[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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                      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:]



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    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:]


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    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:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    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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