[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]




                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION


                             MARCH 12, 2003


                           Serial No. 108-13


         Printed for the use of the Committee on Ways and Means

                       U.S. GOVERNMENT PRINTING OFFICE
90-269                     WASHINGTON : 2003
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
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
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S

Advisory of March 5, 2003, announcing the hearing................     2


U.S. Department of Labor, Hon. Elaine L. Chao, Secretary.........     5

                       SUBMISSION FOR THE RECORD

New York State Public Employees Federation, AFL-CIO, Albany, NY, 
  Daniel M. Steen, statement.....................................    30



                       WEDNESDAY, MARCH 12, 2003

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:34 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]



                                                CONTACT: (202) 225-1721

March 05, 2003


              Thomas Announces Hearing on the President's

                  Fiscal Year 2004 Budget for the U.S.

                          Department of Labor

    Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways 
and Means, today announced that the Committee will hold a hearing on 
the President's fiscal year 2004 budget for the U.S. Department of 
Labor. The hearing will take place on Wednesday, March 12, 2003, in the 
main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 10:30 a.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the Honorable Elaine Chao, 
Secretary, U.S. Department of Labor (DoL). 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.


    On January 28, 2003, President George W. Bush delivered his State 
of the Union address and outlined several legislative initiatives. The 
details of these proposals were released on February 3, 2003, when the 
President submitted to the Congress his fiscal year 2004 budget 
proposal. The budget for DoL includes initiatives to create personal 
reemployment accounts to help laid-off workers return to work and to 
reform the administrative financing of the Nation's unemployment 
compensation system.
    In announcing the hearing, Chairman Thomas stated, ``This first 
appearance of Secretary Chao before the Committee will provide us with 
an opportunity to learn more about DoL proposals in the President's 
fiscal year 2004 budget. This information will be helpful as we 
continue laying the groundwork for the coming year's legislative 
business, including our goals of encouraging more job creation and 
crafting other measures to assist our Nation's workers and families.''


    The focus of the hearing will be DoL proposals in the President's 
fiscal year 2004 budget that are within the Committee's jurisdiction.


    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Wednesday, March 26, 2003. 
Those filing written statements that wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the full Committee in room 1102 Longworth 
House Office Building, in an open and searchable package 48 hours 
before the hearing. The U.S. Capitol Police will refuse sealed-packaged 
deliveries to all House Office Buildings.


    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.


    Chairman THOMAS. Good morning.
    Today, the Committee welcomes Secretary Elaine Chao of the 
U.S. Department of Labor in her first appearance before the 
Committee on Ways and Means. We are very pleased to have you, 
Madam Secretary.
    Ms. CHAO. Thank you.
    Chairman THOMAS. She will be discussing the 
Administration's budget proposals for the Department of Labor 
that fall within or affect the jurisdiction of this Committee.
    I would urge Members, although there is the possibility of 
a wide-ranging discussion over a number of issues, that it 
probably serves all of us best if we focus our attention on 
those measures we can actually affect and that fall under the 
jurisdiction of this Committee.
    Madam Secretary, it is appropriate that you are here today, 
in my opinion, because President Bush, just 1 year ago this 
week, signed legislation on extending unemployment benefits, 
and of course the President, in his most recent State of the 
Union and budget presentation, has outlined an aggressive and 
active program. Many of those programs affect the jurisdiction 
of this Committee.
    Today, we will hear about specific proposals in the 
President's budget that would provide States more funding 
flexibility to help unemployed workers, improving the Nation's 
unemployment compensation system, which is obviously not a new 
subject of this Committee.
    Over the years, a number of hearings have been held and 
legislative proposals considered. In 1994, as a matter of fact, 
a number of our Democratic colleagues proposed the creation of 
re-employment bonuses, much like the re-employment accounts 
proposed in the President's budget for 2004. We will look 
forward to exploring this concept and other features of the 
President's proposal today.
    Prior to recognizing the Secretary, I would call upon the 
Ranking Member, the gentleman from New York, for any comments 
he may wish to make.
    [The opening statement of Chairman Thomas follows:]
    Opening Statement of The Honorable Bill Thomas, Chairman, and a 
        Representative in Congress from the State of California
    Good morning. Today, we welcome Secretary Elaine Chao of the U.S. 
Department of Labor in her first appearance before the Ways and Means 
Committee. She will be discussing the Administration's budget proposals 
for the Department of Labor that fall within or affect the jurisdiction 
of this Committee.
    Madame Secretary, it is appropriate that you are here today. It was 
one year ago this week that President Bush signed legislation that has 
provided Federal extended unemployment benefits to four million workers 
to help them get through these tough economic times.
    That's not the only action we've taken. The first bill passed and 
signed this year continued the special extended benefits program we 
created last year. As a result, an additional two million workers--for 
a total of six million--will receive Federal extended benefits through 
August 2003.
    We did not forget States, either. As part of last year's 
legislation we provided States a record $8 billion in surplus Federal 
unemployment funds. Last week the General Accounting Office (GAO) 
reported that this transfer has kept unemployment payroll taxes from 
rising in 30 States. Further, more than $6 billion recently remained 
available to States should they wish to use it for extended or expanded 
benefits. Only a handful of States have used this money to expand 
unemployment benefits, or plan to in the coming year. Perhaps that is 
because States know that if they expand benefits now using these 
Federal funds, they will have to keep paying for such added benefits in 
the future through higher State taxes, undermining economic recovery 
and job growth. To us, and I am sure the States, this flexibility is 
one of the strengths of our approach.
    This Committee also has focused a great deal of time and attention 
to helping unemployed workers get what they most want--a job. We have 
held a series of hearings on the President's growth and jobs proposal, 
and expect to act in the coming days on this plan.
    Today we will hear about specific proposals included in the 
President's budget that would provide States more funding and 
flexibility to help unemployed workers get back to work quickly. 
Improving the Nation's unemployment compensation system is not a new 
subject to this Committee.
    Over the years, a number of hearings have been held and legislative 
proposals considered. In 1994 a number of our Democratic colleagues 
proposed the creation of reemployment bonuses, much like the 
``reemployment accounts'' proposed in the President's budget for 2004. 
We look forward to exploring this concept and other features of the 
President's proposal today.
    Madame Secretary, I look forward to your testimony. Before we get 
started, I would like to first recognize the gentleman from New York, 
Mr. Rangel, for any comments he would like to make.


    Mr. RANGEL. Thank you, Madam Secretary, and I appreciate 
your concern about the millions of people that not only do not 
have jobs, but the jobs are not available for them.
    So, while there is a deep dependency on the President's 
economic recovery program, I would be most interested in how 
you see where we can provide temporary relief for these workers 
that don't find employment to be available for them, as well as 
what help you can give in our various congressional districts 
to a training center and basically how to ease the pain for 
those who find themselves without employment opportunities.
    The bonuses that are offered seem to suggest that people 
need incentives to find jobs financially, but I think, as you 
do, that the changes in job opportunity, that gap has to be 
fixed. Whatever you can leave with us that would allow us to 
meet with you, perhaps in a different setting, as to how we can 
be helpful with whatever resources you have or recommendations 
you have to ease the pain of those people who are without 
employment, and I look forward to hearing your testimony. Thank 
you, Mr. Chairman.
    Chairman THOMAS. Thank you very much, Mr. Rangel.
    I would caution everyone that the Secretary has a very busy 
schedule, and we are going to try to finish the hearing, if at 
all possible, with Members believing they have had an adequate 
time to question, very close to noon. My concern is we may have 
a series of votes at 11:00 a.m., and that will make it 
difficult for us. So, I am looking forward to those Members who 
do wish to inquire--obviously, there is no requirement that you 
inquire--but if you do wish to, there will be time made 
available to you. Does the gentleman from Illinois wish to 
    Mr. CRANE. I pass.
    Chairman THOMAS. Does the gentleman from Florida wish to 
    Mr. SHAW. No, that is fine.
    Chairman THOMAS. Does the gentleman from New York wish to 
    Mr. RANGEL. I pass right now, Mr. Chairman.
    Chairman THOMAS. Does the gentleman from California, the 
Chairman of the Subcommittee on Human Resources, wish to 
    Mr. HERGER. Thank you, Mr. Chairman.
    Chairman THOMAS. The Chair apologizes because what we ought 
to do is hear the testimony of the Secretary, although I do 
think that would be an effective technique that I might plan on 
using in the future, but I don't think I should use it now.
    The Chair apologizes to the Secretary, and any written 
statement you may have will be made a part of the record, and 
you can address us in any way you see fit.

                      DEPARTMENT OF LABOR

    Ms. CHAO. Thank you, Mr. Chairman. I do have a formal 
statement for the record, which I will submit.
    Good morning, Chairman Thomas, Congressman Rangel, and 
Members of the Committee. Thank you for the opportunity for me 
to be here to testify.
    Today, I want to highlight two very important Presidential 
proposals, a proposal to create Personal Reemployment Accounts, 
which is included in the President's economic growth and jobs 
package and reform of the Federal-State Unemployment Insurance 
(UI) program, which is included in the President's fiscal year 
2004 budget. Both deliver critical assistance to unemployed and 
dislocated workers and ensure that our safety net remains 
strong and flexible.
    As you know, our economy started slowing down in the summer 
of 2000. The stock market peaked in February 2000, and the 
manufacturing sector began to hit the doldrums in August 2000. 
This Administration came into office facing three quarters of 
negative growth. Our economy began to tick upward, but then the 
devastating attacks of September 11, 2001 occurred, in which 
1.5 million jobs were lost.
    Despite these blows, the economy has started to grow again, 
and we are in our second consecutive year of growth. This 
Administration is deeply concerned that the economy is not 
growing fast enough or strongly enough and that too many people 
who want to find work can't find it. That is why the President 
has proposed a comprehensive jobs and growth package to jump-
start the recovery and create new jobs.
    As you know, the plan contains many features to promote 
long-term economic growth, but today I would like to highlight 
the President's proposal to deliver critical, short-term 
assistance to the unemployed and dislocated workers through the 
Personal Reemployment Accounts.
    Under the President's proposal for Personal Reemployment 
Accounts, an eligible worker will be able to custom design his 
or her own training package and supportive services. He or she 
will be able to purchase the training, counseling, skills 
assessment, transportation, child care and even relocation 
services needed to get back to work. We believe support 
services can make a critical difference in helping unemployed 
and dislocated workers return successfully to the workplace.
    States will administer these proposed Personal Reemployment 
Accounts through the One-Stop Career Center System. Potential 
eligible claimants would be identified through the existing UI 
screening system, which assesses the likelihood of an 
individual claimant exhausting his or her benefits before 
finding a new job. Workers who find a job within 13 weeks would 
be able to keep the balance remaining in their account.
    The President has also proposed additional ways to 
strengthen the safety net for unemployed workers. The 
Department of Labor has spent 2 years meeting with interested 
parties and examining ways to make the UI program more 
responsive to the needs of workers.
    Our proposal responds to the needs of workers by reforming 
the permanent extended benefits program. It responds to the 
needs of employers by reducing the amount of Federal taxation 
and guaranteeing at least a two-tenths cut in taxes for all 
employers in all States so they can have more dollars to 
invest, hire new workers, and pay higher wages. It gives the 
States the flexibility to administer the program in line with 
their individual policies.
    Our proposal addresses all of these issues while continuing 
the nearly 70-year-old successful Federal-State partnership.
    In conclusion, I think the two proposals will help us 
respond more effectively to changing economic conditions and 
will strengthen an important safety net for America's workers.
    I look forward to working with this Committee as we move 
forward on addressing assistance for unemployed dislocated 
workers and how we implement the Personal Reemployment Accounts 
and UI reforms to help these workers. I will be glad to respond 
to any questions you may have. Thank you.
    [The prepared statement of Ms. Chao follows:]
 Statement of The Honorable Elaine L. Chao, Secretary, U.S. Department 
                                of Labor
    Good morning. Chairman Thomas and distinguished members of the 
Committee, I thank you for inviting me to testify. I am extremely 
pleased to have the opportunity to discuss the President's fiscal year 
2004 budget proposal to reform the Federal-State Unemployment Insurance 
(UI) program and the President's proposal for Personal Reemployment 
Accounts (PRAs). Our proposed reforms of the UI program will promote 
long-term economic growth and job creation by reducing federal 
unemployment taxes, making Federal-State extended unemployment benefits 
available earlier and to more workers in future economic downturns, and 
giving States the opportunity to take control of administrative funding 
along with new administrative flexibility. While UI reform will have a 
positive impact on the economy in the long-term, PRAs will help our 
current economy by giving UI claimants unprecedented choice in 
accessing the services they need to get back to work as quickly as 
    The Unemployment Insurance program is a key element of our Nation's 
economic infrastructure acting as an automatic stabilizer during 
economic downturns by providing temporary, partial wage replacement for 
workers who have been laid off and are seeking jobs. In addition, UI is 
the front door for these workers to a wide array of reemployment 
services available through the Workforce Development System. Improving 
the UI program's ability to act as a macroeconomic stabilizer and 
providing UI claimants with new resources and incentives to get back to 
work foster labor market flexibility and mobility--two essential 
elements of a dynamic and vibrant economy.
The President's Economic Message
    UI reform and PRAs are important parts of the President's 
comprehensive plan for the economy. On January 7, President Bush 
announced a growth and jobs package that places great emphasis on 
improved job creation to ensure the economy continues to grow. The main 
goals of this economic agenda include encouraging consumer spending; 
promoting business investment; and delivering critical help to 
unemployed workers. In early January Congress responded on a bipartisan 
basis to the President's request for an extension of Temporary Extended 
Unemployment Compensation. Last month, Congress received the Economic 
Report of the President that emphasizes the importance of designing 
government policies that preserve and build on the dynamism and 
vitality of the labor market. UI reform and PRAs are important elements 
of the President's vision for the economy.
The President's FY 2004 Budget Request
    Before addressing UI reform, I would like to comment briefly on the 
FY 2004 discretionary budget request for UI State administration. $2.6 
billion is requested, about the same as the FY 2003 enacted level. In 
FY 2004, these funds will finance the following major functions of the 

     LDetermining benefit entitlement for about 14 million 
newly unemployed workers.
     LPaying benefits to an average of 2.9 million unemployed 
workers per week.
     LCollecting State taxes from 7.1 million employers.

    In line with the President's Management Agenda--to improve 
government performance and efficiency--the request includes $500,000 
for a study to examine current State payment practices and develop 
cost-effective procedures to prevent and detect UI benefit 
overpayments. Let me tell of some of the efforts the Department has 
already undertaken in improving payment accuracy and combating fraud.

     LTo focus State attention on payment accuracy, we are 
developing a goal under the Government Performance and Results Act.
     LTo quickly detect individuals who have gone back to work 
but continue to collect UI, we are encouraging all States to use 
information in State directories of new hires. About two-thirds of the 
States currently use this information.
     LTo prevent the fraudulent use of social security numbers 
in filing UI claims, we are working with the Social Security 
Administration to provide State UI agencies real-time access to the 
social security database.
     LTo provide a forum for sharing successful practices for 
preventing, detecting, and collecting UI overpayments, we are co-
sponsoring a national UI integrity conference.

UI Reform Background
    For several years now we have been examining ways to reform the UI 
program so that it reflects the 21st century economy and workforce. The 
system's major stakeholders have all expressed dissatisfaction with 
some aspect of the present system. Worker advocates are concerned about 
its responsiveness to worker needs during recessions. State program 
administrators are dissatisfied with what they see as continued 
underfunding of the UI program by the Federal Government. Business 
leaders believe that federal unemployment taxes are too high and that 
too little of those taxes is returned to States.
    In response to these concerns, we have examined the program's 
funding structure, the level of federal taxation, the effectiveness of 
the extended benefit program, and the flexibility States have to 
administer the program. Our proposal addresses all of these issues, 
while continuing the successful Federal-State partnership that has been 
responsible for this program for nearly 70 years.
Down Payment on Reform
    I would like to start by thanking this Committee for its leadership 
last year in crafting legislation that established the Temporary 
Extended Unemployment Compensation program and distributed $8 billion 
of federal unemployment funds (commonly called a Reed Act distribution) 
to the States. These actions represent an important down payment on UI 
reform. These short-term actions are helping to meet the present needs 
of unemployed workers during the current economic slowdown and 
improving States' capacity to provide vital benefits and services to 
unemployed workers and businesses.
    An immediate effect of the Reed Act distribution was an improvement 
in trust fund solvency. In addition, a recently released report from 
the General Accounting Office provides more detail on how States have 
used the Reed Act funds to date. In 2003, increases in unemployment tax 
rates were mitigated or avoided in 20 States. Nine States increased/
expanded benefits, and 20 appropriated some of these funds for UI 
administrative improvements. Because many States plan to propose 
further spending of Reed Act funds in 2003, a complete assessment of 
the distribution cannot be made at this time. However, information 
received so far indicates that States have acted appropriately to meet 
their unique concerns. This is a promising start in our comprehensive 
proposal to reform the UI program.
Give States Opportunity and Flexibility
    Our proposal would resolve the longstanding issue of adequately 
funding UI administration. Under the current system, the cost of 
administering the State UI programs is funded from federal funds, while 
the actual State UI benefit payments are funded from State UI taxes. 
States determine the parameters of their UI programs, which, in turn, 
can affect administrative costs. In addition, a State's unique 
demographic and industrial characteristics affect the dollar amounts 
needed to efficiently administer its UI program. Yet States have little 
or no control over the amount of administrative funds they will get 
from the federal partner. And we in Washington are not the best 
situated to determine the appropriate amount needed by each and every 
State to efficiently administer its UI program. The result is constant 
struggle between the States and the Federal Government over the amount 
of funds that should be granted to the States for administration.
    By several measures, the States have a strong case that 
administrative funding has been inadequate. During the 1990s UI 
administration was funded below what was needed to cover workload 
increases and inflation, reaching 13% underfunding by fiscal year 1999. 
This occurred even though, during an average year in the 1990s, the 
Federal Government took in $5.7 billion in dedicated federal 
unemployment (commonly called FUTA) taxes each year, while returning 
only $3.1 billion to the States for UI and Wagner-Peyser Act funding.
    The Omnibus Appropriations bill just enacted resulted in an 
estimated $104 million reduction from the funding level the President's 
revised FY 2003 request for UI administration would have provided. 
Moreover, the appropriators' change in the contingency funding 
mechanism runs the risk of severely underfunding the States if 
workloads are higher than projected, possibly up to a $260 million 
shortfall. States have also suggested additional funding needs of at 
least $400 million, based on their own accounting records. All of these 
combined suggest States could fall short by three-quarters of a billion 
dollars for UI administration.
    The current funding system clearly is not working well and must be 
replaced. Each State is in the best position to assess its own need for 
administrative funds. When a State legislates a change in its UI 
program, which may require increases in its administrative budget, it 
should be able to determine its funding level for administration rather 
than relying on the distant budgetary process in Washington. We propose 
that States have that flexibility, concurrent with a reduction in the 
federal taxes that now finance UI administration. States already have 
in place a system to collect UI taxes. Indeed, States collect 
approximately $30 billion annually for the payment of UI benefits.
    In sum, our proposal gives States the opportunity to finance 
administration from State revenues by transferring primary 
responsibility for financing the administration of the UI program from 
the Federal Government to State governments. Let me explain the details 
of this transfer.
    In our proposal, the transfer would begin with a transition period 
for FYs 2007-2008 and States would have full responsibility effective 
with the start of FY 2009. During the transition period, the Federal 
Government would:

     LTransfer $2.7 billion to States' accounts in the 
Unemployment Trust Fund in each of FYs 2007 and 2008; and
     LShare costs for FY 2007 (2/3 federal share) and FY 2008 
(1/3 federal share).

    To further ease this transition, the Federal Government would 
provide hold-harmless funding beginning in FY 2009. For certain States 
where costs are high relative to their FUTA revenues, these hold-
harmless funds will be provided as long as States make a strong effort 
to raise their own administrative funds.
    Some have questioned whether this new financial responsibility 
could cause States to cut benefits and weaken system performance/
integrity to avoid increasing State UI taxes. States already have the 
responsibility to determine UI benefit levels and benefit eligibility 
requirements, and to set and collect experience-rated taxes. We believe 
that State decision makers, who are closer to the workers and employers 
served by the system, already have sufficient incentives to adequately 
fund UI benefits and administration. Indeed, States are already 
augmenting their federal administrative allocation by about $140 
million a year. In addition, new incentives for adequate administrative 
funding will be created. For example, although both States and the 
Department are concerned with payment integrity, the current system 
lacks a strong incentive to spend administrative dollars to reduce 
fraud and erroneous payments. The proposal remedies this problem 
because States recognize the direct connection between benefits and 
administrative spending. A State agency will be well positioned to 
request dollars from its State legislatures for payment integrity since 
every dollar expended on overpayment reduction will translate into 
direct savings to that State's unemployment fund.
    Many other elements of the proposal give States new flexibility to 
improve program administration. For example, although many States are 
already using their State Directories of New Hires for quick detection 
of individuals who have gone back to work, they do not have access to 
new hires reported to other States. The proposal would address this by 
giving all States access to the National Directory of New Hires. This 
would be an additional, important tool for helping States quickly 
detect fraud and would result in savings to State unemployment funds.
Promote Job Growth
    Our 2003 proposal includes several features that will become the 
seeds of economic growth and job creation. A key element that promotes 
job growth is a major cut in federal unemployment taxes. As explained 
previously, through the 1990s the Federal Government took in an average 
of $5.7 billion in FUTA taxes each year, while returning only $3.1 
billion to the States for administrative funding. Even if we had 
adequately funded UI administration during this period, we were still 
collecting more in taxes than needed to maintain sufficient reserves. 
Therefore, a tax reduction is long overdue. Since our proposal would 
transfer responsibility for funding UI administration to the States, we 
are proposing a major cut in FUTA taxes.
    Our proposal would reduce the net FUTA tax to 0.6% in January 2005, 
representing a tax cut of 25%. The net FUTA tax would then be reduced 
to 0.4% in 2007 and to 0.2% in 2009. Taken together, this represents a 
75% federal tax cut for America's employers. Even though States will 
need to impose their own administrative taxes, we believe most, if not 
all, employers will receive a net tax cut of twenty-five percent or 
more of their current FUTA tax. These tax cuts are vital because, by 
reducing the cost of doing business, employers are better positioned to 
invest, hire more workers, and pay higher wages. The remaining 0.2% 
FUTA tax would be used to:

     LPay the federal share of extended benefits;
     LMake State grants for certain federal activities;
     LSupplement administrative funding as necessary; and
     LMake federal loans available to any State that runs out 
of funds to pay unemployment benefits or administrative costs.

    Rest assured that even with these tax cuts, federal accounts will 
remain solvent. Sufficient funds will be available to handle all of 
these federal responsibilities.
    In addition, the proposal will save employers time and money by 
streamlining tax filing. A technical change to federal law would allow 
the IRS to simplify the federal unemployment tax form, saving employers 
time and money in their efforts to comply with federal reporting 
requirements thus freeing resources for economic development.
Strengthen the Economy
    The UI system is an important economic stabilizer during economic 
downturns and this proposal strengthens its stabilization capacity by 
reforming the extended benefit (EB) program. The EB program did not 
work in the early 1990s recession, when only 10 States met the current 
5.0% insured unemployment rate trigger, which is the only mandated 
method of ``triggering on'' the EB program in all States. Last year, 
only 3 States met this trigger, and none currently meet it, although 3 
States are now on EB using one of the optional triggers for the 
program. In part because of the inadequacy of the EB program, special 
emergency federal extensions have been enacted that made benefits 
available in all States, not just those that had higher unemployment.
    To address this problem, the level of unemployment at which EB is 
triggered would be lowered from the current 5.0% insured unemployment 
rate to 4.0%. Our goal is to ensure extra benefits are triggered when 
they are needed without special legislation. Improving the 
responsiveness of the EB trigger will mean more workers would receive 
the extra help they need earlier in future downturns and EB would be a 
stronger economic stabilizer.
    In addition, we propose eliminating the special federal 
requirements relating to eligibility of claimants for EB. State law 
provisions regarding eligibility for regular compensation would apply 
to EB. This will simplify State administration and cut ``red tape'' for 
Maintenance of a Strong Federal Role
    Although this proposal provides States with much flexibility, it 
maintains a strong federal role. The Federal Government's role of 
monitoring conformity/compliance with federal requirements and State 
program performance against federal standards would continue. Moreover, 
federal requirements related to prompt payment of benefits, fair 
hearings, coverage of services, etc. would not change. Lastly, we would 
provide funding for the hold-harmless, federal activities, 50% of EB, 
and loans to States for UI benefits and administration.
Key Advantages
    We firmly believe that this proposal has key advantages for all of 
the UI system's major partners and stakeholders. By taking 
responsibility for funding, States will have more flexibility and 
control, enabling them to better serve the unique needs of their 
workers and employers. By lowering the trigger for extended benefits 
and using States' rules, unemployed workers will get help faster with 
less hassle. By significantly cutting FUTA taxes and streamlining 
filing, employers will be positioned to hire new workers.
Supporting Job Growth through Personal Reemployment Accounts
    One of the proposals that would specifically help today's UI 
beneficiaries who are struggling to get back to work is Personal 
Reemployment Accounts (PRAs). These accounts will be worker-managed, 
contain up to $3,000, and will be used for the purchase of a variety of 
reemployment services or as a bonus for obtaining early reemployment.
    These proposed accounts rely on existing program structures. They 
will be administered through the established and easily accessible One-
Stop Career Center System, where UI claimants already seek assistance 
in obtaining employment. As I'll discuss in more detail later, UI 
claimants who are potentially eligible for these accounts will be 
identified through the existing UI worker profiling system.
    The anticipated economic benefits of the proposed PRAs are 
numerous. These accounts represent a new and innovative approach to 
helping unemployed workers make a quick return to work and provide 
businesses with the skilled workforce that they need. They will empower 
individuals by giving them more flexibility, personal choice and 
control over their job search and career.
    Since experience has shown that unemployed workers have a wide 
range of needs, the PRAs allow each worker to custom design a 
reemployment services package in accordance with his or her needs. For 
example, some individuals may determine they need extensive retraining 
in order to compete for jobs in a high-growth industry while others may 
only need to complete a short-term computer course in order to return 
to work quickly or purchase child care in order to search for work. The 
flexibility of PRAs will accommodate these and many other situations, 
thus making the delivery of government services more efficient.
    By enabling unemployed workers to access the reemployment services 
they need most, there is an increased likelihood that they will return 
to work sooner and in a job for which they are more prepared and better 
Relationship of Personal Reemployment Accounts to UI
    Although the accounts are closely tied to the UI program, they do 
not supplant or replace UI benefits. They are an additional means of 
speeding the long-term reemployment of UI claimants. In that sense, 
they complement both the existing UI and One-Stop Career Center 
Systems. Receipt of account funds will not adversely affect an 
individual's UI eligibility nor make a UI exhaustee ineligible for 
public assistance.
    PRAs build upon the Social Security Act requirement, commonly 
called ``profiling,'' which originated in this committee in 1993. Under 
this requirement, States currently identify those workers who are at 
greatest risk of exhausting UI and most in need of reemployment 
services. Workers so identified are referred to available reemployment 
services. PRAs will insure that a wide range of reemployment services 
are available to at least 1.2 million UI beneficiaries who are 
identified through this system. Under special transition provisions, 
States will have the option of making accounts available to certain 
current UI claimants who were previously found likely to exhaust UI or 
to certain workers who have already exhausted their UI benefits.
    The accounts can also be used to pay a Reemployment Bonus under 
certain conditions. To provide additional assistance, new UI claimants 
who receive PRAs and who become reemployed by the thirteenth UI benefit 
payment will receive any cash remaining unspent in their account as a 
Reemployment Bonus. Similarly, the groups added at State option--
certain UI claimants who were previously identified as likely to 
exhaust UI and certain UI exhaustees--that become reemployed by the 
thirteenth week of the effective date of the account can also receive 
the Reemployment Bonus.
    The bonus would be paid to the individual in two installments: 60% 
at employment and 40% after 6 months of job retention. Individuals who 
do not find employment within the thirteenth week rule would not be 
able to ``cash out'' their account but would continue to be able to 
purchase intensive reemployment, training and supportive services for 
up to one year from the effective date of the account. With respect to 
the income tax implications of PRAs, the Administration will work with 
Congress to ensure that pay-outs for training and supportive services 
would not be taxable; payouts for income support and reemployment 
bonuses would be taxable.
    I enthusiastically conclude that these proposals are exactly what 
is needed to respond effectively to current economic conditions and 
future trends. I look forward to working with this Committee as we move 
ahead on UI reform.
    This concludes my remarks. I will be glad to respond to any 
questions you may have. Thank you.


    Mr. HERGER. [Presiding.] Thank you, Madam Secretary.
    Madam Secretary, in addition to matters raised in your 
budget, are there issues that we could explore to make 
unemployment benefits work better? For example, do unemployment 
benefits encourage workers to find jobs quickly or do they 
delay their returns to work? How much does this system lose to 
fraud and abuse every year, and what steps are being taken to 
prevent that?
    Ms. CHAO. Well, I know that everyone is concerned about how 
best to help unemployed workers. We work in a very successful 
Federal-State partnership. The issues that you mentioned are 
important ones, and that is how do we help workers find new 
jobs? I think most people would rather receive a paycheck, 
rather than an unemployment check, and so we want to make sure 
that the incentives that we build within the Federal government 
and the State governments, in terms of getting people back to 
work, are truly there.
    So, the President's Reemployment Accounts, we hope, will be 
something that will be attractive to those who may have a hard 
time with getting back to work. The Personal Reemployment 
Accounts do give individual workers about $3,000, and if there 
is any excess left over, they can certainly keep that for 
    As for fraud, waste and abuse, unfortunately, there is an 
element of that as well in UI. Annually, we have about an 8-
percent unintended rate, and that comes out to be about $2.8 
billion in probably fraudulent claims that are paid out. We 
have worked with the Inspector General in the Department of 
Labor, and I know that this is an issue for some Members of the 
Committee, and I would be glad to work with them on that as 
    Mr. HERGER. Thank you very much. The Ranking Member from 
New York, Mr. Rangel?
    Mr. RANGEL. Thank you. I think your answer is that 
unemployed people would rather have a job than to receive 
unemployment compensation.
    Ms. CHAO. Yes.
    Mr. RANGEL. There seems to be a feeling, and I hope it is 
not shared by the Administration, that people that receive 
extended unemployment benefits would not be seeking jobs. Could 
you shatter that myth of thinking? I thought it was 
incorporated in the Chairman's question to you, that 
unemployment benefits deter people from looking for jobs?
    Ms. CHAO. Well, we certainly hope not because we think that 
most people want a job, they want a new job, they want to get 
back to work. So, we have always said that people who are 
dislocated, laid off, would much prefer to have a paycheck 
rather than an unemployment check.
    Mr. RANGEL. Well, we can put that one behind us, and then 
move forward to see whether or not you would support a 
continuation of the current extended benefits program after it 
expires in May.
    Ms. CHAO. Well, the second part of the Chairman's question 
about the unintended payouts is a real one as well, and that is 
about $2.8 billion or $2.6 billion a year.
    Mr. RANGEL. Madam Secretary, to someone that is unemployed, 
that has no health insurance----
    Ms. CHAO. I am not saying that it is all abuse and 
fraudulent, but there is duplicate payments, for example, or--
    Mr. RANGEL. Well, that is our fault.
    Ms. CHAO. Right.
    Mr. RANGEL. In other words, maybe the Congress has a lot to 
do, you have a lot to do, but all I am asking is that for the 
overwhelming number of people seeking a job, and seeking a 
little dignity at the same time, could you see your way clear 
to support a continuation of the existing program when it 
expires, since the employment market has worsened?
    Ms. CHAO. The President has extended UI benefits twice 
already, and the second extension ends in May.
    Mr. RANGEL. That was my question.
    Ms. CHAO. Right. So, I think let us look at the situation, 
and, as the time gets nearer, let us talk.
    Mr. RANGEL. Thank you.
    Mr. HERGER. Thank you, Mr. Rangel. The gentleman from 
Illinois, Mr. Crane, to inquire.
    Mr. CRANE. Thank you, Mr. Chairman, and thank you, Madam 
    When the issue of Personal Reemployment Accounts was up 
before the Committee on Education and the Workforce, an 
accusation was made by some on the minority side that those 
workers who elect to take advantage of the plan would be 
prohibited from receiving training and education at Employment 
Training Centers for a year. Can you explain if this is true or 
    Ms. CHAO. No, it is not true. People will be basically 
still able to access core services at the One-Stop Centers.
    Mr. CRANE. Very good. Thank you. I yield back the balance 
of my time.
    Mr. HERGER. Thank you. The gentleman from California, Mr. 
Stark, to inquire.
    Mr. STARK. Well, thank you, Mr. Chairman. It is a real 
honor to see the Secretary from the Department of Labor here, 
and see the person who dreamed up this voucher plan for 
Personal Retirement Accounts, instead of cash. I can't think of 
anybody in my district who wouldn't trade it for unemployment 
benefits, but we will see.
    I am sure that it probably comes from the Administration. I 
do recall that the press secretary for the Canadian Foreign 
Minister called our President a moron, and of course the press 
responded and said that was not a political Statement, it was 
an accurate assessment, but a bad choice of words. It would 
take somebody with that kind of intellect to come up with this.
    I read in the Washington Post this morning that the 
Administration intends to spend $20 billion to reconstruct Iraq 
to stimulate their economy. We will be employing 2 million or 
more bureaucrats and soldiers to stabilize Iraq. Now, right now 
you are protecting $53 billion in unemployment benefits and 
$3.6 billion on the Personal Reemployment Accounts, just a 
little bit more than the President is going to spend on Iraq.
    Why wouldn't you go back to the Cabinet and suggest to our 
leader that instead of wasting money on first destroying Iraq, 
which a lot of the people, half the Americans think is a dumb 
idea, and then paying $20 billion to rebuild it and putting 2 
million Iraqis to work while we still have 2 million Americans 
    So, I want to know where your priorities are. Wouldn't it 
be better to spend the $20 billion earmarked for Iraq and spend 
that to extend benefits to 3 million workers in our own country 
who are out of work? Doesn't that make more sense to you, Madam 
    Ms. CHAO. Extended benefits are important, and this 
Administration has extended unemployment benefits twice 
already. A person who is out of work can potentially receive--
    Mr. STARK. So, they just got tired. Now they are going to 
extend them in Iraq.
    Ms. CHAO. A person right now potentially can receive 62 
weeks of UI benefits.
    Mr. STARK. Couldn't you take the money that he is going to 
throw away at Iraq, hiring 2 million Iraqis, and couldn't you 
spend that to provide benefits for our 3 million unemployed? 
You could figure out how to do that, couldn't you?
    Ms. CHAO. Well, the Department of Labor spends about $71 
billion a year to help the unemployed with the training and 
with also paying out UI.
    Mr. STARK. There aren't any jobs. Now, all you would have 
to do----
    Ms. CHAO. Well, that is why the President's economic plan 
is supposed to hopefully create more jobs.
    Mr. STARK. So, in Iraq, 2 million jobs in Iraq. Now, I have 
to go back and explain to my constituents who are out of work--
we have got 8-percent unemployment--Herb Caen, who used to 
write for the San Francisco Chronicle, called San Francisco 
Baghdad by the Bay. How's about that Baghdad getting 2 million 
jobs first, and then let us worry about that other Baghdad 
later. Wouldn't that seem to be a patriotic thing to do, as far 
as you are concerned?
    Ms. CHAO. Well, the President's job and growth package 
would create about 1.4 million jobs by the end of 2004.
    Mr. STARK. Do you want to bet? Are you a betting person? Do 
you want to bet a month's salary that he won't come anywhere 
near that. You are losing jobs.
    Ms. CHAO. You seem to be so much more----
    Mr. STARK. I just got a report last Friday that we lost 
300,000 jobs in February, and we are going down, and down, and 
down, and there is no end in sight. What I want to know is do 
you think it is a good idea to spend $20 billion on 2 million 
jobs in Iraq? How will that help the unemployed workers in this 
    Ms. CHAO. Well, let me address your question about the 
308,000 workers who lost their jobs last month. The February 
unemployment rate was about 5.8 percent. That is a one-tenth of 
a 1-percent increase.
    Mr. STARK. You are avoiding my question. Let us go back to 
    Ms. CHAO. No, no. I am answering your question.
    Mr. STARK. Tell me how it is going to help these people in 
this country when you throw money away in Iraq. Just answer me, 
Madam Secretary----
    Mr. JOHNSON. Let the lady answer the question.
    Mr. HERGER. The Secretary is a guest----
    Mr. STARK. If you want to question the Secretary on your 
time, Mr. Chairman, you question her on your time.
    Mr. HERGER. The Secretary is a guest. She deserves----
    Mr. STARK. It is my time. If you would like me to yield, 
you could ask.
    Mr. HERGER. The gentleman's time has almost expired----
    Mr. STARK. Well, then would you be quiet, Mr. Chairman, so 
I could finish my----
    Mr. HERGER. Order.
    Mr. STARK. If you would shut up and let me finish.
    Mr. JOHNSON. He is out of order.
    Mr. STARK. Mr. Chairman, shut up. Now, Madam Secretary----
    Mr. HERGER. All the Members of this Committee have the 
responsibility, as Members of the House of Representatives, to 
show courtesy----
    Mr. STARK. To you?
    Mr. HERGER. To our guest.
    Mr. STARK. To you? Well, you just interrupted my time.
    Mr. HERGER. The time has expired.
    Mr. STARK. Ah, Mr. Chairman.
    Mr. HERGER. The gentleman from Louisiana, Mr. McCrery.
    Mr. SHAW. A point of order, Mr. Chairman.
    Mr. HERGER. Excuse me, Mr. Shaw.
    Mr. MCCRERY. I thank the Chairman for the time. Secretary 
    Mr. STARK. Would the gentleman yield? I had a few seconds 
    Mr. MCCRERY. Mr. Stark, I think you have used your time. 
Had you been pursuing a more worthwhile line of questioning, I 
might have yielded to you.
    Mr. STARK. Oh, I see. So, jobs in this country aren't 
worthwhile. Thank you.
    Mr. MCCRERY. That is not what you were asking about.
    Secretary Chao, as you may know, I have been involved over 
the last few years working with representatives from the States 
trying to reform the administrative end of our unemployment 
system, and the Administration has proposed an administrative 
financing reform proposal, and I wonder if you could explain, 
briefly, the rationale for wanting to shift that responsibility 
or at least the responsibility for funneling the funds from the 
Federal level to the State level.
    Ms. CHAO. Well, during the 1990s, the UI administration was 
funded below--we will acknowledge that--this proposal is 
actually good for the States, let me put it this way, because 
during an average year in the 1990s, the Federal Government 
took in approximately $5.7 billion in dedicated Federal 
unemployment taxes every year, and the States received only 
$3.1 billion for UI funding. So, for the majority of States, 
actually, and I have a little chart here which I would be more 
than glad to share with the Committee, in fact, an overwhelming 
majority of States paid in more in taxes than what they 
received to help the dislocated workers in their States.
    Mr. MCCRERY. Most States, even when times were good, were 
complaining that they were not getting back from the Federal 
government money sufficient to administer the UI programs in 
their States; isn't that right?
    Ms. CHAO. Yes, that is.
    Mr. MCCRERY. Unfortunately, we are now back in bad times, 
economically, for the States. They are having to rein in their 
spending, and we are back in a deficit situation at the Federal 
level. So, from a budget standpoint, it is going to be more 
difficult for us to shift those funds to the States. As you 
pointed out, we are getting more money in from the States than 
we are paying out, and that helps obscure the rest of the 
operating deficit at the Federal level.
    Have you thought about that and are you still going to 
press forward with these reforms that would shift that money 
out of Washington back to the States?
    Ms. CHAO. We think it is good for the States. For example, 
last year there was such an excess balance within the Federal 
accounts that $8 billion was disbursed through a mandatory 
legislative intent that--it was called the Reed Act, and 
approximately $8 billion were distributed last year, March of 
last year, to the States.
    Mr. MCCRERY. Yes, the Reed Act distribution that we 
accomplished last year has been very helpful to the States. 
Some of the States were able to use that money to prevent a tax 
increase from taking place on their employer community, some 
States were able to increase UI benefits, and other States used 
that money to increase the effectiveness of their 
administration benefits.
    So, the Reed Act distribution worked as we thought it 
would, and what the Administration is proposing is basically to 
continue that practice of the States basically keeping what 
they pay, what their employer community pays, in UI taxes for 
administration and letting them use that money as they see fit, 
whether it is to keep from increasing taxes, use it for a more 
efficient or more effective administration, or even increasing 
UI benefits.
    So, I commend the Administration for putting forward this 
proposal and saying to us in the Congress that even though we 
are back in a deficit situation still, from a policy standpoint 
and from an effectiveness standpoint for our UI system, it 
makes sense to shift this from the Federal level back to the 
State level, and I look forward to helping with it.
    Ms. CHAO. Thank you.
    Chairman THOMAS. [Presiding.] I thank the gentleman. Does 
the gentleman from Florida, Mr. Shaw, wish to inquire?
    Mr. SHAW. Just very briefly. I think here that there needs 
to be some clarity as to the records, particularly following 
the Statement by the gentleman from California, Mr. Stark.
    You don't create jobs by increasing benefits for the 
unemployed. You put incentives to be employed, and you work 
toward the creation of jobs in this country. We had this debate 
when we went through welfare reform back in 1996, and it 
conclusively proved that if you put incentives and job training 
in place, that people will rise to the level of finding jobs.
    We also know, statistically, that someone who is the 
recipient of a huge trust fund may very well not work. Somebody 
who is going to receive unlimited benefits, as pre-1996, to 
stay home, not to work and to have kids and not to get married, 
that it certainly encouraged that type of self-destructive 
    The real champion of welfare reform, I believe, and I have 
always believed, is particularly the single mom who has gotten 
out, become a role model for their kids and made something of 
themselves, and it is this human spirit that we need to work 
    I think to try to compare the rebuilding of a country that 
might very well be partially destroyed by war to an 
unemployment situation here in the United States, there is no 
match-up. You can't let one part of the budget be the enemy of 
the other part of the budget. You have got to work together in 
order to try to complete a complete budget. So, I just wanted 
to make that clarification.
    Also, I think a lesson in history. When I first came on 
this Committee, as I recall, and I think I am correct on this, 
that we were hoping to attain 6-percent unemployment. Of 
course, we went way beyond that, and a lot of that had to do 
with welfare reform and the fact that what people did of 
themselves, the unemployed, did make something of themselves. 
We believed in the human spirit and that paid off, and it paid 
off tremendously, in making better lives for many.
    I think on the unemployment benefits that we have extended, 
the added incentive that we have built into those programs for 
people to go out and find work is going to prove to be very 
beneficial, and I think that it certainly will pay off.
    Madam Secretary, I want to thank you for being here and 
your patience during one of the previous questioners. Thank 
    Chairman THOMAS. I thank the gentleman.
    The gentleman's memory serves him correctly. The Chairs 
come and go, but since it is currently here, I believe it was 
the Humphrey-Hawkins Act (Full Employment and Balanced Growth 
Act 1978, P.L. 95-523) which declared full employment at a 6-
percent rate. Does the gentleman from Michigan wish to inquire?
    Mr. LEVIN. Yes, I want to talk about the program of 
extended benefits. I just want to say, I guess Mr. Shaw isn't 
here, I think to draw a lesson from welfare reform, linking 
welfare to work to the challenge of the unemployed is 
essentially mistaken. For the vast majority of people who are 
unemployed today that are looking for work, they are required 
to look for work. Most of them have been working most of their 
    Let me just ask you about the extended program. How much is 
there today in the unemployment trust fund?
    Ms. CHAO. It is about $23 billion.
    Mr. LEVIN. In the recession in the 1990s, how many weeks of 
extended benefits were there for most people?
    Ms. CHAO. I believe it was 4 weeks at the time. The 
recession was worse. There was a recession with unemployment 
about 7 percent.
    Mr. LEVIN. How many weeks were available for the unemployed 
under the extended program?
    Ms. CHAO. It would be 26 weeks under the regular and then 
13 weeks each additional.
    Mr. LEVIN. In the early 1990s?
    Ms. CHAO. There were four extensions. If I am not correct, 
I will----
    Mr. LEVIN. How many weeks?
    Ms. CHAO. Approximately 13 weeks each, and if that is not 
    Mr. LEVIN. How many total weeks were available for the 
unemployed under the extended program?
    Ms. CHAO. I will calculate that.
    Mr. LEVIN. What?
    Ms. CHAO. I will count that up. It was about 65 weeks.
    Mr. LEVIN. In the early 1990s?
    Ms. CHAO. I believe so, yes.
    Mr. LEVIN. I don't know quite how you arrive at that. For 
most people in most of the States, they had 26 weeks, and then 
for those who were in high unemployment States they had more 
weeks. So, what we are talking about is now 13 weeks for the 
vast majority versus 26 weeks for the majority in the early 
1990s, and then in some cases in many States they had beyond 
that because they were in high unemployment.
    Ms. CHAO. That is correct.
    Mr. LEVIN. So, let me ask you this. How many workers today 
have exhausted their benefits, do you know?
    Ms. CHAO. Approximately, about a million.
    Mr. LEVIN. Who have presently exhausted, the total, those 
are those who exhausted and are unemployed? How many all 
together have exhausted their benefits?
    Ms. CHAO. It is a very dynamic figure, but it is about a 
    Mr. LEVIN. I think it is over 2.5 million----
    Ms. CHAO. Those are those----
    Mr. LEVIN. Who have exhausted their benefit at some point.
    Ms. CHAO. Then many of them, approximately, 50 percent----
    Mr. LEVIN. Have returned to work.
    Ms. CHAO. Are still eligible.
    Mr. LEVIN. Okay.
    Ms. CHAO. The numbers are very--we need to talk about the 
numbers, and if I can----
    Mr. LEVIN. Well, I am talking about the numbers, Madam 
Secretary. Look, there are over a million people today who have 
exhausted their benefits who are unemployed.
    Ms. CHAO. Some of them have found new jobs.
    Mr. LEVIN. No, no, no. Aren't there a million today who 
have exhausted their benefits who are unemployed, yes or no?
    Ms. CHAO. Yes.
    Mr. LEVIN. I read this article a week ago in the Wall 
Street Journal about a fellow named Wilcox. He was a white-
collar worker, and he went in Canton, Massachusetts, on a 
street corner, and he said, ``I need a job. Thirty-six years' 
experience insurance management,'' with his phone number.
    Now, what do we say to the million people who have 
exhausted their benefits why we are not extending benefits, as 
we did in the early 1990s, beyond 13 weeks?
    Ms. CHAO. I think----
    Mr. LEVIN. I want you to say----
    Ms. CHAO. I want you to find a new job. That is what I 
would tell them. I want to work with you to get a new job, and 
let us get the economic conditions so that you can get a new 
    Mr. LEVIN. Madam Secretary, he sent out over 500 resumes, 
he has been begging for a job. He stands on a street corner. He 
didn't want to tell his mother that he had done so. He was 
ashamed. He has worked all his life. What do you say to the 
Richard Wilcox's of this world, of this country?
    Ms. CHAO. We want to help them.
    Mr. LEVIN. Why don't you extend benefits beyond 13 weeks, 
as we did in the 1990s. What----
    Ms. CHAO. The 1990s' recession was harsher, and it was 
deeper. As I mentioned, we want people to get new jobs, so let 
us work on the economic recovery so that the economy gets going 
again, so that people will be able to get new jobs.
    Mr. LEVIN. So, your answer to him is the growth package? 
Let her just finish. Your answer is----
    Chairman THOMAS. The Chair is more than willing to let her 
finish, but the gentleman has now asked a second question after 
his time has expired.
    Mr. LEVIN. I just want to be clear, your answer to him is 
the growth package?
    Chairman THOMAS. That may take longer than the time 
    Mr. LEVIN. All right, Mr. Chairman. Look, this Committee 
has had this issue before. I am asking her, in a responsible, 
respectable way, what the answer is to Mr. Wilcox and the 
million people who have exhausted their benefits and are out of 
work, and I want you to give him--I talked to him yesterday on 
the phone. I want your answer, so I can convey it to him.
    Ms. CHAO. We will be more than glad to chat with the 
gentleman as well. We will be more than glad to work with your 
office. There are One-Stop Career Centers. Hopefully, that can 
offer some assistance. These are Career Resource Centers which 
offer core services, supportive services, and we would like to 
introduce him, if he does not know them already, to the One-
Stop Centers.
    Mr. LEVIN. He does.
    Chairman THOMAS. I thank the gentleman. We have a 15-minute 
vote and two 5-minute votes following. We can get one 
additional questioner in if the gentlewoman from Washington 
wishes to inquire.
    Ms. DUNN. Thank you very much, Mr. Chairman, and I 
appreciate your being here, Madam Secretary.
    Chairman THOMAS. If the gentlewoman would suspend briefly. 
Following her inquiring, the Chair will recess. The Chair hopes 
that 5 minutes after the close of the last vote we can 
reconvene to continue the hearing. Madam Secretary, we 
appreciate your indulgence as we engage in something that is 
part of our ongoing, ordinary business.
    Ms. CHAO. Sure.
    Chairman THOMAS. The gentlewoman from Washington.
    Ms. DUNN. Thank you. I want to thank you, Madam Secretary, 
for your help in addressing some very serious unemployment 
problems we have had in Washington State. We have worked well 
with the Department of Labor. We feel you are the most 
responsive Department of any in government right now, and that 
is great for us because we, indeed, have a huge problem with 
the 35,000 Boeing employees that have been let off and problems 
in the high-tech sector.
    I want, particularly, to tell you how much I appreciate 
your help in assisting us in securing the $15 million National 
Emergency Grant. Before this public hearing, we had a 
bipartisan meeting, where we were able to talk with you about 
how important it is to increase the budget for the National 
Emergency Grant. I want to underwrite that and support that. I 
think that is vitally important because you have more 
flexibility working with us, working with our governors to make 
sure that help gets to us very quickly.
    The funds that you got to our State have been critical in 
providing for the displaced workers that are trying to search 
for jobs, counseling, training, education services, and so 
forth, so they can get back to work right away.
    Further, your attention to the needs of dislocated workers 
in my State who are adversely affected by foreign competition 
has been highly noticed. Last year, the Department of Labor 
announced that 18,000 Boeing employees in the Puget Sound area 
were newly eligible for Trade Adjustment Assistance (TAA), and 
we appreciate that.
    As you know so well, Washington State and our economy was 
impacted in a devastating way by the events of September 11, 
2001, much more severely than by many other States, and it is 
because of the aerospace industry largely. Thirty-five thousand 
aerospace workers have lost their job, most of them in my 
district, where I have 25,000 workers, mostly on the commercial 
line, which is where the losses took place.
    In addition, the unemployment rate in my State has 
continued to hover around 7 percent, much higher than the 
national rate at one point, the highest State in the Nation. I 
would like in the time that I have left on my question period 
to hear your comments on how the President's proposal is 
designed to help States like Washington address the current 
challenges that we have of unemployment.
    Ms. CHAO. The President's proposal for economic job growth 
includes a very important provision called the Personal 
Reemployment Accounts. Basically, it gives people who are 
unemployed $3,000 with which to decide what kind of training 
they would like to purchase and what kind of jobs they 
eventually would like to attain. They are also able to use the 
$3,000 for supportive services, such as child care expenses and 
also transportation expenses.
    If there is any money left over during a 13-week period, 
then that excess would be able to accrue to the individual, 
meaning that the person would be able to keep the balance for 
    This proposal gives workers, it empowers workers because it 
gives them the ability to decide for themselves what kind of 
training they want, rather than have to choose a training that 
someone has thrust upon them. They are also able to use this 
money for child care, and this is certainly very important for 
a lot of single moms. For those that want to relocate, for 
example, to another part of the country, if they so wish, or to 
pay for local transportation--commuting--expenses, they will be 
able to tap this fund for them to use as well. This will be new 
money. The Administration wants to make it available in fiscal 
year 2003, and we want to work with the Committee on it.
    Ms. DUNN. Thank you, Mr. Chairman.
    Chairman THOMAS. I thank the gentlewoman. The Chair 
indicates the Committee will stand in recess until 5 minutes 
after the conclusion of the third vote in this sequence. The 
Chair, once again, thanks the Secretary.
    Mr. HERGER. [Presiding.] The hearing will reconvene. The 
gentleman from Maryland, Mr. Cardin, to inquire.
    Mr. CARDIN. Thank you, Mr. Chairman. Madam Secretary, it is 
a pleasure to have you before our Committee. You have a tough 
job, and we need to work together to deal with it. Let me 
follow up if I could on the role that the UI system needs to 
play during this time.
    You and I have talked a little bit about the concerns that 
I have about the number of unemployed. We had another 300,000 
this past month. The total number of people who have lost their 
jobs in the last 2 years is about 2 million. I want to just 
challenge I think one of the Statements that you made about the 
severity of this recession, and I urge you to go back and just 
take a look at some of these numbers because, according to the 
information that has been given to me, the number of long-term 
unemployed is two-and-a-half times higher today than it was 2-
years-ago, and the current level is roughly equivalent to the 
long-term unemployed in the 1990 recession.
    So, I think we are now reaching that point that this has 
been a difficult time for those people that are unemployed, as 
it was in the 1990s.
    I guess one of my concerns is that you say we have until 
May to reevaluate before the extension of the UI benefits, but 
as you know, Congress doesn't always work that quickly. We do 
need a little lead time for a policy to be approved by the 
Congress, and I would just urge you to try to get together with 
the congressional leaders on both sides of the aisle to come 
together with a program earlier, rather than later, dealing 
with the UI.
    The other point that I mentioned to you a little bit 
earlier before the hearing is the fact that for every person 
that is looking for a job, there are three times as many 
unemployed as there are jobs available, and therefore the UI 
fund really has a critical role to play at this point in our 
economic history. We need to rely upon that, and people just 
cannot find jobs.
    You and I have also talked about the fact that Mr. McCrery 
and I have been interested in the stakeholders group that met 
and offered some reforms. I am particularly concerned about the 
fact that low-wage workers are twice as unlikely to get UI as 
higher wage workers.
    So, I think we have some problems in the system itself that 
need to be addressed sooner rather than later. I would just 
urge you to meet with us promptly to develop a policy. I know 
the Administration has not formulated one yet, as to what 
happens after this current level of extended benefits, but I 
think we should meet promptly on it, and I would just urge you 
to do that.
    Ms. CHAO. I look forward to it.
    Mr. CARDIN. Let me move to the second point on these 
accounts. I know that these reemployment accounts you have 
estimated to be $3,000. I told you a little bit earlier that 
our projections are that, based upon the unemployment levels, 
the exhaustion levels during the last 2 years, that if the 
exhaustion levels continue, that these accounts may be as low 
as $500. I would urge you to get us as much information as 
possible to indicate why the budget request will equal the 
$3,000 that you are anticipating, and it would be useful if our 
Committee had that information. So, if you would please do 
    The last point I want to make is this: Your budget calls 
upon a reduction in the Federal Unemployment Tax Act (FUTA) 
tax, and I just question the wisdom of that in these uncertain 
times, when we use the unemployment fund to level out the good 
times and bad times in our economy, and we are now drawing more 
money out of the account than is coming into the account. That 
is what it is supposed to do during a recession, but we need to 
make sure that we have adequate funds for future responses in 
future recessions, and I am not sure this is the right time to 
call upon such a dramatic reduction in Federal revenues to the 
Federal Unemployment Trust Accounts.
    Ms. CHAO. If I can just quickly answer a couple points.
    Mr. CARDIN. Sure.
    Ms. CHAO. One is the $3,000, we look forward to working 
with you on that. Three thousand dollars per account is 
approximately the amount that individual workers receive when 
they are unemployed, in terms of training and supportive 
services. So, that is kind of how we arrived at that.
    As for the FUTA tax, the Department of Labor invests over 
$71 billion. Take away the $12 billion in training, and the 
remainder is UI. On top of that, there is $23 billion in 
excess. We gave back $8 billion last year. The average State is 
receiving only 55 cents on every dollar that they are 
submitting into the Federal system. So, we think that since the 
States are administering the system, that they should really 
have greater flexibility in managing it as well.
    Mr. CARDIN. I would just point out they did receive more 
money back in FUTA taxes than were paid in, but we can go over 
these dollar amounts and try to work it out. Thank you, Mr. 
    Mr. HERGER. Thank you. The gentleman from Georgia, Mr. 
Collins, to inquire?
    Mr. COLLINS. Thank you, Mr. Chairman, and thank you, Madam 
Secretary, for being before the Committee this morning.
    Before I ask a question of you, I would like to comment to 
the gentleman from Michigan who spoke with a worker who was 
standing on the street corner with the sign, ``Work Wanted. 
Thirty-six years industrial management.''
    As an employer for 40 years, my answer would be to the 
gentleman that I have a job, but it is not industrial 
management. Are you interested?
    Madam Secretary, I read, with interest, after the last 
census that we had something like 8 million illegal people in 
the country. Do you recall those type numbers?
    Ms. CHAO. Yes.
    Mr. COLLINS. I believe 4 million of them came from South of 
the border--Mexico--is that approximately the number that you 
    Ms. CHAO. Probably 7 million.
    Mr. COLLINS. I am sorry?
    Ms. CHAO. Probably 7 million.
    Mr. COLLINS. Four to 7 million.
    Ms. CHAO. Yes.
    Mr. COLLINS. What is the main reason for the majority of 
those people coming to the United States?
    Ms. CHAO. I think people come for a variety of options. 
They want better opportunities. I would think that would be 
    Mr. COLLINS. In other words, to make it a little bit more 
simple because that is what I have to deal with is simple terms 
and facts. They are looking for work; is that a pretty good 
assessment of why a lot of them come, not 100 percent, but a 
lot of people come to this country--opportunity, work?
    Ms. CHAO. Yes.
    Mr. COLLINS. Do we have any numbers that show how many of 
these illegal immigrants are actually employed in the 
    Ms. CHAO. I would imagine that a significant number would 
be employed in the workforce.
    Mr. COLLINS. Would it not be a pretty good assessment to 
understand that a lot of those who are working in the workforce 
have replaced people who were in the workforce and possibly now 
are in the unemployment roll?
    Mr. COLLINS. Just a guess, an assessment.
    Ms. CHAO. I don't know that.
    Mr. COLLINS. I didn't think you would. You are honest.
    I remember as a young boy growing up, I heard the comment a 
number of times, and it was different then, this was 50 years 
ago, when an individual tended to be lazy, and wouldn't work, 
and wanted handouts, and liked to stand on the corner during 
the work hours. That person was classified as an individual who 
really just wouldn't work in a pie factory, a pie factory. It 
was supposed to have been an easy, ``cream puff'' job. In other 
words, they just didn't want to work. They wanted a handout or 
whatever they could do to get by or work for cash where it 
wouldn't be reported.
    Madam Secretary, I have a real concern for the unemployed, 
and that is the reason I support the President's growth 
package, because it will create jobs, jobs that will be long 
lasting, because it will go to the workplace and help people to 
be more competitive as an American worker in a world market.
    Today, we have provisions of law that make us 
noncompetitive, to a certain extent, and a lot of those are tax 
laws because we have tax provisions that differ from other 
nations. So, I think the President is on the right track by 
looking at those provisions, and one of them happens to be the 
double taxation on stock dividends. We differ there from many 
industrialized nations.
    I am also concerned about a continuing program or 
rearranging or changing a program that will further the benefit 
structure because it is kind of like 50 years ago when the 
individual wouldn't work in a pie factory, they were wanting 
something in lieu of it. Benefits can be in lieu of a paycheck 
because they can still get by.
    That is not what America is about. That is not what our 
workforce is about. That is not the ethic of the vast majority 
of the American worker. That is one thing we differ from here 
than in many other parts of the world. We have a work ethic in 
this country that supersedes all. That is the reason we have 
been so productive, but we are losing a lot of that.
    Let me just sum up by saying that I am concerned about the 
unemployed across this Nation, as well as in San Francisco, and 
I hope the good people in San Francisco will put another one on 
the unemployed rolls for his disrespect for you, and for this 
administration, and for this establishment, and this body. 
Thank you, Madam Secretary.
    Ms. CHAO. Thank you.
    Mr. HERGER. Thank you. The gentleman from California, Mr. 
Becerra, wishes to inquire.
    Mr. BECERRA. Thank you, Mr. Chairman. Madam Secretary, 
thank you for being here, and we welcome your participation, 
always, in this Committee.
    I missed some of the questions and some of your testimony 
earlier, but I do want to get back to some of the questioning 
that I heard from the gentleman from Maryland, Mr. Cardin, 
address to you. It is the question with regard to unemployment. 
To me, it seems like the economy continues to show sluggish 
performance. Most economists are saying that the recovery that 
we were expecting actually last year or the early part of this 
year may not come until the latter part of this year, and that 
is, of course, if things move in a positive direction.
    If we find ourselves in war, and it doesn't go the way the 
Administration believes, if we find that North Korea is 
obstinate in trying to negotiate with us, for any number of 
reasons, other economic circumstances, we might find ourselves 
still in economic difficult come the latter part of this year.
    It seems that, given that we have got about a $200-or-so-
billion deficit for this year, increasing to more than that--
perhaps $300 billion--next year, that what we might want to do 
is prepare.
    In terms of unemployment, with the unemployment numbers 
continuing to increase and over 300,000 people having lost jobs 
this past month, that we probably want to give not just the 
markets, but the American people some confidence about what 
they can expect.
    When it comes to long-term unemployment, we are finding 
that more and more Americans are having a difficult time 
finding that next job. I am wondering if you can give us a 
better sense of what the Administration is planning, not 
necessarily what you are going to do or not necessarily what 
you are going to do this month, but should we find that come 
summer, we are still seeing persistent drags on the economy and 
the difficulties in decreasing unemployment.
    Can you give us a sense of what the long-term vision is of 
the Administration with regard to unemployment? How will you 
address it so that we can try to ensure that those who are 
unemployed today will exhaust their benefits by summer, have 
some opportunities to know that the Federal government isn't 
going to just let them fall through the cracks.
    Ms. CHAO. Well, the Federal government isn't going to let 
them fall through the cracks. Every year we, at the Department 
of Labor, invest about $71 billion to help people who are 
unemployed, $12 billion of which is in training. Obviously, we 
are in a recovery phase, but we are not satisfied, neither one 
of us, and this President is not either. We lost 1.5 million 
jobs during the attacks of September 11, 2001, and we are 
trying to come back from that.
    The 300,000 people that you mentioned who were not able to 
find jobs this past month comprise 90,000 basically reservists. 
So, they have now moved from the civilian rolls into the 
military rolls, but they are obviously defending, they are 
engaged in the activity of defending our country.
    We have approximately 48,000, also from loss in 
construction. That is because we have had a very harsh winter 
compared to the mild two winters. We are very concerned, 
obviously. We hope that the President's economic growth plan 
will address short-term assistance to the unemployed with 
Personal Reemployment Accounts and then longer term with 
creating the economic circumstances through which job creation 
will occur.
    Mr. BECERRA. Let us say we do not find that we are creating 
the jobs, the economy is not creating the jobs quickly enough, 
and you still have three people out there looking for a job for 
every job that is available. What can we tell folks come May, 
when those extended unemployment benefits run out for those 
Americans, what can we tell them today that we will be prepared 
to do come May?
    Ms. CHAO. Well, we obviously don't want people to suffer. 
We all want to help. As we go toward spring/late spring, and we 
are monitoring the situation very carefully, we will see, at 
the appropriate time, whether that step is necessary or not.
    Mr. BECERRA. Nothing----
    Ms. CHAO. We want to help people get back to work. We want 
to help them get jobs.
    Mr. BECERRA. What I hear you saying, and I think you said 
it before, was that you are monitoring. You are taking a look. 
It seems to me that, at some point, you will have to go beyond 
just taking a look and actually be prepared to do something, as 
we are, for example, with regard to Iraq. We are not just 
taking a look. We are preparing for the eventuality of war. We 
are preparing for the circumstances, so everything is in place.
    Is there something going on right now that the 
Administration is doing to have in place, whatever mechanisms 
you decide to use, come May, when those extended employment 
benefits run out?
    Ms. CHAO. We have been working on the President's economic 
growth and job creation plan, which was introduced on January 
7, 2003. We have extended UI benefits for an additional 13 
weeks, from December 27, 2002. As we go forward, the economy 
may change, current situations may change. So, we want to make 
sure that we are doing the right thing in terms of helping the 
    Mr. BECERRA. So, I don't hear there is anything in place 
other than monitoring the situation for those who are losing 
their benefits come May.
    Ms. CHAO. Let us see what happens to the economy as we get 
closer, because, again, we don't want to add the wrong 
incentive--the wrong stimulus, either.
    Mr. HERGER. The gentleman's time has expired.
    Mr. BECERRA. Thank you, Mr. Chair.
    Mr. HERGER. Thank you. The gentleman from Kentucky, Mr. 
Lewis, to inquire.
    Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Madam 
Secretary, it is indeed an honor to have you before our 
Committee today.
    Ms. CHAO. Thank you.
    Mr. LEWIS OF KENTUCKY. As a fellow Kentuckian, it is an 
even greater honor. You alluded a little while ago in your 
testimony to problems with fraud and abuse in the unemployment 
benefits. Could you review for us some of the measures that are 
being taken to try to deal with this problem.
    Ms. CHAO. We try very hard to be responsive to workers who 
need assistance. So, we try to get the unemployment checks out 
as quickly as we can, and we err on the conservative side; 
meaning that if there is sometimes a doubt, we pay the check 
out anyway because we don't want people to suffer.
    Since we do that, there will be instances, approximately 8 
percent of the time, in which we are making wrong payments. So, 
we are working with the various State Departments of Labor, we 
are working with the Office of the Inspector General within the 
Department of Labor to make sure that we are carrying out our 
duties correctly because the 8 percent of money that is paid to 
the wrong people or duplicate payments are basically money that 
could be better utilized to help others who really need the 
    Mr. LEWIS OF KENTUCKY. Thank you. That is all.
    Mr. HERGER. I thank the gentleman. The gentlelady from 
Ohio, Ms. Tubbs Jones, to inquire.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Good morning, 
Madam Secretary. How are you?
    Ms. CHAO. Good. Thank you.
    Ms. TUBBS JONES. Good. I want to focus in on, for a moment, 
the TAA health credit tax implementation. Has anyone asked 
those questions before I came?
    Ms. CHAO. No, no. Go ahead.
    Ms. TUBBS JONES. Great. I understand that the 
Administration is working to implement the TAA health insurance 
tax credit that was included in last year's trade bill.
    Ms. CHAO. Right.
    Ms. TUBBS JONES. Can you tell us how it is going, and 
specifically when you expect the credit to be available to 
people on an advance basis, and how the program will work in 
terms of identifying and notifying potential recipients, 
identifying and paying qualified insurers.
    Ms. CHAO. I can give you the short answer or I can give you 
the long answer. I will start with the short answer.
    Ms. TUBBS JONES. Okay, great.
    Ms. CHAO. The short answer basically is in August. We will 
submit the long answer in writing.
    Ms. TUBBS JONES. Okay.
    [The information follows:]

    The Health Coverage Tax Credit (HCTC) is a benefit that is 
available to workers who are certified for Trade Adjustment 
Assistance (TAA) and are either receiving trade readjustment 
allowances under the program or would be eligible to receive 
such allowances except that they have not exhausted 
unemployment compensation; workers who are receiving benefits 
under the Alternative Trade Adjustment Assistance (ATAA) 
program; and certain individuals age 55 or older who are 
receiving benefit payments from the Pension Benefit Guaranty 
Corporation (PBGC).
    The HCTC is a Federal tax credit equal to 65 percent of the 
monthly amount paid by an eligible worker for coverage of the 
worker and qualifying family Members under ``qualified'' health 
insurance. ``Qualified'' health insurance includes COBRA 
coverage, coverage under a group health plan that is available 
through the employment of the eligible individual's spouse 
where the employer pays less than 50 percent of the cost of 
coverage, individual health insurance coverage obtained at 
least 30 days prior to separation, and certain kinds of State-
provided coverage if the State elects to offer such coverage.
    The end-of-year tax credit was first available in December 
2002, and workers could claim that one-month credit on their 
2002 tax returns. Beginning August 1, 2003, eligible 
individuals are able to receive the tax credit on an advance 
basis (i.e., the 65% credit is available each month to pay for 
the health premium), or as an end-of-year credit when they file 
their 2003 tax return.
    Three Federal agencies share responsibility for 
implementing the tax credit and ensuring that the benefit is 
made available to eligible individuals: Department of Labor, 
Department of Health and Human Services and the Treasury 

    1. LThe Treasury Department is responsible for managing the 
tax credit. An HCTC office has been established in the Internal 
Revenue Service.
    2. LThe Department of Health and Human Services is 
responsible for certifying qualified State health plans and 
assist States with establishing high-risk pools.
    3. LThe Department of Labor's Employment and Training 
Administration is responsible for certifying petitions for 
Trade Adjustment Assistance and providing grant funds to States 
to establish the necessary administrative infrastructure for 
the HCTC, as well as ``bridge'' payments for qualified health 
insurance for eligible individuals between December 2002 and 
August 1, 2003 (when the credit is available on an advance 
basis). The Pension Benefit Guaranty Corporation (PBGC) is 
responsible for submitting a listing of potentially eligible 
PBGC recipients to the HCTC office at the IRS.

    Once the Department of Labor certifies a petition for Trade 
Adjustment Assistance, the State Workforce Agency (SWA) is 
responsible for identifying eligible TAA and Alternative Trade 
Adjustment Assistance (ATAA) recipients, and for notifying them 
about the availability of the tax credit. The SWA will also 
provide the names of individuals to the HCTC office in the IRS, 
which will determine eligibility for the tax credit. The 
vehicle for reporting this information to the HCTC office is 
the InterState Connection (ICON) network, which is currently 
used by the SWA for unemployment compensation purposes.
    Beginning August 1, 2003, the HCTC office will use the ICON 
claimant/recipient information to verify eligibility for the 
advance credit payment of 65% of the qualified health insurance 
premium. Individuals are responsible for the remaining 35% and 
will provide the payment through the mechanism established by 
the IRS.


    Ms. CHAO. The other thing, also, is the TAA applications, 
and this was the subject of some discussion before the hearing, 
is more complicated. We can make available some bridge National 
Emergency Grants, and we will be more than glad to work with 
you on that. National Emergency Grants are an easier vehicle 
for us to help people.
    The TAA applications, especially now with its new form, is 
a very lengthy and cumbersome process, and so we are not 
thrilled with having to go through that process either. If some 
of your constituents are having problems, let us work together 
to address that.
    Ms. TUBBS JONES. Let me ask you, it is my understanding 
that you have already awarded two contracts for administering 
the TAA program; one to assess the administrative issues and 
participation by individuals, and one to administer the 
advanceable tax credit.
    I understand that this second contract authorizes up to $70 
million this fiscal year alone. Of course, these costs are in 
addition to the staff time and related costs of three Federal 
agencies. Are the costs of implementing this program reflected 
in the President's budget?
    Ms. CHAO. Yes. Number one, that is apparently the 
Department of Treasury's jurisdiction. The other thing, also, 
is we do have these National Emergency Grants which we are 
giving out to some States so that they can set up the capacity 
with which to evaluate the health care component of TAA. We do 
have these National Emergency Grants, but the majority of that 
is in the Department of Treasury.
    Ms. TUBBS JONES. I also understand that the tax credit can 
be used for Consolidated Omnibus Budget Reconciliation Act 
continuation coverage, for other coverage arranged by a State 
or in limited circumstances for individual coverage. Can you 
describe how States plan to arrange for coverage for these tax 
credit recipients, given that the tax credit is theoretically 
available now, though not advanceable? Can you tell me how many 
States have plans in place and how many tax credit recipients 
do you estimate will be enrolled in each of the types of 
qualified coverage?
    Ms. CHAO. Tax credits, in general, are pretty much in the 
Department of Treasury, but I will try, to the extent that I 
can, I will try to get you some answers to that.
    Ms. TUBBS JONES. Except that this TAA is actually within 
your jurisdiction, though, right?
    Ms. CHAO. Yes, but the tax credits are something that the 
Department of Treasury administers. It is very complicated. 
That is why the National Emergency Grants are so much easier 
for us to administer.
    Ms. TUBBS JONES. Do you have input into what the Department 
of Treasury does? We don't operate in a vacuum? The Departments 
interact somewhere, correct?
    Ms. CHAO. Right. Well, we would like to think that the 
Departments work together on topics like this, but it does take 
coordination, which can take time.
    Ms. TUBBS JONES. So, you are saying August will be----
    Ms. CHAO. Pretty much.
    Ms. TUBBS JONES. I have no further questions. Thank you 
very much.
    Ms. CHAO. I will be more than glad, as I mentioned, to work 
with your office on that.
    Ms. TUBBS JONES. I would love for you to give--my earlier 
questions, you are going to send me some written responses----
    Ms. CHAO. Right.
    Ms. TUBBS JONES. I appreciate that. Thank you. Thank you, 
Mr. Chairman.
    Mr. HERGER. Thank you. Now, the gentleman from Illinois, 
Mr. Weller, to inquire.
    Mr. WELLER. Thank you, Mr. Chairman. Madam Secretary, I 
thank you for your appearance before our Committee. I know this 
is a historic day. It has been some time since the Secretary 
for the Department of Labor has appeared before the Committee 
on Ways and Means, and we appreciate your commitment not only 
to your job, but also to working with our Committee.
    Ms. CHAO. Thank you.
    Mr. WELLER. I also want to thank you for an initiative that 
you and Assistant Secretary DeRocco have been working on, which 
is of great benefit to workers in Illinois. I know questions 
have been raised about the type of initiatives to help those 
who are dislocated, workers who are unemployed and in need of 
skills that bring them into the 21st century economy. Of course 
I want to thank you for the new initiative we now have in 
Illinois and Ohio, the Integrated Systems Technology program, 
which will help workers get the skills to essentially be those 
who operate the robots and maintain the robots in our 
manufacturing facilities, since we have an impending shortage 
of those kind of workers.
    The good thing about this program is they will pretty much 
be guaranteed a job because of those skills, and the demand for 
those skills, and they will be high-paying jobs. So, I commend 
you and Assistant Secretary DeRocco for your leadership on this 
program, which will help retrain Illinois workers, and I hope 
to see it successful----
    Ms. CHAO. Thank you.
    Mr. WELLER. To see it expand nationwide, and it will, of 
course, affect Illinois State University, as well as five 
community colleges in the State I represent, including Kankakee 
Community College within my own district, as well as Illinois 
State University. So, for that, I say thank you.
    Also, on the Personal Reemployment Accounts proposal, I 
would like to submit to the record some information. We always 
like to check the legislative history on some ideas, and while 
I am very supportive of the proposal you brought before us, and 
the Administration is advocating, I would note that the 
Personal Reemployment Accounts idea is not a new one. In fact, 
in the 103rd Congress, Chairman Rostenkowski offered H.R. 4040 
(Reemployment Act of 1994) legislation which had the 
cosponsorship of 94 Democrats, including, obviously, Chairman 
Rostenkowski, but also the former Democratic leader, Mr. 
Gephardt, Mrs. Pelosi, and Members of this Committee, Mr. 
Cardin, Mr. Lewis, Mr. Levin, Mr. Neal, Mr. Rangel, Mr. Stark, 
Mr. Matsui, and Mr. McDermott. They all cosponsored legislation 
basically identical to the Administration's Personal 
Reemployment Accounts proposal.
    Mr. Chairman, I would like to submit this into the record, 
a copy of the legislation as well as the cosponsors.
    Mr. HERGER. Without objection.
    [The attachment is being retained in the Committee files.]
    Mr. WELLER. So, it is not a new idea, and I certainly 
commend you for coming up with new ideas to try and solve the 
challenge of how do we give those who are unemployed the 
opportunity to go back to work, move up the economic ladder.
    I also want to commend you for the way you have presented 
this proposal today before the Committee.
    One question I do not believe has been addressed yet, and 
that is the Personal Reemployment Accounts that recently came 
out of the Committee on Education and the Workforce, as they 
provide services for child care, and the payment of 
reemployment bonuses. What is the Administration's view on 
whether or not these accounts, and any moneys that a worker 
with the reemployment bonus were to receive, and how it should 
be treated from a tax standpoint? Should it be considered 
income? Has the Administration made a recommendation on that?
    Ms. CHAO. I believe the portion that is used to purchase 
training is not taxable, but the supportive services are, but I 
will get a definitive answer for you on that.
    Mr. WELLER. That would be helpful because if it has tax 
consequences, we certainly need to consider that as we move the 
legislation through this Committee. Thank you, Madam Secretary. 
I look forward to working with you, and I have enjoyed the 
opportunity to work with you.
    Ms. CHAO. Thank you.
    Mr. WELLER. Mr. Chairman, thank you for the opportunity to 
    Mr. HERGER. I thank the gentleman. I want to conclude by 
thanking Secretary Chao for appearing before our Committee. 
Again, as we recognized earlier, I believe you are the first 
Secretary from the Department of Labor to appear before our 
Committee since 1993. Thank you for your patience. I also want 
to commend you for an outstanding job that you are doing for 
our country, for President Bush, for all of us.
    Chairman THOMAS. With that, this hearing is adjourned.
    [Whereupon, at 12:08 p.m., the hearing was adjourned.]
    [Submission for the record follows:]
 Statement of Daniel M. Steen, Executive Board Member and Chairperson, 
 New York State Public Employees Federation, AFL-CIO, Albany, New York
    Chairman Thomas, Ranking Member Rangel, and distinguished members 
of the Committee on Ways and Means, I appreciate the opportunity to 
submit written testimony concerning the President's budget for the U.S. 
Department of Labor for the fiscal year 2004.
    The President's proposal is of critical interest to the 53,000 
member NYS Public Employees Federation, AFL-CIO (PEF), as nearly 3,000 
of our members are the professional and technical employees of the New 
York State Department of Labor, an agency that is approximately 95% 
federal funded. Our members work making determinations on unemployment 
insurance claims, matching qualified job seekers with employers, and 
protecting the public in a myriad of ways such as inspecting the safety 
of amusement rides and ski lifts.
    Since the establishment of the unemployment insurance system and a 
national labor exchange, the States have acted as agents of the Federal 
Government in delivering these important services. Together, these 
programs have helped our nation weather many periods of economic 
uncertainty. Providing unemployed workers with funds to meet basic 
needs, such as food and shelter, and by assisting workers find new 
employment are among our most important safeguards that help keep a 
downturn from becoming recession, and recession from becoming a 
depression. These are national interests that require a national, 
coordinated response.
    The President's proposal to reduce Federal Unemployment Tax Act 
(FUTA) from current levels, beginning in 2005 to .02% in 2009 does 
nothing to improve the system and effectively creates an unfunded 
mandate that will require States to increase their U.I. taxes once the 
Reed Act distributions have been exhausted. The .02% funding level will 
only support the U.S. Department of Labor. If the problem with the FUTA 
tax is that the Federal Government collects too much from employers, 
while at the same not distributing enough of the collected funds to the 
States to run the system, surely these problems can be corrected 
without abandoning a system that has served us well for decades.
    Given the severe fiscal crisis facing State governments, few States 
seem likely to invest State funds to improve the Unemployment Insurance 
system. This will be aggravated by the fact that the Administration of 
the system will be forced to compete for funding from the same pool of 
money that pays benefits. For example, according to the GAO report 
Unemployment Insurance States Use of 2002 Reed Act Distribution (GAO 
03-496, March 2003), New York State used all $491.3 million that it 
received to pay benefits or repay federal loans. NY did not invest a 
single dollar in the system. Those States that did invest some of the 
Reed Act funds in their system are unlikely to continue their 
investment with State dollars once the Reed Act distributions have been 
    The availability of the Reed Act funds makes this proposal seem 
attractive in the short run. In the long run, this concept simply 
abandons a system that has served the nation well for many decades. The 
system could certainly be improved, but does not need to be discarded.
    The President's proposal also threatens the existence of a national 
employment service. While the lack of specific details available on 
this portion of the budget proposal make it difficult to critique, 
providing funding through a block grant, rather than dedicated funding, 
is no guarantee we will continue to have a national job bank. PEF 
members proudly staff America's Job Bank, which connects the job banks 
operated by each State employment service. It is the existence of the 
national job bank that enable the many entities with whom we partner to 
play a role in connecting employers with skilled workers. Without a 
nationally funded labor exchange, each grantee will be left to recreate 
the basic tools they need to function. A block grant arrangement would 
also break the long standing link between the U.I. system and the 
employment service. This would effectively eliminate the requirement 
that U.I. benefit applicants make an active search for work. We believe 
it is essential that these services be maintained as a public 
employment system administered competently and fairly by qualified 
civil servants.
    The Migrant Seasonal Farm Worker program is an important component 
of the national labor exchange. The population served is at risk, in 
part because of the very nature of their constantly moving existence. 
States alone are simply not equipped to provide services to a 
population that will shortly move beyond its borders.
    Programs which the States operate in partnership with the U.S. 
Department of Labor could certainly benefit from many improvements and 
enhancements. The President's proposals offer nothing of the kind. In 
exchange for short term Reed Act disbursement funds, which are 
available because of a pattern of under funding of the U.I. and 
employment service systems, these important employment programs will 
become the responsibility of the States after 2009. States will make 
different decisions as to how much funding they will provide for these 
programs which will create a disparate and uncoordinated employment 
services program.
    Thank you for the opportunity to provide information on these 
important issues.