    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

         UNEMPLOYMENT CHECKS TO PAYCHECKS: IMPLEMENTING RECENT REFORMS

    =======================================================================

                                    HEARING

                                   before the

                        SUBCOMMITTEE ON HUMAN RESOURCES

                                     of the

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

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 25, 2012

                                   __________

                              Serial No. 112-HR12

                                   __________

             Printed for the use of the Committee on Ways and Means

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    20402-0001

                          COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
    PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
    JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
    TOM PRICE, Georgia                   RON KIND, Wisconsin
    VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
    ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
    AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
    LYNN JENKINS, Kansas
    ERIK PAULSEN, Minnesota
    KENNY MARCHANT, Texas
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee
    TOM REED, New York

            Jennifer M. Safavian, Staff Director and General Counsel

                      Janice Mays, Minority Chief Counsel

                        SUBCOMMITTEE ON HUMAN RESOURCES

                        GEOFF DAVIS, Kentucky, Chairman

    ERIK PAULSEN, Minnesota              LLOYD DOGGETT, Texas
    RICK BERG, North Dakota              JIM MCDERMOTT, Washington
    TOM REED, New York                   JOHN LEWIS, Georgia
    TOM PRICE, Georgia                   JOSEPH CROWLEY, New York
    DIANE BLACK, Tennessee
    CHARLES W. BOUSTANY, JR., Louisiana

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of April 25, 2012 announcing the hearing................     2

                                   WITNESSES

    Panel 1:

    The Honorable Jane Oates, Assistant Secretary, Employment and
      Training Administration, U.S. Department of Labor, Testimony...     7

    Panel 2:

    Mr. Darrell Gates, Deputy Commissioner, New Hampshire Department
      of Employment Security, Testimony..............................    72
    Mr. Larry Temple, Executive Director, Texas Workforce Commission,
      Testimony......................................................    85
    Dr. Wayne Vroman, Ph.D., Senior Fellow, The Urban Institute,
      Testimony......................................................    92
    Mr. Douglas J. Holmes, President, UWC--Strategic Services on
      Unemployment & Workers' Compensation, Testimony................   103
    Mr. Michael Cullen, Managing Director, OnPoint Technologies,
      Testimony......................................................   115

                       MEMBER SUBMISSIONS FOR THE RECORD

    The Honorable Tom Reed...........................................   134

                       PUBLIC SUBMISSIONS FOR THE RECORD

    TrueBlue.........................................................   184

                        MEMBER QUESTIONS FOR THE RECORD

    The Honorable Geoff Davis........................................   169
    The Honorable Jim McDermott......................................   179

                       MOVING FROM UNEMPLOYMENT CHECKS TO
                     PAYCHECKS: IMPLEMENTING RECENT REFORMS

                                  ----------

                           WEDNESDAY, APRIL 25, 2012

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                                Washington, DC.
        The subcommittee met, pursuant to call, at 10:08 a.m., in
    Room 1100, Longworth House Office Building, the Honorable Geoff
    Davis [chairman of the subcommittee] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

    Chairman Davis Announces Hearing on Moving from Unemployment Checks to
                     Paychecks: Implementing Recent Reforms

    Washington, April 25, 2012

        Congressman Geoff Davis (R-KY), Chairman of the Subcommittee on
    Human Resources of the Committee on Ways and Means, today announced
    that the Subcommittee will hold a hearing reviewing the implementation
    of the reforms to the unemployment insurance system contained in Public
    Law 112-96, The Middle Class Tax Relief and Job Creation Act of 2012.
    The hearing will take place on Wednesday, April 25, 2012, in 1100
    Longworth House Office Building, beginning at 10:00 A.M.

        In view of the limited time available to hear witnesses, oral
    testimony at this hearing will be from invited witnesses only.
    Witnesses will include a representative of the U.S. Department of Labor
    (DOL) as well as other public and private sector experts on
    unemployment benefits and policies designed to promote reemployment.
    However, any individual or organization not scheduled for an oral
    appearance may submit a written statement for consideration by the
    Committee and for inclusion in the printed record of the hearing.

    BACKGROUND:

        In March 2012 (the most recent official data), the U.S.
    unemployment rate was 8.2 percent, with 12.7 million individuals
    unemployed, of whom 5.3 million were long-term unemployed--defined as
    unemployed for 27 weeks of longer. As of the week ending March 24,
    2012, approximately 6.8 million individuals were collecting State or
    Federal unemployment benefits.

        The Federal-State unemployment insurance (UI) program created by
    the Social Security Act of 1935, assists unemployed individuals by
    offering weekly unemployment benefit checks while they search for work.
    According to DOL, in order to be eligible for benefits, jobless workers
    must have a history of attachment to the workforce and must be able and
    available for work.

        As a result of a series of laws enacted since 2008 to provide
    additional Federal extended benefits, the maximum number of weeks of
    total unemployment benefits payable per person grew to a record 99
    weeks, including up to 73 weeks of Federally-funded benefits. Since
    mid-2008, over $200 billion in Federal extended unemployment benefits
    have been authorized, with most supported by general revenues.

        As the number of weeks of unemployment benefits and total spending
    have grown, so have total payments made in error. According to DOL,
    improper payments of unemployment benefits reached record highs in
    2011, with $13.7 billion paid in error or 12 percent of all payments.

        On February 22, 2012, the President signed P.L. 112-96, The Middle
    Class Tax Relief and Job Creation Act, which extended and reformed
    Federally-funded unemployment benefits under the Emergency Unemployment
    Compensation (EUC) program for the remainder of 2012. The reforms to
    the permanent program include creating job search requirements for
    Federal benefits, permitting States to have flexibility to promote pro-
    work reforms, allowing screening and testing of certain UI applicants
    for illegal drugs, requiring reemployment eligibility assessments for
    the long-term unemployed, and requiring States to recover prior
    overpayments of UI benefits. Prior to their enactment, these reforms
    were the topic of a previous Human Resources Subcommittee hearing on
    moving from unemployment checks to paychecks in October 2011.

        Also under the law, the unemployment rate thresholds and weeks of
    benefits available in various ``tiers'' of EUC will change in the
    coming months, resulting in fewer weeks of Federal benefits being paid,
    with those weeks increasingly focused on States with the highest
    unemployment rates. As a result, starting in September 2012, the
    maximum number of weeks of eligibility for UI benefits will have fallen
    from 99 weeks to 73 weeks, but only in States with unemployment rates
    above 9 percent.

        In announcing the hearing, Chairman Davis said, ``Members from both
    Chambers of Congress and both sides of the aisle came together to agree
    on new policies designed to help unemployed Americans return to work.
    This hearing will examine how these new reforms are being implemented
    by DOL and the States. This will help us judge what next steps may be
    needed to improve the overall integrity of the program so that we are
    better able to move more individuals from benefit checks to
    paychecks.''

    FOCUS OF THE HEARING:

        The hearing will focus on the implementation of reforms to
    unemployment benefits enacted in P.L. 112-96, The Middle Class Tax
    Relief and Job Creation Act.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
    page of the Committee website and complete the informational forms.
    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on Wednesday, May 9, 2012. Finally, please
    note that due to the change in House mail policy, the U.S. Capitol
    Police will refuse sealed-package deliveries to all House Office
    Buildings. For questions, or if you encounter technical problems,
    please call (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
    printed record, and any written comments in response to a request for
    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies 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. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
    sheet must accompany each submission 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.
        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman DAVIS. Good morning. Thank you for joining us for
    the hearing this morning.
        As we all know, we have been paying record unemployment
    insurance benefits for years now. Despite characterizations by
    some that this is the best stimulus that money can buy, we know
    that the U.S. labor market remains in near critical condition
    today. There are 5 million fewer jobs today than the
    administration predicted there would be at the end of 2010.
    This is the slowest jobs recovery since data were first
    recorded in the 1930s. Unemployment has been above 8 percent
    for 37 consecutive months, the longest stretch since the Great
    Depression. Today's 12.7 million unemployed Americans are
    almost 1 million more than when President Obama took office,
    and today's 5.3 million long-term unemployed are more than
    double the number when President Obama took office.
        Yet even those grim figures miss some major problems. For
    example, beyond the 12.7 million unemployed and the 5.3 million
    long-term unemployed, millions more have simply stopped looking
    for a job. As this chart shows, the unemployment rate would be
    11 percent today if these discouraged workers were counted as
    officially unemployed.
        To address this desperate need to change direction, in
    February of 2012 Congress passed and the President signed into
    law legislation originating from this committee containing
    historic reforms to the Nation's unemployment insurance system.
    When that legislation passed, the headlines often focused on
    how it extended Federal unemployment benefits through the end
    of the year with shortened durations and greater focus on the
    highest unemployment States. But the legislation contained much
    more, including what the administration described last week as
    the first major overhaul of the unemployment insurance system
    in decades. I would echo that sentiment.
        In sum, these reforms are designed to help more unemployed
    people, and especially more long-term unemployed, get back to
    work. Among other provisions the legislation includes new job
    search requirements for people collecting extended unemployment
    benefits, new waiver flexibility to test ways of using UI funds
    to help people get a job instead of just a benefit check, new
    reemployment assessments designed to address obstacles long-
    term unemployed have to taking a new job, and new authority for
    drug screening and testing of some UI applicants.
        The American people need these reforms to take effect
    quickly and to work effectively. This hearing is designed to
    review the implementation of these reforms as well as consider
    what additional steps may be needed. Members will hear from the
    Department of Labor as well as State and private sector experts
    about what these reforms are meant to accomplish, what has
    already happened, and what is yet to come in terms of their
    implementation.
        We have some specific questions about how and why certain
    policies are being implemented the way they are, as well as
    about the challenges States and employers may have in adjusting
    to the reforms, but most importantly we use this hearing to
    ensure these changes are being implemented in a way that will
    help more unemployed Americans trade benefit checks for
    paychecks. That is our ultimate goal and the standard by which
    this program should and will be judged.
        I know that over time we have had spirited discussions on
    this, both in the committee, on the floor. Several of us who
    are up on the dais today have managed extensions of the
    previous unemployment program through the early period of the
    last Congress and the Congress before that, and we finally hit
    a center of mass where we were able to make some reforms,
    achieve a compromise with a focus on the process, getting away
    from the emotion of ideology on either end of the spectrum to
    really fix some problems that the States had, as well as
    addressing spending issues and incentives for folks to go back
    to work.
        So I appreciate all of you being here, appreciate the
    Members of the Subcommittee for joining us today.
        Chairman DAVIS. And one other note that I would like to
    make before we move on is I would like to take a moment to
    recognize Tim Ford, who is our Legislative Assistant on the
    Human Resources Committee, also helping to keep the trains
    running on time today. Tim has been with the subcommittee staff
    since early 2011, and he leaves us tomorrow for the University
    of Michigan law school. Tim does a lot of work before and
    during our hearings to make sure they run smoothly, and I know
    our witnesses are grateful for his help as they prepare to
    testify today.
        He is a great addition to our team. I personally appreciate
    his contribution, his infectious enthusiasm, and his devotion
    to duty on what can be a very intense subcommittee to work on.
        And I just want to thank you very much and all of us give
    you a round of applause for your contribution.
        [Applause.]
        Chairman DAVIS. With that, the ranking member, my friend
    from Texas, Mr. Doggett is recognized for 5 minutes.
        Mr. DOGGETT. Thank you, Mr. Chairman.
        Certainly extending a hand to those Americans who have lost
    a job through no fault of their own and who are out searching
    for new opportunities is the right thing to do to keep our
    economy moving forward and to assist millions of our fellow
    Americans.
        Unemployment benefits helped in a significant way to avoid
    a very bad recession, the worst since the Great Depression,
    from becoming a catastrophic depression by helping folks put
    food on the table, a roof over their family's head, and get the
    kids the clothes they need to go to school.
        Overall our economy is making some progress as evidenced by
    the nearly 3\1/2\ million jobs that have been created over the
    last 2 years, but there is considerable work to do. And it is
    correct that since December of 2007, before this administration
    took office, we have, versus that point, 5 million fewer jobs.
        Though there has been some remarkably good news over time
    in Texas, according to the Center for Public Policy Priorities
    in East Austin, we still have a shortfall in our State of
    almost three-quarters of a million jobs. In San Antonio, for
    example, almost 40,000 workers are receiving unemployment
    benefits, and more than half of those have been unemployed for
    at least 6 months. In Travis County, almost 25,000 unemployed
    workers are claiming benefits. Last week the San Antonio
    Express-News held a job fair that attracted some 1,400 people,
    including Amanda, a 46-year-old trained as a medical assistant,
    who has been searching for a job for 6 months without success.
        I think it is vital that we maintain the unemployment
    insurance lifeline for families who want to work, but have not
    yet been able to find a job. Fortunately, in February a number
    of our Republican colleagues, after a great deal of foot
    dragging and creating an unnecessary crisis for too many of our
    families, joined with us as Democrats in maintaining emergency
    unemployment benefits throughout the rest of 2012.
        There have been included with that new law as a part of the
    extension a number of reforms that are designed to promote
    employment. One of those was the subject of testimony in this
    subcommittee last year by Senator Ron Wyden of Oregon. I worked
    with Senator Wyden in sponsoring legislation to encourage more
    States to promote entrepreneurship among the unemployed by
    allowing under certain conditions those who are unemployed to
    use their resources to help establish small businesses. I think
    this is a program with much potential for some of the
    unemployed, and I look forward to hearing from the Secretary
    and others about how that potential can be achieved.
        The new law also contained provisions to avert layoffs
    through work-sharing programs in which individuals receive
    partial unemployment checks when their work hours are cut. The
    administration also had initiated a program that is included in
    the new law to require recipients of emergency unemployment to
    undertake reemployment assessments, and there are some
    demonstration projects that will be conducted by the Secretary
    of Labor to explore other alternatives, which we can discuss
    this morning.
        As we review how the States have responded to the various
    changes in Federal laws related to unemployment, we need to
    acknowledge that there is a much bigger challenge looming.
    Thirty States now owe the Federal Government $41 billion in
    unemployment loans, and several other State unemployment
    programs, like my home State of Texas, have borrowed from the
    private market. The magnitude of the recession had an obvious
    impact in driving up insolvency, but truthfully, a number of
    these States failed to make proper preparations for even a mild
    recession, much less a more severe one like that that we
    experienced. A system that was more forward funded would have
    averted many of the problems and certainly the massive amount
    of State debt to the Federal Government that we have today.
        I look forward to suggestions and recommendations as to how
    we can create an unemployment insurance system that does a
    better job of saving for the future and protecting those who
    need it in an economic downturn.
        Thank you, Mr. Chairman.
        Chairman DAVIS. Thank you, Mr. Doggett.
        Chairman DAVIS. I would like to remind our witness to limit
    her oral statement to 5 minutes. However, without objection,
    all of the written testimony will be made part of the permanent
    record.
        On our first panel this morning we will be hearing from the
    Honorable Jane Oates, Assistant Secretary for the Employment
    and Training Administration, U.S. Department of Labor.
        Ms. Oates, please proceed with your testimony.

      STATEMENT OF THE HONORABLE JANE OATES, ASSISTANT SECRETARY,
      EMPLOYMENT AND TRAINING ADMINISTRATION, U.S. DEPARTMENT OF
                                 LABOR

        Ms. OATES. Good morning, Chairman Davis, Ranking Member
    Doggett, and other Members of the Subcommittee. Thank you for
    the invitation to testify today and for holding this hearing on
    the unemployment insurance provisions in the Middle Class Tax
    Relief and Job Creation Act of 2012. It is an exciting time for
    the UI program, and I welcome the opportunity to talk to you
    about what we are doing to implement these provisions.
        Let me first start by thanking Congress for extending the
    Emergency Unemployment Compensation Program and the full
    Federal funding for the Extended Benefit Program. We estimate
    that about 5.3 million unemployed workers will receive more
    weeks of benefits as a result of this extension. Unfortunately,
    too many Americans are still unable to find work, particularly
    those that have experienced long-term unemployment. Therefore,
    both the extension of benefits and the provisions of these acts
    focusing on reemployment and layoff aversion are very
    important.
        My staff is rising to the challenge of having to implement
    multiple new initiatives at the same time, and we have made
    significant progress in developing the necessary guidance and
    providing technical assistance to States. I am also pleased to
    report that States are generally being successful in
    implementing the mandatory provisions of the act in very short
    timeframes, and NASWA, their association, has a lot to do with
    that.
        As you know, the act makes many complex changes to the EUC
    program structure. On March 5th, we issued initial guidance on
    the EUC changes, and we have additional guidance related to the
    random work-search audits and responses to State questions in
    the final stages. And to enable States to administer the new
    EUC provisions, Secretary Solis and all States signed addenda
    to their EUC agreements by March the 19th.
        The new provisions for providing reemployment services and
    eligibility assessments to claimants are an important step to
    ensure that long-term unemployed workers are getting the
    reemployment services they need to regain employment as soon as
    possible. Guidance was issued on implementation of RES and REA
    on March 16th, a full week ahead of schedule, thanks to my
    great career staff.
        States have articulated a number of challenges related to
    implementation of RES/REA, but by far the biggest one is the
    need to increase their capacity to serve the additional 4
    million EUC claimants they will be seeing through the end of
    the year. Despite these challenges, the States were able to
    commence RES/REAs by mid-April, most of them, and almost all
    States will have implemented by the first week of May.
        Secretary Solis is pleased to have the opportunity to
    promote innovative reemployment strategies by allowing up to 10
    States to conduct demonstration projects. We know that States
    are excited about this new opportunity. UI PL 15-12 was issued
    on April 19th, providing guidance to the States on the
    application process, and many of the States will probably tell
    you they are still reading it. A Webinar to review the guidance
    and response to State questions is scheduled for this Friday.
    We welcome your staff and interested constituents to
    participate, and we will be happy to give you the information
    about how to get on that Webinar.
        We look forward to the opportunity to improve State take-up
    and expansion of short-term compensation as an important
    layoff-aversion tool. We began implementation of these
    provisions by consulting with stakeholders and other program
    experts in two listening sessions on March 19th and 20th.
    Guidance for all the short-term compensation provisions and the
    model legislative language will be issued soon, and we are
    planning for robust technical assistance so that everyone who
    wants to can take advantage of that.
        We anticipate that States currently operating an STC
    program may have to make at least some State law modifications
    to conform to the new Federal program definition and to be
    eligible for the available grants. The 100 percent
    reimbursement of State STC benefit costs for States with
    permanent programs will begin soon after the guidance is
    issued.
        The self-employment assistance that the ranking member
    mentioned, the SEA provisions to support increased State
    implementation and to expand the program to both EUC and EB,
    will enable many more unemployed workers to consider self-
    employment as a reemployment strategy. Similar to STC, we
    hosted two listening sessions on March 19th and 20th and
    consulted with stakeholders and other program experts.
        While most of the UI provisions in the act are temporary,
    it also establishes some permanent changes to the UI program,
    including an explicit statutory requirement that regular UC
    claimants must be able to work, available for work, and
    actively seeking work. States will likely not need to make
    significant changes to their laws, as they already include such
    requirements.
        Other things on which we will be issuing a guidance, of
    course, are the changes permitting the permanent changes to
    include the provision allowing States to test certain
    applicants for the use of illegal drugs as a condition of
    eligibility. We are consulting with SAMHSA and with other
    agencies to make sure that our regulation concerning the
    occupations that regularly conduct drug testing are uniform
    across our agencies.
        I appreciate the opportunity to talk to you about the UI
    provisions. In the interest of time, I won't talk about data
    exchange standardization, but please know we are very
    interested in that. We have already engaged with the Office of
    Management and Budget and our State partners to explore ways
    that we can expand that. You know we already bought into that.
    My career staff will be dancing in the aisle when we can do
    that.
        Chairman DAVIS. I would like to see that.
        Ms. OATES. Right.
        And I would be remiss in my last few seconds if I didn't
    say what a sad day for me to be testifying. We all lost a good
    friend when Don Payne lost his battle to cancer, and I know
    that some of you know that I spent some years in New Jersey. He
    was a great friend while I worked for Senator Kennedy and a
    terrific friend while I was in New Jersey. And I understand
    that members may be coming and going to go to his services, and
    I fully appreciate that, Chairman.
        Thank you. I look forward to your questions.
        Chairman DAVIS. I thank you very much, Madam Secretary.
        [The statement of Ms. Oates follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman DAVIS. I move now to questions. I have a question
    for you first as we move forward. Your written testimony on
    page 6 notes, and I quote, ``The Secretary was required, by
    statute, to issue guidance on implementation of RES/REA
    activities not later than 30 days after enactment.''
        To my knowledge there was not a similar requirement for the
    Secretary to issue guidance on waivers. Is that correct? And,
    if so, why did DOL issue its recent guidance on waivers?
        Ms. OATES. On the demo project, sir?
        Chairman DAVIS. Yes.
        Ms. OATES. We did the guidance on that so that we could
    make sure--since this was a pilot and demo that the Secretary
    was very interested in pursuing and very happy that Congress
    gave her the opportunity to do, we wanted to make sure that we
    had some standardized process so that States would know exactly
    what we were looking for. And while I think some people will
    say, and I respect their opinion, that the guidance is lengthy,
    we think that this was--this is the first time that we have
    allowed States to use trust fund money for anything else other
    than the payment of UI benefits, and therefore it was important
    for us in good public policy to make sure that we told people
    what we were looking for in that.
        Chairman DAVIS. Our review of the Secretary's guidance
    reveals little additional information about how the States are
    supposed to apply, except for the section labeled ``The
    Secretary's Priorities,'' and this section includes a number of
    provisions that, in effect, were part of the President's
    American Jobs Act, but not the bill passed by the Congress. And
    that includes new provisions related to the Fair Labor
    Standards Act, assurances that demonstrations lead to permanent
    employment, and goals involving low-income and older workers.
    Where exactly in the law Congress passed did these and other
    Secretary's priorities for the waiver provision appear?
        Ms. OATES. Well, in the guidance, sir, we did provide all
    the statutory provisions that are mandatory, and the
    Secretary's priorities were included as additional things. Yes,
    many of them were included in the President's program that he
    put forward, but I think that the fact that we are using State
    trust fund money, that the businesses that are the sole
    providers of that money would want to make sure that raiding
    the trust basically resulted in permanent employment and did
    follow the Fair Labor Standards Act that was passed by
    Congress. So, I mean, I am not quite sure why we wouldn't have
    said that. We don't want temporary workers going in and
    displacing other workers, and the Fair Labor Standards Act is
    something that, quite frankly, businesses and States are used
    to already. We didn't add anything that was new or complicated
    that they are not already working under.
        Chairman DAVIS. Well, I'll just take this one step further.
    The President's bill actually was never enacted, and there is
    reflection of those priorities in the new rules, and if the law
    Congress passed and the President signed didn't include such
    requirements, why does DOL think that it can include them in
    the State waiver applications? I mean, coming back to the
    baseline legislation.
        Ms. OATES. Sure. I think that Congress gave the Secretary
    the discretion to add additional components, and the fact that
    the Secretary even--Congress, as Members of Congress, you gave
    her the discretion to do this program or not do this program.
    It wasn't mandatory. So I think in choosing what was in the
    final guidance, we did choose to follow laws that had been
    passed by previous Congresses, like the Fair Labor Standards
    Act.
        Chairman DAVIS. If State applications do not include these
    ``Secretary's priorities,'' will that be held against their
    application and result in it being rejected?
        Ms. OATES. Well, quite frankly, like everything else we do,
    the guidance that we put out, whether it is a grant or a
    demonstration project like this, State applications will be
    weighted against their ability to meet the standards set in the
    guidance. So it would be premature for me to tell you what the
    Secretary will or will not dismiss. The process that we have
    developed has the Secretary only in the final stages, so
    therefore career people will be engaged in weighing State
    applications against what was in the guidance. So I would
    encourage States to follow the guidance as closely as they
    could so that their application could be seen favorably.
        Chairman DAVIS. I think this is bringing me back to one
    final point, and this really questions positional authority
    regarding what was enacted versus some of the additional, let's
    say, interpretations that added legislation that was not
    enacted into it.
        Coming back to the core legislation that the Congress
    passed and the President signed into law, what is your
    authority for rejecting State waiver applications that satisfy
    the statute quite clearly, but not the additional requirements
    that were tacked on by the Secretary? And I think there is a
    question of prerogative and balance of law that the States, I
    think, certainly have a right to redress or ask. So if you
    could just quickly answer that question.
        Ms. OATES. Yeah, I think, Mr. Chairman, quite frankly,
    oftentimes we go and give further guidance when laws are
    passed. We do it through regulation, and we do it through
    guidance like this. I don't think anyone in our solicitor's
    office thought that we were doing anything unusual with this
    guidance.
        So with great respect, you know, happy to work with you as
    we get applications and the Secretary makes decisions, and we
    are open to your opinions and possibly the option that we would
    differ with you on the interpretation.
        Chairman DAVIS. Yeah. Well, just in closing then what I
    would appreciate is if your office would answer us from your
    counsel, explaining the addition of or interpretation of rules
    that are outside the scope of the original legislation.
        Ms. OATES. I am happy to do that, sir.
        Chairman DAVIS. Great. Thank you.
        Chairman DAVIS. With that, I would like to yield to my
    friend Mr. Doggett from Texas.
        Mr. DOGGETT. Thank you, Mr. Chairman. And thank you, Madam
    Secretary.
        In fact, the legislation we are referring to is permissive
    with reference to these demonstration projects. It does not
    mandate the Secretary to set up any demonstration project. It
    uses the term ``may''; does it not?
        Ms. OATES. That is correct, sir.
        Mr. DOGGETT. And as I understand these other requirements
    that are not specified in the statute, one of the most basic
    ones is that in setting up these programs, these demonstration
    programs, and looking at whether you will grant waiver
    authority, you expect there to be compliance with other Federal
    statutes.
        Ms. OATES. That is correct, sir.
        Mr. DOGGETT. Such as the minimum wage, such as not going
    back to child labor and working excessive hours without being
    paid overtime. Those would be the kind of requirements that I
    am sure that there are some still in this Congress that are as
    ideologically opposed to them as when they were first enacted
    into law decades ago, but you seek to assure compliance with
    Federal statutes; is that right?
        Ms. OATES. That is correct, sir.
        Mr. DOGGETT. And with reference to those demonstration
    projects, there will be some testimony shortly that what the
    Department has done is overly bureaucratic and administratively
    cumbersome.
        Can you tell us why certain requirements are imposed on the
    States wanting to use unemployment insurance funds to
    administer these programs, and weren't some of these
    requirements, such as cost neutrality, requiring work to be
    suitable, and including a rigorous evaluation, already included
    in the statute; and don't some of them, such as not using new
    programs to cause more unemployment with temporary workers
    replacing people who have not been unemployed, consistent with
    the goals of this legislation?
        Ms. OATES. That is correct, sir. Again, since this is the
    first time in history that the Federal Government has given
    States the permission to go into their State trust fund for
    anything else other than the payment of benefits, we took this
    very seriously.
        Additionally, we are hoping to get great innovative
    measures, and if we don't make those measures adhere to other
    Federal laws, then we are using these demos as a political
    football rather than using them as really instructive
    techniques in order to get us information to share with you to
    get permanent changes to the UI system.
        Mr. DOGGETT. You are trying to preserve the trust
    associated with trust fund monies, which, as I understand your
    testimony, have never previously been used for any purpose
    other than paying the unemployment insurance benefits that
    unemployed workers have relied upon when the Congress set this
    program up?
        Ms. OATES. That is correct, sir.
        Mr. DOGGETT. With reference to the self-employment
    programs, are there some States that, in order to participate
    in those programs and help someone who has been unemployed
    innovate, be an entrepreneur, set up a small business, that the
    States will have to change their laws?
        Ms. OATES. We firmly believe that some States are going to
    have to change their laws. As I am sure you are aware, there
    are nine States who currently allow it, but only six of them
    are active, actively using it right now. But we think that
    States will be able to make those changes in enough time,
    because you have been generous enough to give us enough time
    until 2015 to actually do this that those States will have time
    to do it.
        Mr. DOGGETT. You have noted in your written testimony that
    those six States that have used the program and the individuals
    that have participated in the programs have a much better
    success rate than others in actually staying employed and
    getting a small business, as risky as that is, under way and
    going. Can you tell us a little about the potential of these
    self-employment programs?
        Ms. OATES. Well, Congressman, we have done actual research
    following up in these States, and even if folks weren't able to
    open their own business because of credit problems, you know,
    or things that they couldn't get right then and there, these
    programs are five times more likely to get a job and keep it.
        And so the lessons they learn in these entrepreneurship
    activities really make them a better candidate for another
    employer. They understand all aspects of a business. So we
    think it is a win-win. We think it would be great if they could
    get their own business up and going, but we definitely think
    this gives them a leg up in competing for jobs that would be
    available in their local area.
        Mr. DOGGETT. Madam Secretary, at a time when we have made
    significant economic progress, but still have a good ways to go
    to get the unemployment rate down, what is the effect of seeing
    major, substantial cuts in training and job-training programs
    across the country?
        Ms. OATES. Well, certainly, sir, I have a bias here, but I
    think this committee, in crafting the REA/RES provision that is
    now mandatory for States, it is going to be really a shell game
    for our constituents, mine and yours, if we gut the workforce
    programs so that when people go to get those reemployment
    activities, the services that they have been promised, there is
    no one there or the one-stop has closed up.
        So I hope that we are able to show you quickly the benefits
    of getting folks both the assessment and the services that they
    need quickly, and get them back into the employment ranks where
    they are adding to the tax revenue and not taking money from
    the UI trust anymore. But I think it will be really terrible
    for all of us if we pull the rug out from under these folks
    that have suffered enough.
        Mr. DOGGETT. Thank you so much.
        Chairman DAVIS. I thank the gentleman.
        The chair now recognizes the gentleman from Minnesota Mr.
    Paulsen for 5 minutes.
        Mr. PAULSEN. Thank you, Mr. Chairman.
        Madam Secretary, you also mentioned in your testimony on
    page 4 actually about the program, EUC program, expiring coming
    up. It ends completely with no phase-out on January 2nd of
    2013. And, of course, we are making progress on jobs, we are
    moving forward. You stated that as well, and that is our goal
    across the board up here.
        So my question is this: Does the administration believe
    that current economics and the job growth that exists right now
    is strong enough that the EUC program should not be extended
    past the deadline of its expiration coming up in January at the
    end of this year?
        Ms. OATES. Well, if I could say two things on that,
    Congressman. First, I think that we have all learned with this
    recession that predictions are likely not to be correct. So I
    don't want to make a prediction, and I don't think the
    administration has yet shared with me their opinion on whether
    or not to go for another extension or not. I think we are all
    trying to look at everything as the glass is half full, hoping
    that the economic situation will continue to improve.
        But the other thing is really a plea for all of us to make
    sure that people understand this cliff in January. It is
    different than anything they have experienced since we have
    begun this in 2008, 2009, 2010, 2011, 2012. People will not
    understand that all of their benefits will end abruptly; they
    are used to a cascade. And I think if I were still staffing, as
    I did for many years, in the other Chamber, I would be letting
    people know that, because some people may be getting job offers
    that don't meet the job that they lost either in terms of
    dignity or salary, and they may be holding out to wait for a
    better job offer that is closer to the job they lost. They need
    to really understand that in January of 2013 they may not have
    another option.
        Mr. PAULSEN. Yeah, and to know that those job options are
    going to be employment options before that cliff hits.
        So let me ask you this: Are there any other economic
    indicators that you would maybe hold out there that might be
    indicative of when it is time to end the temporary extension of
    these unemployment benefits? Is it 7 percent, is it 6\1/2\
    percent, is it 6 percent? You know, is there some sort of other
    benchmark or marker when it sort of makes sense to start to
    phase that out?
        Ms. OATES. You know, I think we are all confused about what
    everything means. I mean, I think that the chairman brought up
    people who are off our radar screen who have already exhausted
    benefits, that are still searching or underemployed. So I don't
    know what the right number is. And, quite frankly, over the
    last 3 years, we have seen things like the economic situation
    in Greece and the tsunami impact our economy when none of us
    would have been able to predict that.
        So I wish I could give you a better answer. The only answer
    that I can give you is that we are trying to put as much
    information out there as we can and work as closely with
    employers as we can, both directly and through our regions, you
    know, our States that are such important partners with us, but
    also our local one-stops, to help figure out, you know, what
    are the indicators out there besides just looking at warn
    notices with layoffs, but also starting to look at where are we
    seeing job growth in your State, in Minnesota, as well as in
    other States, so that we can figure out--we could come to you
    and say, look, it looks great; it looks like these companies
    are really on solid ground, and they are going to be adding
    jobs for the next 5 years. I just don't have anything, any
    indicator that really predicts that right now.
        Mr. PAULSEN. Okay. Let me ask one other question, because
    we talked about the reforms being targeted to those who are
    able to work and actively looking for work. Under the new law,
    the States are also required to reduce current State and
    Federal UI checks to recover any prior overpayments for
    unemployment, but with about 11 percent rate of overpayment
    being in error, it is about $30 billion, actually a huge amount
    of money. What effort is the Department of Labor making right
    now to help States implement some of those new overpayment
    recovery requirements?
        Ms. OATES. You know, we are really doing everything in
    partnership, mostly with NASWA, who is their association, and
    individually with States. We are trying to give them clear
    guidance, and we are really trying to tell the stories of the
    States that have done a great job at this.
        We haven't done a lot of work on specific tools with them,
    although we will, just as we did last year, have some
    additional over the base money that we will be putting out for
    States to work on things like integrity and improvement of
    their IT system. And we are hoping that States, just as they
    did in the past, will take advantage of this to customize this
    additional money to an area that is in need for them. Some
    States are having a tougher problem with IT in terms of
    overpayment; some are having a tougher time interacting with
    other State agencies as well as Federal agencies. For us that
    is Treasury, but in a State that could be two or three
    different State departments.
        Mr. PAULSEN. Are certain States having more success
    reaching that?
        Ms. OATES. I can tell you best about the States that are
    having real initial success on the TOP program where they can
    garnish it from people's tax returns, and so far we have seen
    somewhere--and I will get you the exact number--somewhere in
    the area of about $135 million in terms of reclamation since
    that program started. So the early-on States like New York, you
    know, did a great job on that, and newly we have had
    Mississippi that has come on later in this year, and they have
    had a great success rate in getting money back that way.
        You know, we would like to suggest that our system--because
    my State friends will tell you this--you know, if you do $10 in
    overpayment and you reclaim 9 of it, you are still dinged for
    having $10 in overpayment. You know, we would like to look at
    ways that we can address the system so that States could get
    the credit for getting that $9 back in reclamation. We don't
    think it is a $10 overpayment anymore; we think they reclaimed
    9 of it. So until we can get our system to reflect that, I
    don't think we are doing enough to incent States and recognize
    them for their efforts in this area.
        Chairman DAVIS. Thank you.
        The gentleman's time has expired. The chair now recognizes
    Mr. Berg for 5 minutes.
        Mr. BERG. Thank you, Mr. Chairman.
        Secretary, thank you for being here.
        Ms. OATES. Hi, how are you?
        Mr. BERG. I tell you, one of the bright spots in my first
    year in Congress was when we were talking about the HIRES Act.
    We were talking about these pilot projects in a bipartisan way
    that we said, you know what, the best solution is to put people
    to work; the best solution is to have them find a job that
    works for them. And I think almost unanimously some of the
    senior veterans as well as other freshmen said, you know, we
    think the States can probably figure this out best for their
    population. They know what their population needs; they know
    what the work opportunities are on that local level.
        And so that was the thrust that has been behind this pilot
    project, and one of my top concerns is it seems to me that we
    are not going to have anyone who is going to have a chance to
    even do one of these pilots before it expires. And my goal or
    quest is really to encourage the States to have innovation, to
    come up with things, and, sure, to meet all these requirements
    and meet all the laws, but, more importantly, to put someone
    back to work as quickly as we can.
        So I guess my first question to you is what are the main
    barriers you are hearing from States? If you said, here is the
    top three things that they are saying that they have problems
    with this, what would they be?
        Ms. OATES. With the demo, sir?
        Mr. BERG. Correct.
        Ms. OATES. We haven't really heard a lot from States. I
    mean, I have heard some from my friends who have said, really,
    19 pages worth of guidance? So they didn't like the length of
    the guidance, but we haven't heard a lot about the specifics. I
    am sure you will hear. You have two terrific State folks here
    on your second panel. I am sure you will hear things, and I am
    sure we will hear a lot more on Friday during the Webinar.
        Mr. BERG. So you don't have things today that you can tell
    this panel here is the number one, number two or number three
    thing?
        Ms. OATES. I don't, I am sorry. Friday I might.
        Mr. BERG. So let me just ask you this: If, in fact, through
    the rest of this panel we are hearing things that quite frankly
    are redundant requirements or barriers that really don't make
    sense because they are qualifying, are those things that you
    are open to saying, okay, we are going to relook at these
    requirements or the things that are redundant to help
    streamline this? You are willing to do that?
        Ms. OATES. I can't say that I am because that would slow
    down the process. Quite frankly, we have the guidance out
    there, and we don't know if people are already working on
    applications under that guidance. I suppose that if we find in,
    you know----
        Mr. BERG. I am saying if someone says here is something
    that you are asking in these 19 pages that you already have or
    you don't need . . . I mean, one of my concerns is I heard or
    saw in the testimony one State was saying it is going to
    require us to hire another full-time person to fill out this
    application. And so if there is a way to streamline this, is
    that something you are open to giving a waiver of the
    requirements?
        Ms. OATES. Requirements for waivers, yeah. I don't know how
    I could say yes to that since this is not a process that is
    just me, it goes through a clearance process. So that if we
    were going to make changes, we would have to go through that
    clearance process. And, again, unless we suspend it and said
    don't respond to the guidance that we put out, we have no idea
    how many States are at the 10-yard line on this and finished,
    so if we change the rules now, would that mean they had to go
    back?
        But, certainly, let me give you a scenario. If no States
    applied in the first several months, I think that would make us
    go back to the drawing board on this one. I think that States--
    there are some States that may not apply for other reasons.
    They are all under the gun and stretched doing REA and RES for
    everyone.
        Mr. BERG. Well, let me ask you. I mean, if no one applies
    for 2 months, we have lost the opportunity of what we are
    doing. Maybe just to make it more simple, if, in fact, as we go
    through the panel, if on a bipartisan basis our legislative
    committee here says, here are things we think are redundant,
    here are things that we think would help remove some barriers,
    I am asking you, is that be something you would be open to?
        Ms. OATES. I think we would at least be willing to discuss
    it with you, and share with you, get your ideas and share with
    you what that would mean in terms of our getting
    implementation, absolutely, sir.
        Mr. BERG. All right. Thank you. I will yield back.
        Chairman DAVIS. I thank the gentleman.
        The chair recognizes Mr. McDermott from Washington for 5
    minutes.
        Mr. MCDERMOTT. Thank you, Mr. Chairman.
        I was once a State legislator, and some of the people up
    here were State legislators. We all have been through the
    business of setting your unemployed insurance rate, tax rate
    for the State, and State legislators love to cut the taxes on
    their businesses, so they are always thinking, well, there is
    this--we already got this pile of money over here in the
    account; why shouldn't we lower the rate? And now we have $41
    billion in debt at the State level, and I am sure State
    legislators aren't very interested in raising those rates to
    take care of those things.
        What leverage do we have in terms of forcing the States to
    pay their debts to the Federal Government? I mean, they are
    riding on our back. They are buying our money. They are getting
    our money for free, and they are going on down the road, acting
    like it was falling out of the sky for nothing. We are paying
    taxes at the Federal level for the failure of the States to tax
    adequately to cover their own funds. So what leverage do we
    have in that game?
        Ms. OATES. Well, first of all, now that the Recovery Act
    money is gone, all States are paying interest on the money that
    they are borrowing.
        Mr. MCDERMOTT. Are they paying it?
        Ms. OATES. Yes. And they are--there are mandatory increases
    to their FUTA tax if they are in borrowing status as of a
    certain date, and I can get you that information. In fact, 20
    States will actually see their rate go from .3 percent to .6
    percent, and I think two States will actually be at .9; one
    that I can think of, but there might be a second.
        So those mandatory triggers happen and, you know, some of
    the things, it is a problem for their trust funds. We have seen
    the borrowing slow down dramatically. But you are right, I
    mean, we still have $41 billion that is owed to the Federal
    fund.
        Mr. MCDERMOTT. Could you give us a list----
        Ms. OATES. Sure.
        Mr. MCDERMOTT. I would like to see that so we can see where
    you are in sort of recovery or forcing the States to be
    responsible. We talk about responsibility up here a lot.
        Ms. OATES. Absolutely. I can send that to the chair today.
    We have that list. We will make sure that we put on there as of
    a certain date.
        Mr. MCDERMOTT. Okay. I have a second question, and that is
    this whole business, and Mr. Doggett touched on it, of the
    Workforce Reinvestment Act, and the legislation or the budget
    resolution that says we are going to cut $16 billion out of
    there. That is money we are not using for anything, I guess,
    useful anyway, so the States won't miss it. Is that your view?
        Ms. OATES. Well, the States are already limping because
    both of us, the Congress in the previous years and this year in
    the President's budget, have taken away what they have had
    since 1998. They have been able to keep 15 percent at the State
    level, 5 percent for admin and 10 percent for State activities.
    And that money was used to be glue, you know, to fund things
    like the kinds of things we are talking about today without UI
    funds.
        But if we are to cut the workforce investment funds to
    States, States are not going to be the only ones who suffer.
    Local areas. Local areas run the local boards. They are the
    ones that have direct conversations with business, businesses
    that may be too small to be captured in LMI data at the States,
    but the businesses that are really creating jobs.
        I think it is a huge mistake, sir. Of course, I have a
    self-interest in this. I love the bill, I love ETA, but if the
    Workforce Investment Act goes away, there are going to be real
    people who don't get information on jobs in demand, who don't
    have access to the training they need in order to qualify for
    those jobs and, quite frankly, have no one caring whether they
    are retained in those jobs or not, and I am talking about
    people like all of us as well as vulnerable populations.
        Mr. MCDERMOTT. When you are talking about these
    entrepreneurial, States are being given the flexibility to use
    their funds for entrepreneurial things for the first time.
        Ms. OATES. Uh-huh.
        Mr. MCDERMOTT. As we pull away, is any of this Reinvestment
    Act money being used in training those people who are going
    into the entrepreneurial kind of thing? Is there a connection,
    I guess, is what I am really looking for?
        Ms. OATES. Yes, sir. We are not the experts in that, so
    what we have done is partnered with SBA, the Small Business
    Administration, because they are the experts in this. So
    whether we are doing entrepreneurial activities through a one-
    stop or through a State, or whether we are doing them in one of
    our Job Corps, we are partnering with SBA.
        All of our one-stops offer people access to things that
    help small, budding entrepreneurs, computers, fax machines that
    they might not have at home in order to start their business,
    and an ability to use space sometimes to meet with other
    people. Some of our one-stops are partnering with 4-year and 2-
    year colleges that operate business incubators. They are
    linking them with that business incubator. I think our system
    is trying not to duplicate things that already exist in their
    community, but partner with local colleges or other
    entrepreneurial efforts like trade associations that are
    already doing this and learn from them.
        Mr. MCDERMOTT. Thank you.
        Chairman DAVIS. The gentleman's time has expired. The chair
    now recognizes the gentlewoman from Tennessee Mrs. Black for 5
    minutes.
        Mrs. BLACK. Thank you, Mr. Chairman. And, Ms. Oates, thank
    you for your testimony here today.
        We all know in the unemployment world there are several
    pieces of information reported on a regular basis that experts
    examine to gauge the economic health of the economy, and one
    important piece of information is the weekly reports on initial
    claims for the unemployment benefits, which are released every
    Thursday by the Employment and Training Administration, over
    which you are the Assistant Secretary.
        This data comes out in a preliminary form one week, and
    then it is revised to be the final report in the following
    week, and a number of reviewers have noted on a pretty
    consistent basis that these first initial claims data have been
    revised upward and only upward when they are made in the final
    week.
        For example, on April 5th, the Wall Street Journal reported
    ``the Dow Jones analysis of claims reports found that the Labor
    Department has revised upward its first estimate of seasonal
    adjusted claims of 56 of the past 57 weeks, and revisions to
    the government data occur on a regular basis, but it is
    uncommon for the numbers to nearly always be restated in the
    same direction.''
        And the article went on to say, ``while the consistent need
    for upward revisions doesn't undermine the overall trend of the
    improving job market, it does suggest that the government's
    methodology for the initial estimate might not properly take
    into account factors such as seasonal adjustments and under
    accounting by States.''
        So is the ETA aware of this issue, and, if you are, should
    experts and policymakers be concerned about this data revision
    always flowing in one direction; that is, when the initial
    reports are always revised upward?
        Ms. OATES. This is something that we are aware of, and, you
    know, we don't do this alone. We do this in partnership with
    our sister agency, the Bureau of Labor Statistics, BLS. And the
    fact is that basically seasonal factors are challenging, and
    that is what we are working with.
        But happy to give you and your staff a better briefing with
    both of us there. This is not my area of expertise,
    Congresswoman, at all, but this is something that we have
    noticed. And, you know, we would love to explore with the
    committee, your staff any way that--your ideas on how we can
    improve this. We don't like that--we don't like always being
    off either, and we are not quite sure what it means that we are
    always adjusting up. Is that because people are conservative in
    what their initial estimates are? These are all estimates as we
    try to get this moving. And should we maybe not do it weekly so
    that we can have more time to make the number correct? We have
    had all those discussions and would welcome your expertise and
    your staff's in those discussions with us.
        Mrs. BLACK. So you have had discussions, but you don't have
    any plan at this point in time to say . . . this is what we are
    going to do to try to better balance this? It is just still in
    the discussion phase; is that what you are saying?
        Ms. OATES. Yeah, we do not have a plan. I mean, basically
    there has been no allegation of wrongdoing in any of this. No
    one has told us we are doing anything wrong. It is just that
    we--this is a complicated issue, and there could be better ways
    to do it. And we would be delighted to have conversations and
    get your ideas about what those might be, and I am sure my
    partner Jack Galvin at BLS would feel the same way.
        Mrs. BLACK. And likewise, I would like to hear about what
    your discussions are in the office where you may come up with
    something that you can bring back to us to say, this is what we
    have thought about and researched and found would be more
    effective.
        Ms. OATES. Certainly.
        Mrs. BLACK. Let me turn to something that has already been
    discussed, but just to follow up on the unemployment insurance
    benefit overpayments. In one of the charts that we have in our
    folder, we see that there was a $13.7 billion overpayment, and
    I wanted to know if there is anything being done to collect
    this overpayment or how that is done.
        Ms. OATES. Well, as you know well, the States are the
    primary agents in this. We run this program only through them.
    So different States are doing different things in order to do
    the re-collections. I talked a little bit about the States that
    are already using the garnishment of Federal tax returns. Some
    States are looking at using State tax returns as well.
        So that I think that each State is actively working in
    this. I mean, in our improper payments activities, I am
    delighted to report to the committee every State has a task
    force, cross-agency in their State. Every State has a plan, and
    we are really starting to see terrific trending.
        You know, the trend in improper payments, whether over or
    under, was going up since 2008, and we are delighted that
    finally in fiscal year 2011, the trend is ticking down. Not
    fast enough, we are not reclaiming enough money, but States are
    really paying attention to this in the midst of the busiest
    time, in my lifetime, that States have had in the UI program.
        Mrs. BLACK. Do you have any numbers for us to say what
    those percentages are that they are recovering? Do we know what
    those percentages are overall? Also, I would like to know
    specifically State by State what kind of recovery is occurring
    so we can get a better handle on making sure the taxpayer
    dollars are being used efficiently.
        Ms. OATES. Absolutely. The numbers that we could give you
    in a table today are the numbers from the TOP program, that is
    the Treasury Offset Program, but I would be happy to work with
    my staff and NASWA. We would have to collect that information
    from the States. We would be happy to do that.
        Chairman DAVIS. Thank you.
        The gentlewoman's time has expired. I would now like to
    welcome the distinguished gentleman from Texas, a senior member
    of the committee and also the chairman of the Subcommittee on
    Trade, Mr. Brady. Thank you for joining us today. Would you
    like to ask a question?
        Mr. BRADY. Thank you, Chairman Davis, for allowing me to
    sit in today and for calling this hearing.
        As you know, we literally have tens of millions of
    Americans who can't find a full-time job. We have millions more
    who have simply given up looking for work. After all the
    bailouts and stimulus and programs, we have fewer Americans
    working today than 3 years ago. We have fewer, about 700,000
    fewer, women working today than 3 years ago. That is why when
    Republicans and Democrats passed the payroll extension bill, it
    included important reforms to unemployment to try to match
    local workers with local jobs sooner, because what we are doing
    clearly isn't working.
        I sat on that conference committee, sat through the
    discussions, and a key part of that reform was to allow States,
    many of whom have successful, innovative programs, to step
    forward and share that innovation in programs to allow us to
    better get people back to work. The law we passed, passed by
    both Republicans and Democrats, clearly said the first 10
    States to meet the criteria laid out in that new statute would
    receive the waivers in order to allow the innovation to go
    forward. Texas submitted their application 2 days after the
    President signed the law, and rather than being accepted,
    embraced, and put to work, Texas was denied.
        So the two questions I have are, one, is the Department of
    Labor ignoring the intent and statute of Congress when it comes
    to these waiver programs to allow the States to innovate?
        Ms. OATES. Absolutely not, sir. The statute gave the
    Secretary the option of approving a demonstration project.
        Mr. BRADY. Well, I would counter, no, it gave the States
    the option to apply for an innovation project. The mandate
    within the law was that the Department of Labor would grant 10
    waivers, up to 10 waivers, for States that apply on a first
    come/first serve basis.
        Ms. OATES. Sir, with great respect, and I am a former
    staffer, the word was ``may'' and not ``shall.'' So it gave the
    Secretary the option. I mean that with great respect.
        Mr. BRADY. And I do, too. I just was a lowly Congressman
    serving on the negotiating team.
        Ms. OATES. Lowly staff person.
        Mr. BRADY. We clearly had discussions here. And so in my
    view, with the delays you are putting in place, you are hurting
    a lot of workers who could be taking advantage of this
    innovative program at the State level. I think you are
    substituting the administration's judgment for that of
    Congress. And one of my worries is that this is an election
    year, and that the Department of Labor is playing politics with
    a very important program.
        In your testimony you made the point that you want to
    embrace best practices and innovation in these programs; is
    that correct?
        Ms. OATES. That is correct, sir.
        Mr. BRADY. The Texas program a year and a half ago received
    an award from your agency----
        Ms. OATES. Yes, it did.
        Mr. BRADY.--for innovation and best practice.
        Ms. OATES. And deserved it, yes.
        Mr. BRADY. They submitted that program to you in a timely
    manner and were denied. So why the delay? Why the denial?
        And, by the way, if that waiver had been granted, and Texas
    would have been allowed to go to work, we would have more than
    2,000 Texans back to work today who aren't. So are you ignoring
    the intent of Congress, or in this election year, are you
    playing politics with such an important issue?
        Ms. OATES. Sir, we are neither ignoring the intent of
    Congress, nor are we playing politics with this. Quite frankly,
    Congress told us the Secretary could approve up to 10
    demonstrations, and these demonstrations for the first time in
    history could use their UI Trust Fund dollars to do this
    experimentation.
        By telling us we could do up to 10, and to do them as demos
    that would show innovative practices that could be
    institutionalized and used into the future at net cost
    neutrality to their trust fund, you put us in a situation where
    we had to be, just as you are every day, good stewards of the
    taxpayers' money.
        Mr. BRADY. Now, you recognize, don't you, that States using
    innovative programs today are actually investing their own
    dollars----
        Ms. OATES. Absolutely, sir.
        Mr. BRADY.--in these programs? So there is very poor----
        Ms. OATES. And in the case of Texas, that 10 percent money
    that I was talking about was the money that--which the Governor
    used.
        Mr. BRADY.--which is, I think probably as or equally or
    more important than the trust fund dollars. And my question
    continues to be if you are not ignoring the intent of Congress,
    not playing politics, when will these applications be granted?
    Will they be granted in May?
        Ms. OATES. Within 30 days of the day they submit them to
    us. You have my word on that. We have a timeline internally,
    and we are--the career people are running this process.
        Mr. BRADY. So that could be, what, months from now?
        Ms. OATES. Well, if the first application comes in today,
    it will be 30 days from today.
        Mr. BRADY. But you just heard from those most interested
    that the paperwork is very burdensome, the criteria, again, is
    much broader than what Congress intended. You have taken what
    was an enthusiastic response by States to want to help you and
    may put people back to work and have, frankly, chilled it. I
    would be surprised if many States, frankly, step up now, given
    the fact it is now top down rather than innovation up.
        I yield back, Mr. Chairman.
        Ms. OATES. I will be disappointed, sir, if we don't.
        Chairman DAVIS. I thank the gentleman.
        The chair would also like to apologize to the gentleman
    from New York, who became an inadvertent victim of
    circumstances, and I would like to recognize him now for 5
    minutes.
        Mr. REED. Well, thank you very much, Chairman. I appreciate
    that apology. But no offense taken ever with me.
        Thank you for being here with us today. I wanted to follow
    up on something. When I was on the conference committee for the
    payroll tax rate and unemployment extension, one issue that
    came up that I took personal interest in was the drug-testing
    ability for folks on unemployment insurance. And I was proud
    that as part of the final package that the authority to the
    States was granted in that legislation to implement programs to
    drug-test folks in that situation, because I do believe that
    one of the things we should be doing not only by providing
    people who are in the circumstance of being unemployed with
    resources to carry them through that, but put ourselves in the
    best position to arm those individuals to control their own
    individual destiny, and if they shall or should or may have a
    drug issue, which I firmly believe is a major barrier to
    reemployment, that the tools are there to identify the issue
    and have those individuals overcome it so that they can get
    back to an employed status sooner than later.
        But I would note your Department has yet to release
    guidance for the States on how to proceed with that new
    authority. You noted that you are consulting with the Substance
    Abuse and Mental Health Administration in HHS about the drug-
    testing provisions of the new law, specifically the section
    allowing States to screen and test individuals seeking jobs in
    sectors requiring drug tests as an eligibility requirement.
        I would encourage you also to consult with the Society for
    Human Resource Management, which in 2011 issued a study that
    found that 57 percent of organizations conduct drug testing on
    all job candidates, and 71 percent of organizations conduct
    some form of preemployment drug testing on at least some
    candidates.
        At this point, Mr. Chairman, I ask unanimous consent to
    insert that SHRM study in the record. Has it already been done?
        Mr. PAULSEN [presiding]. No objection.
        [The information follows, The Honorable Tom Reed:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. REED. Thank you very much, I appreciate that, Mr.
    Chairman.
        Madam Secretary, could you tell us when you expect to issue
    that guidance that you are consulting with the--at this point?
        Ms. OATES. Absolutely, sir. And, you know, I apologize. We
    would love to get everything done at once. We worked at first
    on the things that had a mandate, especially the REA/RES with
    the 30-day deadline and the demo, on which we put our own
    internal mandate because States were interested in it. We hope
    to have that done in the next month or two. We hope to have all
    this guidance out by June.
        Mr. REED. By June, okay. And will it be limited to
    identifying what occupations are eligible as directed by the
    act, or will the Department of Labor take additional criteria
    on States trying to use this authority as you did with the
    guidance on waivers?
        Ms. OATES. Well, I think we will continue to have
    consultations with our stakeholders. You give us--I don't think
    we have talked to SHRM before, so that is a great addition. But
    our hope is that we will do the right thing, and, again, I
    don't want to--we haven't issued the guidance yet. We have had
    discussions. I haven't even seen drafts from my career people
    yet, so I really can't answer your question.
        Mr. REED. Do you find any sentiment within your agency of
    objection to this ability of States to utilize this new tool
    for reemployment by drug testing? Is there anything in the
    agency that would cause concern that this policy or this
    initiative or this authority to the States would be hampered
    because of a--as I heard in that conference committee in the
    debates from my colleagues on the other side of the aisle that
    they were adamantly opposed to this type of requirement or tool
    because there was something that they disagreed with. Do you
    see that within the agency at all, or are you seeing any
    concern about that?
        Ms. OATES. You know, I think the longstanding tenets of
    this are someone who loses their job because of drug
    involvement on the work site has never been eligible for
    unemployment, so I don't see any change to that coming.
        And then this idea that--what we are struggling with is the
    language that States have the right to drug test someone who's
    only suitable work is in jobs that require drug testing. So
    finding those jobs and giving clear guidance to the States is
    what is really taking our discussion time now. But in terms of
    seeing any hurdles within our building or any must-dos or must-
    haves other than what is current long-term practice, no, sir, I
    don't see anything coming in those discussions that would be,
    you know, hurdles to getting this done quickly and getting it
    done consistent with the intent of Congress.
        Mr. REED. I appreciate that. Thank you very much. I look
    forward to working with you on this issue. And with that,
    Chairman, I will yield back.
        Chairman DAVIS. I thank the gentleman.
        I want to thank you, Secretary, for joining us today. We
    look forward to continuing to correspond with you and work with
    you, and appreciate you getting back to my office on the
    question that I asked specifically for documentation, as well
    as the other Members. If Members have additional questions,
    they will submit them to you directly in writing, and all we
    would ask is that you reply or give a copy of the reply to the
    committee staff so we can make sure that it is inserted into
    the record.
        Ms. OATES. Absolutely.
        Chairman DAVIS. Thank you very much for being here.
        Ms. OATES. It is a pleasure to work with this committee,
    sir. Thank you so much.
        Chairman DAVIS. That concludes the first panel. I would
    like to invite our second panel to come up.
        Chairman DAVIS. I appreciate all of you gentlemen joining
    us here today for our second panel to continue this discussion
    on the unemployment insurance program, the reforms that have
    been made and, the implementation thus far.
        On our second panel we are going to hear from Mr. Darrell
    Gates, deputy commissioner of the New Hampshire Department of
    Employment Security; Mr. Larry Temple, executive director of
    the Texas Workforce Commission; Dr. Wayne Vroman, senior fellow
    of the Urban Institute; Mr. Douglas Holmes, president of UWC,
    Strategic Services on Unemployment and Workers' Compensation;
    and Mr. Michael Cullen, managing director of OnPoint
    Technology.
        Before we move on in the testimony, I would like to again
    recognize Chairman Brady from Texas to introduce the witness
    from his home State, Mr. Temple.
        Mr. BRADY. I again want to thank Chairman Davis for his
    leadership in calling this hearing. And to all the witnesses
    who are here to testify today, it is a special pleasure to
    welcome Larry Temple, an outstanding public servant from my
    home State of Texas, to the Ways and Means Committee.
        In 2003, Larry took over as executive director with the
    Texas Workforce Commission, a State agency with a budget of
    nearly $1.1 billion. The commission has oversight over all the
    state's employment training, welfare reform, child care and
    unemployment insurance programs.
        During his time at the commission, Mr. Temple designed,
    implemented and administered Texas' successful welfare reform
    initiative. A significant portion of this initiative involved
    the transition of welfare services via block grant to our local
    workforce development board, and the result was an
    unprecedented caseload reduction to unemployment, and national
    recognition as one of the top 10 programs in the Nation for
    putting welfare recipients to work.
        It is an issue dear to the heart of this committee and
    critical to the country at this time. He has an exemplary
    record designing programs that help people get back to work. I
    am grateful he can share his expertise with us today, and I
    welcome you, Mr. Temple, along with the rest of the witnesses.
    Thank you.
        Mr. Chairman, I yield back.
        Chairman DAVIS. All right. Thank you, Chairman Brady.
        Mr. Gates, please proceed with your testimony. You are
    recognized for 5 minutes.

    STATEMENT OF DARRELL GATES, DEPUTY COMMISSIONER, NEW HAMPSHIRE
                   DEPARTMENT OF EMPLOYMENT SECURITY

        Mr. GATES. Thank you.
        Good morning, Chairman Davis, Ranking Member Doggett and
    Members of the Committee. My name is Darrell Gates. I serve as
    deputy commissioner for the New Hampshire Department of
    Employment Security. I also serve as chairman of the
    Unemployment Insurance Committee for the National Association
    of State Workforce Agencies, known as NASWA. On behalf of
    NASWA, I am pleased to speak on the implementation of the
    Middle Class Tax Relief and Job Creation Act of 2012.
        States have done an extraordinary job reacting and adapting
    to the unprecedented challenges of the great recession. From
    2008 to 2010, benefits paid to UI claimants more than tripled
    from roughly $42 billion in fiscal year 2008 to $143 billion in
    fiscal year 2010. The rapid and unprecedented increase in UI
    claims since 2008 brought some State programs nearly to a
    breaking point. This is due to the lack of funding for UI
    computer technology. State UI programs have information
    technology systems averaging 25 years old and are unable to
    easily adapt to programs such as Emergency Unemployment
    Compensation Act of 2008. But States are moving rapidly to
    implement the new law, and my comments will focus on the
    progress of implementation.
        First, States appreciate the new law kept the current tier
    structure intact. If the program is continued beyond the end of
    the year with the goal of an eventual phaseout, NASWA
    recommends it should be accomplished by either adjusting the
    unemployment rate triggers for the tiers, the number of weeks
    in each tier, or eliminate tiers in reverse order with the last
    tier being the first to be eliminated.
        Second, States applaud Congress for funding reemployment
    activities known as RES and REAs. States are moving
    aggressively to meet with roughly 9 million workers by the end
    of the year to comply with the in-person requirement. But the
    process could be easier if USDOL recognized basic technology,
    such as the telephone and video conferencing, that allow for
    virtual in-person meetings.
        In New Hampshire and other States, investments have been
    made in video conferencing. This technology would speed along
    the meetings with claimants and provide the services they need,
    but USDOL has said this would not comply with the in-person
    requirement.
        Third, NASWA recommends early intervention of reemployment
    services as soon as the claimant files for UI. Providing these
    services in week 1 rather than week 27 yields the greatest
    return for the unemployed, employers and taxpayers.
        Fourth, NASWA recommends a permanent REA and RES program
    through our capped entitlement grant at $500 million per year.
    We recognize this is challenging, but it would ensure States
    receive sufficient funds for reemployment activities to help
    the jobless go back to work sooner, which also could lead to
    lower benefit outlays and lower employer taxes.
        Fifth, on the demonstration projects we recommend that
    reemployment bonuses should be added as a permissible activity.
    The bonus could be graduated to pay larger bonuses for early
    returns to work and progressively smaller bonuses for later
    returns to work.
        Also, New Hampshire, and I suspect other States with
    limited staff, will likely not apply for the demonstration
    projects because USDOL imposed too many conditions. My State
    would need an additional staff person to assure the application
    was complete.
        Sixth, on the work search criteria, States should have the
    flexibility to conduct the work search data that best meets the
    needs of the States. USDOL has told New Hampshire that paper
    logs must be submitted during the in-person session even though
    my State collects this information electronically.
        Seventh, on a nonreduction rule, NASWA recommends it should
    be eliminated completely and not just modified. States should
    have the flexibility to determine the most appropriate methods
    for addressing Unemployment Trust Fund solvency.
        Eighth, on the data exchange provision, NASWA strongly
    agrees that data on participants in various publicly funded
    programs could be collected, stored and exchanged more
    efficiently, and used more effectively. NASWA is hopeful OMB
    will fund a NASWA proposal to improve payment accuracy,
    administrative efficiencies and service delivery, and reduce
    barriers to program participation of eligible applicants.
        Finally, to address the aging computer infrastructure,
    NASWA was hopeful Congress will consider our administrative
    funding proposal that would do the following: maintain the
    current funding structure for UI administration and give States
    an additional discretionary appropriation of $100 million each
    year for IT investments to promote efficiency and better
    services to employers and workers; and in years in which 50
    percent of FUTA revenue exceeds the amount that would be
    allocated under the current system, generally in better
    economic times, provide States with an additional amount for UI
    administrative investments distributed via a formula.
        Thank you for the opportunity to testify.
        Chairman DAVIS. Thank you very much.
        [The statement of Mr. Gates follows:]

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        Chairman DAVIS. Mr. Temple, you are recognized for 5
    minutes.

    STATEMENT OF LARRY TEMPLE, EXECUTIVE DIRECTOR, TEXAS WORKFORCE
                               COMMISSION

        Mr. TEMPLE. Thank you.
        Good morning, Chairman Davis and Ranking Member Doggett,
    distinguished Members of the Committee, Congressman Brady.
    Thank you for inviting me to testify on the implementation of
    the Middle Class Tax Relief and Job Creation Act.
        As we have talked about in previous testimony, Texas
    prioritized the UI claimant population as its number one
    population to serve in a State, second only to vets, in 2003 by
    actually self-imposing a 10-week reemployment measurement for
    UI claimants. This isn't a Federal measure, this isn't a State
    legislative measure; this is one that we put upon ourselves.
        When we put this in place in 2003, our unemployment rate
    was about 6.4 percent. Our performance was around 27 percent of
    the claimants were going to work within 10 weeks. During the--
    before the downturn in the recession, we had gotten up to 64
    percent. I am happy to report now that last year we were able
    to get back up to 50 percent, and it continues to grow. Ten
    weeks is great; eleven, twelve or thirteen is certainly better
    than sixteen, twenty and twenty-six. So the Middle Class Tax
    Relief and Job Act supports what we are already doing.
        Another example of how Texas has made this population a
    priority is the legislature in 2009 created the Texas Back to
    Work Program, putting general revenue into our appropriation. I
    am happy to report that to date, in less than 2 years, we have
    had over 25,000 placements with over 4,000 participating
    employers. Two-thirds of the employers participating have
    employees of 100 or less. The average wage replacement before
    the individual became on UI, we are able to statewide 96.8
    percent replacement rate of those wages. We have been able to
    reduce on average, including State-funded benefits as well as
    EUC, shorten the weeks by 9.01 weeks of UI. And after the cost
    of the $2,000 incentive and the roughly $200 per to administer,
    it is still $596 cheaper on average than the total cost of
    benefits for those who did not go through the program. This is
    not only saving State trust fund dollars, this is saving
    Federal EUC dollars as well. And in addition, 15 percent of the
    people that we serve in this program are exhaustees, so we are
    not only serving those who were on UI, but we are also serving
    the long-term unemployed.
        As you are aware, and we talked about it earlier, the
    testimony earlier, the REA/RES services, Texas is under way
    with that implementation. To date, through our system of local
    workforce boards, we have outreached 28,000 individuals in the
    first--just the first 4 weeks. We expect this to be about 7,000
    individuals per week through the end of August, which will
    total about a little over 160,000.
        Our first day of outreach was Monday, and we got the report
    yesterday. We had a--unfortunately we had a 53 percent no-show
    rate for the first day of the three of our boards that reported
    the performance. Those people will be held ineligible for that
    week. We will have to outreach them again. And I bring that up
    because as the way that we are funded, the $85 per claimant, we
    are only funded for those people who show up. So States are
    going to have some unreimbursed expenses to this degree, and we
    are trying to work through that.
        The one thing that complicates this, we will be hiring an
    additional 225 staff on a temporary basis to help us administer
    this program, but our infrastructure was woefully inadequate to
    be able to fund this, this outreach, this quick, and we didn't
    have it in place. A year ago we had about 250 offices around
    the State. We have 220 today. These offices, Employment
    Services as well as Unemployment Insurance Administration, the
    vets program and those others, are funded through FUTA taxes
    paid by employers.
        Over the last 10 years Texas--Texas is a donor State; we
    get about 35 cents on the dollar. Over the last 10 years, Texas
    has contributed $5.2 billion into that system, and it received
    $2 billion back, and that is after paying back our loans. So we
    don't believe this money is falling from Heaven; it is money
    that we are sending to D.C., and we are not getting our return.
    And it is part of the issues that Darrell Gates talked about
    would get some more parity into the funding to States,
    particularly donor States like Texas.
        I want to talk a little bit about the waiver process. We
    did submit a waiver. Very quickly, we thought we had met the
    criteria set out in the act that said what a complete
    application would be. And we are now reviewing those
    requirements under the guidance, and one of the things that
    will--just as an example, regardless of what your benefit
    amount is, everyone represents a $2,000 hiring incentive. Under
    the guidance as we read it so far, and we are still reading it,
    we will have to have an individual reimbursement for each
    individual person depending upon their benefit amount. And we
    are looking at serving--I estimated 33,000 to 35,000 people
    per. That is not the most business friendly----
        Chairman DAVIS. Your time is expired. Thank you very much.
    I appreciate your passion.
        [The statement of Mr. Temple follows:]

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        Chairman DAVIS. Mr. Vroman.

      STATEMENT OF WAYNE VROMAN, PH.D., SENIOR FELLOW, THE URBAN
                               INSTITUTE

        Mr. VROMAN. Thank you, Chairman Davis, Representative
    Doggett, other committee members.
        I have submitted a written record, which I will refer to
    for certain of my comments. However, the one aspect of the
    Middle Class Tax Relief and Job Creation Act that I do want to
    single out for particular attention is the provisions related
    to short-time compensation; that is, allowing employers to
    reduce weekly hours for a large segment of their workforce, and
    allow those people on short hours to collect partial weekly
    unemployment benefits. Half a billion dollars was set aside for
    this. It is an innovative, forward-looking part of the
    legislation which will be useful not in this economic recovery
    so much as in the front edge of the next recession, because the
    utilization by employers of this particular feature happens
    most intensely as the economy is going into a recession,
    employers are not certain about what their employment prospects
    are, they don't want to sever workers, so they try to keep them
    on, and short-time compensation allows this to happen. After
    the extent of the downturn is more obvious, then employers are
    able to make better decisions regarding separation versus
    bringing people back to full-time work. Having this included in
    the recent legislation is a very strong and positive aspect of
    that legislation.
        Now, I will move to the bulk of my remarks, which focus on
    the situation in the trust funds and the situation of the
    benefit payments in helping to stabilize the economy.
        Four factors contributed to the loss of trust fund reserves
    in the States. It has already been pointed out $41 billion is
    owed to the Treasury and an additional $5 billion in the
    private market. There were low reserves going in, uniquely low
    compared to all the previous postwar recessions. It is obvious
    to say the recession has been deep and long, and it is still
    persisting with an unemployment rate above 8 percent 4 years
    after things started to get worse. The timing in 2008 affected
    revenue in 2009, because the recession really started to bite
    in the last half of the year. And continuing low employment is
    continuing to keep UI revenues below what they would be if the
    economy had gone through a recession with the more usual V
    shape as opposed to the long trough shape that the current one
    has.
        The UI system has responded very strongly. It paid out a
    little over $30 billion in 2007. In 2009 and 2010, it paid out
    over $120 billion. That is a quadrupling of the total amount of
    support payments. It helped prevent poverty from rising, it
    supported many families, and it continues to do that even into
    this year. The written statement has estimates of how much the
    economy was stabilized as a consequence of those added
    payments.
        Looking to the future I would make four comments. First of
    all, for future solvency of the State trust funds, the most
    important single thing that could be done is to have the States
    operate with an indexed taxable wage base. Since the mid-1980s,
    16 States have operated continuously with indexation; only 6 of
    those States have borrowed in the current recession. In
    contrast, for the 35 jurisdictions that are not indexed, 29
    have borrowed, or over 80 percent. So indexation is strongly
    associated with improved trust fund solvency, and it is
    something that the Congress should encourage the States to
    operate with.
        The funding problem in unemployment insurance rate now in
    the regular program is most serious in the biggest States. Mr.
    McDermott, your State is unique among the 20 largest in the
    country. The only State that hasn't borrowed among the top 20
    in size is Washington State, and that is partly because
    Washington has followed a consistent policy of restoring its
    trust fund after recessions and bringing the reserves back up.
        Any proposal to provide relief to States that have trust
    fund deficits, however, must recognize that many other States
    have operated responsibly through this recession. States like
    South Dakota, there was a representative from Tennessee here,
    New Hampshire, as well as Washington have not had to borrow or
    have had to borrow only very limited amounts because of their
    prudent trust fund policies.
        The final point I would make is that borrowing in the
    private market is not a panacea. There is about $5 billion
    outstanding right now. The States are going to have to pay that
    money back, just like they are going to have to pay the debts
    owed to the Treasury. So any relief to the States should
    include some kind of reward for the States that have operated
    prudently as well as providing partial relief to the States
    with indebtedness if that is the direction the Congress chooses
    to go in.
        Thank you very much.
        Chairman DAVIS. I thank you very much.
        [The statement of Mr. Vroman follows:]

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        Chairman DAVIS. Mr. Holmes, you are recognized for 5
    minutes.

       STATEMENT OF DOUGLAS J. HOLMES, PRESIDENT, UWC-STRATEGIC
                 SERVICES ON UNEMPLOYMENT AND WORKERS'
                              COMPENSATION

        Mr. HOLMES. Chairman Davis, Ranking Member Doggett and
    Members of the Subcommittee, thank you for the opportunity to
    testify this morning. I am Doug Holmes, president of UWC
    Strategic Services on Unemployment and Workers' Compensation.
        We recently joined with 36 national and State business
    associations to send a letter to Secretary of Labor Solis
    requesting that the Secretary repeal current Federal
    regulations and develop new regulations consistent with the
    able to work, available to work and actively seeking work
    requirements included in the Middle Class Tax Relief and Job
    Creation Act of 2012. I have attached a copy of that letter to
    my testimony.
        It is the claimant's responsibility to show that the
    claimant is meeting the requirements of able, available and
    actively seeking work. There is no authority to permit a
    claimant to restrict his or her efforts to a period less than
    an entire week and still be paid unemployment compensation for
    that week. The State UI agency has a duty not to make payment
    for a week without first determining that these requirements
    have been met. The claimant must show that he or she is
    actively seeking work without applying his or her own
    subjective evaluation of work that is, quote, ``suitable.''
        One regulation in particular illustrates the inconsistency
    between current regulations and the act. 20 CFR 604.5(h)
    provides that, quote, ``the requirement that an individual be
    available for work does not require an active search for work
    on the part of the individual.'' The plain language of the act
    is clear that individuals must be actively seeking work.
        With respect to short-time compensation, employers ask what
    is meant by Section 2163 with respect to the temporary Federal
    funding provision. There is a provision that provides that any
    short-time compensation plan entered into by an employer must
    provide that the employer will pay the State an amount equal to
    one-half of the amount of short-time compensation paid under
    such a plan.
        How will the amount to be paid by the employer be
    determined? We don't have any instruction on this yet. When is
    it due? Will the payment be considered contributions for
    purposes of State UI Trust Fund balances, repayment of Title
    XII loans and other purposes of the UI program? All questions
    that still remain to be addressed by instructions from the
    Department of Labor.
        With respect to drug testing, Section 2105 of the act
    provides that States are not prohibited from enacting
    legislation that provides for testing of applicants for
    unemployment compensation for the unlawful use of controlled
    substances. If a State elects to enact such a provision, it
    should be developed in collaboration with employers,
    particularly those who already include drug testing as part of
    the hiring process. To be most effective, State-administered or
    supervised testing should be developed to meet proven standards
    upon which employers may rely in hiring decisions.
        With respect to reemployment services and REA, the act in
    Section 2142 provides increased funding for reemployment and
    eligibility assessment activities, and these have been shown to
    be effective. We would suggest, however, as I believe Mr. Gates
    indicated, that many of the enhanced methods that are included
    for EUC claimants should be addressed as part of serving
    regular UI claimants. They would be most effective if provided
    early.
        Reemployment efforts should be coordinated with community
    resources as well as with staffing agencies and employers
    generally in the private sector. State agencies should be
    permitted to use the full range of electronic communication
    devices to address the in-person contacts. Person-to-person
    video, as well as audio contact, is increasingly available and
    should be used to reach a larger number of individual claimants
    at lower cost to the individual and lower administrative costs.
        Thank you very much for the opportunity, Mr. Chairman.
        Chairman DAVIS. Thank you, Mr. Holmes.
        [The statement of Mr. Holmes follows:]

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        Chairman DAVIS. Mr. Cullen, you are recognized for 5
    minutes.

            STATEMENT OF MICHAEL CULLEN, MANAGING DIRECTOR,

                       ON POINT TECHNOLOGY, INC.

        Mr. CULLEN. Chairman Davis, Ranking Member Doggett and
    distinguished Members of the Committee, thank you for the
    opportunity to testify this morning.
        I am Mike Cullen, managing director of On Point Technology,
    a company focused solely on ensuring the integrity of the
    unemployment insurance system. Prior to joining On Point, I
    spent 14 years at the Colorado Department of Labor, serving 6
    years as the State's unemployment insurance program director.
        For over 15 years, On Point Technology has enabled 19
    States to find, and collect and properly pay UI benefits. We
    are proud to provide software solutions to strengthen the UI
    program and help minimize employer taxes. Over the years we
    have helped States return over $2 billion to UI Trust Funds and
    the U.S. Treasury.
        To address funding, solvency and integrity issues facing
    the national unemployment insurance program, On Point
    Technology would like the committee to consider three
    recommendations: One, create incentives for sustainable
    integrity activities; two, propagate proven State solutions
    that utilize new data sharing and data standardization
    processes; and three, embrace the use of OMB's recommended do
    not pay list by the unemployment insurance program.
        The unemployment insurance program suffers from some of the
    worst integrity performance in government. During the last 3
    years, the UI program's improper payment rate has steadily
    increased from 10.3 to 12 percent. At the same time, the
    average Federal program has decreased its improper payment rate
    from 5.4 to 4.7 percent. This is even more striking when
    contrasted with the private sector. For example, the credit
    card industry has reduced fraud to less than 1 percent.
        We believe that misaligned incentives serve as the primary
    impediment to addressing the integrity problem. Very simply, we
    believe Congress should allow the States to use 5 percent of
    any recovered overpayments to support integrity activities.
    This has been proposed in the Department of Labor's
    Unemployment Compensation Integrity Act. It would produce an
    immediate and dramatic effect on the integrity problem. As a
    partner in administrating the UI program, States must be given
    the means and incentives to combat fraud and unemployment
    insurance. Washington, D.C., cannot solve this problem on its
    own.
        There are existing success stories, and there are reasons
    for hope. On Point Technology believes the U.S. Department of
    Labor should provide funding to take proven State solutions and
    aggressively replicate them throughout the country. Just last
    year Michigan's unemployment insurance agency installed
    software that increased its collection of overpaid benefits by
    79 percent. Similarly, the South Carolina Department of
    Employment and Workforce's existing investigators completed 450
    percent more audits and detected 86 percent more fraud with the
    new automated system. Both States succeeded by eliminating
    paper files, automating repetitive activities, and reducing
    unnecessary tasks. Each State solution was deployed in a matter
    of months; each State solution paid for itself in a matter of
    weeks.
        It is well documented by the National Association of State
    Workforce Agencies that 90 percent of the unemployment
    insurance systems are running on technology that was created
    before the personal computer was invented. In the past year
    only two of the UI tax and benefit systems were replaced. The
    pace of modernization is simply too slow. Last year the
    majority of integrity investments went to long-term strategic
    plans and multiyear development efforts. We believe Congress
    should direct the UI program to also invest in proven solutions
    that provide an immediate financial return to the States UI
    Trust Funds and the United States Treasury.
        Finally, we believe the unemployment insurance program
    should adopt the Office of Management and Budget's call to
    embrace the do not pay list. This provides a tremendous
    opportunity for municipal, county, State and Federal Government
    agencies to exchange data. For example, the do not pay list can
    provide data on individuals who are not able and available for
    work for a variety of reasons, including incarceration.
        We believe a national do not pay list should be integrated
    into all UI systems. It would have a dramatic impact similar to
    the use of the National Directory of New Hires, a database that
    has produced a 50 percent decrease in the size of overpayments
    via early detection. Use of the do not pay list could be
    effective in eligibility determinations in addressing those
    determinations.
        In closing, our unemployment insurance system is a vital
    lifeline for millions of American workers. We must act to
    preserve the integrity of the system for those in need.
    Fortunately, the country is in a position to help strengthen
    the UI safety net and ease the tax burdens on employers across
    America. Aligning funding priorities and investing in proven
    solutions will return precious dollars to State trust funds and
    to the United States Treasury to ensure viability of the
    unemployment insurance program for generations to come.
        Thank you for the opportunity to testify. I am available
    for any questions you might have.
        Chairman DAVIS. Thank you very much, Mr. Cullen.
        [The statement of Mr. Cullen follows:]

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        Chairman DAVIS. Where I would like to go in my line of
    questioning is going to be under the theme of the importance of
    common data standards in sharing information. I appreciated Mr.
    Gates' prescient and somewhat wry comment about the use of
    innovative technologies like the telephone. The ability to
    share information in the private sector has saved tens of
    billions of dollars, it has created millions of jobs, and the
    government, I found, tends to be a bit of a lagging indicator,
    particularly at the Federal level. And we have a habit in the
    Congress, certainly in the executive branch, of treating the
    symptom and not the root cause. However, symptoms can point you
    to those root causes, and I would like to share an example with
    you.
        In March, the Los Angeles Times reported that convicted
    murderer Anthony Garcia continued to collect $30,000 in
    unemployment benefits in checks cashed by family and friends
    while he served time in the L.A. County jail system. Not only
    did his accomplices deposit the money into Garcia's jail
    account, they shared it among fellow gang members' accounts as
    well. It is unconscionable to think that the government is
    helping maintain the financial well-being of a gang while they
    are in prison for murder and for other crimes.
        I note that public assistance programs have worked with the
    criminal justice system in the past to make sure benefits don't
    go to criminals. For example, the Social Security
    Administration was able to work with prisons to stop disability
    checks from being paid to inmates. I would hope we could do the
    same thing with unemployment benefits by sharing inmate
    information with public assistance programs to make sure all
    our programs are on the same page.
        In the conference report on the Middle Class Tax Relief and
    Job Creation Act, we enacted uniform data standards into TANF,
    Temporary Assistant to Needy Families, and unemployment
    insurance programs, so we are taking steps in that direction.
        My question is how common are cases like this? What caused
    the breakdown in this situation? What tools do unemployment
    benefit agencies like yours have to make sure that unemployment
    checks only go to those who are eligible and not to those, for
    example, in jail? Are States able to go after this money and
    recover it? Tell me in what ways and what is being done to make
    sure this doesn't happen again.
        I have tried to make the focus of the last year and a half
    on this subcommittee to fix broken processes rather than engage
    in ideological discussions because I believe there is real
    money to be saved for the taxpayers there as well as assuring
    help for folks on the front lines like you. But here is my
    final point is what, if any, legislative authority or other
    tools do you need from us to prevent future episodes like this
    happening?
        Mr. Cullen, would you care to start?
        Mr. CULLEN. Thank you, Mr. Chairman. I appreciate those
    comments, because those are simply down the path of an area
    that we do have some expertise in. We do have the ability, and
    it is not just us, but the country has the ability to look at
    disparate databases, bring them together, and either through
    data mining or through cross-matches eliminate some of this
    activity. I am sure that others will agree that it is difficult
    to get that information sometimes out of other government
    agencies, and I think that is where the focus really needs to
    be.
        The technology is there to make best use of that
    information, but unfortunately the ability to get to that
    information, to get it reported on a timely basis so that
    programs such as unemployment insurance can use it either for
    the curtailment of benefits when they are not entitled to them
    or for making eligibility decisions at the very beginning so
    benefits never go out the door to begin with is where the issue
    is.
        So when you ask where can you help, you can help in making
    it easier for States to get that information made available to
    them.
        And then, again, I would like to go back to do not pay
    list. We had the opportunity to testify last year in the
    Senate, and this issue came up. And I think it is a good tool
    that starts the conversation of how from the Federal level,
    such as the National Directory of New Hires--how from the
    Federal level can I look at other information to preclude these
    activities from going on?
        Chairman DAVIS. Something as simple as just being able to
    have a bio from the uniform criminal registry flagged in social
    services for an individual who is receiving benefits if they
    log in.
        Mr. CULLEN. Yes, sir.
        Chairman DAVIS. I would like Mr. Gates and then Mr. Temple
    to comment from your States' perspectives. Mr. Gates first. I
    know we don't want to mess with Texas, but we will start with
    New Hampshire.
        Mr. GATES. I would have to say that it is very difficult,
    because I think the constant underfunding of our system has
    caused us to have to do things in technology that makes us not
    see our customers as often as we should.
        And so one of the things that we have tried to do is to
    establish individual relationships with each of the county
    corrections facilities as well as the State correctional
    facility, but we have to do that individually, and that makes
    it difficult. A central registry would be very, very effective
    for us to be able to make sure that individuals are not doing
    things that they are not supposed to be and to be available.
        I honestly believe that oversight is the key, and that we
    need to see our customers more often and to have the ability to
    do that, because I think that by bringing them into the one-
    stop and making sure that they are engaged in the work search
    activity is the best way for us to determine where to help them
    and to make sure that they are not in prison. If I call them
    in, and they are in prison, they are not going to be coming,
    and, you know, that is a simple way.
        You know, we try to do things in New Hampshire that are
    much more simple, but the difficulty that we have is having to
    do all of these individual cross-matches, and a central
    registry of services and individuals' unavailability would be
    very helpful.
        Chairman DAVIS. Mr. Temple, quickly.
        Mr. TEMPLE. We do quite a few data matches. One is
    certainly with our criminal justice system. We also monitor pay
    phones, those that are coming from, for instance, correctional
    facilities. And we also monitor IP addresses, where we are
    seeing foreign Internet accounts coming in, and we do
    investigations on those. We have a big border, and we have a
    lot of people who go back and forth into Mexico, it is
    understandable, but we also have a lot of other ones that may
    necessarily not be legitimate, and we look into them. But we
    find people who are overseas working who know they are about to
    get laid off, offshore oil people and whatnot. So there is a
    lot of legitimate ones, but we still do find those.
        And we work a lot with the Federal Government as well. We
    are doing data matches on unemployment insurance with the U.S.
    Postal Service now, with IRS on their own employees, and it has
    been in the paper, several of those cases, where they have
    gotten criminal charges against a lot of their employees.
        Chairman DAVIS. Thank you very much.
        With that, I would like to recognize Mr. Doggett from
    Texas.
        Mr. DOGGETT. Thank you very much.
        Mr. Temple, if I understand correctly, you got a waiver
    request in for demonstration projects for Texas within hours of
    the President signing the law permitting those demonstration
    projects to come about; is that right?
        Mr. TEMPLE. Correct. Yes, sir.
        Mr. DOGGETT. And your application was not denied on the
    basis of any deficiency, but only the fact that it got here
    before the guidance had been issued by the Department of Labor,
    which took them, what, less than 2 months to issue, right?
        Mr. TEMPLE. That is what our letter said. We----
        Mr. DOGGETT. Right. In other words, they didn't fault you
    for not having met this or that, but simply said, it takes us a
    few weeks to get the guidance ready. And now that they have
    their guidance out last Thursday, do you anticipate that Texas
    will reapply?
        Mr. TEMPLE. We are still looking at the guidance. There are
    some really burdensome requirements in it.
        Mr. DOGGETT. What would you say is the most burdensome
    requirement in the compliance?
        Mr. TEMPLE. At first blush the individual-by-individual
    calculation of weekly benefits and determining what the wage
    incentive, our subsidy, would be for each individual. We have
    approximately half a million people in the State receiving
    unemployment insurance; 290,000 of those are receiving State
    funded. We plan on serving about 35,000. So technically we
    could have to have a different agreement for every claimant
    with each employer where we don't now.
        Mr. DOGGETT. You don't believe you can make those
    calculations easily and promptly in order to reapply?
        Mr. TEMPLE. No, sir, I don't think it can be done easily
    and promptly because it is an individual basis. And then you
    have to sell it to the employer. So I may bring a $200-a-month
    wage subsidy, you may bring a $500, and so we have got parity
    now.
        Mr. DOGGETT. You don't envision any problem, for example,
    with Texas complying with the Fair Labor Standards Act?
        Mr. TEMPLE. We do now.
        Mr. DOGGETT. Right. And you don't envision any problem
    complying with minimum wage law standards?
        Mr. TEMPLE. We do now.
        Mr. DOGGETT. Right. So a number of the things that have
    been mentioned here this morning as being burdensome in the
    guidance are simply a restatement of existing Federal law,
    aren't they?
        Mr. TEMPLE. Well, not the one that I talked about.
        Mr. DOGGETT. Not the one you talked about. That is the one
    I want to identify, because there has been a lot of discussion
    here this morning about burdensome and delaying, and actually
    it is pretty unusual that you get a guidance out in less than 2
    months, but to identify what the specifics are. And many of the
    specifics that have been mentioned are things that you are
    already doing and you have no problem complying with, like
    paying the minimum wage and like complying with the Fair Labor
    Standards Act.
        Mr. TEMPLE. I never cited those as being a hindrance for
    us.
        Mr. DOGGETT. Actually it was difficult to tell in some of
    the written testimony what was being cited so those were so
    global. I am pleased to hear that that it is not a problem in
    Texas, and I doubt it is a problem anywhere to comply with
    those.
        So it is this matter of how one calculates the amount of
    subsidy that is an issue for you?
        Mr. TEMPLE. That will be an issue for us.
        Mr. DOGGETT. Are there any others?
        Mr. TEMPLE. Well, it doesn't say that you have to do this
    random assignment evaluation, but that preference will be given
    or something to that nature. And, you know, we have been
    running this program for almost 2 years, and we know--we know
    it works. And it is almost as DOL is saying, okay, we know
    yours works in practice; we want you to do a study to see if it
    works in theory. I mean, we are there.
        Mr. DOGGETT. Well, it is the first time that trust funds
    have been used for a purpose other than paying benefits, and
    you would expect that in terms of fulfilling its
    responsibilities as a steward for those trust funds that there
    would be some examination of your program even if it is an
    award-winning program.
        Mr. TEMPLE. Certainly, understandable.
        Mr. DOGGETT. And you didn't expect that by applying on day
    1, or almost day 1, that you necessarily should be accorded an
    advantage, even though I would like Texas to have an advantage,
    over the other 49 States that might choose to apply for only 10
    demonstration projects.
        Mr. TEMPLE. We absolutely thought we should have an
    advantage because we were the first in. Absolutely we thought
    we would be.
        And then I would mention that those trust fund dollars are
    dollars paid by our employers. They are not Federal dollars,
    they are State dollars. And every dollar we have ever borrowed
    we have paid back. We have never missed a benefit, we have
    never missed a loan, we paid all of our bonds early. We are
    retiring the one we currently have early.
        Mr. DOGGETT. I applaud you for your efforts on that. I hope
    that you will be able to apply and that Texas will get 1 of
    those 10 demonstration projects. And as much as I would like
    Texas to always have the advantage, I think clearly the
    Department of Labor had a basis for putting out a clear
    guidance. There may be problems with some aspects of it. I am
    glad to get a specific rather than just the rhetoric we have
    heard so far. Thank you for your service.
        Mr. TEMPLE. Thank you.
        Chairman DAVIS. Thank you very much.
        The chair now recognizes Mr. Paulsen from Minnesota for 5
    minutes.
        Mr. PAULSEN. Thank you, Mr. Chairman.
        And we will just follow up with Texas a little bit. I guess
    your organization won an award in 2011 from the Department of
    Labor for innovation, right?
        Mr. TEMPLE. Yes, sir, we did.
        Mr. PAULSEN. That is great. And was that based on your
    Texas Back to Work program?
        Mr. TEMPLE. Yes, sir, it was for that program.
        Mr. PAULSEN. All right. And that program did not involve
    unemployment funds, but it still served unemployment
    recipients; is that correct?
        Mr. TEMPLE. Correct. It was general revenue.
        Mr. PAULSEN. Okay. And in concept the idea behind this new
    waiver authority was that programs like Texas Back to Work
    would essentially be fully integrated into the unemployment
    insurance program. Does this guidance allow for that?
        Mr. TEMPLE. It eventually would allow if you met those
    other criteria. That would be the funding source.
        Mr. PAULSEN. And how would you need to modify Texas Back to
    Work in order to meet the DOL requirement? What modifications
    might have to be met as you look forward?
        Mr. TEMPLE. There is a possibility we could need a
    different work agreement with each employer representing each
    individual we placed, rather than we just have one agreement
    that covers everyone, much easier to sell and much easier to
    explain. And our UI claimants actually go out and sell
    themselves, that we offer a $2,000 incentive if you hire me.
    And now we may, as we understand it, I may only offer, you
    know, $100 to $150 a month; someone else may offer $500. So we
    don't have the parity in all things. And we ultimately want the
    employers to pick, obviously, the best candidate that we send
    them, and there is an incentive here to hire someone on UI. And
    we thought it was fair when everyone represented the same. And
    that is the concern we have, one from the parity and one just
    operationalizing it.
        Mr. PAULSEN. Mr. Gates, maybe can you add a little bit to
    that discussion?
        Mr. GATES. Well, to be honest with you, as I indicated in
    my testimony, I am not sure that New Hampshire is going to
    apply for one of the demonstration grants only because we are a
    very small State, and when we applied for the reemployment and
    eligibility assessment programs back in 2010, that grant was
    written by me. I don't have a grant writer. You know, we
    believe in having more staff on the front line helping the
    public, so we are not very top-heavy. The second year it was
    written by my director.
        The way we read this is that it appeared as if we were
    going to have to prove our concept would be successful before
    we could even try it, and that was just going to be very
    difficult for us and very time-intensive. Currently right now
    we are over capacity. We are trying to implement SIDES, TALK,
    Barts. You know, we are just trying to really do a lot of
    things that are moving us ahead, and we just saw this as just a
    Herculean challenge that we just couldn't take on at this time.
        Mr. PAULSEN. Thank you, Mr. Chairman. I yield back.
        Chairman DAVIS. I thank the gentleman.
        The gentleman from North Dakota Mr. Berg is recognized for
    5 minutes.
        Mr. BERG. Thank you, Mr. Chairman.
        I appreciate the panel being here. And obviously we are
    trying to look for innovation and how we can do things better
    out here. I was a little bit frustrated going into the first
    panel. To me, it seems like this guidance is stifling the very
    innovation that we had hoped to get out of this effort.
        Mr. Gates, I come from the very large State of North
    Dakota, so I have no idea what you are talking about, New
    Hampshire, but I know in your comments you didn't apply for the
    waiver, and maybe you could expand on that a little bit more.
        Mr. GATES. Well, it is mainly, as I said before, one of
    capacity. And when we read the guidance, we thought the
    guidance was very well done, don't get me wrong, and we think
    that there wasn't anything in the guidance we took exception
    with. We just don't have the ability to write an application
    that is going to meet the standards. It requires a lot of
    research before, during and after, and to be honest with you,
    we have so much going on now.
        We have a very effective return to work program that we
    initiated back in 2010, and through that--which was modeled on
    the Georgia Works, but took into great length the requirements
    to make sure that we met the Fair Labor Standards Act. We
    basically called it an extended interview, because what New
    Hampshire employers were telling us was that their problem was
    finding individuals who are going to fit in with their culture
    and their team.
        And so what we did was to make sure that individuals on a
    voluntary basis would be able to, while they were receiving
    unemployment, to go in and show what they could not do, because
    that is forbidden, but to show whether or not they were going
    to be able to, through observation, pick it up, and through
    questioning and through interaction with the others to see
    whether or not they would fit. We applaud the other--you know,
    any other State that does it.
        Mr. BERG. I guess what I hear you saying is it is one thing
    if we are going to appropriate money for a program or a new
    program. That is where you tested it, and you pulled all the
    research together, and you say, okay, we are going to go down
    this road.
        What we are talking about here is innovation. We are
    talking about something that is going to be risky, something
    that maybe only 20 percent of these ideas are ever going to
    work or really get people back to work. And so kind of what I
    hear you saying is it is a different mind-set in terms of, A,
    we are not funding a specific program; what we are doing is we
    are asking the States to take a little risk, try something, and
    we are not going to chop your head off if there is a mistake.
        We had the Secretary here earlier in the first panel, and,
    you know, her response was--you know, and I asked her what are
    the barriers that are happening, and she couldn't respond to
    that. And what I would like to know is if you could be very
    specific on both New Hampshire and probably Texas, from a
    State's perspective, in saying here are some things that are
    specific that we ought to change that will encourage States to
    step in, complete an application, and encourage States to bring
    their innovation forward so we can look at it. So can you just
    respond to that?
        Mr. GATES. Well, I guess what would help us to make our
    return to work program more effective is that we have been very
    mindful onto the guidance that the individuals can't do
    anything. They can't produce a product, they can't do a
    service. And that is very difficult for an employer to
    determine whether or not--you know, this individual fits in,
    they report to work, they have a good attitude, they seem to be
    catching on, but they haven't done anything yet.
        And so what we have done is to try and parlay that into an
    on-the-job training. So we have been one of the States that has
    been very effective in maximizing on-the-job training, because
    that was the missing ingredient in our return to work program.
    So we actually were a State that actually went back and
    actually collected some money from other States that were not
    using their OJT money, because we burned through our money
    fairly quickly. OJT, as far as I am concerned, is the best tool
    that the system has to use in order to get individuals back to
    work and to show employers.
        The other thing that we are doing is Work Ready, which is
    to take individuals on a voluntary basis and to find out what
    their skills are on day 1, on their first day of unemployment,
    so we know early on what we need to do to help them to have the
    skills and abilities to be matched with an employer.
        Mr. BERG. And then just briefly, these are things that
    would not qualify under this waiver.
        Mr. GATES. These are things that we are doing now without
    the waiver.
        Mr. BERG. But if you were going to expand those with the
    waiver flexibility or something, is that a barrier?
        Mr. GATES. I honestly don't know.
        Mr. BERG. Okay. Thank you.
        Mr. Temple, I know we are short on time.
        Mr. TEMPLE. Well, and again, as we had talked earlier, we
    were looking at an extension and expansion of our existing
    program as we operate it now, and understand there could have
    been some changes. But we tried to do something that was
    streamlined. The OJT program, under the Workforce Investment
    Act On-the-Job Training, still has a lot of paperwork and red
    tape that is required of employers, and they shy away from it.
    I know that we have had problems selling the OJT in times, and
    when we were able to put our general fund dollars and take away
    those hurdles, it was accepted much greater than our on-the-job
    training federally funded programs were. And so we were looking
    at trying to craft it more in that direction.
        But as was stated earlier, our big concern is just
    operational out of this, making it easy to understand both for
    the employers and for the job seekers. And the one that--and it
    is supposed to be cost neutral, we understand that, and we
    demonstrated that we have been cost neutral. And I don't
    believe that restrictions and requirements they have in place
    States could monitor how they outreach.
        The one thing I would mention, though, we are serving in
    our program with general revenue State dollars not only people
    that we fund our trust fund, but also people who are being
    funded federally. And so savings are enuring to the benefit of
    Federal dollars. They are all tax dollars, but those are
    Federal dollars. Under the existing waiver, and under actually
    the way the legislation was written, it doesn't allow us to
    serve people who are receiving Federal unemployment--extended
    unemployment benefits. And that may be something you want to
    consider, because right now we are serving both populations,
    and our trust fund is saving money, and we are saving the
    Federal Government money. And the expansion of it to include
    that, I think, would reap a good return on investment.
        Mr. BERG. All right. Thank you.
        I yield back.
        Chairman DAVIS. The gentleman's time is expired.
        The chair now recognizes Mr. McDermott from Washington for
    5 minutes.
        Mr. MCDERMOTT. Thank you, Mr. Chairman.
        Dr. Vroman, the problems that States have had has not been
    because they increased benefits, but because they reduced the
    rate that they were charging employers, an hourly rate that
    they were charging employers. Is that a fair statement of the
    problem that we have to date?
        Mr. VROMAN. Yes. Going back for the last 60 years, if you
    then look at the trust fund situation following the two
    previous recessions, taxes never came back up to where they had
    been in the previous recoveries, and as a consequence there was
    no major rebuilding of the trust funds in the mid-1990s or
    between 2004 and 2007. So when we went into the recession in
    2007, the net reserves of the system were at their lowest
    position of any recession post-World War II. And the benefit
    side was actually lower in the decades of the 1990s and prior
    to 2007 than it had been in the 1970s, than it had been in the
    1950s, than it had been in any of the previous periods. So the
    funding problem was not excessive benefit outlays that the
    States were responsible for, but the failure of taxes to bring
    the trust funds back to previous balances.
        Mr. MCDERMOTT. Can you compare the benefit, the average
    benefit, of the State of Washington and the benefit of Texas or
    Kansas?
        Mr. VROMAN. Certainly, yes. In terms of benefit levels,
    Washington is a little bit more generous. The maximum as a
    ratio to the statewide wage is a little bit higher in
    Washington. But the contrast, the big contrast, between
    Washington and Texas is the share of the unemployed who collect
    benefits. In Washington State it averages 40 to 45 percent in
    most years, most nonrecession years, whereas in Texas it is
    closer to 20 to 25 percent.
        There is a big range of recipiency rates across the system,
    and the variance from one State to the next is much larger in
    terms of what share the unemployed collect compared to what the
    payment levels are relative to past wages.
        Mr. MCDERMOTT. How does that work? I mean, how does Texas
    exclude three-quarters of the people?
        Mr. VROMAN. They have harder eligibility requirements, for
    example, misconduct determinations by the State affect more
    than 30 percent of applicants in Texas, whereas in Washington
    State they affect fewer than 15 percent. That is a major
    factor. It is sort of like a race of hurdles where if you are a
    claimant trying to go down the track, it is a lot easier if the
    hurdles are lower. And Texas has higher hurdles than Washington
    State.
        Mr. MCDERMOTT. How about the indexing of the average wage
    in the State?
        Mr. VROMAN. To the tax base?
        Mr. MCDERMOTT. I mean, the tax base in Washington State--or
    the Federal one has not been changed, I think, since 1983.
        Mr. VROMAN. 1983, correct, yes.
        Mr. MCDERMOTT. Which is $8,000.
        Mr. VROMAN. $7,000.
        Mr. MCDERMOTT. Seven thousand dollars. It is practically
    nothing.
        Mr. VROMAN. Yes, very low.
        Mr. MCDERMOTT. What would it be if it had been indexed
    since 1983?
        Mr. VROMAN. Average wages in the country since 1983 have
    roughly tripled, so the 7- would be $21,000 had the Federal tax
    base maintained its position to the average wage. And
    Washington State, which indexes at 80 percent of the statewide
    wage, now has a number like, I think, $38,000, something like
    that.
        There is a graphic in my written testimony that compares
    the average tax base in the 16 indexed States against the 35
    nonindexed. The 35 nonindexed in 2012 have an average tax base
    that is below $11,000 and is less than $4,000 above the Federal
    tax base. States without indexation could raise it by State
    legislation, but there is extreme reluctance, and that
    reluctance has been present for a very long time.
        Mr. MCDERMOTT. Let me just switch here to this issue of the
    guidance that was issued by the Department with respect to this
    waiver. My understanding is that it requires that--what we put
    out requires neutrality in the trust funds, that they not cost
    more to do these.
        Now, is there--we have heard complaints about it. They have
    said, oh, it is too cumbersome, and we are going to have to
    individually look at everybody, and we have got all kinds of
    reasons. Is there a way to guarantee that neutrality, or should
    we just throw the money to Texas and say, go and do whatever
    you want with it, we don't care what it does to your trust
    funds?
        Mr. VROMAN. I do not have enough expertise in the
    evaluation that will accompany these waivers to have a judgment
    about what the net effect on the trust fund is likely to be. I
    am sorry to pass on your question, but I don't think I am the
    right person to answer it.
        Mr. MCDERMOTT. We are trying to figure out how to make it
    work. I think that is probably the most important thing.
        I yield back the balance of my time.
        Chairman DAVIS. I thank the gentleman.
        And Mr. Reed from New York will have the last word.
        Mr. REED. Thank you, Mr. Chairman.
        Following up on this conversation of my colleague Mr.
    McDermott, Mr. Holmes, do you have anything you would like to
    offer on the differing tax rates being discussed here?
        Mr. HOLMES. Yes. I think that, at least from an employer's
    perspective, each State is different. You know, each State has
    a different industrial make-up. Each State has negotiated and
    has a mature sense about what the tax rate should be with
    respect to funding unemployment insurance. In some States it is
    a lower tax base and a higher contribution rate schedule.
        I think that it is difficult to draw the conclusion that
    all States should have an indexed wage base unless you also
    evaluate benefit payout and also the make-up of the State. I
    know a number of States in which there have been significant
    increases in benefits. And, in fact, the trendline with respect
    to the replacement rate across the country, replacement of wage
    rate, has been up at least since 1988, according to the
    Department of Labor.
        So I think that we have to look at all the different pieces
    of the puzzle before making a conclusion about what should be
    done at the national level.
        The other thing I would say is that I think you should pay
    attention to the FUTA tax revenue for the purposes that it is
    dedicated for, which primarily should be administration of the
    programs, State and Federal, with some money for extended
    benefits if we trigger on.
        But as far as the State goes, that is a much different
    conversation, and we can't really link the two and say one
    needs to be increased because the other one hasn't been raised
    for a while.
        So those would be my thoughts about it.
        Mr. REED. Well, I appreciate that comment.
        Dr. Vroman, I can't miss this opportunity. I was reading
    your testimony, and on page 10 you indicate a conclusion,
    ``There is likely to be another recession later in the present
    decade.'' What is your source? It is not footnoted. What is
    your source for that conclusion?
        Mr. VROMAN. Since World War II, we have had 11. World War
    II has 60 years roughly to the present. Our economy tends to
    have a cyclical nature to it, and that is the basis for my
    comments.
        Mr. REED. So just based on patterns of history, you are
    projecting.
        Mr. VROMAN. Yes. And we have been fortunate in the last
    three decades. 1982, 1991, 2001, and the great recession. That
    is only four over about a 30-year period, so, in fact, the
    length between recessions has tended to grow, but there is
    going to be another one, and it is most likely----
        Mr. REED. I am very interested. You put a timeline on it of
    the end of the decade, so I am interested in what your thoughts
    would be to the White House as to what we could do to avoid
    this recession that is coming down the pipeline according to
    you. What should the White House be doing right now?
        Mr. VROMAN. Pray? No one has that good a crystal ball, and
    I am trained as an economist. The surprise that the economics
    profession received at the depth and duration of the current
    recession should be a sobering reminder to all economists that
    our ability to forecast is extremely limited. And so----
        Mr. REED. So your own conclusion is probably just a guess,
    just a shot in the dark?
        Mr. VROMAN. Yes.
        Mr. REED. Okay. I appreciate that then.
        Mr. Holmes, what I would be interested in is following up a
    little bit on the drug-testing issue that we talked about
    previously with the prior witness. From your perspective in the
    private sector, how big of an issue is reemployment and folks
    potentially that have a drug issue? Could you comment on that?
        Mr. HOLMES. Certainly it is a significant issue with
    respect to not just the controlled substances which are
    addressed in the bill, but also abuse of prescription drugs. It
    is a significant cost for employers with respect to their
    employees, their performance on the job, and also making
    decisions about firing people or hiring people. Obviously their
    background with respect to drugs and whether they are testing
    positive or not, that becomes a significant part of the hiring
    decision process, and it hits the bottom line for employers.
        So I think we recognize that it is a big problem, and as I
    think I said in my testimony, it is something that we would
    like to have the business community, if a State chooses to go
    in that direction, be part of the evaluation of what really
    works, since we do have significant experience in how to
    address these issues.
        Mr. REED. Well, I appreciate that. When you say a big
    problem, is there any way to quantify it when you reference
    ``big problem'' in your testimony?
        Mr. HOLMES. I would have to go back and pull some data. I
    don't have it with me today.
        One of the difficulties about UI as compared to public
    assistance programs is there is a fair amount of data that
    addresses this with respect to public assistance programs; less
    data that addresses it with respect specifically to UI, because
    it just hasn't been done as much.
        Mr. REED. Appreciate that information. Thank you very much.
        With that, Mr. Chairman, I yield back.
        Chairman DAVIS. I thank the gentleman.
        I would also like to thank all of our witnesses and the
    staff for coming and joining us today. I appreciate your help
    in understanding this issue further. We look forward to working
    with you in the time ahead.
        Members may have additional questions. If they do, they
    will submit them directly to you in writing, and we would
    appreciate your responses back to the subcommittee for the
    record that it could be shared with all concerned.
        Chairman DAVIS. Thank you again, and with that the
    committee stands adjourned.
        [Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
        [Member Submissions for the Record follows:]
                      Statement of The Honorable Tom Reed

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