus, given the data limitations, our estimate also takes into
account the impact of experience rating on the tax rates (which
generally brings down the tax rate for those employers who are
laying off fewer workers), and the automatic triggers that
exist in some states that decrease or increase the tax rates
depending on the solvency of the trust fund. Therefore, while
not an estimate of the impact of tax cuts alone, the
calculation accurately reflects the significant impact on the
trust funds of the reduced tax burden on employers over the
years 1994 to 1999.
Ironically, many business groups have been highly critical
of the BAA-UC initiative, claiming that it will result in a
``raid'' of state UC trust funds. For example, in
Massachusetts, business interests are opposed to the expansion
of UC to cover workers on family and medical leave, yet they
have actively lobbied for a UC tax cut that would have cost the
UI trust fund $203 million. According to state labor department
officials writing in support of the tax cut proposal, ``the
current status of the Massachusetts UI Trust Fund is extremely
positive, and a better time for taking additional action to
keep UI costs down could hardly be found.'' These business and
state officials are, of course, hard pressed to demonstrate how
the trust fund can handle these massive tax cuts if they cannot
afford reforms expanding access to the UC system, including UC
to cover workers on family leave.
Madam Chairman and members of the Committee, thank you
again for this opportunity to testify in support of the BAA-UC
initiatives in the states and the Labor Department's proposed
regulations.
[GRAPHIC] [TIFF OMITTED] T9340.001
UI Tax Rates as a Percentage of Total Wages
by State for the Years 1994 through 1999
----------------------------------------------------------------------------------------------------------------
Change
CY1999 CY1995 CY1996 CY1997 CY1998 CY1999* -----------
('94-'99)
----------------------------------------------------------------------------------------------------------------
US.......................... 0.92% 0.86% 0.78% 0.70% 0.62% 0.57% -38.48%
AL.......................... 0.36 0.37 0.34 0.34 0.44 0.39 8.42%
AK.......................... 1.66 1.71 1.77 1.88 1.63 1.65 -0.35%
AZ.......................... 0.61 0.61 0.52 0.47 0.38 0.32 -47.06%
AR.......................... 0.95 0.88 0.83 0.83 0.81 0.78 -17.56%
CA.......................... 0.98 0.96 0.94 0.76 0.66 0.62 -36.36%
CO.......................... 0.53 0.47 0.40 0.38 0.33 0.32 -38.91%
CT.......................... 1.21 1.26 1.23 1.18 1.10 0.66 -45.41%
DE.......................... 0.83 0.86 0.72 0.68 0.56 0.55 -33.75%
DC.......................... 1.03 0.92 0.79 0.50 0.54 0.56 -45.22%
FL.......................... 0.65 0.58 0.50 0.45 0.32 0.34 -47.12%
GA.......................... 0.56 0.48 0.45 0.37 0.30 0.15 -73.36%
HI.......................... 0.76 1.60 1.46 1.33 1.25 1.23 61.65%
ID.......................... 0.95 0.92 1.21 0.92 0.77 0.73 -22.78%
IL.......................... 1.10 1.01 0.78 0.73 0.68 0.64 -41.43%
IN.......................... 0.42 0.41 0.38 0.39 0.32 0.37 -11.62%
IA.......................... 0.69 0.51 0.51 0.50 0.50 0.50 -26.88%
KS.......................... 0.76 0.16 0.12 0.13 0.13 0.13 -82.64%
KY.......................... 0.78 0.75 0.72 0.72 0.68 0.63 -19.41%
LA.......................... 0.70 0.64 0.57 0.54 0.48 0.42 -39.40%
ME.......................... 1.45 1.27 1.23 1.03 1.13 1.12 -22.45%
MD.......................... 1.18 1.08 0.77 0.54 0.48 0.48 -59.17%
MA.......................... 1.53 1.43 1.31 1.30 0.94 0.76 -50.59%
MI.......................... 1.46 1.34 1.09 0.98 0.80 0.77 -46.95%
MN.......................... 0.94 0.79 0.66 0.60 0.55 0.51 -45.94%
MS.......................... 0.85 0.77 0.48 0.43 0.50 0.56 -33.72%
MO.......................... 0.94 0.70 0.66 0.61 0.55 0.43 -54.74%
MT.......................... 0.95 0.95 0.87 0.86 0.86 0.87 -8.05%
NE.......................... 0.31 0.27 0.30 0.34 0.14 0.18 -41.74%
NV.......................... 0.91 0.89 0.89 0.84 0.81 0.81 -10.98%
NH.......................... 0.72 0.48 0.31 0.20 0.20 0.18 -74.82%
NJ.......................... 0.83 0.87 1.16 1.14 0.96 0.82 -0.65%
NM.......................... 0.86 0.72 0.72 0.74 0.75 0.63 -26.56%
NY.......................... 1.10 1.02 0.94 0.84 0.61 0.56 -48.97%
NC.......................... 0.34 0.28 0.10 0.31 0.35 0.36 5.89%
ND.......................... 0.65 0.61 0.45 0.46 0.59 0.62 -5.17%
OH.......................... 0.95 0.91 0.76 0.54 0.51 0.46 -51.56%
OK.......................... 0.53 0.49 0.40 0.32 0.17 0.18 -66.06%
OR.......................... 0.96 0.85 1.28 1.23 1.24 1.26 31.32%
PA.......................... 1.72 1.57 1.27 1.13 1.07 1.01 -41.01%
PR.......................... 1.51 1.52 1.56 1.53 1.44 1.36 -9.80%
RI.......................... 2.09 2.07 2.05 2.00 1.85 1.55 -26.01%
SC.......................... 0.64 0.63 0.62 0.60 0.42 0.41 -35.57%
SD.......................... 0.21 0.21 0.20 0.21 0.21 0.20 -4.77%
TN.......................... 0.59 0.55 0.50 0.46 0.46 0.43 -27.76%
TX.......................... 0.62 0.60 0.52 0.47 0.43 0.38 -38.63%
UT.......................... 0.59 0.55 0.50 0.42 0.36 0.27 -53.82%
VT.......................... 1.10 0.95 0.91 0.89 0.85 0.84 -23.54%
VA.......................... 0.48 0.45 0.36 0.26 0.17 0.16 -66.74%
VI.......................... 1.09 1.44 1.67 1.69 0.94 0.62 -43.01%
WA.......................... 1.22 1.16 1.10 1.19 1.19 1.17 -3.86%
WV.......................... 1.12 1.08 1.06 1.03 1.01 1.00 -10.63%
WI.......................... 0.90 0.84 0.79 0.74 0.68 0.68 -24.58%
WY.......................... 0.74 0.73 0.72 0.75 0.74 0.55 -25.38%
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Employment and Training Adminustration.
Based on calculations prepared by the National Employment Law Project.
*The 1999 average contribution rates as a percentage of total wages were estimated by the U.S. Department of
Labor.
Chairperson Johnson. Thank you. Mr. Shimkus.
STATEMENT OF TODD L. SHIMKUS, VICE PRESIDENT, NORTH CENTRAL
MASSACHUSETTS CHAMBER OF COMMERCE AND U.S. CHAMBER OF COMMERCE
Mr. Shimkus. Thank you, Madam Chair. I am here representing
the U.S. Chamber and the North Central Massachusetts Chamber of
Commerce, where I am the Vice President. That organization
includes 1,500 members in 14 communities about 40 miles west of
the big dig, which I'm sure you're all familiar with.
My mission in being here today is really to protect the
solvency of our state's UI trust fund, for if we fail this
test, it is our working families, whether they are small
employers or employees, who will pay the price in lost jobs and
lost opportunity.
This initiative or this experiment, as the Department calls
it, if it's implemented, will cost Massachusetts employers or
will divert 200 million dollars per year from our UI trust
fund. That's 200 million dollars, according to the Division of
Employment and Training in Massachusetts, testimony given last
year by Jack King, the Director. That is unsound and unwise.
Now, why am I here from Leominster, Massachusetts, the
birthplace of Johnny Appleseed? What added value can I bring to
this discussion?
I think there's three things. First of all, Massachusetts
is clearly one of the most likely test tubes in which this
experiment will be conducted. Second, our region of
Massachusetts is very unique. We make things. Look at the clock
back here, Simplex, it's a Westminster company.
Chances are the countertop is a laminated paper made at
Montro Paper Decor in Fitchburg. Plastics is a huge part of our
local industry. Thirty percent of our folks that live in north
central Massachusetts make things and are employed in the
manufacturing sector.
As a result, when there are bad times, when there are hard
times in our state and our nation, those times are even harder
in north central Massachusetts and we simply can't afford to
make them any harder on those working families who are relying
on the security that's provided by the unemployment insurance
trust fund.
Lastly, our chamber has been a leader in efforts on
unemployment insurance reform. We were the only business
organization in the State of Massachusetts a number of years
ago to support the bifurcation of the unemployment insurance
trust fund in order to provide worker training for existing
employees, those folks who are already on the shop floor.
How can our regional chamber support that initiative, but
not this experiment? Let me give you a couple of reasons. First
of all, the workforce training fund that was established by
bifurcating the system cost employers about 18 million dollars
a year. Remember, the cost, according to the Division of
Employment and Training in Massachusetts, for this experiment
is 200 million. That's a big, big difference.
But more important, the goal of bifurcating and the
workforce training fund is to protect and enhance the solvency
of the UI trust fund. How does it do this? It does it in two
ways. First of all, you have better trained and skilled
employees. You improve the innovation capacity of local firms
so that they can succeed, grow and thrive. Second, the improved
skills of those workers helps them should they ever be
involuntarily laid off.
The hope is that they have marketable skills so that they
have to be less reliant on the unemployment insurance trust
fund. So by helping firms to compete and by helping employees
to compete, we are making a difference, protecting the solvency
of our UI trust fund.
Now, some researchers have claimed that this experiment
would strengthen worker attachment, improve loyalty and morale.
That may be all well and good, but that doesn't protect the
solvency of the UI trust fund in Massachusetts, a trust fund
that's going to see 200 million dollars drained from it if this
experiment goes forward.
Don't misunderstand. Our employers do a great deal to be
good corporate citizens in north central Massachusetts and
across this country. In Massachusetts, to bring it back to our
state's example, we have had rates frozen for the last two
years. They've been frozen, we have been told, by legislative
leaders because there aren't sufficient funds to allow for a
rate decrease.
Well, if there aren't sufficient funds to allow for a rate
decrease, chances are there's not sufficient funds to allow for
a 200 million dollar drain, either.
If you look at how much it costs to be an employer in
Massachusetts, you get a real sense of how dedicated these
folks are. Just a couple of comparisons. In our state, an
employer pays, on average, about 308 dollars per year for
unemployment insurance. In Connecticut, 251; in California,
245; Michigan, 281; Florida is 55 dollars; and New Hampshire,
which we border, 63.
Why are our costs so much higher than others? Because we
provide significant benefits. The most generous benefits in the
country. In fact, we're the first state to offer family health
care to those folks who are unemployed and are collecting
benefits through the unemployment insurance trust fund.
So we're proof. If you provide more benefits, it equals
higher rates and then there's less investment in the economy.
There's no better case to show that and to prove that than
Massachusetts.
If I could, I just want to conclude with one final comment.
In order to establish both the workforce training fund and the
health care program, family health care program that I talked
about, employers in both instances in Massachusetts were
required to pay separate new taxes. They pay a separate fee, a
flat rate contribution in addition to their UI taxes in order
to fund the worker training program and there is another
separate employer contribution in addition to those in order to
provide health care benefits.
That tells me that we need to have Congressional action if
we're going to move forward and that the rulemaking process is
simply a means of expediting something that is going to be very
detrimental to our members, their employees, and our
communities.
So with that said, this initiative, this experiment is not
a test we should fail, it's not a test we should take, and, in
fact, it's inappropriate, too costly, and potentially divisive,
as it may pit neighbor against neighbor looking for benefits in
north central Massachusetts.
So I urge you to do whatever you can and, Madam
Chairperson, if I could, I would absolutely love to adopt you
and bring you to Massachusetts as one of our Congressmen, from
your comments today.
[The prepared statement follows:]
Statement of Todd L. Shimkus, Vice President, North Central
Massachusetts Chamber of Commerce and U.S. Chamber of Commerce
I. Introduction
Chairperson Johnson and Members of the Subcommittee, thank
you for your kind invitation. I am pleased and honored to be
here to testify on behalf of the U.S. Chamber of Commerce and
the North Central Massachusetts Chamber of Commerce, where I am
the Vice President. The U.S. Chamber of Commerce is a business
federation representing more than three million businesses and
organizations of every size, sector and region. In fact, our
regional chamber of commerce, which has 1,500 businesses who
employ in excess of 25,000 people in 14 local communities, is
one of those regional organizations.
As a representative of employers in the Commonwealth of
Massachusetts, a State considered by proponents and opponents
alike as one of the most likely testing centers for this
``experiment,'' I am here today to emphatically state our
opposition to the BAA-UC initiative to divert unemployment
compensation funds to employees on parental leave because it is
unsound public policy. At the same time, we are convinced that
the rulemaking process being used to enact this ``experiment,''
as the Department of Labor has called this initiative (64 Fed.
Reg. 67974), is entirely inappropriate and unlawful. In
particular, we find this ``experiment'' to be too costly,
potentially divisive within communities, and a threat to
jobless workers and employers who have been protected by law
and the actions of the Congress for the past 65 years.
II. BAA-UC: An Unwise Social Policy Experiment
In 1998, our regional Chamber was the only business
organization in Massachusetts to support an initiative calling
for the bifurcation of our state's unemployment insurance trust
fund in order to provide a limited amount of dollars, $18
million annually, for incumbent worker training. In fact, it
was our Chamber's Plastics Council that first suggested to
State Senate President Birmingham, the bill's sponsor at a
breakfast one year earlier, that such an initiative be
launched.
While some may suggest that this initiative itself
demonstrates that states deserve wide latitude with respect to
the use of their trust funds, I want you to understand that our
regional chamber views the BAA-UC initiative in a far different
light. Our support for the Massachusetts Workforce Training
Fund was predicated on our belief that the best way to expand
economic opportunity is through improving the skills of
existing employees and their employer's aggregate innovation
capacity. With 98 percent of all state training funds directed
towards those on welfare or unemployed prior to 1999, we remain
confident that our ability to expand economic opportunity in
Massachusetts is being enhanced by this infusion of new public
funds to encourage new private investment for incumbent worker
training.
The North Central Massachusetts Chamber's support for the
Workforce Training Fund initiative was further predicated on
our belief that these new private and public investments will
protect the long-term solvency of the UI trust fund. In other
words, improving the skills of existing employees will
initially help their companies to succeed, grow and thrive,
thereby, decreasing the potential that these companies will
fail and need to involuntarily lay-off their employees. Should
such innovation fail to prevent employees from being
involuntarily laid-off, it is our expectation that the skills
these employees acquired through this investment in training
will provide them with a new set of marketable employment
qualifications so as to further reduce the amount of time they
will need UI benefits.
The BAA-UC experiment is not a reasonable or prudent
corollary to this already successful initiative. While some
proponents of BAA-UC may argue that paid FMLA benefits using UI
trust funds is similar because it might improve employee morale
or help a company to retain skilled employees, it fails to meet
the second key component that gave our regional members the
confidence to support the bifurcation of Massachusetts' UI
trust funds. Specifically, the diversion of UI trust funds to
provide paid family leave will not improve either the
employment skills of those employees or the aggregate
innovation capacity of their employers. Furthermore, this
diversion of funds does not result in employee promotions or
wage and benefit increases, as the successful completion of
training programs often does. Nor will such a diversion of
funds reduce the amount of time UI benefits will need to be
paid to an employee facing an involuntary lay-off.
To make matters much worse, this experiment will cost a
great deal more than its proponents have calculated. According
to the Massachusetts Division of Employment and Training,
implementing the BAA-UC experiment in our state will divert at
least $200 million, about seven times as much as the DOL
estimates, in unemployment benefits from those who are
involuntarily laid-off to provide employees (regardless of
income) with partial wage replacement while they take leave
following the birth or adoption of a child.
With respect to the real cost of BAA-UC, I want to
emphasize that this experiment is too expensive even in these
``good'' times. As those of us on the front lines of community
economic development understand, while the technology sector
may be booming and the Internet is creating new opportunities
never before dreamed possible, our more mature industries
continue to face significant challenges. From traditional
manufacturers to downtown retail stores, our local business
environment and community in general is at a crossroads. While
the stock market may continue to soar, it is these small
employers, the ones who are an integral part of our region's
quality of life, who are in harms way as the economy ``as we
know it'' transforms.
In this environment, it is clearly rational for employers
and business organizations, such as the U. S. Chamber and our
regional Chamber, to both oppose the BAA-UC experiment and to
support UI tax rate reductions. On the one hand, the $1.8
billion balance in our state's trust fund is sufficient to
provide some support to these traditional employers by allowing
for a $90 million tax reduction effective January 1, 2001. At
the same time, the $200 million annual cost of diverting UI
funds for a new social experiment far outweighs the benefits to
these small to mid-size employers and their employees.
What troubles us even more is that the BAA-UC experiment,
if it does dramatically reduce UI trust funds in states like
Massachusetts, will end up placing out-of-work Americans in
direct competition for UI benefits with their more economically
secure neighbors who have jobs and want the benefit of partial
wage replacement while they take voluntary leave. There is an
old saying: ``If it ain't broke, don't fix it.'' Well, we have
65 years of proof that, while not perfect, the Unemployment
Compensation system works. The BAA-UC experiment is entirely
inconsistent with this 65 years of experience. The BAA-UC
experiment is too costly, has great potential to be divisive
and is a real threat to the economic well being of employees
and employers. Therefore, the diversion of UI trust funds to
pay employees on parental leave is unsound public policy.
III. BAA-UC: The Rulemaking Process is Unlawful and Inappropriate
Before I cite the numerous legal principles circumvented by
the BAA-UC experiment, I feel compelled to offer my sincere
gratitude to Chairperson Johnson and the Subcommittee for the
opportunity to voice our members' concerns in a public forum.
It is important to note that the use of the rulemaking process
has precluded Congressional deliberation on this important
issue. Furthermore, the repeated calls from numerous
organizations both inside and outside of the Beltway for field
hearings has been ignored by the Department of Labor. Noting
the potential cost and divisive consequences of this
experiment, the use of the rulemaking process is inappropriate
because of the lack of public deliberation and debate in those
regions of the country, like North Central Massachusetts, where
because of unique community economic circumstances, this
experiment may do far more harm than good!
The Federal Unemployment Tax Act, 26 U.S.C. Sec. 3301 et
seq.(FUTA), requires state programs to satisfy certain minimum
criteria. One of the fundamental requirements imposed by
federal law is that money made available through this system be
used solely for the payment of ``unemployment compensation.''
FUTA, 26 U.S.C. Sec. 3304(a). Under these circumstances, the
term ``unemployment'' has acquired a well-established and
understood meaning which requires that all unemployment
compensation claimants be (1) without a job; (2) able and
available to work; and (3) unemployed involuntarily, (which
normally includes the requirement that claimants be actively
seeking work).
The proposed regulations cannot be reconciled with these
requirements. BAA-UC explicitly proposes to provide payments of
unemployment compensation to employees who have jobs but are
simply taking temporary parental leave, who are not available
for work and who left their jobs voluntarily but are not
seeking work. This regulation effectively strips
``unemployment'' from unemployment compensation. The
legislative intent here is clear--Congress has not delegated
the authority to the Department of Labor to carve out
exceptions to the fundamental requirements of joblessness,
availability, and involuntariness imposed on state UC programs,
where those exceptions are directly contrary to Federal
unemployment compensation law.
The proposed regulations boldly acknowledge that BAA-UC is
designed to ``provide partial wage replacement to mothers and
fathers on leave following the birth or adoption of a child''
(64 Fed. Reg. 67972). As the U.S. Chamber of Commerce
established in its written comments opposing BAA-UC, submitted
to the Department of Labor on February 2, 2000,* this objective
is wholly incompatible with the purpose of unemployment
compensation, and the requirements of joblessness,
availability, and involuntariness which are intended to prevent
the diversion of UC funds for other governmental experiments
and purposes. Moreover, this frank admission of intent
demonstrates that the BAA-UC stands as a direct challenge to
Congressional judgment and intent.
Thus, in enacting the Family and Medical Leave Act of 1993,
Congress considered whether family leave should be paid or
unpaid and expressly provided that, as regulated by the Federal
government, the right to leave ``because of the birth of a son
or daughter'' (29 U.S.C.Sec. 2612 (a)(1)(A)) should be unpaid
(29 U.S.C. Sec. 2612(c)(d)). Accordingly, the BAA-UC, which
authorizes states to pay parents on parental leave out of
unemployment compensation funds, is an impermissible attempt to
make an end-run around the considered judgment and authority of
Congress.
Lastly, our regional Chamber understands from experience
just how limiting the existing Federal law can be with respect
to Unemployment Compensation. As I mentioned earlier, we
supported the use of a limited amount of the UI trust fund
balance for worker training. Yet, Federal law did NOT allow
Massachusetts to simply divert funds for even this directly
work-related purpose. In order to establish the Massachusetts'
Workforce Training Fund, the legislation we supported
established a new surcharge on employer UI taxes. This
surcharge, in fact, provided the $18 million that is annually
placed into a separate fund for the training purposes set forth
in the state legislation.
With this in mind, we are confident that, based on law and
our own experience, the Department of Labor's use of the
rulemaking process in this case is both inappropriate and
unlawful. By using the rulemaking process to implement the BAA-
UC experiment, the Department of Labor is seeking to circumvent
both Congressional intent and a full public debate on the
merits and costs of this experiment. Moreover, the BAA-UC
experiment ignores a volume of evidence which suggests that
such a diversion of funds may jeopardize the ``security
blanket'' for the unemployed and pit the unemployed against
their more fortunate neighbors who have a job but voluntarily
choose to take parental leave.
IV. Conclusion
For the foregoing reasons, the U.S. Chamber of Commerce and
the North Central Massachusetts Chamber of Commerce strongly
oppose the BAA-UC initiative and urge the Congress to take all
appropriate action to protect employees and employers from the
implementation of this costly, divisive and inappropriately
implemented ``experiment.''
*Excerpts from the Comments of the U.S. Chamber of Commerce
are attached hereto as Exhibit #1 (Exhibit 1)
U.S. Chamber of Commerce
[Excerpts from letter to Grace Kilbane, Director of
Unemployment Insurance Service, U.S. Department of Labor, from
U.S. Chamber of Commerce, February 2, 2000]
Re: Proposed Regulations on Birth and Adoption Unemployment
Compensation
The U.S. Chamber of Commerce (the Chamber) submits the
following comments in opposition to the Department of Labor's
(DOL) proposed regulation on Birth and Adoption Unemployment
Compensation (BAA-UC) published in the Federal Register at 64
Fed. Reg. 67972 et seq. on December 3, 1999.
Statement of Interest
The Chamber is the world's largest business federation,
representing more than three million businesses and
organizations of every size, sector, and region, with
substantial membership in all 50 states. The BAA-UC rule
authorizes states to divert unemployment compensation funds to
parents, for up to 12 to 26 weeks or more, who voluntarily take
leave from work or quit their jobs in order to be with a
newborn or newly adopted child. This proposal will have a
substantial, detrimental impact on our members, who will be
forced to pay for BAA-UC benefits through higher payroll taxes.
Reasons Why the BAA-UC
Proposed Rule Should be Withdrawn
It is both unlawful and bad public policy to divert
unemployment compensation (UC) funds to employees on parental
leave. Federal law has protected jobless workers and employers
for over 65 years by assuring that state unemployment trust
funds are used for the sole purpose of paying unemployment
compensation. DOL's proposed regulation will change the
fundamental purpose and nature of the UC program, the safety
net for jobless workers, by allowing the expenditure of state
unemployment trust funds for the entirely unrelated purpose of
compensating employed workers who take parental leave. Their
proposal to convert parental leave to paid status using UC
funds also contravenes Congressional judgement, expressed in
the Family and Medical Leave Act, that such leave be unpaid. In
addition, BAA-UC undermines the stability of the unemployment
compensation system by imposing staggering new liabilities of
up to $36 billion or more per year on a fragile, under-funded
unemployment compensation system.
I. Federal Unemployment Compensation Law Precludes DOL's Adoption of
the Proposed BAA-UC Regulations \1\
Unemployment insurance in each of the 50 states is provided
through a cooperative federal-state arrangement in which a
federally-collected tax is used to finance state UC programs
that meet federal requirements. Although federal law allows
states wide latitude in the administration of the unemployment
compensation system, it does prohibit states from ``depart[ing]
from those standards which, in the judgement of Congress, are
to be ranked as fundamental.'' Steward Machine Co. v. Davis,
301 U.S. 548, 594 (1937). Thus, the Federal Unemployment Tax
Act, 26 U.S.C. Sec. Sec. 3301 et seq. (FUTA), requires state
programs to satisfy certain minimum criteria ``designed to give
assurance that the state unemployment compensation law shall be
one in substance as well as name.'' 301 U.S. at 575.
---------------------------------------------------------------------------
\1\ A fuller development of this position is found in the comments
filed by LPA, Inc., which the Chamber hereby adopts and incorporates
herein.
---------------------------------------------------------------------------
One of the fundamental requirements imposed by federal law
is that money made available through this system be used solely
for the payment of ``unemployment compensation.'' FUTA, 26
U.S.C. Sec. 3304 (a). This principle is so deeply embedded in
the federal-state relationship that Federal law prohibits the
use of state trust funds even for the directly related purpose
of financing the administrative cost of providing unemployment
benefits. Under these circumstances, the term ``unemployment''
has acquired a well-established and understood meaning: namely,
that all unemployment compensation claimants be (1) without a
job; (2) able and available to work; and (3) unemployed
involuntarily, which normally includes the requirement that
claimants be actively seeking work.
The proposed regulations cannot be reconciled with these
requirements. BAA-UC explicitly proposes to provide payments of
unemployment compensation to employees who have jobs but are
simply taking temporary parental leave, who are not available
for work and who left their jobs voluntarily but are not
seeking work. Indeed, the Model State Legislation included in
the Notice of Proposed Rulemaking would preclude the
application of the joblessness, availability, and
involuntariness requirements to BAA-UC claimants, thereby
stripping ``unemployment'' from unemployment compensation.
Moreover, DOL's prior treatment of areas such as temporary
layoffs, illness, jury duty, and training do not provide any
justification for its attempt in the proposed regulation to
turn the unemployment requirement upside down. An agency's
authority to interpret the statute it administers is not
unlimited. It does not permit any agency to ``disregard
legislative direction in the statutory scheme(s) that the
agency administers.'' Heckler v. Chaney, 470 U.S. 821 833
(1985). Moreover, where ``Congress has directly spoken to the
precise question at issue. . ., that is the end of the matter;
for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.'' Chevron v.
Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984)
(fn. omitted). The legislative intent here is clear--Congress
has not delegated the authority to the DOL to carve out
exceptions to the fundamental requirements of joblessness,
availability, and involuntariness imposed on state UC programs,
where those exceptions are antithetical to Federal unemployment
compensation law.
Far from attempting the impossible--reconciling the
regulation with the joblessness, availability, and
involuntariness requirements--the proposed rule effectively
acknowledges that the BAA-UC does not satisfy these
requirements. Thus, the Model State Legislation accompanying
the BAA-UC provides that individuals on birth or adoption leave
shall not be denied unemployment compensation based upon the
``availability of work,'' the ``inability to work,'' or the
``failure to actively seek work.'' 64 Fed. Reg. 67977. Such
state legislation is necessary because the proposed payment of
unemployment compensation to individuals on birth and adoption
leave conflicts with all three aspects of unemployment.
A. The BAA-UC is Incompatible with the Jobless Requirement
In construing a statute, a Federal agency normally
``'look(s) first to its language,'. . . 'giving the words used
their ordinary meaning.''' Moskal v. U .S., 498 U.S. 103, 108
(1990), quoting U.S. v. Turkette, 452 U.S. 576, 580 (1981);
Richards v. U.S., 369 U.S. 1, 9 (1962). In ordinary, everyday
usage, the term ``unemployment'' indicates a state in which one
is without a job. Thus, it is clear that, when FUTA refers to
``unemployment compensation,'' it is referring to persons who
are without a job.
A parent on BAA-UC leave has a job at the outset of the
leave and is guaranteed to have a job at its conclusion. The
proposed regulations authorize states to pay unemployment
compensation to ``parents on approved leave.'' Approved leave
is defined as a ``specific period of time, agreed to by both
the employee and the employer, during which an employee is
temporarily separated from employment after which the employee
will return to work for that employer.'' 64 Fed. Reg. 67976-77.
Thus, the proposed regulations contemplate payment of
unemployment compensation to persons who ``will return to the
last employer after a designated period.'' 64 Fed. Reg. 67975.
Such a payment cannot be reconciled with the requirement
that the unemployment funds be ``used solely in the payment of
unemployment compensation.'' FUTA 26 U.S.C. Sec. 3304 (a)(4).
Persons who are temporarily absent from their employment are
not jobless and, hence, are not ``unemployed.'' Employees
routinely take time off from their employment for vacations,
jury duty, illness, and family matters. These individuals are
not without a job and, therefore, are not eligible to receive
unemployment compensation. The proposed regulations cite no
authority for the proposition that parents or other persons who
take approved leave are ``unemployed.'' Indeed, to characterize
such persons as unemployed would mean that all individuals who
are absent from work for any reason are unemployed as well.
The DOL notes that unemployment compensation has been paid
to persons who are ``temporarily laid off'' because of lack of
work and who have an expectation that they will be rehired. See
64 Fed. Reg. 67973. However, those on temporary layoff, do not
have a job. At best, such persons have an expectation, and in
some cases, a contractual right, to a job if work becomes
available in the future. Teachers during the months between
school years, and athletes in the off-season are in a position
more analogous to individuals taking birth or adoption leave.
They have a job but are simply not working for a period. FUTA,
however, specifically bars teachers and athletes in such
circumstances from claiming unemployment. See 26 U.S.C.
Sec. Sec. 3304(a)(6)(A), 3304(a)(13). Thus, these situations
offer no indication that Congress wished to provide
unemployment compensation to persons who have jobs but take
temporary leave from them for personal reasons.
B. The BAA-UC is Incompatible with the ``Able and Available''
Requirement
Joblessness alone does not capture all aspects of the
status of ``unemployment'' under FUTA. As the proposed
regulations acknowledge, one well-recognized aspect of the
status of unemployment under FUTA is the requirement that a
person be ``able and available'' for employment. See 64 Fed.
Reg. 67972. Thus, the status of ``unemployment'' implies not
only that a person is out of work but also that the individual
is available for work (except for temporary illness). It is
also implicit in the requirement that persons who are
``unemployed'' actively seek work.
The able-and-available requirement is reflected in other
FUTA provisions as well. For example, FUTA Section 3304(a)(8)
prohibits states from denying compensation to otherwise
eligible individuals who are participating in a state-approved
training program. See 26 U.S.C. Sec. 3304(a)(8). This
provision states that compensation shall not be denied
``because of the application, to any such week in training, of
state law provisions relating to availability for work. . .or
refusal to accept work.'' Id. Obviously, this exemption assumes
the existence of an availability requirement because, without
such a requirement, there would be no need for an exemption.
FUTA also requires that unemployment compensation be ``paid
through public employment offices.'' FUTA, 26 U.S.C. Sec.
3304(a)(1). As the purpose of such offices is to find people
jobs, this provision ties the payment of unemployment
compensation to that individual's availability for work. See 64
Fed. Reg. 67972. Thus, the statutory context confirms that, for
purposes of FUTA, the availability of an individual for work is
an integral part of the status of unemployment.
The cornerstone to ensuring that UC trust funds will only
be paid to those involuntarily unemployed, but seeking new
employment, is the well-established requirement that recipients
be available for work. Clearly, employees voluntarily taking
parental leave are not available, fail to satisfy the second
requirement for unemployment, and, therefore, should be barred
from receiving UC benefits. Given the decision of a parent to
leave work and devote time to a newborn or newly adopted child,
the parent is clearly not available for work during the leave
period. The parental leave proposal acknowledges as much by
noting that BAA-UC claimants are parents who ``wish to take
approved leave'' and by including in the definition of
``approved leave'' the fact that claimants are ``temporarily
separated from employment.'' 64 Fed. Reg. 67972, 67974
(emphasis added). It is also telling that the proposed
regulations do not require BAA-UC claimants to register with
the public employment offices. Thus, the proposed regulations
clearly conflict with the requirement that unemployment
compensation claimants be ``available'' for work and remain
attached to the labor force in accordance with the fundamental
purposes of the UC statutes.
C.The BAA-UC is Incompatible with the Involuntariness Requirement
The final requirement of the tripartite rule governing the
status of ``unemployment'' is involuntariness, which is the
requirement that an individual be seeking work. Most
unemployment compensation laws also disqualify individuals from
receiving unemployment benefits when they leave their
employment voluntarily without good cause attributable to their
work. See, e.g., Wimberly v. Lab. and Indus. Rel. Comm'n of
Missouri, 479 U.S. 511, 515 (1987) (Employee who left her job
due to pregnancy properly denied UC benefits). This aspect of
the status of unemployment reflects common usage. The context
in which the term unemployment appears in FUTA makes it clear
that the term is being used in this involuntary sense. For
example, as noted above, FUTA requires unemployment
compensation to be paid through public employment offices. As
the proposed rule recognizes, because the purpose of such
offices is to find people jobs, this requirement ``ties the
payment of UC to an individual's search for employment.'' The
provision prohibiting states from denying compensation to
otherwise eligible individuals involved in job training
programs because of state law provisions ``relating to. .
.active search for work'' further illustrates the linkage
between the UC payments and the pursuit of employment. FUTA, 26
U.S.C. Sec. 3304(a)(8). Just as the exemption for provisions
relating to availability for work indicated that
``availability'' is an aspect of unemployment under FUTA, the
exemption for provisions relating to the active search for work
confirms that involuntariness is an aspect as well.
Individuals who exercise the option to elect a temporary
parental leave from their existing jobs are not
``involuntarily'' out of work. Hence, employees on parental
leave fail to meet the third eligibility criteria as well. The
proposed regulations establish that, since the employee will
return to employment at the end of the leave, the employee will
not actively be seeking new or other work during the leave
period. See 64 Fed. Reg. 67975 (``The term `leave' implies that
the individual will return to the last employer after a
designated period.''). Finally, the comments to the proposed
Model State Legislation underscore this fact by providing that
BAA-UC recipients ``cannot meet the systemic and sustained work
search requirement'' relating to the 1970 amendments to FUTA.
64 Fed. Reg. 67979.
II. The Proposed Regulations Impermissibly Undermine Congressional
Intent Embodied in the Family and Medical Leave Act
The proposed regulations boldly acknowledge that BAA-UC is
designed to ``provide partial wage replacement to mothers and
fathers on leave following the birth or adoption of a child.''
64 Fed. Reg. 67972; see also, commentary on Model State
Legislation, 64 Fed. Reg. 67978. As the Chamber established
above, this objective is wholly incompatible with the purpose
of unemployment compensation and the requirements of
joblessness, availability, and involuntariness which are
intended to prevent the diversion of UC funds to other
governmental purposes. Moreover, this frank admission of intent
to use UC funds to pay for parental leave demonstrates that the
proposed regulation is a direct challenge to Congressional
judgement and intent. Thus, in enacting the Family and Medical
Leave Act of 1993, 29 U.S.C. Sec. 2601 et. seq. (FMLA),
Congress considered whether family leave should be paid or
unpaid and expressly provided that, as regulated by the Federal
government, the right to leave ``because of the birth of a son
or daughter'' (29 U.S.C. Sec. 2612(a)(1)(A)), should be
unpaid. 29 U.S.C. Sec. 2612(c)(d). Accordingly, the BAA-UC,
which authorizes states to pay parents on parental leave out of
unemployment compensation funds, is an impermissible attempt to
make an end-run around the considered judgement and authority
of Congress.
III. The Proposed Regulations Undermine the Stability of the UC System
and Jeopardize the Security of the Unemployed who Rely Upon the UC
Safety Net
The BAA-UC proposal also jeopardizes the stability of the
UC system. In the last recession, more than 25 states depleted
their UC reserves and had to borrow from the federal
government. DOL's own statistics show that if another similar
recession hits, states will need to borrow an additional $25
billion. In spite of this, DOL now advocates (through the
proposed regulations) that states expand access to UC, a policy
which is at cross-purposes with DOL's solvency objective and
its goal of expanded access to legitimate UC claims.
By DOL standards, the trust funds of some 20 states are
currently under-funded, and the combined funds of all states
fail to satisfy DOL's solvency rating. UI Data Summary,
Unemployment Insurance Service, U.S. Department of Labor, June
1999 (Data Summary). The proposed rule would exacerbate this
serious problem by piggy-backing parental leave benefits on a
financially precarious UC system.
The potential costs of parental leave benefits are not
inconsequential. Contrary to DOL's maximum estimated cost of
$68 million for BAA-UC implementation, it cannot be assumed
that only a few states will adopt the proposed regulation. All
50 states are invited to embrace these regulations providing
paid parental leave from UC funds, and the possibility that all
50 states will adopt the proposed regulation must be considered
in determining the potential negative financial impact on the
UC system. On this premise, and given the average benefit per
claimant of $200 per week (Data Summary, September 1999), a 12-
week benefit pay out as contemplated by the Model State
Legislation (64 Fed. Reg. 67977), experience rating and other
factors costing 25 percent or some $600 per claim, and DOL's
projection of 6 million potential new claimants each year, the
drain on the nation-wide UC system could be $18 billion per
year. This amounts to about 60% of the regular benefits paid to
truly unemployed workers in 1999. Moreover, since states are
free to establish the length of the benefit period under the
proposed regulation, it seems likely that all or many would
treat unemployed claimants and BAA-UC claimants the same and
provide payments to both for 26 weeks. This could increase the
cost of BAA-UC claims to $36 billion and consume 80% of current
UC reserves. Moreover, this $36 billion is nearly twice the
annual revenue flowing into the state UC trust funds. Under
these circumstances, UC trust funds would be quickly drained
unless substantial new taxes were imposed on business.
Without question, the magnitude of increased taxes required
to satisfy both unemployment and parental leave claims,
particularly in the context of a future recession with an
increase of 200-300 percent in unemployed claimants, would
place an unconscionable burden on all employers and,
particularly, small businesses. Rather than further burdening
employers with new payroll taxes, Federal and state governments
should be easing taxes on business and encouraging the building
of reserves for periods of economic hardship. Alternatively, in
the absence of overbearing tax increases, payments to BAA-UC
claimants are likely to dissipate UC funds beyond the minimum
necessary to pay the claims of those unemployed but available
for work--those for whom these benefits were created and
intended. Both alternatives are unsatisfactory.
Finally, small business is likely to be disproportionately
impacted by diversion of UC funds to those on parental leave,
regardless of whether or to what extent new taxes are imposed.
Since the proposed regulation deals only with the payment of UC
funds to employees on BAA-UC leave, and not with the right to
take leave in the first place, most employees are expected to
establish their right to leave under the FMLA. The DOL clearly
contemplated this as well in fashioning Model State Legislation
based upon a leave period of 12 weeks. Compare 29 U.S.C. Sec.
2612(a)(1) with 64 Fed. Reg. 67977. However, the FMLA only
covers employees of businesses with 50 or more workers. 29
U.S.C. Sec. 2611(4)(A)(i). For this reason, employees of small
businesses are far less likely to secure parental leave; hence,
the UC contributions of small employers applied to BAA-UC will
be disproportionately diverted to employees of larger companies
rather than evenly distributed without regard for employer
size. This disparate impact in the application of UC funds
under the BAA-UC is blatantly unfair to small business and
constitutes equitable grounds for withdrawing the proposed
regulation.
Conclusion
It is hardly coincidental that in the 65 years since the
unemployment compensation system was adopted, stringent
requirements have developed to govern qualification for UC
benefits. Strict limitations on the use of unemployment trust
funds is necessary to counter political pressure to use these
funds for other governmental purposes. Those limitations
embodied in FUTA require claimants to satisfy the following
criteria: (1)be without a job; (2) be able to and available for
work; and (3) be involuntarily unemployed.
The BAA-UC satisfies none of these FUTA-required criteria.
Thus, a claimant on parental leave (1) has a job guaranteed by
law, contract, or through arrangement with the employer; (2) is
on leave from the job, not out of a job and searching for other
employment; and (3) is temporarily away from the job by choice,
rather than by direction of the employer. Hence, it should be
beyond dispute that paid parental leave does not qualify as
unemployment within the meaning of FUTA and related laws and
decisions.
Moreover, the BAA-UC oversteps permissible bounds by
attempting to create paid leave for parents of newborns and
newly adopted children in the face of Congress' determination
under the Family and Medical Leave Act to limit parental leave
to unpaid leave.
In addition, the BAA-UC proposal undermines the stability
of the unemployment compensation system and jeopardizes the UC
safety net for jobless workers by imposing potentially
staggering new liabilities upon a fragile, under-funded
unemployment compensation system.
Finally, the timing of the BAA-UC, and time frame for
comments thereon, necessarily discouraged public responses at
the state, local, and Congressional levels. The initial 45-day
comment period from December 3, 1999 to January 18, 2000 fell
within a Congressional adjournment, and the period was too
short--particularly in view of the intervening holidays--to
permit meaningful grassroots comment. The subsequent 15-day
extension did not cure these defects. Hence, a further
extension should be granted to allow hearings at several
locations throughout the country in order to ensure that state
and local officials, individual employees, and employers have
an adequate opportunity to comment on the proposed regulation.
Request for Relief
For all of the reasons discussed above, the proposed BAA-UC
regulation is contrary to law, represents unsound public
policy, and should be withdrawn. Due to the abbreviated comment
period, the Chamber requests that hearings in several diverse
locations be held to permit greater participation in the BAA-UC
process at state and local levels, and the Chamber reserves the
right to supplement these comments at a later date if
additional relevant information comes to our attention.
Respectfully submitted,
U.S. CHAMBER OF COMMERCE
Chairperson Johnson. Thank you. Mr. Wheatley.
STATEMENT OF JACK F. WHEATLEY, DIRECTOR, MICHIGAN UNEMPLOYMENT
AGENCY
Mr. Wheatley. Thank you, Madam Chairman and members of the
committee. I'm Jack Wheatley. I'm Director of the Michigan
Unemployment Agency.
We are the unemployment insurance people in Michigan. That
is our one and only function. We administer the Michigan
unemployment insurance system.
Let me say right up front that we oppose this rule. This is
contrary to the fundamental concept of unemployment insurance
as established by our legislature and the Congress in the
Social Security Act. That is, to receive benefits, one must be
connected to the labor market, must be out of work through no
fault of the employee's own, and able and available to work.
I should not be interpreted as opposing the idea of helping
families. I think we're all for that. It's just it should not
be funded from the unemployment insurance act. If it's
something that should be adopted, it should be debated fully by
the Congress and by state legislatures, but first by the
Congress.
As mentioned before, Michigan has an interesting economy.
Although we have diversified a great deal in Michigan, I'd like
to brag that we have been, for three years straight, the number
one recipient of the new business development award from Site
Selection Magazine. We still have a large manufacturing
component to our economy and still largely dependent, to some
degree, on the automobile industry.
So turn-downs hit us harder in Michigan. That's been a fact
of the past and we're not passed that yet. More about that
later on.
Again, Michigan lawmakers and Congress designed and
intended the unemployment insurance program to be funded by
employers to protect men and women who are out of work through
no fault of their own. By the very nature, as stated here
before, participants in the Family Leave Act are choosing not
to work. They are not involuntarily laid off.
The integrity of the trust fund must be protected and must
be available when needed to pay benefits to men and women who
are involuntarily laid off and already suffering the stress of
being out of work.
This proposal, again, as good as they are, as laudable as
this proposal and there's a lot of good ideas out there, I can
enumerate others if you want, they are not worth putting our
trust fund at risk when it's needed to serve men and women who
are out of work.
Again, we've made excellent progress in diversifying our
economy in Michigan, but during the '80s and '90s, we had to
borrow, as noted before, over 2.6 billion from the Federal
Government to pay benefits to men and women who were laid off
and out of work because they chose--involuntarily.
Chairperson Johnson. Is that 2.6 million?
Mr. Wheatley. Billion. We had to pay that back--that is,
our employers had to pay it back when we assessed a surcharge
on them. As indicated before, fortunately, we've had good
economic times, we've paid off that debt. Our trust fund now is
2.7 billion dollars, very healthy, and we want to keep it that
way so that we can serve men and women who are laid off.
It's hard to really estimate what the cost of this program,
if adopted, and we have no intention of adopting it, would cost
Michigan. Of the 130,000 new births in Michigan last year,
1999, if 25 percent of those new parents took advantage of the
rule, it would cost Michigan employers an additional 190
million dollars, at least our trust fund, 190 million dollars.
If 75 percent of those people, if they took advantage, that
would be up to 570 million dollars.
This is considerably contrasted, the original estimates of
DOL was two to 68 million for the whole country. I don't know
what their new estimates are.
Speaking of our Federal partner, Department of Labor seems
to be moving in a different direction, at least they're sending
us in a different direction. They have initiatives right now
that urges states to increase the solvency of their trust fund,
despite the fact that we're at an all time high, 2.7, they want
us to increase it up to over four billion dollars.
They also want us to increase eligibility to cover part-
time workers, they want to mandate that. They want to mandate
that the trigger be lowered to trigger the benefits in excess
of 26 weeks that are currently there.
These alone, without any Family Leave Act proposal, would
seem to lead us to only one conclusion--we might have to
increase taxes for our employers, and I don't think that's a
good idea. I think they need the money to expand jobs, to pay
higher wages and their benefits, and make their own decisions.
Again, the integrity of our trust fund is important. Under
Michigan law, our employers, for the most part, are experience
rated. That is, they can control the cost of their UI taxes, to
an extent, by minimizing their layoffs. A proposal like this
would impact and decrease their ability to handle their own
taxes.
Let me close on a personal note. My family experience or
history in Michigan is probably similar to many. My father was
a UAW worker for 30 years at General Motors Corporation. My
brother and I were attorneys for GM for a number of years.
But we do remember how important UI benefits were to our
family during these economic turn-downs in the auto industry in
the '50s and '60s. Again, this trust fund and the integrity of
this trust fund to pay benefits to people who are out of work
through no fault of their own and not because they choose not
to work is too important an issue to be decided by this rule
without being debated by this Congress.
I see it as a serious breach of faith between our employers
or the commitment we have made to our employers and the working
men in the State of Michigan.
Thank you.
[The prepared statement follows:]
Statement of Jack F. Wheatley, Director, Michigan Unemployment Agency
Madame Chair and Members of the Subcommittee on Human
Resources, I am Jack F. Wheatley, Director of the Michigan
Unemployment Agency and a member of the Board of Directors for
the Interstate Conference on Employment Security Agencies.
Thank you for inviting me to testify today on behalf of the
Michigan Unemployment Agency concerning the proposed
regulations involving the Birth and Adoption Unemployment
Compensation. I would like to commend the Chair for both the
important hearing that occurred last week on the proposals to
improve the administration of the national Employment Security
system as well as the hearing today on the proposed regulatory
action initiated by the U.S. Department of Labor.
The Unemployment Insurance program has been a critical
program for the State of Michigan and we have a keen interest
in assuring that it continues to provide adequate wage
replacement whenever individuals become unemployed through no
fault of their own. Michigan has relied on the Unemployment
Insurance system to stabilize our economy through the horrific
recessions in the late 50's and during the back-to-back
recessions of the mid-70's and early 80's. As some of you may
remember, between the years 1980 and 1983, Michigan's
unemployment trust fund was required to borrow $2.6 billion
when unemployment rates hit 17%. During that time, hundreds of
thousands of Michigan residents collected benefits that carried
them through the difficult times that Michigan experienced.
The good news is that because of diversification and
sustained economic recovery, the economy is thriving, workers
are reemployed, Michigan employers have fully repaid all
outstanding loans and have accumulated a $2.7 billion positive
reserve to guard against future recessions. Unfortunately, now
comes some bad news, which in some ways could threaten the
reserves that we've been able to build. Worse, the proposal
that you're holding hearings on today, in my opinion,
potentially will totally undermine the integrity of the program
that has served Michigan so well during periods of prolonged
economic downturn.
It is important to indicate at the onset, that my comments
should not be perceived as opposition to the concept, or the
policy debate, of providing a means for individuals to address
the needs of their families. No doubt we have all experienced
situations in which, for the good of the family, it is
necessary to put work aside and take some time off. I'm not
questioning the importance of doing that. Rather, as the
administrator of Michigan's Unemployment Insurance system, I
have significant concerns about the impact of the proposed
reinterpretation of federal eligibility criteria on the
integrity of the federal/state Unemployment Insurance program.
My first concern is that the proposed program, while
voluntary in nature, is a serious departure from the intended
purpose of the Unemployment Insurance program. Over the history
of the Unemployment Insurance program, employers have been
consistently told that the taxes that are collected both from
the federal unemployment taxes and the state unemployment taxes
will be used solely for purposes associated with paying
benefits to individuals who are unemployed through no fault of
their own. Since the late 1970's, however, this employer-funded
program, has not lived up to the promises made.
For example, a temporary 0.2% federal tax used to repay the
costs of a federal benefit program has remained in effect even
though the loan-which, was the reason for the tax-has been
fully repaid. In spite of the surpluses that were being
generated from the Federal Unemployment Tax Act (FUTA)
revenues, states are not receiving the administrative grants
that are needed to support the administrative costs of the UI
program. Obviously, because there are sufficient tax revenues
available, the problem is not a lack of resources. Rather, the
problem is that the Administration does not request sufficient
administrative funds to operate the system. This contributes to
both the perception, and reality, that FUTA taxes are being
used for other purposes.
Speaking of our federal partner, the U.S. Department of
Labor, it seems that they are pulling states in opposite
directions on this issue. On one hand, they want states to
increase the size of our Trust Funds even though the reserves
are at record levels. On the other hand, the Department want
states to increase eligibility levels, not only for good deeds
such as this, but to mandate that states pay benefits to part-
time workers who are not available for full-time work, again
something that is illegal under Michigan law. The U.S.
Department of Labor also wants to lower the trigger levels for
Extended Benefits. These proposals alone, not including the
Family Leave proposal, would have only one result. That is,
increased taxes for Michigan employers who would, I am sure,
rather have the money to expand their businesses, hire more
workers, pay higher wages, than paying taxes into a Trust Fund
that is already at record levels.
Employers are encouraged to maintain solvent state trust
funds to guard against future downturns. Now comes a proposed
use of state trust funds for purposes unrelated to the original
intent of the program.
You and I are stewards for the federal/state program. How
do we face employers and suggest that an experimental program
will be initiated to address family leave situations and that
individuals will not have to be able and available to qualify
for these special benefits? How does that change really relate
to the insurance protection of a program whose sole purpose is
to provide an income bridge for someone who involuntarily
becomes unemployed? While many people may feel that it is a
laudable goal to provide for parental leave, how does providing
Birth and Adoption benefits become a responsibility of the
Unemployment Insurance system? If the goal is to provide a
social benefit to parents and their children, where will it
end? Isn't it just as appropriate to provide benefits during
leave time to care for a sick child, spouse or parent? That
certainly strengthens the family. What about providing parental
leave during the summer months, when children might be alone
while they are on summer break? Isn't that also an important
time to be with children and to strengthen family ties? These
are all great ideas and the existence of the proposed wage
replacement would certainly make it possible for more parents
to be with their children and relatives. Even though this
experimental program is voluntary, I believe the proposed
changes seriously undermine the integrity of the Unemployment
Insurance program.
As you know, the rationale for the federal/state
Unemployment Insurance program as enacted by the Social
Security Act of 1935 was to alleviate the financial hardships
of unemployment by providing temporary wage replacement of lost
wages. Benefit entitlement was established only for those who
were involuntarily unemployed and genuinely attached to the
labor market.
As proposed, this experimental program ignores the existing
``able and available'' requirements of the system and weakens
its ability to effectively determine a claimant's attachment to
the labor force while benefits are being paid. Although the
Department acknowledges that there have been some situations in
the past when it interpreted exceptions to the ``able and
available'' requirement, this is the first instance where the
Department proposes to ignore (reinterpret) this requirement
and allow a person who chooses to be unemployed to receive
unemployment benefits.
Consequently, the suggestion that the existing state
balances be used in family leave situations abandons the
fundamental concept that an individual must be attached to the
labor market as a condition of receiving benefits. Such a
proposal also brings into question why states should accumulate
additional reserves if those balances are simply seen as a
``cash cow'' to be used for unrelated purposes.
This voluntary program would also present a unique problem
for Michigan employers who strongly support our system of
experience rating. In the unlikely event that the Michigan
legislature was to endorse the proposed program, employers
would lose the ability to control their costs (either through
direct or socialized benefit charges). However, the potential
costs on the state unemployment trust funds could be dramatic.
For example, in 1998, 133,649 babies were born in Michigan. If
25% of the parents avail themselves of these benefits, the
costs would exceed $190 million per year (22% of our benefit
expenditures last year). Those costs would skyrocket to $572
million per year if 75% used these benefits (68% of Michigan's
1999 payouts) and, $763 million per year (or, over 90% of our
total payouts) if all parents used these benefits. (SEE
ATTACHED CHART BELOW)
The concepts inherent in the Unemployment Insurance system
have survived for over sixty years--throughout periods of
prolonged economic downturns, through periods of insolvency,
and recently through periods of prolonged economic recovery and
expansion. The proposal if fairly analyzed is patently unfair
to employers and the working men and women of this nation. I
believe that these proposed regulations will serve only to
vitiate the system.
Clearly, the Unemployment Insurance system has one of the
best, proven infrastructures to deliver benefits. However, I
would suggest that the service delivery system is a completely
different issue from the revenue source and I want to take this
opportunity to reiterate that Michigan and I oppose using
Unemployment Insurance funds to finance these benefits.
As this committee moves forward in your analysis and
discussion of the issues relating to the Unemployment Insurance
program, I would ask you to keep several points in mind. First,
relating to your meeting last week, Michigan supports reform
efforts as long as the changes will sustain the system
throughout the full economic cycle. Second, as it relates to
the Birth and Adoption benefits, please do not expand the scope
of entitlement to include individuals who are not available and
able to work. We must ensure that the integrity of this
important self-financed program continues and is available to
the involuntarily unemployed during the good times and the bad.
Since the Birth and Adoption benefits would rely on existing
state trust fund resources needed for future downturns, if the
reserves are used now to expand the scope of the benefits, the
basic concept of forward funding for the Unemployment Insurance
program is compromised.
If you choose to assist the parents of newborns and those
who choose to adopt, then I would strongly ask this committee
to identify an alternate source of funding.
I would be happy to answer any questions that you might
have. Again, I thank you for the opportunity to share my views
with you on this important matter.
[GRAPHIC] [TIFF OMITTED] T9340.002
Chairperson Johnson. I thank the panel for your testimony
and we'll have a little chance now for questions. Mr. Wheatley,
did I understand you to say that the Department of Labor is
telling you that your trust fund balance isn't high enough?
Have they sent out a letter to the states in general urging
them to increase their trust fund balances?
Mr. Wheatley. These are a number of initiatives that they
have discussed with us. I don't recall if I saw it in writing,
but we have discussed it on a number of occasions.
Chairperson Johnson. But in the last few months?
Mr. Wheatley. Yes.
Chairperson Johnson. So in the last few months, they're
expressing concern that the 2.3 billion in your trust fund--
Mr. Wheatley. It's 2.7 billion.
Chairperson Johnson. The 2.7 billion in your trust fund now
is not enough and they want it up over four billion.
Mr. Wheatley. Yes.
Chairperson Johnson. That is our information, too, that
they have been pressing the states to improve their positions.
Now, it is right, you should improve your position when the
economy is good, because when the economy is not, the money is
going to stream out and you're not going to have it coming in.
But that's very interesting to me, because it goes to the
heart of the sort of contradictory policy initiatives that are
coming out of the Department of Labor.
Also, I thought the ease with which you laid out the basis
of your estimates was really remarkable. I mean, it's a no-
brainer. Anybody can find out how many births there are and
they can accommodate those numbers for the number of working
women and so on and so forth.
And as you say, if only 25 percent, is just to me very
unlikely that of the 130,000 births, 25 percent aren't working
women. I mean, that would be out of sync with all of the other
things we know about women in the workforce.
Mr. Wheatley. Madam Chairman, as Congressman McCrery said,
he doesn't know either what the estimate would do, but if you
subsidize something, you're sure going to get more of it.
Chairperson Johnson. I will get the backup information from
the Department of Labor as to their estimates. I forgot to ask
the Deputy Secretary for that, but I will definitely do that,
because I think the fact that you can so easily, off the back
of an envelope, say here is almost 200 million.
Mr. Shimkus, where does--when you talk to your state
department about this, now, Massachusetts is a totally Democrat
state, I could never get elected there.
Mr. Shimkus. Except for our governor.
Chairperson Johnson. There is no reason why your department
of labor wouldn't be enthusiastic about this proposal and
there's no reason why they wouldn't want to give you an honest
estimate, sine they're going to be able to get whatever they
want through the legislature.
So how much did you talk to them about their estimate of
200 million? Which is way over. Remember, our national
department says 68 million for five or six states.
Mr. Shimkus. It came out of testimony that Jack King, the
Director of the Division of Employment and Training, gave last
spring relative to Senate Bill 61, which is the legislative
vehicle in Massachusetts that would move this experiment
forward.
And as I understand from the testimony, and I did talk with
Jack, as well, they took the numbers that were created for
Vermont and adjusted for differences in the size of the labor
force and the weekly UI checks, Vermont versus Massachusetts,
between those legislative proposals and came up with a figure
of actually 224 million annually.
They took the National Employment Law Project's estimate
for Massachusetts, which is expressed by that organization in a
cost per employee per week figure, they annualized that and
it's 197 million. The DET's own estimate is 208.
So you're looking at between 197 and 224, DET says 200.
Chairperson Johnson. Thank you. If you would send a copy of
that estimate to us, that is certainly quite detailed and we'll
see if the Department of Labor's estimates were as detailed.
On this subject, Mr. Oxfeld.
Ms. Oxfeld. Yes. Madam Chairman, I would like to introduce,
for the record, a letter from two members of the Maryland House
of Delegates, a bipartisan letter, and I'll just read you a
line from it. ``The Maryland unemployment insurance office is
opposing the legislation as incompatible with the unemployment
insurance system and estimates the financial impact on the
unemployment insurance trust fund to be 68 million dollars
annually.''
Another state, as you pointed out, with a Democrat
administration. Thank you.
[The information follows:]
March 3, 2000
The Honorable Nancy L. Johnson, Chairman
Subcommittee on Human Resources
Committee on Ways & Means
Room B-317, Rayburn Building
U.S. House of Representatives
Washington, D.C. 20515
Re: Birth and Adoption Unemployment Compensation Regulations (64 Fed.
Reg. 59918, Dec. 3, 1999)
Dear Chairman Johnson:
As members of the Maryland House Economic Matters Committee and
having jurisdiction for unemployment insurance issues, we are aware
from national media reports that the State of Maryland has been cited
as one of four states (Maryland, Massachusetts, Vermont and Washington)
that has expressed interest in the BAA-UC experimental program. We
write to set the record straight regarding Maryland's interest in the
proposal being promulgated by the U.S. Department of Labor.
House Bill 1124, Unemployment Insurance-Eligibility for Benefits-
Birth or Adoption of Child, was introduced during the 1999 Session of
the Maryland General Assembly. House Bill 1124 provided 12 weeks of
unemployment compensation for individuals who leave work immediately
following the birth or adoption of their child, if they are the primary
care giver and are not otherwise entitled to wages or salary from their
employer. Maryland's Unemployment Insurance Office opposed the
legislation because: (1) it would place Maryland out of conformity with
federal law under the ``able and available for work'' requirement; and
(2) it would negatively impact the Unemployment Insurance Trust fund
balance. Allowing an entirely new category of individuals to file for
and receive unemployment insurance benefits would deplete Unemployment
Insurance Trust Fund revenues and trigger an increase in the surtax.
The legislation was promptly defeated in the House Economic Matters
Committee. This was the extent of Maryland's involvement in the issue
at the time DOL issued the BAA-UI proposal.
Identical legislation has been reintroduced during the 2000 Session
of the Maryland General Assembly (HB 1198 and SB 167). HB 1198 is
scheduled for public hearing in the House Economic Matters Committee on
March 9, 2000. Interestingly, neither bill reflects the content of the
model legislation proposed by DOL. Again, the Maryland Unemployment
Insurance Office is opposing the legislation as incompatible with the
unemployment insurance system, and estimates the financial impact on
the Unemployment Insurance Trust Fund to be $68 million annually. If
enacted, this legislation would trigger a .4% increase in the
unemployment insurance surtax in Maryland, costing all Maryland
employers an increased unemployment insurance tax liability of $34 per
employee.
Contrary to national media reports, there is little sentiment in
Maryland to enact legislation that increases the tax liability of
businesses by allowing birth and adoption leave to be financed through
the unemployment insurance system. We hope this clarifies for the
record Maryland's limited interest in this issue.
Sincerely,
Delegate Van T. Mitchell
[D-Charles Co.]
Delegate Richard La Vay
[R-Montgomery Co.]
Chairperson Johnson. Thank you. Mr. Emsellem, do you have
any concerns about the fact that this is going to require--you
know, the Family and Medical Leave Act explicitly excluded
employers under a certain size because the feeling was that
they simply couldn't bear the economic burden.
This is actually going to require them to subsidize the
costs of large employers, because it spreads it through the
unemployment tax equally among all employers. So you're going
to have big employers who are doing this as an incentive to
attract people and hold people, dumping their programs, and the
cost being spread over all employers.
So the little guy with one employee or some employees, I
guess they don't pay unemployment tax, but certainly with one
employee, is going to carry sort of roughly the same burden as
the big employer.
Mr. Emsellem. No, that's our concern, for a couple reasons.
Number one, as I mentioned, if you take a look at the rates
currently, you see that employers are paying on .57 percent of
taxable wages at this point in time.
So what we're really talking about is the potential
incremental increase above that rate. They're paying on those
workers. And it is true, unfortunately, that because the
unemployment system is now the only tax on the first X amount
of wages, 7,000 dollars taxable wage base, small employers do
pay proportionately more than large employers into the system.
Chairperson Johnson. Proportionately a lot more, because
they've got--
Mr. Emsellem. I agree with that.
Chairperson Johnson.--a lot of 15 and 20,000 employees.
Mr. Emsellem. Proportionately more. But the point is what
is the incremental increase over their current rate, and,
again, their current rate, as of '99, is .57 percent, almost a
half of one percent.
So the question is how much more over that are they going
to pay as a direct result of this. There are lots of other
factors that go into whether or not employers, what their rates
are, what their tax rates are.
As I mentioned, there are a lot of tax cuts happening out
there. So we have to say--we have to look at relative to when
are we talking about a tax increase.
Chairperson Johnson. Certainly all of those things do
count.
Mr. Emsellem. Right.
Chairperson Johnson. It is also true that in times of
prosperity, you better be building up your balance. And I was
interested that Michigan's balance, while it sounds terrific,
isn't so terrific when you look at what it cost them during a
recession. And one of the things that's very interesting, Mr.
Emsellem, is that the Department of Labor isn't seeing these
balances as terrific because they're out there talking to
states to do better.
Mr. Emsellem. I agree that trust funds should be solvent.
We advocate for increase in benefits and you have to have
solvency.
Chairperson Johnson. But what do you make of the Department
of Labor's getting out there and saying do better and then
saying but also do this?
Mr. Emsellem. I think the Department of Labor has been very
consistent. What they're saying is state by state and what this
program allows is for state by state to make the determination
whether you can afford this program. That's all they're saying.
Some states are in a better position to do it than others. If I
can just respond, because NELP was mentioned in an estimate and
I would just like to correct that. We have not prepared any
estimates for Massachusetts. We have not been in the business
of preparing these estimates.
What we did use was we quoted a figure based on the 34
million estimate prepared by the Department of Labor of what
that translated into per worker. My understanding of it in
Massachusetts, what recently happened, which was not mentioned,
was Massachusetts just froze its rate schedule, saving 200
billion dollars for employers, just this year, and the
Administration asked for a 240 billion dollar tax cut, and that
is the Administration supported by the Secretary King.
So again, it comes back to this issue of choices. What
choices are we making during good economic times? Do we want to
increase benefits or do we want to continue to cut taxes?
Chairperson Johnson. I do think this issue of choices is
very important and I am pleased that Connecticut recognized
that it had the choice of setting up a whole separate program
and funding it.
Mr. Emsellem. That's another issue. That's--
Chairperson Johnson. And that's another choice. You see,
you didn't need this initiative to be able to do that and we
are going to ask for a CBO estimate, which is our estimator.
It is my belief, and you can shake your head if I'm wrong,
people from the Labor Department, but it's my belief that the
Labor Department estimate is their estimate and not OMB's
estimate, is that correct? Yes, it is not an OMB estimate.
That makes a very big difference. But we will get the data
behind their estimate. We will have our estimators estimate it,
because you see, if we had done this legislatively, we would
have had to know the cost and we would have had to pay for it.
And one of the things that--one of the reasons I'm holding this
hearing is because it is wrong, wrong, wrong in a free society
not to be honest about benefit and cost.
And behind this screen you can say each state can choose.
Well, this is a very--there is some truth in that, but it's
also not responsible of the Federal Government in such a
critical program not to say, which they could have said, in
line with their old policy, you can do this, just do it with
its own tax base, don't hook it onto the tax base of
unemployment, because taxes are going to pay for it anyway.
I wanted to ask you that about small businesses and I see
that isn't a problem for you.
Then the other thing that I think we have to be very
concerned about is do you have any thoughts about what this
does to the increasing inequities faced by stay at home moms?
The increasingly bad way we treat them.
A stay at home mom, where they have made the sacrifice to
live on one salary, and this person is earning, say, 25,000
dollars, that family gets nothing from the government for those
three months when they are home with their child and it just
seems to me wrong to continue to pursue policies that say
because two of you work, you get to stay home with your child
and we'll pay you for it, even though together you may earn 50,
60, 70, 80,000 dollars.
A teacher and a policeman in Connecticut earn more than
60,000 probably. So we're doing this without regard to income
and we're doing it without regard to other mothers who are
struggling to stay home with their children and need that money
in order to be able to make good on that option.
So I think policy-makers, this is not your responsibility,
but policy-makers who care about families and keeping families
together do have to think about public policy not driving the
wrong decisions.
Now, that much said, I think we really do have a job to do
here to look at how workplace policy supports families being
together, but I'm very concerned about both solvency and equity
here.
Ms. Hostetler, this will be my last question and I'll yield
to Mr. Cardin, but you're the only one that really went through
some of the significant problems that this bill has created for
employers and employees.
I thought your example of the law prohibiting counting time
off on family leave in looking at attendance records and the
idea of having to give out perfect attendance awards to someone
who has been there every day and someone who hasn't is really--
it's those kinds of little things that if the Department of
Labor had brought a law, we could have talked about. If
Connecticut had listened, they would have amended their law as
well as the benefit program.
The intermittent issue is the one that I run into the most
on the factory floors and employees don't like it and employers
don't like it. But you mentioned that and you also mentioned
the more than three days, the serious disease issue. Certainly
Congress did intend that this be serious disease.
Are there other issues or would you care to give further
examples of those?
Ms. Hostetler. I can tell you there are lots of examples
and I can refer you to the testimony that has a number of
examples and my Senate testimony has very real life examples,
but the issue with the Department of Labor and what has made it
so confusing for employers is that, as I said, the
Congressional testimony, the Congressional intent, the
statements on the Congressional record indicate that serious
health conditions don't include minor ailments, and that's what
the regulations initially said in 1995.
Chairperson Johnson. And did they change the regulations?
Ms. Hostetler. No. They issued opinion letters. So they
issued a opinion letter following the regulations that not only
said yes, minor ailments are not serious health conditions,
but, in fact, it reinforced that to say they're not even
serious health conditions if they last more than three days and
if you see a doctor and if you get a prescription.
And then the very next year they issued an opinion letter
saying sorry, that now it's exactly the opposite. That if it's
a minor ailment--no matter how minor it is, in fact, if it
meets the three-day plus requirement and you get a doctor's
note and you get a prescription, even if you don't fill the
prescription, it's a serious health condition--
Chairperson Johnson. Even if you don't fill the
prescription, there is no differential diagnosis.
Ms. Hostetler. No.
Chairperson Johnson. And then you gave one example that I
didn't quite understand. That somebody could take one day off a
week forever. They would be limited by the three months.
Ms. Hostetler. That's my point. You can take a day a week
and not accumulate 12 weeks in a year. So you can literally
take--that's how much time--
Chairperson Johnson. If a doctor says that your serious
illness needs a lower level of stress.
Ms. Hostetler. That's a major concern, but it doesn't
matter what the diagnosis is. If the medical certification says
they need to take time off as required, they may. There is no
notice requirement, there is no further certification
requirement, there is no further discussion about what the--
Chairperson Johnson. Is there any form--you know, workman's
comp, you have a form. You can have a doctor evaluate.
Ms. Hostetler. No, there is not. You can't talk to the
doctor. The employer is not even able to discuss with the
physician, not ask any questions. That is prohibited by the
regulations. The employer is also prohibited from using their
own physician--if they've got a company doctor, so to speak,
that they've used for worker's comp or some of these other
statutory requirements, they're not allowed to use that
provider in the case of family medical leave. That seems
another odd twist that makes it more difficult for employers.
Chairperson Johnson. This is really quite a different
system in every way than either our unemployment comp or our
workman's comp system.
Ms. Hostetler. Completely.
Chairperson Johnson. This really makes my point. I know I
was pretty tough on the guy from the Department of Labor, but
to do this without looking at what has been happening and how
we might need to refine or amend former law to provide paid
leave when you don't even have the tools to determine whether
the person was really sick, this is unheard of, unprecedented,
and I am--I'm a moderate Republican.
I'm out there voting on everything that you can possibly
vote on that I think we can possibly afford, so this is not a
question. I've been a leader on children's and families issues.
So I won't accept testimony that turns this into I like
children and you don't or I care about women and you don't.
I'm not going to deal that game. What I am here about is we
have to legislate honestly and deal with a challenge of the
tensions between family and work, realistically and honestly,
and I'll tell you, we're going to look into those opinion
letters, too, and see why, when you started out with pretty
decent regulations for a difficult law, we sunk into the mire
of opinion letters that have now made this law almost
functionally impossible to administer.
And you get out on the floor and you talk to the little
guy--the big guys, they've got departments of human resources
who tear their hair out about this, but these are big problems
and, by gum, we have a national Department of Labor who ought
to have had the guts to come up and say we want you to oversee
this, we want you to work with us on it, because we see there
are problems out there.
Now, Mr. Cardin.
Mr. Cardin. Thank you, Madam Chair. Why don't you relax for
a little bit, catch your breath.
Chairperson Johnson. He's my cooling off break.
Mr. Cardin. Thank you. I appreciated a statement that you
made earlier that this committee, the Human Resources
Subcommittee of the Ways and Means Committee, does not have
jurisdiction over the Family and Medical Leave Act. Perhaps if
we had jurisdiction over it, we might want to talk about the
issue you just raised, and that is what type of medical support
should there be for the use of the Family and Medical Leave.
I believe you were responding, Ms. Hostetler, to the Family
and Medical Leave Act and not to the use of unemployment
insurance to deal with the birth of a child or the adoption of
a child. That's what I thought this hearing would be focused
on, and that is whether we should allow states the option to
use their unemployment insurance system to deal with paying and
providing some income for parents who take time off after the
birth or adoption of a child, not for family and medical leave,
which is a much broader matter.
Ms. Hostetler. May I respond?
Mr. Cardin. Sure.
Ms. Hostetler. My concern is--you are absolutely right, but
it is truly a backdoor attempt at expansion of the FMLA, at
least that's how it comes across, and what we would like to
make sure happens is an open dialogue about issues of the
Family and Medical Leave Act.
Mr. Cardin. And you oppose the expansion of the Family and
Medical Leave Act?
Ms. Hostetler. Prior to any corrections of the current
regulations--
Mr. Cardin. So you oppose that. So you don't want to see
that.
Ms. Hostetler. Prior to any--
Mr. Cardin. Did you support the Family and Medical Leave
Act?
Ms. Hostetler. I did.
Mr. Cardin. Well, good. We're very glad to have that.
Ms. Hostetler. And there are lots of people who did support
it that are now on the record as having problems with the
current situation--
Mr. Cardin. We're taking some of the testimony today and
we're going to send it over to your state legislatures,
particularly as they're considering changes in their tax codes
as it relates to the solvency of their unemployment insurance
funds.
Mr. Shimkus, I very much appreciate the chamber's strong
commitment to a very solvent unemployment insurance fund within
the various states of the nation. I hope that I'm hearing you
correctly that you will support efforts to establish national
standards on solvency that would prevent states from reducing
their unemployment insurance taxes if they don't meet this
federally mandated solvency test in order to ensure that states
are not irresponsible. Because you don't trust the states, do
you?
Mr. Shimkus. We are very interested in making sure that our
state's unemployment insurance trust fund is solvent. And to be
quite honest, I have been involved in this debate at the state
level for years.
Mr. Cardin. Are you going to answer my question?
Mr. Shimkus. I am. Bear with me for a moment.
Mr. Cardin. All right.
Mr. Shimkus. We have been working on this for a number of
years and I think part of the problem is how do you define what
is truly solvent.
Mr. Cardin. You don't trust the state to do it or you don't
trust the Federal Government to do it?
Mr. Shimkus. The fact is we hear every year at the
legislative hearings that it should be this amount or that
amount and to be quite honest, it's only used, the numbers are
only used when they benefit the advocates for trying to tap
into these funds.
Mr. Cardin. So the answer to my question is you would
support a Federal standard in solvency that the states would
have to meet before they could reduce their revenues going into
their unemployment insurance fund.
Mr. Shimkus. I didn't say that. I said we're looking at
it--
Mr. Cardin. What are you saying?
Mr. Shimkus. I'm saying we're looking at it in
Massachusetts and we're going to continue to look at it in
Massachusetts.
Mr. Cardin. I'm asking you a specific question. Would you
support, would the chamber support a Federal standard in
solvency on the unemployment insurance funds that the states
would have to meet before they could reduce the revenues going
into their unemployment insurance funds in order to maintain
solvency?
Mr. Shimkus. Let me be clear. I do not know what the U.S.
chamber's policy is on that particular issue. The North Central
Massachusetts Chamber of Commerce, we're confined to looking at
local issues that affect local employers. This is one of them.
Mr. Cardin. So would you support it as a local chamber?
Mr. Shimkus. I would have to take a harder look at it. I
haven't seen all of the evidence that would support one way or
the other.
Mr. Cardin. Well, you come from a state that you don't have
a great deal of confidence in, it seems like, in doing the
right thing, as the chamber sees it, in regards to unemployment
insurance. Is it that you only--I don't understand the
consistency of your position. You either support Federal
requirements here or you don't, or are you just picking and
choosing which ones happen to benefit you financially?
Mr. Shimkus. We are suggesting that our state ought to look
at whether it has a solvent system and that you shouldn't
create--
Mr. Cardin. Should they be allowed to reduce the taxes
before they meet a Federally mandated solvency standard?
Mr. Shimkus. You should not create a system in which the
Federal Government sets forth some benefits that could have
dramatically--
Mr. Cardin. That's not the question I asked. The question I
asked is should Massachusetts be able to reduce their taxes if
they haven't met a Federally mandated--should we Federally
mandate a solvency test that the state legislature could not
reduce the taxes in Massachusetts on the employers until that
test is met?
Mr. Shimkus. I personally do not believe so.
Mr. Cardin. Because why? You don't trust the Federal
Government or you don't trust the state government here?
Mr. Shimkus. It's not a matter of whether I trust the
Federal or the state. It's that--
Mr. Cardin. If the regulation allows the legislature,
allows the legislature and the governor in Massachusetts to
make the decision on these benefits, the Federal law currently
allows great discretion with the General Assembly and the
Governor of Massachusetts on imposing the taxes necessary for
solvency.
On one hand, you do not want to let the people of
Massachusetts make a decision on this benefit, but you want
them to be able to reduce solvency, and your point is you want
to protect the solvency of the trust fund.
I'm somewhat--
Mr. Shimkus. I think as Senator Gregg said earlier, the
Federal Government is ultimately the insurer of last resort. So
clearly the Federal Government ought to be concerned and what
I'm concerned about here is that we can't get to what the exact
number is and if we had gone through a regular course with
Congressional hearings and--
Mr. Cardin. Regular course for what, for the costs of it? I
admit there's no--
Mr. Shimkus. No, no. I'm saying if we hadn't gone through
the rule-making process, if we were going through, as Madam
Chairperson had suggested, a normal operating procedure to
identify funds to do the types of things that folks are looking
to do through Congressional authorization, that would have made
much more sense, and perhaps then we could talk about--
Mr. Cardin. Were you present when we went through the
process in which training was made acceptable for someone
receiving unemployment insurance? That was the most dramatic
change on eligibility to receive unemployment insurance.
The Congress didn't pass any laws to allow for training.
Mr. Shimkus. But in this case, in--
Mr. Cardin. It did after the fact, but not before. It used
the national experiment first through the Department's findings
and when it was so successful, then we mandated it for every
state. But we started first by giving the ability of the states
to move in this direction.
That's the whole concept of Federalism, which I happened to
have thought the chamber supported the concept of Federalism,
but it seems like you have selective Federalism. You support
Federalism when it helps you, but not when it provides help to
the workers, and that's what really troubles me about your
testimony today.
I don't mind you being inconsistent, but at least
acknowledge that you're inconsistent on this issue.
Mr. Shimkus. We don't believe that the implementation of
this experiment will help working families.
Mr. Cardin. I appreciate your candor on that. Let me move
on to a couple other areas, if I might here.
I know, Mr. Oxfeld, you wanted to get in here. I just want
to point out that there is a lot of confusion on the dollars
here and we're going to try to get as much objective
information as we possibly can.
But I'm not so sure you're helping the process by using, in
your testimony, 18 billion dollars as the estimated cost of the
expenditures of the adoption of this regulation. If I
understand it, that would assume that every state would enact
this new program, which is not going to happen.
All employed workers would be eligible and that's not going
to happen, because some don't have sufficient earnings. All
potential eligibles will take leave. That's very unlikely. All
leave takers would file. That's not the experience under the
current program, where 70 to 80 percent of the eligibles file.
Each claimant will collect a full 12 weeks. That ignores the
fact that the unemployment benefits are less than the salary
and many people are going to go back to work within the 12
weeks.
So I guess my point is I'm not sure we're moving this
process forward by trying to exaggerate the impact that this
has on the system. We all acknowledge there is a problem out
there and yes, this will have an impact on the unemployment
insurance funds for those states who enact state law to deal
with it.
But then we'll have some real experience when those states
do that and then we can really see the experience of whether
Mr. McCrery's concerns about employers all of a sudden dropping
their paid leave.
My experience among employer-employee groups is that
doesn't happen. There is such a thing as collective bargaining
in many communities and that's just not going to readily happen
overnight.
So I don't think that's particularly useful to our trying
to put together a testimony on how we should respond to this
issue. I personally believe it is very helpful to have some
experiences at the state level to see what is happening and I
look forward to working with some of you to try to deal with
solvency statutes.
I hadn't thought about it really before today's hearing,
but I think listening to this panel, you really have whet my
appetite to the need for Federal solvency standards.
I didn't realize there was such a concern out there that
the states were going to do irresponsible actions.
Mr. Emsellem's point about the tax cuts that have occurred
throughout this nation for employers because our economy seems
to be doing so well really beckons the point that many of you
mentioned, and that is that the economy is going to turn and
we're going to go through recessions and these trust funds are
going to be very strapped at different times, and maybe the
states are doing the wrong thing right now as it relates to the
reduction of revenues going into the unemployment insurance
trust funds.
So let's at least work in a somewhat more consistent basis.
I always felt that giving the states more flexibility in
managing their system was a good thing. It's strange, I came to
Congress after 20 years in the state legislature, I came here
biased towards allowing states more flexibility, and I have
found some friends on the other side of the aisle that helped
in dealing with some of these issues.
I am somewhat amazed now, it's tough to find friends on the
other side of the aisle who want to give the states more
flexibility. They only want to do it, it seems like, when it is
in the interest of some self interest, more so than in the
general benefit of using the states to develop a more realistic
way to deal with the problems that we have in our community.
I thank you, Madam Chair, for your patience.
Chairperson Johnson. Mr. Oxfeld, did you want to get in
there?
Mr. Oxfeld. Well, Mr. Cardin made some very eloquent
points, but I don't want the record for the hearing to close
without being able to make the observation that the issue is
not whether it's desirable to have the national government
design a one-size-fits-all solvency standard that has to work
the same for Maryland as for Michigan as for Alaska as for
Delaware, which is my home state, as for Nevada or Connecticut.
That's not the issue.
The issue is that this will indeed result in additional
spending. This is wholly outside the scope of what the
unemployment insurance system is designed to do and it's not
doing such a hot job of doing what it's designed to do and it's
really incumbent on this committee to be responsive. Let's make
UI work and do what it's supposed to do before we think about
trying to give it a function that it is not equipped to handle.
The analogy we always draw is you can use a screwdriver as
a hammer, but it makes a really lousy hammer and it's likely to
ruin it as a screwdriver. And if we try to make the UI system,
which is finely attuned to trying to help people who lose their
jobs, while they're looking for new work, get back into work,
and if we try to make it into a system that it isn't to help
people who are unavailable for work, who have taken themselves
out of the workforce, and who will undoubtedly be counted as
unemployed for triggering benefit extensions later on, that is
a mistake and it's going to be harmful to the interest of the
workers and the employers for the whom the UI system is
designed.
Thank you.
Chairperson Johnson. I find the solvency issue a little
different here, since the benefits are mandated, states have to
pay them. If they don't have enough money in their trust fund,
they are compelled to borrow.
So a solvency standard, a state having a realistic solvency
standard, serves them because they don't have to borrow, and I
thought it was real interesting that Judd Gregg, a good
conservative Republican, raised taxes rather than borrowing.
Mr. Oxfeld. He didn't sign it, though.
Chairperson Johnson. Oh, is that right? That's interesting.
Well, it goes to show how painful these decisions are.
I do want to just clarify one point that has been going on
and off during the hearing and I should have clarified it very
much earlier.
Correct me, Mr. Emsellem, if you don't agree with this. But
earlier on, the Commission and others have given examples of
voluntary unemployment that the unemployment system now covers
and actually the only exception is really training.
If you're taking care--if you have to leave because of
illness or taking care of an ill person, you still have to be
available for a different shift job. In the instance of someone
whose spouse moves, that you are unable to work, because you
are physically removed from your job, I think that is a little
different than just not wanting to go to work.
The other instance that comes to mind is jury duty, where
the government is compelling you to take another responsibility
on. If my recollection serves me--my recollection does not
serve.
So training is the key instance in which we provide
unemployment compensation.
Mr. Emsellem. Could I respond to that?
Chairperson Johnson. Yes, you can.
Mr. Emsellem. There are three levels that you have, there
are three issues that have to be looked at. One, did you leave
work--this is what people go through to qualify for
unemployment--did you leave work for the right reasons, we've
covered that. States, about a third of them cover family leave
under various domestic circumstances for leaving work. That's
allowed, no debate about it, no legal issue about it, they've
been doing that since the creation of the unemployment program.
The second question is once you qualify for--
Chairperson Johnson. For what causes?
Mr. Emsellem. For a whole range of domestic circumstances,
whether you left work because you couldn't deal with an
emergency child care problem, whether you left work because
you're taking care of a sick family member, all those things--
Chairperson Johnson. I am not aware of unemployment comp
covering that.
Mr. Emsellem. Ma'am, that's allowed in one-third of the
states. I can provide you a chart of that. That's the question
of whether you left work for the right reason. Like I said in
my testimony, what I find great about this, we're an
unemployment advocate, it's great to be debating what the
unemployment program is all about, because a lot of people walk
around thinking that they don't qualify for benefits and don't
come in and apply.
In fact, we know that almost about 45 percent of people who
are significantly attached to the labor market never walk in
and apply for benefits, and part of the reason is because they
walk around with misperceptions about whether they qualify.
Chairperson Johnson. That is definitely a problem.
Mr. Emsellem. So that's a big issue.
So the next level is are you available for work once you--
well, the next question is are you unemployed, quote-unquote.
States have a ton of flexibility to decide what's unemployed.
In fact, lots of workers get unemployment benefits who are
still employed. In a lot of states, there's something called--
in almost every state, there is something called partial
unemployment benefits. You reduce your hours, receive benefits,
and stay in your job. Or short-time compensation. You adjust
your hours to avoid layoffs, but you are still employed.
The last question, which is what this legal issue is all
about, is whether once you qualified and met those other tests,
are you willing and able to accept another job.
Chairperson Johnson. Availability.
Mr. Emsellem. Availability. That's the only legal issue
we're talking about since the beginning of time. So the
question is can the states decide that. I'm sorry, I just want
to--
Chairperson Johnson. Go ahead.
Mr. Emsellem. And you put your finger on it. Training.
Training. States--workers are taking themselves out of the
labor market to do something good to improve their labor force
attachment. States did that, 22 of them did it before Congress
said everybody had to do it in 1996. Okay.
And they can turn down a job that's offered to them, even a
better job, a more suitable job, a job that pays more than what
they earned before, but if provided they're in training.
The other situation I think there is very comparable, it's
not exactly the same thing, but what we're talking about is
whether states have the authority to decide these things, not
exactly do we fit the peg, is the recall situation. Eight
states say if you are in recall status, you are expected to be
called back to your job, you don't have to take a job that's
offered to you. It makes sense.
Why send somebody out looking for work if there is a job
there for them, and that's good for employers. And so that's
the concept, not that we have found the exact situation that
looks like family leave, what we're talking about. What we're
saying is the states have the flexibility to decide this and
they've been doing it for years.
Chairperson Johnson. I'd like to let Mr. Oxfeld get into
this, because this concept of being available for work is so
very fundamental for the issue of eligibility for benefits, and
in general, I think, across the states, it is sort of a kingpin
concept of the unemployment compensation system.
Mr. Oxfeld.
Mr. Oxfeld. Madam Chairman, you are so correct. The
availability is the key issue here. In the case of layoffs, if
the employer calls the worker back to work and they don't come,
they don't collect benefits. If the employer has full-time work
available and they're collecting part-time unemployment
benefits because they had to take a part-time job, they don't
collect unemployment benefits.
When work is available, the worker has to be available for
the work. Even for training, and I disagree with Mr. Cardin's
assessment, because I don't believe that the state training
laws--that the authority for that to be consistent with Federal
UI law was necessarily recognized until Congress amended the
FUTA to expressly recognize training as an allowable exception
to availability.
But even in the case of training, you have to be available
for the training. If you don't show up for the training,
because you're not--because you have personal reasons for not
being there or any other reason, you don't continue to collect.
Chairperson Johnson. And you don't necessarily get
unemployment comp during the training.
Mr. Emsellem. Yes, you do.
Mr. Oxfeld. There are--if you're in approved training--
Chairperson Johnson. If a state chooses, adjustment
assistance.
Mr. Oxfeld. In very narrow instances where that training is
the only way this individual can get back into the workforce by
statute, the states have to approve the training and it is a
very, very, very narrow exception, and to argue that parental
leave and all kinds of family medical leave are likened to
people who are in training, people who are unavailable work,
home for personal reasons, argue that's not--
Chairperson Johnson. In other words, it doesn't cover all
training and--
Mr. Oxfeld. No. It has to be approved training.
Mr. Emsellem. There is no special limitation on it. I
disagree. You've got the Labor Department people here who can
tell you for sure, they wrote the program letter.
It is state approved training, that's it. I am from New
York, we do this all the time in New York. We even have an
extra fund that provides income support when you go past the 26
weeks. It's just got to be state approved training. There are
no extra limits on it, and that's incorrect. That's the sort of
misinformation that doesn't help in this debate.
The debate is about what the states can do. They've done a
whole lot, they can do this program.
Chairperson Johnson. I think one of the problems in this
hearing has been this very narrow group of people in the larger
unemployment comp system who are getting unemployment
compensation, but fall into this category that varies from to
state to state about the degree to which they must be available
for work, but that is a very small sliver of the people on
unemployment. Most of the people on unemployment get it and
have to be available for work.
Mr. Emsellem. But that's the state's option. There are--and
I'd like to know the sliver. In different places, the sliver is
very different. In Massachusetts, there are lots of folks who
are not, quote-unquote, involuntarily unemployed getting
unemployment benefits.
Mr. Oxfeld. In the case of BAAUC, you have to sliver away
every single aspect of unemployment insurance in order to try
to fit this square peg into the round hole of UI. You have to
get rid of voluntary quit, you have to get rid of availability
for work, you have to get rid of ability to work, you have to
get rid of refusal of suitable work, you have to waive the work
search test.
You're going to have a different duration of benefits for
people on legitimate UI and virtually every aspect of the
system that you can think of, you have to change it in order to
try to accommodate people who are going to be home on leave.
It's simply not unemployment insurance. It's paid leave.
Chairperson Johnson. Thank you.
Mr. Cardin. Madam Chair, just for the record, let me just
again point out, on training, 1961, the Department of Labor
interpreted the Federal law to permit states to include
training as being not disqualifying you from receiving
unemployment, which counters the availability issue that Mr.
Emsellem talked about.
It was nine years later when Congress acted in 1970. So
taking Mr. Oxfeld's point, I assume that you believe that all
the benefits paid over that nine years by the states was not
allowed. It was. They received the benefits and it was exactly
the same type of circumstance that Department of Labor is
trying to use today on the birth of a child or adoption of a
child, to allow states to move in this direction.
The Congress always has the right to act. We can act to
either say no or to say yes or to mandate or to permit. What we
did on training was to mandate to require states to allow
training, approved training to be equal to availability to
work.
And the last point I would mention is there is no pure
system around here. We all try to say how pure the integrity--
there is no pure system. We always try to make these programs
work to the real world, what's happening, and it's not--the
world is changing. The workforce is changing.
We need to make sure that these programs that were adopted
65 years ago still are contemporary to today's workforce and
that's why we want the Department of Labor to be able to have
regulatory authority and interpretative authority.
Congress is a little bit cumbersome in order to change
policy. It takes us a long time and there are people out there
who need some relief.
So I just really wanted to point out that I think the
process that's been used here is not unusual, it's been used in
the past, and that it's not inconsistent with the way that
we've used the unemployment insurance system in the past and
that what we are suggestion by that regulation issued by the
Department of Labor is to give discretion.
I think that point has been lost over and over again. It
doesn't mandate one person get additional unemployment
insurance benefit. There is no requirement in the regulation
that would cost one dollar in the trust fund. It solely allows
the states to make decisions as to availability to work as part
of their unemployment system, those that are out because they
had the birth of a child or adopted a child.
Thank you, Madam Chair.
Chairperson Johnson. Thank you, Mr. Cardin. I do clearly
disagree with you very significantly on this issue and I think,
in a sense, the proof is in the pudding. Look at the different
opinions we've had on what this is going to cost. If this had
gone through the legislative process, you would have had the
Administration's OMB estimate of what it's going to cost and
you would have had the Congressional estimate from our own
Congressional Budget Office of what it's going to cost.
And cost does matter, because you need to think about
whether allocating this money in one way or allocating it
another way best suits the needs of families and of our
society.
Consequently, not only do I think that the Administration
far over-reached the tradition of administrative authority and
of Presidential directives, but had they done this the right
way, there is clearly enough experience on the books for us to
have been able to improve this law and until you improve this
law, you are never really going to be able to improve the
benefits that we provide to families who are struggling with
the tension between work and family.
When you have a law that works as badly as this one does,
it's dead on arrival when you want to expand it. So I really
regret the fact that the United States Department of Labor does
not do oversight, does not come to the Congress.
Now, we work closely with the Department of Health and
Human Services. They come to us all the time saying this isn't
working quite the way we expected, this isn't happening, that
isn't happening, help us fix it, and we come to the table with
different opinions and we fix the law, because we look at the
problem.
And what the Administration has done here has denied us
that opportunity, opened up a problem for states that becomes
primarily driven by elections and not by policy considerations.
It has come out with scandalously inaccurate estimates. I
mean, there is just no way that your estimates have any bearing
on the reality when you look at the birth rate and the number
of working women in the workforce.
So I am very--I think the Labor Department deserves every
bit of criticism a lot of us have been laying on them, publicly
and privately, and I hope next time they will have the courage
to bring ideas to the Congress and work with us to improve
public policy and I would hope that they would, again, look
more closely at issues like comp time and loosening up the law
so that people can be able to go to the school play and not
have to fake an illness so they can be covered under family
medical leave.
We have a long way to go in letting mom and dad be there at
critical time for their kids and helping stay at home moms bear
the economic responsibility of not working when their kids are
young, and that latter issue is every bit as important as
anything we've talked about under the family medical leave, and
it is being completely disregarded by public policy-makers.
It is only a matter of equity and we have to begin looking
much more carefully at the equities involved not only through
what we do, but their impact and the impact on a workforce
where inequity is like special ed, where a special ed kid can
hit the teacher and not be disciplined, and the other kids
can't. What kind of classroom does that create? What kind of
workplace does it create to have a law that says that you're
out all the time, but you can get an honor for perfect
attendance?
There is something amiss here. We should be talking about
it, we should be looking at it. That particular part isn't
under our jurisdiction, but the solvency of the unemployment
compensation system is and we're going to go further on these
estimates.
We're going to compare the work of the Department of Labor
with some of the state departments that have really looked into
it, because if they are as far as off as they appear to be or
as they might be, then this is a matter of solvency and action
would be necessary to protect the unemployment compensation
system so it's there when people lose their jobs.
Thank you.
[Whereupon, at 1:57 p.m., the hearing was recessed, to
reconvene at the call of the Chair.]
[Submissions for the record follow:]
Statement of the Associated General Contractors of America, Inc.,
Alexandria, VA
The Associated General Contractors of America, Inc. (AGC)
is a national trade association of more than 33,000 firms,
including over 7,300 of America's leading general contracting
firms. They are engaged in the construction of the nation's
commercial buildings, shopping centers, factories and
industrial facilities, warehouses, highways, bridges, tunnels,
airports, water works facilities, waste treatment facilities,
dams, water conservation projects, defense facilities, multi-
family housing projects and site preparation and utilities
installation for housing development.
AGC members employ millions of hourly craft workers, and
professional, administrative and management personnel in every
state and Puerto Rico. Likewise, they pay millions of dollars
in taxes to fund state unemployment insurance trust funds.
AGC welcomes the opportunity to provide this statement on
unemployment compensation and the Family and Medical Leave Act
to the Subcommittee on Human Resources of the Committee on Ways
and Means. AGC respectfully requests that this statement be
made a part of the record of the Subcommittee's proceedings.
Following are AGC's comments on the details of the
Department of Labor (DOL) Birth and Adoption Unemployment
Compensation (BAA-UC) proposal to permit the use of
unemployment insurance program funds to pay parents for time
they take off from employment after the birth or adoption of a
child.
Summary
AGC does not support the Department of Labor proposal to
permit the states to use unemployment insurance benefit funds
to provide partial wage replacement to parents on leave
following the birth or adoption of a child. AGC maintains that:
The proposal jeopardizes the financial solvency of
the unemployment compensation insurance system and could lead
to substantial increases in employer unemployment insurance
taxes;
Abandoning the ``able and available'' for work
standard undermines the historic purpose of the unemployment
compensation system;
The unemployment compensation system is not the
appropriate vehicle to fund paid family leave and the proposal
to do so represents a fundamental philosophical change with no
statutory or administrative support;
The purposes and objectives of the unemployment
insurance system should not be changed without congressional
hearings and thorough cost analysis; and
The Department's estimate of the costs of the
proposal is not realistic and does not consider its impact on
economically sensitive industries like construction.
Proposed Rule
The proposed rule would permit states to use unemployment
insurance (UI) funds to provide partial wage replacement to
parents on leave following the birth or adoption of a child.
The rule does not impose any solvency requirements on states as
a condition of adopting such a program, or even require that a
financial analysis be performed. The proposal permits eligible
employees to voluntarily terminate their employment with no
intention of returning to work and still collect unemployment
benefits. The model legislation included with the proposal
imposes a twelve-week limit to these benefits but at the same
time the Department notes that ``States are free to determine
this.''
AGC urges the Subcommittee to prohibit the states from
using UI funds to provide partial wage replacement to parents
on leave following the birth or adoption of a child. AGC
believes that the proposal jeopardizes the financial solvency
of the unemployment compensation insurance system, could lead
to substantial increases in employer UI taxes and is
inconsistent with the historical objectives and application of
the unemployment compensation program.
The primary basis for the proposal is apparently a 1996
study by the Commission on Family and Medical Leave contending
that ``lost pay was the most significant barrier to parents
taking advantage of unpaid leave after the birth or adoption of
a child.'' The objective of the proposal is to ``promote a
continued connection to the workforce in parents who receive
such payments.''
To address this situation and achieve this objective, the
Department of Labor proposes to eliminate the ``able and
available'' for work standard that would otherwise apply to new
parents, permitting them to voluntarily quit their jobs and
still be eligible for UI benefits. The ``able and available''
standard was derived from the Federal Unemployment Tax Act
(FUTA) and the Social Security Act (SSA), and has been the
threshold criteria for eligibility for UI benefits for 65
years.
AGC does not believe that existing data support such a
fundamental change in the UI system, or that the UI system is
the proper financial or administrative vehicle for providing
paid family leave. In fact, the proposal undermines both the
objective the Department seeks to achieve and the historic
purpose of the system--to provide temporary financial support
in an economic downturn to those who have not caused their own
unemployment. Such a change should not be initiated with such a
vague justification and objective.
AGC is also concerned that abandoning the availability
test--to cover workers who, by their own admission, are not
actually available--cannot be done for one class of workers but
not for others. AGC is not aware of any basis in federal law
for making an exception solely to benefit workers who take
parental leave. The BAA-UC proposal therefore portends the
extension of UI program benefits to a host of heretofore-
ineligible individuals (e.g., those who are unavailable for
reasons other than parental leave). Indeed, the proposal itself
admits that it ``may also serve as a basis for further
expanding coverage to assist a broader group of employees to
better balance work and family needs.''
The proposal is an apparently indirect attempt to create a
compensated component of the Family and Medical leave Act
(FMLA). A virtually identical proposal was considered and
rejected by both the House and Senate during legislative
consideration of the FMLA. The UI system and the FMLA serve
different and incompatible purposes. UI protects workers who
lose their jobs when their employer no longer has work for
them. UI benefits are payable only to individuals who do not
have a job and only while they seek new work. Benefits cease
upon an offer of suitable employment. As the Department itself
recognizes, the exceptions to this principle apply only to
those involuntarily unemployed and experiencing short-term
exigencies. The current exceptions preserve the requirement
that individuals be ``able and available'' for work. The FMLA,
on the other hand, provides said leave for workers who have a
job but take time off for personal reasons. By definition,
workers on leave are not unemployed and are not entitled to
unemployment compensation.
The philosophical change represented by the Department of
Labor proposal is contrary to the principles of the UI system
and conflicts with the longstanding interpretation of the
Department itself. As the Congressional Research Service (CRS)
pointed out in its June 14, 1999, Memorandum on this subject,
the Department has historically directed states to deny UI
benefits to workers who are voluntarily unemployed or who are
unwilling and unavailable for work. AGC does not believe that
such a fundamental change, for a completely different
objective, is justified. Likewise, AGC does not believe that
either governmental interests or those of individuals who rely
on the UI system are well served by a proposal based on vague
statutory language described as not prohibiting an
``experimental program.'' Again, as the CRS has pointed out,
the legislative and administrative history of the FUTA and SSA
directly contradict the Department's proffered authority for
this proposal.
For more than 65 years, federal law has protected jobless
workers, employers and the public by assuring that state
unemployment trust funds can lawfully be used for the sole
purpose of paying unemployment compensation. This principle is
so deeply embedded in the federal-state unemployment insurance
``partnership'' that federal law prohibits the use of state
trust funds even for the related purpose of financing the
administrative cost of processing claims for unemployment
benefits. The Department's proposed rulemaking will change the
fundamental objective and nature of the UI program, the safety
net for jobless workers, by allowing the expenditure of state
unemployment trust funds for the entirely different and
incompatible purpose of compensating employed workers who take
parental leave. Elimination of this essential federal
protection for the jobless is a stunning and irresponsible
abandonment of a principle that serves as a cornerstone of the
nation's social insurance system. It is both ill advised and
contrary to the clear and unambiguous statutory language of the
federal UI laws and the Family and Medical Leave Act (FMLA).
The change in the objectives and administration of the UI
program proposed by the Department should not be initiated or
implemented without specific legislative authorization. The
unemployment system is neither intended nor financially or
administratively equipped to deliver paid family leave to
employed workers. Congressional hearings and cost analysis by
the Congressional Budget Office and others are necessary before
the UI program is jeopardized. The Department's proposal to
perform a ``comprehensive evaluation'' only after four states
have operated a BAA-UC program for three years puts the cart
before the horse and is a totally inadequate response to the
need for a thorough assessment of the financial, administrative
and productivity costs of this proposal.
Poorly researched government initiatives can cause
widespread confusion and unintended consequences. Secretary
Herman's recent comments on OSHA's policy on telecommuting are
equally appropriate with respect to the BAA-UC proposal. A
``national dialogue'' between labor, industry and other
impacted groups is necessary to ``examine the broad social and
economic effects'' before it goes forward. An important social
decision should not be imposed or authorized by a regulatory
agency simply on the basis of noble sentiments or objectives.
Costs of the Proposal
AGC does not believe that the class of employees included
in the proposal is ``small,'' or that the Department's
estimated cost of zero to $68 million is realistic. In fact,
the Department's proposal contains no real data either
supporting the need for this policy change or documenting its
impact.
According to the Department itself, at least 20 states lack
adequate reserves to meet future UI benefit claims. In the last
recession, more than 25 states depleted their UI reserves and
had to borrow from the federal government. The Department's own
statistics show that if another similar recession occurred,
states would need to borrow an additional $25 billion. In spite
of this, the Department now advocates that states expand access
to UI, working at cross-purposes to the Department's solvency
objective and its goal of expanded access to legitimate UI
claims. BAA-UC and UI expansion proposals send a strong signal
to states not to build up reserves, because any state that is
risk averse and seeks to take a conservative approach to
building up its benefits trust account risks political pressure
to ``spend it'' now.
Of particular concern is the fact that states are not
receiving enough administrative funding to handle the present
UI claims volume. Because of this chronic situation, states
will need to direct their FUTA administrative funds to finance
the administrative costs of new BAA-UC benefits. In this
environment, AGC believes it is extremely unwise for the
federal government to propose adding a new benefit to the UI
system.
AGC believes that a fair and objective analysis is
necessary to determine what it will cost if every state, or
even a significant number of states, adopts a BAA-UC program.
The cost of BAA-UC will be borne by employers through higher
payroll taxes. If every state were to adopt the program
proposed by the Department, the direct additional state UI
payroll tax burden on employers would be at least $18 billion
per year using conservative estimates. The calculation of
direct cost is straightforward. The current weekly UI benefit
amount is approximately $200. If a claimant were to collect 12
weeks of benefits (as recommended in the Department's model
state legislation) the direct price is $2,400 per claim.
Because of the effects of experience rating and other factors,
the ultimate tax cost to an employer will be $3,000 per claim.
The Department has stated that there are 6 million new parents
(and therefore potential claimants) each year. If each one
claims 12 weeks of benefits the tax cost will be $18 billion.
It is important to note that the figure of $18 billion is
only for parental leave. This calculation doesn't take into
account the additional costs of delivering paid leave to BAA-UC
claimants through UI for 26 weeks like true UI claimants. Nor
does it consider the costs of lost productivity or other
impacts on employers who will have even more vacant positions
and the same amount of work to perform.
In the model state legislation, the Department recommends
that BAA-UC not be charged against an individual employer's UI
account. In other words, the Department suggests that BAA-UC
should be socialized across all employers, regardless of
whether their employees are receiving BAA-UC. Given that some
employers are currently paying the maximum amount of tax while
others are not paying enough, the high occurrence of socialized
costs in many states, and that many employers do not offer
leave, AGC is very concerned that the Department's proposal
exacerbates this problem by adding another non-chargeable
benefit. Non-charging BAA leave would create serious inequities
for the most vulnerable of employers, such as small business,
which would be forced to subsidize this benefit for employers
who do offer leave.
The Department's proposal will create a new type of benefit
program for compensating parental leave. The UI system is
experiencing significant problems handling its' existing
obligations. Employers now pay nearly $30 billion a year in UI
taxes when there is practically no unemployment. This figure
will double or triple in future recessions. The current method
of financing UI administration is a direct cause of these
problems by providing inadequate funding for state UI and
employment services agencies.
These impacts are especially important to AGC members. The
unemployment rate in the construction industry has always run
consistently higher than the rate in the economy as a whole.
Likewise, construction is seasonal in many parts of the country
and periods of unemployment are more frequent. The Bureau of
Labor Statistics (BLS) reported that the construction
unemployment rate in February 2000 was 7.5 percent, compared to
a rate of 4.1 percent for the general economy. In addition, the
BLS advises that the rate of job growth in construction
experienced a significant slowdown in 1999 from 1998. Similar
patterns may exist in other industries and demonstrate that
considerably more data and information is needed before UI
funds are compromised to achieve unrelated objectives. There is
no reason to assume that the economy will continue to expand
and remain stable in perpetuity. At a minimum, the Department
should perform the analyses required by the Unfunded Mandates
Reform Act of 1995 and Executive Order 12875, the Regulatory
Flexibility Act and the Small Business Regulatory Enforcement
Act.
Simply asserting that the proposal is permissive and that
states are free not to adopt it does not ameliorate the costs,
risks and negative impacts of the Department's BAA-UC proposal.
The fact is the Department of Labor is proposing a fundamental
change in national policy with respect to employers' financial
responsibility for the family lifestyle choices of employees
through a regulatory amendment to an unrelated program. The
Department has deliberately attempted to bypass the legislative
process that has addressed these issues in detail, as evidenced
by the current statutes on this subject and their legislative
history.
Conclusion
AGC appreciates the opportunity to present its views on the
Department's BAA-UC proposal. AGC does not believe that working
people who voluntarily leave their jobs are entitled to
unemployment insurance benefits or that the unemployment
compensation insurance system is an appropriate vehicle to
provide such individuals with paid family leave.
By trying to force this new benefit into the existing UI
system, the Department would abandon the federal ``able and
available'' requirement--the bedrock principle of UI. The BAA-
UC proposal is contrary to the plain and unambiguous intent of
UI law and policy. It will put the UI safety net at risk and
dramatically increase employer costs. AGC strongly urges the
Subcommittee to prohibit implementation of this unwise and
unworkable proposal.
Employment Policy Foundation
Washington, DC 20005
March 16, 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:
The Employment Policy Foundation (EPF) is submitting this letter
and written statement for the record of the March 9 hearing before the
U.S. House of Representatives Subcommittee on Human Resources on
Unemployment Compensation and the FMLA.
EPF is a unique non-partisan research and education foundation
whose purpose is to shape the direction and development of sound
employment policy through timely, accurate, high quality economic
analysis and commentary on U.S. employment policies affecting the
competitive goals of American industry and the people it employs.
As the accompanying statement makes clear, policy makers and the
public have not fully considered the ramifications of the UI funded
family leave proposal. EPF finds its implementation would severely
compromise the U.S. Unemployment Insurance (UI) system, costing up to
$28.4 billion annually and pushing as many as 49 states and the
District of Columbia below recommended solvency levels within three
years.
Tax rates would have to rise by as much as eightfold in order to
stem the depletion rate of states' UI trust funds. The direct tax
burden falls on employers, but employees and consumers pay in the long
run through lower wages, higher prices, or lower employment levels.
The UI system has already faced financial peril in the past. To
subject this system to further costs would hamper the fund's ability to
provide financial support during an economic downturn to its intended
beneficiaries-- the unemployed.
Sincerely yours,
Edward E. Potter
President
Madame Chairman and Distinguished Members of the Committee:
Thank you for the opportunity to submit this written
statement for the record on the critical issue of funding
family leaves through the Unemployment Insurance (UI) system.
The Employment Policy Foundation (EPF) is a unique non-partisan
research and education foundation whose purpose is to shape the
direction and development of sound employment policy through
timely, accurate, high quality economic analysis and commentary
on U.S. employment policies affecting the competitive goals of
American industry and the people it employs.
Background and Summary
EPF's analysis of the proposal to fund family leaves for
parents of newborn or newly-adopted children through the UI
system shows that its implementation would severely compromise
the solvency of the U.S. UI system. EPF estimates that, if
implemented in all states and the District of Columbia (DC),
such programs could cost up to $28.4 billion annually--
exceeding the $26 billion that employers paid into the system
in 1998. Furthermore, the programs could push the UI trust
funds of as many as 49 states and DC below recommended solvency
levels within three years. Even under more modest assumptions
based on European paid parental leave usage rates, costs could
exceed $13 billion annually and could push 46 states and DC
below solvency thresholds after three years.
Tax rates would have to rise by as much as 894 percent in
order to stem the steady rate of depletion of the states' UI
trust funds. Although the direct burden of payroll tax
increases falls on employers, research shows that long-run
costs are shifted to employees and consumers through lower
wages, higher prices, or lower employment levels. As such,
funding parental leaves through the UI system could ultimately
undermine the remarkable current performance of the U.S.
economy.
The UI system has already faced financial peril in the
past. The 1980-82 recession forced 33 states to borrow over $20
billion from the federal government and over half the states
borrowed funds during the 1990-91 recession. The federal
account went bankrupt in 1977--resulting in a 0.2 percent
surcharge to the federal unemployment tax that is still in
effect today. Just last year, the Labor Department estimated
that a recession similar to the one in the early 1980s would
force 25 to 30 states to borrow $20-25 billion. To subject this
system to further costs would hamper the fund's ability to
provide financial support during an economic downturn to its
intended beneficiaries--the unemployed.
Introduction
Since taking office in 1993, President Clinton has pushed
to expand employment leave mandates. The first major bill
signed by the President was the Family and Medical Leave Act
(FMLA)--an initiative requiring that employers provide up to 12
weeks of unpaid leave rights, job protection, and continued
health insurance benefits to workers for specified family and
medical needs.
Now, the President has proposed extension of this mandate
by making new parents eligible for compensation during leaves
funded through the unemployment insurance (UI) system. On
November 30, 1999, the President announced the release of new
proposed federal regulations and model state legislation by the
Department of Labor (DOL) that will allow and encourage States
to extend UI eligibility to workers who take leave during the
first year after the birth or adoption of a child.\1\ These
proposed regulations were in response to a Presidential
directive issued in a May 24, 1999 executive memorandum.
---------------------------------------------------------------------------
\1\ U.S. Department of Labor, ``Birth and Adoption Unemployment
Compensation; Proposed Rule, Federal Register, Vol. 64, No. 232,
December 3, 1999.
---------------------------------------------------------------------------
Overview of the Unemployment Insurance System
Created by the Social Security Act of 1935 and implemented
through the Federal Unemployment Tax Act, the UI system is a
joint federal-state program administered by each state with
federal oversight. It is funded entirely through employers'
federal and state unemployment taxes. The system's objective is
to alleviate financial hardship for the unemployed by providing
them with partial wage replacement.
The system is self-financing: funds accumulated during
expansions are spent during recessions. In the past, recessions
have quickly depleted the fund. The 1980-82 recession forced 33
states to borrow over $20 billion from the federal government
and over half the states borrowed funds during the 1990-91
recession. The federal account went bankrupt in 1977--resulting
in a 0.2 percent surcharge to the federal unemployment tax,
which is still in effect today. The DOL predicted in 1998 that
a recession like the one of the early 1980s would force 25 to
30 states to borrow $20-25 billion.\2\
---------------------------------------------------------------------------
\2\ U.S. Department of Labor, A Dialogue: Unemployment Insurance
and Employment Service Programs, 1998. Internet link: http://
www.doleta.gov/dialogue/master.htm.
---------------------------------------------------------------------------
The proposed regulations would allow states to make UI
payments to parents of newborn or newly adopted children
without making them subject to current work tests. Efforts to
fund family leaves through the UI system already have been
initiated in several states including Connecticut, Maryland,
Massachusetts, Vermont, and Washington. Although the proposed
regulations specifically refer to leave for care of a newborn
or newly adopted child, they also state that information
collected on the parental leave programs ``may also serve as a
basis for further expanding coverage to assist a broader group
of employees to better balance work and family needs.'' \3\
This qualification leaves open the possibility of eventual
extension of UI payments to all leave takers.
---------------------------------------------------------------------------
\3\ Federal Register (1999), p. 67974.
---------------------------------------------------------------------------
Cost Consequences of the Proposal
To assess the costs associated with providing UI payments
to individuals taking leave for care of a newborn or newly-
adopted child, EPF developed a model examining the cost
consequences of the enactment of funded parental leave
legislation in all 50 states and DC.\4\ Data used in the
analysis were from the U.S. Department of Labor, the Census
Bureau, the Bureau of Labor Statistics, and the State
Department.
---------------------------------------------------------------------------
\4\ This is a refinement of a cost estimate first reported in
``Paid Parental Leave: A $14 Billion to $128 Billion Entitlement,''
Economic Bytes, Employment Policy Foundation, September 10, 1999.
---------------------------------------------------------------------------
EPF assessed costs to the UI system under two scenarios:
Scenario One: All eligible mothers and fathers take leave.
Scenario Two: Parents take leave under European paid
parental leave use rates.
Costs were estimated for each scenario under 12 and 26-week
leave duration assumptions.\5\ As Figure 1 shows, estimated
annual cost under Scenario One (100% take-up) would be $13.1
billion for leaves of 12 weeks and $28.4 billion for leaves of
26 weeks. Scenario One reflects an upper bound for estimated
costs to the UI system. At up to almost $30 billion annually,
these paid leave costs would be one and one-half times the
amount currently spent on UI nationwide.
---------------------------------------------------------------------------
\5\ The 12-week assumption is used because the DOL's model
legislation refers to leaves of that length. Because unemployed
individuals in most states are currently eligible for up to 26 weeks of
UI payments, it can be assumed that paid leave could be provided on
that basis. The actual length of leaves is not predetermined, as
Appendix B of the DOL's proposed rule lets states determine leave
duration. Federal Register (1999), p. 67978.
[GRAPHIC] [TIFF OMITTED] T9340.003
Scenario Two may reflect more likely costs to the system.
To approximate likely leave use rates, we calculated average
take-up rates for men and women in five European countries with
generous paid family leave policies.\6\ As also shown in Figure
1, the likely costs of funded parental leave to the UI system
under Scenario Two (European take-up), would be $6.2 billion
annually for leaves of 12 weeks and $13.4 billion annually for
leaves of 26 weeks. These costs would represent an increase
over current UI expenditures of about 30 percent and 67
percent, respectively.
---------------------------------------------------------------------------
\6\ The countries and their associated take-up rates were Austria
(90% women, 1% men), Denmark (93%, 3%), Finland (99%, 2%), Germany
(95%, 1%), and Sweden (90%, 78%). Take-up rates are as reported in
Helen Wilkinson et al, Time out: the costs and benefits of paid
parental leave, DEMOS, 1997, and are weighted by 1998 labor force
figures from The World Factbook 1999, Central Intelligence Agency,
1999.
---------------------------------------------------------------------------
Solvency of the Unemployment Insurance Trust Funds
Although additional costs facing the UI system are a
concern, the real issue is whether or not these costs would
compromise the solvency of states' UI trust funds. If states
have adequate reserves in their trust funds, an increase in UI
costs would not necessarily mean an increase in firms' UI tax
rates. If, however, the funds are inadequate, an increase in
firms' tax rates will be required.
The DOL's proposed regulations leave determination of the
solvency issue up to the states. In response to the question
``Does this regulation impose any solvency requirements upon
the states before they enact BAA-UC?'' the document states:
No. The DOL expects that a State will not enact changes
without assessing the effect on the solvency of its
unemployment insurance fund. Each State has the responsibility
to assess the cost to the State's unemployment fund whenever
coverage, benefit expansions, or tax changes are considered
within the State's UC program. Consequently, DOL expects
prudent decision makers in a State to examine the State's
solvency position and projected taxes and benefits payments
under current law before deciding to enact BAA-UC
legislation.\7\
---------------------------------------------------------------------------
\7\ Federal Register (1999), p. 67978.
---------------------------------------------------------------------------
This laissez-faire approach is ill advised for two reasons.
First, as noted earlier, states have overestimated the
financial solvency of their UI trust funds in the past. Second,
19 states and DC already have trust fund balances that fall
below recommended solvency levels.\8\ One such state is
Maryland, where implementation of a BAA-UC program is already
being discussed.
---------------------------------------------------------------------------
\8\ The solvency threshold used was the Average High Cost Multiple
(ACHM), defined as the average of the three highest calendar benefit
cost rates in the last 20 years. Benefit cost rates are benefits paid
(including the state's share of extended benefits but excluding
reimbursable benefits) as a percent of total wages in taxable
employment. Although not a binding threshold, the DOL advises an ACHM>
1 as a good ``rule of thumb'' measure of trust fund solvency.
---------------------------------------------------------------------------
To assess the solvency of the UI trust funds, simulations
were run using the annual cost estimates derived above. The
amount of each state's weekly UI receipts was compared to each
state's weekly UI costs (the sum of costs paid under the
current system and estimated costs of funded parental leave
programs) to compute the annual drain on the UI trust fund
balance for each state.\9\ A solvency threshold was computed
for the next three years (2001-2003) and the solvency of each
state's UI trust fund was assessed.
---------------------------------------------------------------------------
\9\ Costs exceeded revenues in all states and DC under Scenario
One's 26-week assumption, and in all but two states in Scenario One's
12-week assumption. Under Scenario Two, revenues exceeded costs in only
one state under the 26-week assumption, and in four states under the
12-week assumption.
[GRAPHIC] [TIFF OMITTED] T9340.004
Under Scenario One (100% take-up), 45 states and DC would
fall below recommended solvency thresholds after three years if
12 weeks of leave are offered; 49 states and DC would fall
below thresholds after three years if 26 weeks of leave are
offered. (See Figure 2.) Even under the more conservative
Scenario Two (European take-up), 34 states and DC would fall
below recommended solvency levels after three years if 12 weeks
of leave are offered, and 46 states and DC would fall below
safe levels after three years if 26 weeks of leave are offered.
Because five states (Connecticut, Maryland, Massachusetts,
Vermont, and Washington) have expressed interest in
implementing paid family leave, their solvency positions are of
particular interest. As Appendix Tables 1 and 2 show, Maryland,
Massachusetts, and Washington fall below recommended solvency
levels within one year regardless of duration or expected take-
up of offered leave. In fact, Maryland's UI trust fund already
falls below recommended solvency levels and Massachusetts and
Washington are barely above recommended solvency levels--even
in the absence of a paid parental leave program. Connecticut
falls below recommended solvency levels within three years
under the 100 percent take-up assumption regardless of duration
and within three years under the 26-week European take-up
assumption. Expanding eligibility for UI payments to new
parents in these states will put the UI system in financial
peril if new costs are not replaced by an increase in
businesses' payroll taxes.
Unemployment Insurance Tax Rate Increases
In order to assess the consequences of UI funded parental
leave, Figure 3 examines the increase in tax rates needed to
stem the rate of state trust fund depletion.
Figure 3: Tax Rate Increases Needed to Stem Trust Fund Depletion
----------------------------------------------------------------------------------------------------------------
Scenario 1: 100% Take-up Scenario 2: European Take-
---------------------------- up
State ---------------------------
12 Weeks 26 Weeks 12 Weeks 26 Weeks
Leave Leave Leave Leave
----------------------------------------------------------------------------------------------------------------
AL...................................................... 94.84% 189.78% 51.69% 96.28%
AK...................................................... 24.77% 52.77% 12.53% 26.25%
AZ...................................................... 74.31% 187.75% 21.98% 74.37%
AR...................................................... 62.01% 130.11% 31.58% 64.18%
CA...................................................... 40.62% 97.13% 14.65% 40.86%
CO...................................................... 98.13% 237.80% 36.46% 104.19%
CT...................................................... 4.19% 43.72% 0% 6.28%
DE...................................................... 37.28% 96.41% 11.53% 40.62%
DC...................................................... 4.38% 28.49% 0% 5.50%
FL...................................................... 142.45% 279.79% 80.25% 145.02%
GA...................................................... 206.83% 419.95% 109.79% 209.69%
HI...................................................... 57.87% 124.10% 29.11% 61.80%
ID...................................................... 128.29% 228.66% 83.19% 130.94%
IL...................................................... 60.79% 133.58% 27.79% 62.07%
IN...................................................... 115.37% 245.38% 56.27% 117.34%
IA...................................................... 113.82% 226.72% 64.26% 119.35%
KS...................................................... 523.71% 893.73% 357.98% 534.66%
KY...................................................... 53.53% 125.69% 20.97% 55.15%
LA...................................................... 85.61% 189.64% 38.28% 87.11%
ME...................................................... 0% 37.81% 0% 1.42%
MD...................................................... 71.22% 163.23% 30.78% 75.60%
MA...................................................... 36.96% 86.88% 14.85% 38.97%
MI...................................................... 49.25% 107.15% 23.09% 50.47%
MN...................................................... 82.35% 179.10% 39.63% 86.53%
MS...................................................... 70.81% 161.53% 29.71% 72.49%
MO...................................................... 61.98% 144.48% 25.54% 65.51%
MT...................................................... 39.84% 98.10% 14.30% 42.76%
NE...................................................... 279.35% 545.48% 160.45% 287.87%
NV...................................................... 31.00% 86.55% 5.96% 32.28%
NH...................................................... 183.51% 397.17% 87.96% 190.14%
NJ...................................................... 57.36% 113.51% 31.75% 58.03%
NM...................................................... 62.67% 142.75% 26.44% 64.24%
NY...................................................... 62.48% 128.93% 32.03% 62.96%
NC...................................................... 145.96% 285.22% 83.48% 149.84%
ND...................................................... 108.47% 215.24% 61.54% 113.55%
OH...................................................... 83.76% 178.47% 41.20% 86.26%
OK...................................................... 338.08% 626.34% 205.37% 338.81%
OR...................................................... 23.72% 62.18% 6.34% 24.52%
PA...................................................... 41.50% 86.69% 20.90% 42.08%
RI...................................................... 0% 28.82% 0% 0%
SC...................................................... 106.97% 219.46% 55.65% 108.26%
SD...................................................... 223.29% 472.71% 112.63% 232.95%
TN...................................................... 87.50% 172.59% 49.66% 90.61%
TX...................................................... 166.23% 327.63% 92.08% 166.96%
UT...................................................... 202.23% 426.89% 99.21% 203.67%
VA...................................................... 208.38% 428.37% 109.89% 214.97%
VT...................................................... 36.75% 89.39% 13.73% 39.50%
WI...................................................... 69.64% 138.12% 39.76% 73.38%
WY...................................................... 92.91% 188.75% 49.76% 95.27%
U.S. AVERAGE............................................ 68.70% 145.43% 34.00% 70.24%
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.
As Figure 3 shows, tax rates would have to rise on average
by 34 to 145 percent in order to stem the steady rate of
depletion of the UI trust funds. For some states, increases up
to eightfold would be required.
Tax rates may have to increase even before a state's UI
trust fund approaches insolvency. In most states, tax rates are
based on the current level of state UI trust funds. Additional
taxes are imposed or current tax levels are raised when a
state's trust fund drops below a specified level.\10\
---------------------------------------------------------------------------
\10\ For a full description of these threshold amounts, see
Highlights of State Unemployment Compensation Laws, Strategic Services
on Unemployment & Workers' Compensation, January 1999.
Employees Bear the Burden of Unemployment Insurance Tax
---------------------------------------------------------------------------
Increases
Payroll tax increases will put the direct burden of the
costs of paid parental leave on employers. Although individuals
and legislators alike often believe that such mandates are
``free'' or are provided ``at the employer's expense,'' at
least some share of employer costs are shifted to employees,
either through lower wages, higher prices, or lower employment
levels. Without raising UI rates, the unemployed face
substantial jeopardy.
Most economists acknowledge that employer payroll taxes get
at least partially shifted to employees. In a recent survey, 65
labor economists at 40 leading universities were asked their
best estimate of the share of payroll taxes borne by employers
in the long run. The median value was 20 percent; the mean
value was 25.6 percent.\11\ Other economists predict even
greater cost shifting. A recent study by economist William
Conerly estimates that \2/3\ of a change in UI tax is borne by
workers the short run, and \1/3\ is borne by employers.\12\
Conerly's estimates suggest that of the up to $28.4 billion
annual burden that would immediately fall on employers, $19
billion would be passed on to workers in the short run through
reduced pay raises, lost jobs, or lost benefits. That amounts
to a $155 loss per worker annually. In the long run, however,
he estimates that the burden of the tax almost fully shifts to
workers.
---------------------------------------------------------------------------
\11\ Victor Fuchs, Alan Krueger, and James Poterba, ``Economists'
Views about Parameters, Values, and Policies: Survey Results in Labor
and Public Economics,'' Journal of Economic Literature, Vol. 36 No. 3,
September 1998.
\12\ William Conerly, ``Jobs, Not Unemployment: Reforming
Unemployment Insurance,'' Policy Insight, No. 104, Cascade Policy
Institute, January 1998.
---------------------------------------------------------------------------
Cost shifting is likely to occur because mandating benefits
does not improve employee productivity. Because competition
dictates that employee compensation track employee
productivity, increasing benefits requires an offset, which
often occurs through lower wages. If wages are not flexible
downward, fewer jobs may be offered or increased labor costs
may be passed on to consumers in the form of higher prices.\13\
---------------------------------------------------------------------------
\13\ Lawrence H. Summers, ``Some Simple Economics of Mandated
Benefits,'' American Economic Association Papers and Proceedings 79
(May 1989): p. 177-183.
---------------------------------------------------------------------------
Conclusions
To date, the UI system has served both employers and
workers effectively--providing compensation to those who are
both unemployed and able and available for work. The proposed
regulations funding parental leaves through the UI system would
fundamentally alter the nature of this system, while subjecting
the system to costs of up to $28.4 billion annually--one and
one-half times the current cost of the system. Aside from their
direct cost, these outlays could also put the UI system and the
financial protections for unemployed workers in jeopardy,
pushing as many as 49 states' and DC's trust funds below
recommended solvency levels. An increase in employers' tax
rates of up to eightfold will be necessary, shifting long-run
costs to workers and consumers.
The President's UI funded leave proposal could severely
cripple the effectiveness of the UI system and the strength of
the U.S. economy, which is currently experiencing its longest
economic expansion in history. To enact costly government
mandates at this time could put this remarkable economic
performance at risk. Thank you for your consideration of our
views.
Appendix
Table 1: States with Trust Funds Below Recommended Solvency Levels
Under Scenario 1 (100 percent take-up rates)
(X= falls below recommended solvency levels)
----------------------------------------------------------------------------------------------------------------
Currently 2 Weeks Leave 26 Weeks Leave
below -----------------------------------------------------
State recommended
solvency 2001 2002 2003 2001 2002 2003
levels
----------------------------------------------------------------------------------------------------------------
AL.......................................... X X X X X X X
AK.......................................... ............ X X X X X X
AZ.......................................... ............ ....... ....... X ....... X X
AR.......................................... X X X X X X X
CA.......................................... X X X X X X X
CO.......................................... ............ X X X X X X
CT.......................................... ............ ....... ....... X X X X
DE.......................................... ............ ....... ....... ....... ....... ....... X
DC.......................................... X X X X X X X
FL.......................................... ............ ....... X X X X X
GA.......................................... ............ ....... ....... X ....... X X
HI.......................................... ............ X X X X X X
ID.......................................... ............ X X X X X X
IL.......................................... X X X X X X X
IN.......................................... ............ ....... X X X X X
IA.......................................... ............ X X X X X X
KS.......................................... ............ X X X X X X
KY.......................................... X X X X X X X
LA.......................................... ............ ....... ....... X ....... X X
ME.......................................... X X X X X X X
MD.......................................... X X X X X X X
MA.......................................... ............ X X X X X X
MI.......................................... X X X X X X X
MN.......................................... X X X X X X X
MS.......................................... ............ ....... ....... ....... ....... X X
MO.......................................... X X X X X X X
MT.......................................... ............ ....... X X X X X
NE.......................................... ............ X X X X X X
NV.......................................... ............ X X X X X X
NH.......................................... ............ ....... ....... ....... ....... X X
NJ.......................................... ............ X X X X X X
NM.......................................... ............ ....... ....... ....... ....... ....... X
NY.......................................... X X X X X X X
NC.......................................... ............ X X X X X X
ND.......................................... X X X X X X X
OH.......................................... X X X X X X X
OK.......................................... ............ ....... X X X X X
OR.......................................... ............ ....... ....... X ....... X X
PA.......................................... X X X X X X X
RI.......................................... X X X X X X X
SC.......................................... ............ ....... X X X X X
SD.......................................... X X X X X X X
TN.......................................... X X X X X X X
TX.......................................... X X X X X X
UT.......................................... ............ ....... X X X X X
VT.......................................... ............ ....... ....... ....... ....... .......
VA.......................................... ............ ....... X X X X X
WA.......................................... ............ X X X X X X
WV.......................................... X X X X X X X
WI.......................................... ............ X X X X X X
WY.......................................... ............ ....... ....... X ....... X X
U.S. TOTAL.................................. 20 33 40 46 41 48 50
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.
Table 2: States with Trust Funds Below Recommended Solvency Levels
Under Scenario 2 (European take-up rates)
(X= falls below recommended solvency levels)
----------------------------------------------------------------------------------------------------------------
Currently 12 Weeks Leave 26 Weeks Leave
below -----------------------------------------------------
State recommended
solvency 2001 2002 2003 2001 2002 2003
levels
----------------------------------------------------------------------------------------------------------------
AL.......................................... X X X X X X X
AK.......................................... ............ X X X X X X
AZ.......................................... ............ ....... ....... ....... ....... ....... X
AR.......................................... X X X X X X X
CA.......................................... X X X X X X X
CO.......................................... ............ X X X X X X
CT.......................................... ............ ....... ....... ....... ....... X X
DE..........................................
DC.......................................... X X X X X X X
FL.......................................... ............ ....... ....... X ....... X X
GA.......................................... ............ ....... ....... ....... ....... ....... X
HI.......................................... ............ ....... X X X X X
ID.......................................... ............ X X X X X X
IL.......................................... X X X X X X X
IN.......................................... ............ ....... ....... ....... ....... X X
IA.......................................... ............ ....... X X X X X
KS.......................................... ............ X X X X X X
KY.......................................... X X X X X X X
LA.......................................... ............ ....... ....... ....... ....... ....... X
ME.......................................... X X ....... X X X
MD.......................................... X X X X X X X
MA.......................................... ............ X X X X X X
MI.......................................... X X X X X X X
MN.......................................... X X X X X X X
MS..........................................
MO.......................................... X X X X X X X
MT.......................................... ............ ....... ....... ....... ....... X X
NE.......................................... ............ X X X X X X
NV.......................................... ............ ....... ....... X X X X
NH.......................................... ............ ....... ....... ....... ....... ....... X
NJ.......................................... ............ ....... X X X X X
NM..........................................
NY.......................................... X X X X X X X
NC.......................................... ............ X X X X X X
ND.......................................... X X X X X X X
OH.......................................... X X X X X X X
OK.......................................... ............ ....... X X ....... X X
OR.......................................... ............ ....... ....... ....... ....... ....... X
PA.......................................... X X X X X X X
RI.......................................... X X X ....... X X X
SC.......................................... ............ ....... X X X
SD.......................................... X X X X X X X
TN.......................................... X X X X X X X
TX.......................................... X X X X X X X
UT.......................................... ............ ....... ....... ....... ....... X X
VT..........................................
VA.......................................... ............ ....... ....... X X X
WA.......................................... ............ X X X X X X
WV.......................................... X X X X X X X
WI.......................................... ............ ....... X X X X X
WY.......................................... ............ ....... ....... ....... ....... ....... X
U.S. TOTAL.................................. 20 28 32 35 33 41 47
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.
Statement of LPA
Madame Chairman and Distinguished Members of the
Subcommittee:
Thank you for the opportunity to submit this testimony to
your Subcommittee on the critical issue of whether using
unemployment compensation funds, collected to help those
involuntarily unemployed, to pay benefits to those voluntarily
taking family leave is good policy and whether it is
appropriate for the Department of Labor (``DOL'' or the
``Department'') to circumvent Congress in ordering this
dramatic redirection of the unemployment insurance system.
LPA, Inc. is a public policy advocacy association of senior
human resource executives and over 250 major corporations.
LPA's purpose is to ensure that employment policies in the
United States support the goals and interests of its member
companies and their employees, and it regularly represents the
interests of its members on these issues. Collectively, LPA
members employ over 12 million individuals, roughly 12% of the
private sector workforce. LPA members therefore fund a
significant portion of the costs of this country's unemployment
compensation system and are extremely concerned about any
proposals that would increase those costs or undermine the
stability and viability of that system.
While we firmly support employers' efforts to accommodate
the family needs of their workers, LPA is submitting testimony
to express our strong opposition to the potential dilution of
the federal unemployment insurance system through the Birth and
Adoption Unemployment Compensation (``BAA-UC'') regulations
proposed by the DOL's Employment and Training Administration on
December 3, 1999. See Notice of Proposed Rulemaking on Birth
and Adoption Unemployment Compensation, 64 Fed. Reg. 67972
(proposed Dec. 3, 1999) (``NPRM''). On February 2, 2000, LPA
filed comments on the proposed BAA-UC Program. These comments,
prepared by the law firm of Jones Day Reavis and Pogue,
establish the legal basis for a lawsuit LPA will file in
federal court seeking an injunction against the regulations if
they are finalized.
We wish to make it clear at the outset that LPA and its
member companies are strongly committed to enabling American
workers to reconcile the conflicts between work and family
needs. This is being done through a wide variety of innovative
programs that have shown our members to be among America's most
family-friendly companies. While we oppose this attempt to
compensate birth-and-adoption leave under a program clearly
designed to address other needs, any responsible attempts by
Congress to remove existing legal impediments to birth-and-
adoption leave under the wage/hour, tax, and other laws would
obviously receive a warm welcome from our members.
In the view of LPA and its member companies, there are a
number of defects in the proposed BAA-UC regulations. First and
foremost, if the proposed BAA-UC regulations were widely
adopted, they would increase the costs of the unemployment
compensation system, which are almost entirely borne by
employers. Depending upon how the states responded, these costs
could very likely double to more than $50 billion per year,
thereby undermining the financial stability and viability of
the unemployment compensation system. The $30 billion a year
that full BAA-UC coverage would cost, in turn, would increase
the taxes paid by employers by 34% on average, imposing a
massive burden on employers. In addition, the proposed
regulations cannot be reconciled with the requirements of the
Federal Unemployment Tax Act (``FUTA'') or with the provisions
of the Family and Medical Leave Act of 1993 (``FMLA'').
Adoption of the proposed regulations would also be arbitrary
and capricious because, among other things, the NPRM fails to
offer any justification for the Department's abrupt change of
position on BAA-UC.
Paid Birth-and-Adoption Leave Should not be Created Through the
Unemployment Compensation System
LPA members and their companies strive to accommodate the
needs of parents and families in a number of different ways,
with flexible work schedules, leave, both paid and unpaid, and
other innovative employment practices. It is, however, both
unwise and inappropriate to permit states to provide wage
replacement to parents on birth-and-adoption leave through the
unemployment compensation system. However laudable it is to
assist employees in balancing the demands of an increasingly
competitive and intense workplace with the needs of their
families and personal lives, the unemployment compensation
system is not the proper method for implementing such a policy.
As the Employment Policy Foundation has pointed out, the
authorization of unemployment compensation for birth-and-
adoption leave would impose a potentially massive financial
burden on employers and an already-underfunded UI system. See
Letter from Edward E. Potter to Grace A. Kilbane, Jan. 26,
2000, available at http://www.epf.org/documents/20000126.pdf.
Although the Department estimates that the cost of its proposed
regulations would be minimal, ``from zero to approximately $68
million,'' this estimate is based upon the assumption that only
a small number of states are interested in providing birth-and-
adoption leave unemployment compensation. If, however, such
unemployment compensation is adopted by all the states, the
cost of providing birth and adoption unemployment compensation
could climb as high as $30 billion. As the entire unemployment
system currently pays out only about $20 billion per year, full
adoption of BAA-UC would more than double the pay outs in the
entire system. Moreover, even assuming that the economy will
continue to grow, the unemployment funds in as many as 46
states and the District of Columbia would face insolvency
within three years if they were to adopt birth-and-adoption
leave pursuant to the proposed regulations. In addition, based
upon conservative assumptions, states would on average have to
increase their unemployment compensation taxes by 34% to pay
for this shortfall.
In addition, the unemployment compensation system is ill-
equipped to deliver wage replacement to parents on birth-and-
adoption leave, just as birth-and-adoption leave is ill-suited
for the unemployment compensation system. One of the enduring
strengths of that system is its simplicity and focus. The
system is not designed to have the flexibility to deal with
birth-and-adoption leave. Although Congress found that unpaid
family leave was too burdensome to impose upon small business
and therefore exempted them from the obligations imposed by the
FMLA, no similar exception can be carved out of the
unemployment compensation system because, as the NPRM
recognizes, any eligibility test for unemployment compensation
must relate directly to the fact or cause of the individual's
unemployment. Thus, by encouraging workers to take birth-and-
adoption leave, the proposed regulations would require all
businesses to plan for, find, and train replacement personnel,
no matter how burdensome doing so may be in light of a small
business' limited resources. Similarly, under the unemployment
compensation system, the payment of birth-and-adoption leave
unemployment compensation cannot be limited to one parent in
each family, denied to highly-compensated individuals, or
adjusted to reflect the means and needs of claimants. In short,
the unemployment compensation system is not well-suited for
dealing with the complexities of birth-and-adoption leave.
It has not been demonstrated that the burdens of BAA-UC
would be counterbalanced by any benefits relevant to the
unemployment compensation system. In the NPRM, the Department
hypothesizes that providing parents on birth-and-adoption leave
with unemployment compensation would be consistent with the
goals of the system because it would ultimately promote their
attachment to the work force. Notably absent from the NPRM,
however, is any solid evidence that BAA-UC would have this
effect.
Finally, the provision of unemployment compensation for
birth-and-adoption leave would create an unstable and
pernicious precedent. As there is no tenable distinction
between birth-and-adoption leave and other forms of personal
leave, once unemployment compensation were provided to
individuals taking the former, there would be an irresistible
pressure to extend compensation to the latter, as the NPRM
itself appears to recognize. If that were to happen, however,
the unemployment compensation system would be transformed from
a focused and relatively uncontroversial insurance program into
an over-stretched and difficult-to-maintain source of funds for
programs that may or may not have the support of the public and
the business community. The Department should not jeopardize
the unemployment compensation system in this way.
The Proposed Regulations Conflict With Federal Unemployment
Compensation Law
In this country, unemployment compensation is provided
through a cooperative federal-state system in which a
federally-collected tax is used to finance state unemployment
compensation programs that meet certain minimum federal
requirements. One of the most fundamental requirements imposed
by federal law is that the money made available through this
system be used solely for the payment of ``unemployment
compensation.'' 26 U.S.C. Sec. 3304(a)(4). In this context,
the term ``unemployment'' has a well-established and understood
meaning: It requires claimants to be (1) without a job; (2)
able and available for work; and (3) involuntarily without
work, which normally means that claimants must be actively
seeking work. As LPA makes clear in the comments it filed with
DOL in response to the NPRM, these requirements are inherent in
the plain language of FUTA and are confirmed by the legislative
history of FUTA; the amendments to the Act and the Act's
statutory predecessor; the administrative interpretations
stretching from the enactment of FUTA's predecessor in 1935 up
until the current NPRM; and the Supreme Court's interpretation
of FUTA.
The proposed regulations cannot be reconciled with the
statutory requirements for unemployment. Indeed, the NPRM does
not even attempt to reconcile the proposed regulations with the
joblessness and involuntariness requirements. The proposed
regulations would authorize payments of unemployment
compensation to individuals who have jobs but are simply taking
temporary leave, who have chosen to make themselves unavailable
for work, and who are not seeking work. Indeed, the model state
legislation included in the NPRM would effectively preclude the
application of the joblessness, availability, and
involuntariness requirements to BAA-UC claimants, thereby
virtually stripping the term ``unemployment'' out of
unemployment compensation. The DOL's prior treatment of state
law provisions concerning temporary layoffs, illness, jury
duty, and training does not provide any justification for the
proposed regulations. Congress has not delegated to the
Department authority to carve out exceptions to the fundamental
restrictions imposed on state unemployment programs in service
of goals that, whatever their benefits, are foreign to federal
unemployment compensation law.
The Proposed Regulations Conflict With the Congressional Requirement
That Family-Related Leave be Unpaid
The proposed regulations are also inconsistent with the
FMLA because they effectively require employers to pay for
birth-and-adoption leave. Although the proposed regulations on
birth-and-adoption leave would clearly be linked to the FMLA's
family leave provisions and could create confusion between BAA-
UC and FMLA, the NPRM does not attempt to reconcile the
proposed rules with the FMLA. This is not surprising. In the
FMLA, Congress struck a delicate and purposeful balance between
the burden on employers and benefits to employees: While the
statute requires employers to grant familyand-medical leave to
employees, including leave for birth and adoption, it
explicitly provides that such leave ``may consist of unpaid
leave,'' thereby protecting employers from federal requirements
that such leave be paid. Indeed, even the FMLA's chief sponsor,
Rep. Patricia Schroeder (D-CO), made it clear that there would
be no federal unemployment compensation for leave under the
FMLA:
``The leave is unpaid, so your paycheck will stop. There is
no federal compensation such as unemployment.''
139 Cong. Rec. E2010 (daily ed. Aug. 5, 1993) (emphasis
added).
The proposed regulations disrupt the balance struck by
Congress. The FMLA's savings clause confirms this. Although
that clause states that nothing in the FMLA ``shall be
construed to supersede any provision of any State or local law
that provides greater family or medical leave rights than the
rights established under this Act,'' it leaves no room, absent
separate statutory authority, for a federal agency construing
federal law to require paid leave in disregard of the
protections that Congress chose to provide employers.
The Proposed Regulations are Arbitrary and Capricious
Even apart from their conflict with FUTA and the FMLA, the
proposed regulations are arbitrary and capricious. First, the
NPRM fails to consider obviously relevant factors such as the
policies underlying the FMLA and the massive cost of funding
birth-and-adoption leave through the unemployment compensation
system. Second, the NPRM fails to justify the Department's
departure from its long-standing interpretation of FUTA's
unemployment requirements. For decades, the Department has
refused to permit payment of unemployment compensation to
individuals who remain out of work for personal reasons, and in
1997 it expressly rejected a Vermont proposal to pay
unemployment compensation to individuals on family leave. See
Letter from Raymond J. Uhalde to the Hon. Patrick Leahy, July
17, 1997. The NPRM does not explain why the Department has
suddenly departed from these positions and, more generally,
from the joblessness, availability, and involuntariness
requirements that it has recognized for more than sixty years.
Third, the NPRM fails to draw a reasoned distinction between
the proposed regulations' authorization of unemployment
compensation for individuals on birth or adoption leave and the
Department's refusal to authorize compensation for other types
of family and personal leave.
The Process by Which the Proposed BAA-UC Regulations are Being
Considered is Defective
Finally, the rulemaking suffers from two procedural
defects. First, the NPRM violates the Administrative Procedure
Act (``APA''). Although the APA guarantees the public an
opportunity to participate in the rulemaking process by
requiring agencies to consider and respond to comments
submitted by the public, the President has short-circuited that
process here by directing the Department to issue regulations
authorizing BAA-UC and thereby preventing the public from
playing any meaningful role in the decision whether to issue
such regulations. Second, this rulemaking fails to comply with
the Regulatory Flexibility Act (``RFA''), under which any
proposed rule affecting small businesses must be accompanied by
a regulatory flexibility analysis that, among other things,
describes any significant alternative to the proposed rule that
would minimize the impact on small businesses. The NPRM
neglected to include any such analysis on the theory that the
proposed regulations will have no effect on small businesses.
Plainly, however, if the regulations are promulgated and states
authorize BAA-UC pursuant to them, small businesses will feel
the effect of the regulations in the form of higher taxes,
increased absenteeism, and decreased productivity. Thus, an
initial regulatory flexibility analysis must be formulated and
made available for public comment.
Conclusion
Although LPA members and other employers are attempting to
accommodate the family needs of their employees, we must oppose
this attempt to undermine the nation's 65-year-old unemployment
compensation system by seeking to serve needs that clearly fall
outside those that the system was designed to address. The
unemployment compensation system is not well-suited to deal
with birth-and-adoption leave because it does not have the
flexibility to deal with matters such as the interests of small
businesses or needs testing. In addition, BAA-UC would impose a
massive financial burden on the unemployment compensation
system, necessitating an increase in taxes of an average of 34%
per state to cover the shortfall that would be created by
nationwide coverage. The proposed regulations also create an
unstable and pernicious precedent that may transform
unemployment compensation from a focused, well-functioning, and
uncontroversial program into an over-stretched and
controversial one. The fundamental flaw in DOL's approach from
which all of our criticisms emerge is that it is seeking to do
something that only Congress can accomplish. We strongly
support any efforts by this Committee to forestall this
dangerous precedent.
Thank you for consideration of our views.
Maryland House of Delegates
Annapolis, Maryland 21401-1991
March 3, 2000
The Honorable Nancy L. Johnson, Chairman
Subcommittee on Human Resources
Committee on Ways & Means
Room B-317, Rayburn Building
U.S. House of Representatives
Washington, D.C. 20515
Re: Birth and Adoption Unemployment Compensation Regulations (64 Fed.
Reg. 59918, Dec. 3, 1999)
Dear Chairman Johnson:
As members of the Maryland House Economic Matters Committee and
having jurisdiction for unemployment insurance issues, we are aware
from national media reports that the State of Maryland has been cited
as one of four states (Maryland, Massachusetts, Vermont and Washington)
that has expressed interest in the BAA-UC experimental program. We
write to set the record straight regarding Maryland's interest in the
proposal being promulgated by the U.S. Department of Labor.
House Bill 1124, Unemployment Insurance-Eligibility for Benefits-
Birth or Adoption of Child, was introduced during the 1999 Session of
the Maryland General Assembly. House Bill 1124 provided 12 weeks of
unemployment compensation for individuals who leave work immediately
following the birth or adoption of their child, if they are the primary
care giver and are not otherwise entitled to wages or salary from their
employer. Maryland's Unemployment Insurance Office opposed the
legislation because: (1) it would place Maryland out of conformity with
federal law under the ``able and available for work'' requirement; and
(2) it would negatively impact the Unemployment Insurance Trust fund
balance. Allowing an entirely new category of individuals to file for
and receive unemployment insurance benefits would deplete Unemployment
Insurance Trust Fund revenues and trigger an increase in the surtax.
The legislation was promptly defeated in the House Economic Matters
Committee. This was the extent of Maryland's involvement in the issue
at the time DOL issued the BAA-UI proposal.
Identical legislation has been reintroduced during the 2000 Session
of the Maryland General Assembly (HB 1198 and SB 167). HB 1198 is
scheduled for public hearing in the House Economic Matters Committee on
March 9, 2000. Interestingly, neither bill reflects the content of the
model legislation proposed by DOL. Again, the Maryland Unemployment
Insurance Office is opposing the legislation as incompatible with the
unemployment insurance system, and estimates the financial impact on
the Unemployment Insurance Trust Fund to be $68 million annually. If
enacted, this legislation would trigger a .4% increase in the
unemployment insurance surtax in Maryland, costing all Maryland
employers an increased unemployment insurance tax liability of $34 per
employee.
Contrary to national media reports, there is little sentiment in
Maryland to enact legislation that increases the tax liability of
businesses by allowing birth and adoption leave to be financed through
the unemployment insurance system. We hope this clarifies for the
record Maryland's limited interest in this issue.
Sincerely,
Delegate Van T. Mitchell
[D-Charles Co.]
Delegate Richard La Vay
[R-Montgomery Co.]
Mechanical Contractors Association
of America, Inc.
Rockville, Maryland 20850-4340
January 27, 2000
Ms. Grace Kilbane
Director, Unemployment Insurance Service
Employment and Training Administration
U.S. Department of Labor
200 Constitution Avenue, N.W.
Room S-4231
Washington, DC 20210
RE: Birth and Adoption Unemployment Compensation, 20 CFR Part 604, 64
Fed. Reg. 67,972 (Dec. 3, 1999).
Dear Director Kilbane:
The Mechanical Contractors Association of America (MCAA) opposes
the proposed rule that would provide unemployment insurance benefits to
individuals who are able yet unavailable to work:
Federal unemployment insurance law requires that claimants
be ``able and available'' to work.
The proposed rule circumvents the statutory requirements
of the Family Medical Leave Act (FMLA).
The original purpose of unemployment insurance should not
be expanded for voluntary leave.
Unemployment insurance benefits must be available for
unemployed workers when the economic cycle turns and unemployment
rises.
1. Federal unemployment insurance law requires that claimants
be ``able and available'' to work.
Up until the Administration's change in policy this summer, the
Department of Labor's (DOL) long-standing administration of the Federal
Unemployment Tax Act (FUTA) has required that unemployment insurance
claimants be ``able and available'' to work. While there are four
exceptions to this requirement--training, illness, jury duty, and
temporary layoffs--none of them are voluntary, temporary withdrawals
from employment with the intention of returning to the same job.
2. The proposed rule circumvents the statutory requirements of
the Family Medical Leave Act (FMLA).
FMLA provides up to twelve weeks of unpaid leave to employees who
work for employers of at least 50 employees. Employees must have worked
for the employer for a minimum of 1,250 hours during the previous
twelve months to qualify for family leave.
The proposed rule would prohibit the application of unemployment
benefits eligibility factors unrelated to the cause of unemployment,
e.g., employer size. Therefore, the carefully crafted compromises in
the FMLA on employer size and job tenure--worked out by executive and
legislative officials--would be circumvented by a unilaterally imposed,
unnegotiated rule. Furthermore, extending unemployment insurance
benefits to employees who voluntarily leave work for a short time
period is very controversial; it is so controversial that the
Commission on Leave, a board created by FMLA to study workforce issues,
did not include such a recommendation in its report to Congress, A
Workable Balance: Report to Congress on Family and Medical Leave
Policies.
MCAA's members are heating, air conditioning, refrigeration,
plumbing, piping, and service contractors who perform new construction,
service, and maintenance of mechanical and HVAC systems. They rely on a
stable workforce of highly skilled employees to perform highly
technical construction within strict timeframes and other highly
variable work sequence schedules, including inclement weather. A
stable, always available workforce is an essential element of quality
construction. The proposed rule would add an element of uncertainty
into the workforce planning that would negatively impact contractors'
ability to perform.
3. The original purpose of unemployment insurance should not be
expanded.
According to a January 1996 report by the Advisory Council on
Unemployment Compensation, Defining Federal and State Roles in
Unemployment Insurance--A Report to the President and Congress (Report
to the President), ``The fundamental objective of the [unemployment
insurance] system is the provision of insurance in the form of
temporary, partial wage replacement to workers experiencing involuntary
unemployment.'' Unemployment insurance benefits serve a narrow
purpose--to provide temporary assistance to workers who are
involuntarily unemployed and who are seeking employment. That purpose
should not be expanded into a sort of publicly mandated employee
benefits measure administered by the state and federal government.
4. Unemployment insurance benefits must be available for
unemployed workers when the economic cycle turns and
unemployment rises.
According to Report to the President, ``[The] second objective of
the [unemployment insurance system] is the accumulation of adequate
funds during periods of economic health, thereby promoting economic
stability by maintaining consumer purchasing power during economic
downturns.'' Unemployment insurance benefits lessen the burdens of
those hard economic times and become a macroeconomic tool to keep up
demand. The system should not be expanded so as to jeopardize its
fundamental purpose.
Sincerely,
John McNerney
Executive Director for Government and Labor Relations
Statement of Judith L. Lichtman, President, National Partnership for
Women and Families
As the leaders of the growing movement to make family leave
more affordable, the National Partnership for Women & Families
wholeheartedly supports the proposed regulation that is the
topic of today's hearing. Formerly the Women's Legal Defense
Fund, the National Partnership wrote the first draft of the
Family and Medical Leave Act (FMLA) and led the nine-year fight
for its passage. In 1999, the National Partnership launched the
Campaign for Family Leave Income, a multi-year initiative to
make family and medical leave more affordable for all working
Americans.
Encouraging states to provide unemployment insurance to new
parents is the right move for working families. This new form
of unemployment coverage will let millions of mothers and
fathers help their children thrive during the critical months
after birth and adoption. It will alleviate a major source of
economic pressure on working families. And it will put our
nation's policies more in sync with the realities facing
today's workforce.
This concept is catching fire in the states. Legislators
around the country are introducing new bills that would extend
their state unemployment benefits to new parents. In fact,
legislative efforts to provide some income during family leave
are already underway in at least 13 states: California,
Connecticut, Illinois, Indiana, Iowa, Maryland, Massachusetts,
Minnesota, New Hampshire, New Jersey, New York, Vermont,
Washington.
Since the FMLA became law in 1993, more parents are
spending precious time with new babies, fewer children have to
face hospital stays alone, and more workers can care for their
parents in an emergency. In almost seven years, the FMLA has
helped some 26 million women and men care for their loved ones
and keep their jobs, without harming employers.
The FMLA was a critical first step, but it was not enough.
Too many Americans simply cannot afford to take the unpaid
leave the law provides. The bi-partisan Family Leave Commission
found that lost wages are the number-one reason people do not
take needed leave. Sadly, nearly one in ten FMLA users is
forced onto public assistance while on unpaid leave. At a time
when we have such a strong economy--and working families need
relief so urgently--this regulation is a major step forward
that can make a real difference in the lives of millions of
Americans.
Providing Family Leave Income Through Unemployment Insurance
Questions & Answers
On December 3, 1999, the Department of Labor proposed a new
federal regulation that encourages states to let new parents
collect unemployment insurance while on unpaid family leave.
This document answers some of the most common questions about
using unemployment insurance to provide family leave income and
about the upcoming regulation.
Background
Since the Family and Medical Leave Act (FMLA) was enacted
in 1993, it has helped at least 24 million Americans take up to
12 weeks of unpaid, job-protected leave to care for their new
babies and sick family members, and to recover from their own
serious illnesses, without hurting businesses. Yet too many
women and men simply cannot afford to take unpaid leave, even
when their families need them most. The bipartisan Family Leave
Commission found that nearly two-thirds of employees who did
not take needed leave cited lost wages as the primary reason.
In June 1999, the National Partnership for Women & Families
launched the Campaign for Family Leave Income, a multi-year
initiative to make family and medical leave more affordable for
all working Americans. ``Family leave income'' (FLI) describes
a variety of ways to help people afford time off when a baby is
born or adopted, when a close relative is seriously ill, or
when workers themselves need medical care.
Unemployment insurance is one of the most widely considered
and promising vehicles for providing FLI. Legislators and
advocates in several states--including Connecticut, Georgia,
Illinois, Indiana, Maine, Massachusetts, Maryland, New
Hampshire, New Jersey, Oregon, Vermont, and Washington--are
considering extending unemployment benefits to employees taking
family or medical leave. A 1998 National Partnership survey
found that most Americans--79%--support this approach.
Family Leave Income and Unemployment Insurance
Why should unemployment insurance be used to provide FLI
benefits?
Originally a safety net primarily for male breadwinners,
unemployment insurance was designed with the assumption that
women could devote themselves exclusively to family needs. With
the massive entry of women into the workforce and the rapid
aging of the population, along with an historically high demand
for workers, the unemployment insurance system must evolve to
accommodate the real-life challenges facing today's families:
more people need care, but fewer people are available to
provide that care without compensation. Using unemployment
insurance to provide FLI benefits would help update the
unemployment system to fit the changing composition of the
American workforce and the American family.
Won't it be very expensive to provide FLI through
unemployment insurance?
No. Because it is based on an insurance model, providing
FLI this way is very inexpensive. For instance, extending
unemployment benefits to Massachusetts workers on family or
medical leave is estimated to cost no more than a modest $1.25
per covered worker per week. Further, in states with such
proposals, the cost can be fully offset by unemployment fund
surpluses--surpluses that states like Massachusetts are
considering simply returning to employers in the form of tax
cuts.
At the same time, the hidden costs of not having FLI are
substantial. The costs to employers include higher turnover and
replacement costs and lower productivity when employees are
forced either to forgo needed time off from work or to leave
their jobs entirely. The costs to society include increased
health care and public benefits expenses. In fact, the
bipartisan Family Leave Commission found that nearly one in ten
leave-takers, and 12% of women leave-takers, were forced onto
public assistance during leave.
But isn't unemployment just for people who get laid off?
Since its creation in the 1930's, the unemployment
insurance system has given states considerable flexibility in
determining how best to use their unemployment funds, including
setting eligibility requirements. Many states have found it
worthwhile to provide unemployment benefits to people in
situations that do not fit the narrow, traditional criteria of
being involuntarily laid off and immediately available for
work. Examples of such state policies now in place with the
approval of the U.S. Department of Labor include the following:
Employees who are temporarily laid off, but will
be ``recalled'' to work for the same employer, are not required
to be ``available'' to work for anyone else to be eligible for
unemployment benefits in seven states. Similarly, people who
are temporarily not working because they are on family or
medical leave also want and intend to return to the same job:
the bipartisan Commission on Leave found that 84% of employees
who take FMLA leave return to their jobs.
Several states provide benefits to workers who
become unemployed and then develop a physical condition that
prevents them from working. Employees who must take medical
leave to recover from a physical disability are in essentially
the same position. The mere timing of their disability should
not control employees' access to benefits.
One-third of states already recognize that
employees who must leave their jobs for an urgent and
compelling reason--such as a spouse getting relocated or the
inability to find child care--still deserve unemployment
benefits, even though they were not laid off.
People enrolled in approved job training programs
receive benefits, even though they are allowed to turn down
work during their training periods. Such employees are no more
available for work than employees taking family or medical
leave.
Won't providing FLI endanger unemployment insurance trust
funds in times of recession?
No. The real threat to trust funds comes not from an
expansion of unemployment benefits, but from repeated and
dramatic employer tax cuts. Even as American businesses have
enjoyed record-breaking profits, they have been lobbying
aggressively and successfully for large cuts in their
unemployment taxes: at least 15 states have cut unemployment
taxes sharply in the past five years, and legislation to lower
taxes is pending in many more. Ironically, some of the same
business groups insisting that providing FLI would
``devastate'' state trust funds are still calling for cuts that
would deplete those same funds--but would benefit their own
bottom line. For example, Massachusetts business interests
oppose using unemployment insurance for family or medical
leave, even as they lobby for tax cuts equal to the entire cost
of providing FLI throughout the state.
In fact, many states are well positioned for an expansion
of unemployment insurance benefits to include employees on
family and medical leave. State trust fund reserves increased
85% overall from the end of the last recession in 1992 through
1998. Well over half the states have reserves that exceed
solvency guidelines specifically designed to measure the
ability to withstand a severe recession. These guidelines are
calculated by averaging actual unemployment costs from the
three worst economic downturns of the previous twenty years.
The President's Directive on Unemployment Insurance for New
Parents
What was President Clinton's directive to the Department of
Labor?
In May 1999, the President directed the Secretary of Labor
to propose a new regulation confirming that states may offer
unemployment insurance to working parents on leave to care for
a newborn or newly adopted child.
How will the regulation be developed and when will it go
into effect?
The Department of Labor issued a ``notice of proposed
rulemaking''--or draft regulation--on December 3, 1999. States
and the public now have the opportunity to submit comments
until February 2, 2000, as part of the process of developing
the final regulation. An effectiveness date for the final
regulation has not yet been set.
Why is this regulation necessary?
Four states (Maryland, Massachusetts, Vermont, and
Washington) asked the Administration to confirm that they could
use their unemployment insurance systems to offer FLI in
accordance with federal law. In response, the President
directed the Labor Department to clarify how states wishing to
use unemployment insurance to assist new parents could put
those plans into effect.
How long will people be able to take leave and receive pay?
States will be free to define the length of time employees
may receive unemployment insurance while on family leave.
Who will be eligible for this new form of unemployment
insurance coverage?
Each state may establish its own eligibility requirements.
Why should new parents be singled out for this benefit?
Providing FLI benefits to new parents is an important
investment in the future workforce. Research shows that
parental involvement is crucial to help babies develop
physically, emotionally, and intellectually, and that children
benefit from early parental attention long after they leave
infancy.
While recognizing the needs of new parents, advocates for
women, children, parents, seniors, and people with disabilities
also strongly support making family leave affordable for those
who need to care for seriously ill children or other family
members or to recover from their own serious illness.
Right now, employers who fire more workers pay higher
unemployment taxes--it's called ``experience rating.'' Won't
this regulation increase unemployment taxes for employers with
more new parents on the payroll?
No. States can, and should, exempt this new form of
unemployment coverage from experience rating.
Won't the new regulation force state governments to pay for
people's individual choices?
No. State participation in this program is wholly
voluntary. Indeed, the new regulation protects state
governments' choice to provide FLI to new parents through
unemployment insurance (or not). In choosing to set up FLI
programs, states fulfill our collective responsibility to help
young families thrive, to value caregiving, and to prevent
poverty--all longstanding American values that are already
reflected in a range of public policies, from Social Security
to dependent care tax credits.
The Labor Department estimates that the annual cost of this
regulation could range from $0-68 million. What does this range
represent?
The Department of Labor based its cost estimate on data
from the four states (Maryland, Massachusetts, Vermont, and
Washington) that asked the Administration to provide guidance
on providing FLI through their unemployment insurance systems.
If no state enacts UI/parental-leave legislation, the annual
cost of the regulation will be 0, while if all four of these
states enact legislation, the Labor Department estimates that
the total annual cost will be around $68 million. This estimate
reflects the Labor Department's assumptions about how many
people are likely to use the benefit. Several other independent
studies have also estimated the cost of providing unemployment
insurance benefits to employees on parental leave. These
studies are summarized on our website at
www.nationalpartnership.org/workandfamily/fmleave/expansion/
uitdichart1.htm.
How many states can participate?
The regulation does not limit the number of states that can
participate. A state simply must amend its unemployment
insurance law to include parental leave.
Isn't this a backdoor way of addressing a question that
Congress should decide?
No. In creating the national unemployment compensation
system in 1935, Congress envisioned a federal-state cooperative
scheme that would provide a uniform national floor for the
benefits states could grant, while leaving states otherwise
free to develop eligibility criteria that would offer more
generous coverage and benefits. When questions about this
scheme have arisen, however, states have routinely asked the
Department of Labor to clarify the law, as four states did in
this case.
This document was produced by the Campaign for Family Leave
Income, a project of the National Partnership for Women &
Families. For more details about state proposals and programs
and the Campaign for Family Leave Income, please see
www.nationalpartnership.org or call 202/986-2600.
State Family Leave Income Initiatives
Making Family Leave More Affordable
Around the country, activists for women, children, seniors,
and working families are organizing to make family leave more
affordable through family leave income. Efforts have been
undertaken in at least nine states to provide family leave
benefits. For example, many states are considering expanding
unemployment or disability insurance to provide some pay during
periods of unpaid family and medical leave.
Most Americans--fully 82% of women and 75% of
men--support such ``family leave insurance'' proposals.*
---------------------------------------------------------------------------
* National Partnership for Women & Families, Family Matters: A
National Survey of Women and Men, 1998.
---------------------------------------------------------------------------
Currently, the federal Family and Medical Leave Act (FMLA)
guarantees covered employees 12 weeks of unpaid leave each year
to care for a newborn or newly adopted child or seriously ill
family member (family leave), or to recover from their own
serious health condition (medical leave). The FMLA was an
essential step toward recognizing Americans' work and family
responsibilities. However, because FMLA leave is unpaid, many
employees cannot afford to take time off at the very time their
families need them most.
The bipartisan Family Leave Commission found that
nearly two-thirds of employees who needed but did not take
family or medical leave cited lost wages as the reason.**
---------------------------------------------------------------------------
** Commission on Leave, A Workable Balance: Report to Congress on
Family and Medical Leave Policies, 1996.
---------------------------------------------------------------------------
Existing public and private responses are limited. For
instance, five states (as well as Puerto Rico) require
employers to offer temporary disability insurance (TDI), which
provides partial wage replacement to employees who are
temporarily disabled for non-work-related reasons, and many
employers voluntarily offer TDI as an employee benefit. While
TDI covers disabilities arising from pregnancy or childbirth,
TDI currently offers no benefits for employees who take leave
beyond the period of maternal disability, or take leave for
paternity, for adoption, or to care for seriously ill family
members. Although the five states with TDI systems employ 22%
of working Americans, employees in other states have no such
coverage guarantees.
To make family leave more affordable for more Americans,
state legislators, activists, and researchers are mobilizing
behind a range of innovative proposals. Attached is a sampling
of current state efforts compiled by the National Partnership
for Women & Families as the leader of the Campaign for Family
Leave Income.
California
A dynamic coalition of advocates for women, children, and
labor has advanced a family leave agenda for the 1999-2000
legislative session. In February 2000, a bill was introduced
requiring employers with five or more workers to offer at least
six days of paid sick leave to their full-time low-wage
employees. In 1999, California enacted a law requiring a study
of the cost of extending the state's TDI program to cover
family leave, and increasing the weekly TDI benefit cap from
$336 to $490. Also in 1999, California passed a law requiring
employers who offer paid sick leave to let employees use some
of their sick leave to care for a sick child, parent, or
spouse.
Contact:
State Senator Hilda Solis
(916) 445-1418
State Senator Tom Hayden
(916) 445-1353
Lisa Ecks
California Labor Federation
(916) 444-3676
Netsy Firestein
Labor Project for Working Families
(510) 643-6814
Assemblyman Wally Knox
(323) 932-1201
Aimee Durfee and Emily Katz Kishawi
Equal Rights Advocates
(415) 621-0672
Patricia Shiu
Employment Law Center
(415) 864-8848
Connecticut
The Connecticut General Assembly's Labor and Public
Employees Committee introduced a bill in February 2000 to
provide unemployment benefits to workers on parental leave. The
bill would also create a ``Family and Medical Leave Insurance
Fund,'' financed by an employer payroll tax, that would pay
benefits to employees taking leave to care for a seriously ill
family member or to recover from a serious health condition.
The cost of offering benefits equal to unemployment
compensation to workers on family and medical leave has been
estimated to cost as little as 28 cents per covered worker per
week, and no more than $1.15 per employee per week. The Labor
and Public Employees Committee recently held a hearing on the
bill at which a wide range of legislators, advocacy groups,
unions, and leave-takers testified in support of the proposal.
Contact:
State Representative Christopher Donovan
(860) 240-0540
Leslie Brett
Connecticut Permanent Commission on
the Status of Women
(860) 240-8300
Illinois
A bill was introduced in February 2000 to provide up to 12
weeks of unemployment benefits to workers on any approved FMLA
leave and to workers who leave a job for any reason specified
in the FMLA.
Contact:
State Representative Julie Hamos
(217) 782-8052
Lindsey Crawford
Women Employed
(312) 782-3902
Indiana
In January, 2000, Indiana House legislators introduced a
bill that would provide up to 12 weeks of unemployment
insurance benefits to parents who take leave to care for a
newborn or newly adopted child. The bill passed by a 52-44
vote, with bipartisan support. The Senate is now considering
the legislation; it has been referred to the Committee on
Pensions and Labor.
Contact:
State Senator Anita Bowser State
(317) 232-9400
Representative Linda Lawson
(317) 232-9600
Iowa
A bill introduced during the 1998 legislative session would
have established a fund for providing benefits to employees on
family leave. It would also have created a work and family task
force to examine the impact of this family leave insurance
program.
Contact:
State Senator Michael Gronstal
(515) 281-3901
Maryland
Bills were introduced in the House and Senate in February
2000 to provide up to 12 weeks of unemployment insurance
benefits to parents who take leave to care for a newborn or
newly adopted child. Several local groups, including the
Maryland Women's Law Center and the Public Justice Center, have
been working to support the bill. A hearing before the House
Committee on Economic Matters is scheduled for March 9. During
the 1999 session, Maryland passed a law requiring employers
that grant paid leave to workers following the birth of a child
to grant the same leave to employees who adopt a child.
Contact:
Delegate Michael Dobson
(410) 841-3850
Denise Davis
Maryland Women's Law Center
(410) 321-8761
Debra Gardner
Public Justice Center
(410) 625-9409
Massachusetts
Spearheaded by the Women's Statewide Legislative Network, a
diverse and active Family Leave Coalition is rallying support
for a bill to extend unemployment benefits to employees taking
family and medical leave. The estimated cost of providing
unemployment benefits for family and medical leave is less than
$1.25 per week per employee. Also pending is a bill aiming to
create a ``family and employment security trust fund.'' In
April 1999, the state legislature's Joint Committee on Commerce
and Labor (chaired by Senator Steven Lynch, sponsor of the
unemployment insurance bill) held a hearing on the two bills. A
broad array of researchers, legislators, advocates, and leave-
takers testified in support of the bills, and the hearing was
widely and favorably reported by media across the state. The
bills are currently pending in the Joint Committee on Commerce
and Labor. Further, Massachusetts recently unveiled a $13
million plan to make the state a more ``family friendly''
employer, including a proposal to allow state workers to use up
to 12 weeks of accumulated sick leave for maternity or adoptive
leave without a doctor's note.
Contact:
Monica Halas
Greater Boston Legal Services
(617) 371-1270, ext. 621
State Representative Anne Paulsen
(617) 722-2140
Linda Johnson
Women's Statewide Legislative Network
(617) 426-1878
Minnesota
In February 2000, two bills were introduced in the
Minnesota House and Senate that would provide income to
employees taking leave to care for a newborn or newly adopted
child. One bill (SF 3541/HF3869) would establish a ``voluntary
paid parental leave program'' that would partially reimburse
employers that provide ``qualified paid parental leave.''
Another bill (SF2996/HF3605) would provide benefits under a
``birth and adoption leave program'' financed through
unemployment insurance funds. Since July 1998, a state-funded,
at-home infant child care program has allowed working parents
who fulfill income eligibility requirements to receive
subsidies for caring for infants under the age of one.
Contact:
Marcie Jefferys
Children's Defense Fund-MN
(651) 227-6121
State Senator Jerry Janezich
(651) 296-8017
Cherie Kotilineck
(651) 582-8562
Department of Children, Family & Learning
State Senator Ellen Anderson
(651) 296-5537
New Hampshire
The New Hampshire House of Representatives is currently
considering a bill to establish a committee to study a broad
range of options for providing benefits to New Hampshire
employees who take family and medical leave.
Contact:
State Representative Mary Stuart Gile
(603) 224-2278
Jonathan Baird
New Hampshire Legal Assistance
(603) 542-8795
New Jersey
The New Jersey legislature will consider at least two
family leave income initiatives this session. Bill A3027,
introduced in February 2000, would extend unemployment
insurance benefits to employees who take leave to care for a
newborn or newly adopted child and TDI benefits to employees
who take leave to care for an ill parent, child, or spouse.
Another bill introduced this legislative session--A1577--would
also extend benefits for leave taken to care for newborn or
newly adopted children or ill parents, children or spouses, but
would do so solely through the statewide TDI system.
Contact:
Laurel Brennan
New Jersey AFL-CIO
(609) 989-8730
Assemblywoman Arline M. Friscia
(732)-634-2526
Assemblyman Charles Zisa
(201)-996-8040
New York
A dedicated group of labor unions is generating support for
family leave insurance in New York. A bill has been introduced
to amend New York's TDI law to cover employees taking family
leave.
Contact:
Assemblywoman Catherine Nolan
Attention: Geri Reilly
Counsel for Labor Committee
New York State Assembly
(518) 455-4311
Deborah King
New York Union Child Care Coalition
AFL-CIO
(212) 494-0524
Vermont
A bipartisan bill was introduced in the 2000 legislative
session to authorize a three-year pilot program, financed
through Vermont's general fund, that would provide partial pay
for employees who take leave to care for newborn or newly
adopted children. The estimated cost of providing income to
Vermont workers on parental leave is less than 15 cents per
week per employee. In February 2000, the Senate Committees on
Appropriations, Finance, and General Affairs and Housing held
hearings on the bill.
Contact:
State Senator Jan Backus
(802) 655-7455
State Senate President Peter Shumlin
(802) 828-2228
Michael Sirotkin and Adam Necrason
Vermont AFL-CIO
(802) 223-9988
State Senator Cheryl Rivers
(802) 828-2228
State Senator Peter Illuzzi
(802) 828-2228
Washington
In early February 2000, the Washington State Senate
Committee on Labor and Workforce Development held hearings on,
and passed, a bill providing 5 weeks of unemployment benefits
for employees taking leave to care for newborn or newly adopted
children. The witnesses, who all supported the bill, included a
pediatrician, advocacy groups, union representatives, and
parents who had suffered financially in taking unpaid family
leave. Similar legislation is also pending in the Washington
House of Representatives, where the Children and Family
Services Committee held a Work Session on Family Leave later in
February that also featured strongly supportive testimony from
advocates, labor representatives, and leavetakers. These
proposals have been estimated to cost 11 cents per employee per
week. Washington law already allows employees to use accrued
sick leave to care for sick children.
Contact:
John Burbank
Economic Opportunity Institute
(206) 633-6580
Jeff Johnson
Research Director, Washington State Labor Council, AFL-CIO
(360) 943-0608
State Senator Lisa Brown
(360) 786-7604
State Representative Mary Lou Dickerson
(360) 786-7860
* * * * *
For more information about the Campaign for Family Leave Income,
including a list of Advisory Committee members, a round-up of state
proposals, and the latest news and research, please see our web site
(www.nationalpartnership.org) or contact the National Partnership for
Women and Families at 1875 Connecticut Avenue, NW, Suite 710,
Washington, D.C. 20009, (202) 986-2600, [email protected].
Statement of National Restaurant Association
The National Restaurant Association, representing America's
831,000 eating establishments, respectfully submits this
statement regarding the Department of Labor's (DOL) proposed
regulation to allow states to use their unemployment
compensation (UC) funds to pay UC benefits to parents who take
leave under the Family and Medical Leave Act (FMLA) for birth
or adoption. As the nation's number one retail employer--
providing jobs and careers for 11 million people--our members
are eminently aware of the importance of providing meaningful
benefits to employees and share the Subcommittee's commitment
to helping American workers balance the needs of the family
with the responsibilities of the workplace.
The Association strongly opposes the proposed rule,
however, and is extremely concerned that the DOL is advancing
this measure outside the proper process and without lawful
consideration of its impact on workers, employers and the
solvency of the UC fund. A short comment period, set over the
holidays after Congress had adjourned, did not allow for the
fundamental deliberation needed to evaluate such sweeping
change to 65 years of labor law. The Administration's decision
to force this expansion without proposed legislation ignores
serious problems with the current FMLA and dismisses the
authority of Congress and this Subcommittee to preserve the UC
fund for unemployed workers.
Proposed Rule Contradicts Existing Labor Law
The proposed regulation erodes federal unemployment
compensation law by raiding funds reserved for involuntarily
unemployed workers to pay employed workers who voluntarily take
FMLA leave. Eligibility for unemployment compensation benefits
is defined by state and federal law under the cooperative
state-federal system. 42 USC Sec. Sec. 501-504 and 1101-1108.
The term delineating the relief is ``unemployment.'' As stated
under 26 USC Sec. 3304(a)(4):
all money withdrawn from the unemployment fund. . .shall be
used solely in the payment of unemployment compensation [except
in certain specified circumstances]. . ..
Indeed, ``compensation'' paid under UC is defined as ``cash
benefits payable to individuals with respect to their
unemployment.'' 26 USC Sec. 3306(A). Using the unemployment
fund to pay employees on FMLA leave from employment for
childbirth or adoption is using the fund to support leave
during a period of employment, not unemployment.
The DOL's argument about interpreting the ``able and
available'' requirements when an employee is unemployed appears
irrelevant. The issue is not whether the employee is ``able and
available'' when he or she takes FMLA leave. Clearly, the
employee is not ``available'' since the leave was taken for
childbirth or adoption. Rather, the issue is whether temporary
leave while employed should be funded by an unemployment
compensation system.
Proposed Rule Jeopardizes The Unemployment Compensation Fund
Temporary leave should not be funded by a UC system. The UC
system was designed to protect workers who lose their jobs when
the employer no longer has work available. To receive UC
benefits the unemployed worker must be seeking new work, and
these benefits stop upon offer of an appropriate job. The
proposed regulation would drain UC benefits away from the very
people who rely on them and for whom the system was originally
created.
As this Subcommittee is well aware, this misdirection is
particularly remiss given that Congress has historically had to
bail out numerous state UC funds. Critical funds will be
diverted that are needed to pay standard UC claims for
unemployed workers who do not have a job to which to return.
Moreover, numerous implementation problems will burden state
agencies that are ill equipped to administer this expansion to
a new pool of claimants.
Proposed Rule Creates New Benefits Without Appropriate Funding
The amount an employer must pay into a state unemployment
compensation system is determined in part by how many of the
employer's ``ex-employees'' are awarded compensation. 1B
Unemployment Insurance Report (CCH) 1120. Thus, by allowing
employees on FMLA leave to claim ``unemployment'' compensation,
the employer's payment into the UC fund will obviously
increase, imposing a massive new tax burden on businesses.
According to some estimates, the proposed regulation will add a
$68 billion a year payroll tax increase to the $30 billion
employers already spend on the UC system each year.
This hefty payroll tax increase will subsidize employee
leave for childbirth and adoption while crippling employers'
ability to create new jobs and provide employee benefits.
Payroll taxes will increase even for employers who are not
covered by the FMLA. It is particularly troubling that the DOL
would propose a change of such magnitude without lawfully
evaluating the impact on small businesses.
Proposed Rule Abrogates Congressional Intent
Unlike the unemployment compensation program, the FMLA was
created in 1993 to allow individuals who have a job and are
working to take temporary time off for medical and family
reasons. Congressional language expressly provided for unpaid
leave in the FMLA. Conversely, the UC system was created to
provide benefits to involuntarily unemployed workers. Workers
taking FMLA leave are not unemployed and should not be added to
the UC system.
To do so would misuse the UC system at great consequence to
the solvency of those funds and the employers who subsidize
them. In fact, serious problems with the current FMLA have not
been addressed by the DOL and would be exacerbated by this
proposed regulation. Although numerous implementation and abuse
problems with the FMLA have been documented in three
congressional hearings, the proposed regulation seeks to expand
the FMLA without rectifying these existing burdens. This
expansion would be in direct conflict with congressional intent
and would establish a precedent for additional expansion.
We urge the Subcommittee to uphold the intent of Congress
and preserve the UC fund for its original purpose, to provide
benefits for unemployed workers, not employed workers taking
temporary FMLA leave. The Association appreciates your
consideration of these concerns and strongly supports any
action the Subcommittee may take to prevent implementation of
this ill-advised regulation.
Statement of Mark Wilson, Research Fellow, Heritage Foundation
Madam Chairman, Members of the Committee, thank you for the
opportunity to submit this written statement for the record.
The views I express in this testimony are my own and should not
be construed as representing any official position of The
Heritage Foundation.
On December 3, 1999, while Congress was in recess and
Americans were busy with the holidays, the U.S. Department of
Labor (DOL) published proposed new regulations in the Federal
Register that both redefine what it means to be unemployed and
allow states to pay workers who choose to stay home up to one
year with their newborn or newly adopted children. The
President's plan would put at serious risk the ability of
states to pay unemployment benefits to laid-off workers.
Congress should not allow the President to unilaterally
convert the Unemployment Insurance (UI) program into a huge new
government entitlement program unrelated to unemployment. The
current federal-state UI partnership--particularly the system's
outmoded method of administration and financing--is already
seriously flawed. Substantially changing the purpose of UI and
expanding the program to cover family leave will only make
these problems worse. The new program would pit employees who
voluntarily choose (and in many instances can afford) to be out
of work against workers who involuntarily lose their jobs.
Congress should repeal the federal unemployment surtax on
workers' wages and transfer the UI system to the states.
Senator Mike DeWine (R-OH) and Representative Jim McCrery (R-
LA) have introduced the Employment Security Financing Act of
1999 (S. 462 and H.R. 3174), which would repeal the surtax,
begin to reform the UI system, and prevent Washington from
raiding the program to pay for new spending.
Governors Recognize Threat.
North Dakota Governor Ed Schafer, chairman of the
Republican Governors Association, has said that UI ``is not
designed, equipped or adequately funded to pay for absences
from work that are related to extended family leave.'' Michigan
Governor John Engler has said that his state ``will not put at
risk the financial integrity of its unemployment insurance
program.'' Even the Interstate Conference of Employment
Security Agencies has expressed concerns with the potential
cost of the proposed regulation.
If all 50 states provide just 12 weeks of benefits to new
parents in the labor force, as recommended by DOL, the cost
could be $11.3 billion per year--over one-half the amount of
regular benefits paid to out-of-work Americans in 1999. State
UI benefit payments could balloon from $24.9 billion to $36.2
billion this year and quickly drain the trust funds. By 2002,
state trust fund balances could fall by over 60 percent from
$53.7 billion to just $21.4 billion, substantially threatening
the ability of states to pay regular UI benefits to laid-off
workers during the next economic downturn unless states
increase taxes. Moreover, the cost of the program could explode
if Washington expands it again to cover other types of leave
such as illness and elder care.
Despite DOL's claim that the new program is designed to
give states the ``flexibility'' to experiment with the UI
program, the proposed regulation in reality gives them the
flexibility to do only one thing: expand UI benefits to new
parents. True flexibility would allow the states to conduct
many different types of experiments, such as privatizing UI or
offering other reemployment incentives that are not allowed
under current law.
Higher Taxes, Slower Wage Growth, Fewer Benefits.
Without large state tax increases to pay for these new
benefits, the payment of regular unemployment benefits to laid-
off workers will be jeopardized. A number of states have
automatic tax increases built into their UI systems that kick
in when their trust fund balances fall below certain levels. In
Ohio alone, taxes could increase by $900 million, nearly
doubling the existing unemployment tax rate. Moreover, studies
indicate that, on average, over 70 percent of the cost of all
employer-paid payroll taxes is shifted to workers in the form
of lower real wages.
Employees want creative pay and benefit packages, and they
often choose their employers based on these packages. Employers
know this and have incentives to compete for the best talent by
offering innovative benefit packages. There is no need for the
government to intervene. Many workers already have paid
parental leave programs from their employers that pay more than
what they would get from the UI system. However, DOL now
proposes to reduce or eliminate the incentive to compete by
substituting a new, less attractive government benefits program
for all workers.
The Proposed Rule Effectively Creates an Employer Paid
Severance Program.
DoL's proposed rule says that states may provide birth and
adoption unemployment compensation (BAA-UC) to new parents
without requiring that they return to their previous employer
or demonstrate any attachment to the workforce. Since around 50
percent of new parents that take family and medical leave never
return to their job this would dramatically alter the UI
program by effectively creating an employer paid severance
benefit for new parents. For the first time, workers who are
new parents could receive a UI benefit without having to look
for work or even return to work. New parents that sign up for
the benefit and decide not to return to work would receive an
average severance package of $2,520.
The Proposed Rule Creates a Permanent Program.
DoL's proposed rule describes the BAA-UC as an experimental
program, but nothing in the proposal distinguishes it from any
other permanent program. There is no sunset date, evaluation
process, or other factor in the proposed rule that would
suggest that this program is truly experimental.
The Proposed Rule Could Lead to Benefit Fraud and Abuse.
DOL does not propose to condition receipt of BAA-UC benefit
payments on any demonstrable effort to actually spend any time
with a child. How can state UI agencies or an employer possibly
determine if a parent is bonding with a child consistent with
the intent of the regulation? This defect would quickly result
in BAA-UC being little more than a paid vacation plan. The
amount of improper payments in the UI system is always a
serious concern. DOL should take no action that exacerbates
this problem
Conclusion.
When both UI and Social Security were created in 1935,
policymakers knew there would be political pressure to use the
tax revenue for other government programs. That is why they
placed limits on the use of those funds. Now DOL is rushing to
remove those limits by regulatory fiat. Enough time should be
allowed so that such an important change can be considered
carefully by Congress, governors, and the public.
With the tax burden on American jobs at a record high, the
Clinton Administration has found a source of money to pay for
new government programs that threatens the payment of regular
UI benefits. Congress should repeal the federal unemployment
surtax on workers' wages, transfer the UI system to the states,
and restate the historical intent of the UI program: that UI
benefits should be paid only to individuals who are
involuntarily out of work.
* * * * * *
Members of The Heritage Foundation staff testify as
individuals discussing their own independent research. The
views expressed are their own, and do not reflect an
institutional position for The Heritage Foundation or its board
of trustees.
Statement of Hon. Lynn Woolsey, a Representative in Congress from the
State of California
Thank you for giving me this opportunity to add my voice in
strong support of the Department of Labor's proposed regulation
which clarifies that States may provide unemployment benefits
to new parents. I urge final adoption of the regulation.
The proposed regulation permits States to voluntarily
extend their unemployment compensation programs to cover
workers who take approved leave to be with newborn or newly
adopted children. Implementation of a birth and adoption
unemployment compensation program is entirely at the discretion
of the States.
The Unemployment Insurance system is a unique federal-state
partnership that sets a national floor for the benefits that
States can grant, but gives States the right to provide more
generous coverage if they choose. It should be left up to
States to decide whether or not to provide unemployment
benefits to new parents.
The nation's workforce has changed dramatically since the
unemployment insurance system was started. Among the most
significant changes has been the increase of women in the labor
market and the dependence of most families on more than one
wage earner. The proposed regulation will bring the
unemployment insurance program closer to this new workforce
reality.
It is important to point out that paying unemployment
benefits to workers who are not immediately ready and available
for work does not establish a new precedent. The proposed
regulation is fully consistent with previous rulings by the
Department of Labor that workers who are in training programs;
workers who become ill; workers on jury duty; and workers who
have been temporarily laid-off may be eligible to receive
unemployment compensation under State law.
Most importantly, however, the proposed regulation is a key
part of the long-term investment in families, and a family
friendly workplace, that this nation must make. Research has
shown how important it is to establish a strong bond between
parents and their new children during their first few months of
life together. Unfortunately, far too few babies in America get
that kind of start. If today's children are lucky enough to
have both parents living with them, chances are both work
outside the home. And, its almost impossible for new parents to
take time off from work without pay.
The recent tragedies in our nation's schools and
communities compel all of us to ask the question, ``Who is
taking care of our children?''
We all know that during those critical first months, it
should be the child's parents. . ..Mom and Dad. But, families
are struggling to make ends meet and our children are getting
left behind. The Family and Medical Leave Act gives parents the
right to take leave when a new baby joins the family. The
reality is, however, that a recent study found that nearly two-
thirds of the employees who were eligible for Family and
Medical Leave did not take it because they could not afford to
give up their income.
New Parents Must not be Forced to Choose Between Taking
Care of Their Child Financially, and Taking Care of That Child
Physically and Emotionally.
Using unemployment benefits to help more American workers
take care of their new children is a sound investment in the
current and future workforce of this country. States that want
to make that investment should be allowed to do so. Again, I
urge you to adopt the proposed parental leave regulation.
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