BILL ANALYSIS
AB 23 X3
Page 1
Date of Hearing: March 11, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 23 X3 (Coto) - As Amended: March 9, 2009
Policy Committee: Insurance
Committee Vote: 8-2
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY : This bill conforms specified unemployment insurance
(UI) eligibility and benefits administered by the Employment
Development Department (EDD) to federal American Recovery and
Reinvestment Act (ARRA) requirements. Specifically, this bill:
1)Establishes an alternate base period (ABP) for UI benefit
determinations if an unemployed worker does not meet income
eligibility requirements under current law. Implementation of
an ABP requires review of more recent wages than conducted
under current law for otherwise income-eligible beneficiaries.
2)Modifies existing high-unemployment triggers in federal and
state law (Statutes of 1970) to enable California to take full
advantage of a 20-week federal UI extension contained in the
ARRA.
3)In the absence of additional federal action and 100% federal
funding, this bill sunsets the emergency benefit extension in
December 2009.
FISCAL EFFECT
One-time increase of $840 million in federal funds into the UI
Trust Fund as a result of establishing the ABP. Increased
federal funding in the range of $2.5 billion to $3 billion for
20 weeks of additional emergency UI benefits during 2009. The
increased federal funding is offset by ongoing ABP benefit
payments beginning in 2009-10 from the UI Trust Fund of $50
million to $70 million. Potential, likely minor, GF costs to
state and educational agencies (schools and colleges) related to
ABP and emergency benefit increases. Unknown impacts to local
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public agencies to the extent increased federally funded
benefits require an increased employer contribution.
Federal Relief Provided to California
1)ABP . One-time $840 million increase in federal funds to the UI
Trust Fund as a result of establishing an ABP as required by
ARRA.
2)Emergency Benefits . An increase of federally funded emergency
UI benefits in the range of $2.5 billion to $3 billion during
calendar year 2009 (100% federal).
3)Economic Activity Generated . The infusion of $3 billion
dollars of federal funding into California creates a
significant amount of related economic activity. Because UI
benefits are used by beneficiaries and their families for
basic necessities including food, shelter, and clothing, the
extension of benefits translates into continued spending in
the general economy.
Spending feeds local economies. Estimates of local economic
effects are quantified in a multiplier effect and vary widely
in terms of magnitude and timing. Recent estimates by the
Congressional Budget Office indicate that between one dollar
and two dollars in economic output is generated for each
dollar of payment in UI benefits. Spending in this way also
generates local sales tax, which in turn generates public
revenues. In addition to economic activity, increased UI
support reduces pressures on publicly funded programs such as
Food Stamps, CalWORKs, and Medi-Cal.
Costs and Cost Pressures
1)ABP . Annual ABP benefit payments paid, starting in 2009-10,
from the UI Trust Fund of $50 million to $70 million. Actual
ABP spending depends on the unemployment rate and the number
of beneficiaries who qualify under ABP eligibility
determinations. More than 30,000 workers statewide starting in
2009-10 will likely be eligible for the ABP-related benefits.
ABP benefits paid by state or other public education employers
(schools and colleges), may generate annual GF costs and
pressures in the range of $1.5 million to $2 million. Unknown
costs to cities and counties to pay increased UI benefits
under ABP.
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2)Emergency Benefits . For the vast majority of employers, any
emergency benefits paid during calendar year 2009 will be
fully federally funded. If the federal government extends the
100% funding available into calendar year 2010, this bill
authorizes California to take advantage of the additional
extension with no further legislative action. In the case of
most public employers, including the state, local agencies and
educational institutions, the emergency extension will be a
100% employer obligation because these employers do not pay
payroll taxes. Instead, they pay 100% of benefits when an
eligible worker becomes unemployed. Weekly UI payments range
from $40 and $450, with an average weekly benefit of $307.
Therefore a 20-week extension at the average benefit rate is
$6,000.
3)Public Employees Not Likely to Qualify for 20 week Extension .
California has not imposed layoffs on the state workforce or
in the education arena. In addition, when civil service
employees are laid off, many are absorbed into another agency
or position. Therefore, few state workers are unemployed for
more than one year and would not qualify for the 20-week
extension addressed in this bill. Hence, GF costs are likely
to be minor. In the case of school districts, layoffs could
occur this summer. However, by the time these laid-off
teachers join the ranks of the long-term unemployed and
exhaust 59 weeks of current law benefits, the federal benefit
extension recently enacted and addressed by this bill will
have ended.
COMMENTS
1)Rationale . This bill changes state UI law to meet the ABP
requirement contained in the federal ARRA legislation.
Establishing an APB will enable California to draw down $840
million in a one-time federal allocation for UI reform and
modernization activities. California's current base period
makes some low-income or intermittent workers ineligible for
benefits even if their more recent earnings meet eligibility
thresholds. An ABP provides an alternate eligibility
determination for some of these workers to qualify for
benefits or qualify more expeditiously. In addition, this bill
modifies state law to maximize the amount of federal funding
available to California for extended emergency UI benefits.
This bill provides up to 20 weeks of benefits to the long-term
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unemployed who current receive 59 weeks of benefits. The
actual number of weeks provided will depend on the interaction
of this bill's trigger relative to the current law trigger for
emergency benefits.
2)Current UI Benefits . During relatively low rates of
unemployment, eligible individuals receive weekly UI payments
for up to 26 weeks. Due to current high rates of unemployment
the federal government has provided emergency extensions to
these benefits. California, a state with one of the highest
unemployment rates nationally (now over 10% and twice as high
as a year ago), provides workers with up to 33 additional
weeks of extended benefits. These additional benefits are paid
by the federal government. Therefore, under current law,
long-term unemployed individuals are eligible for 26 weeks,
plus 33 weeks, for a total of 59 weeks of UI benefits.
3)Rarely Pulled Emergency Trigger . Distinct from the emergency
benefit extension of 33 weeks available under current law, the
Federal-State Extended Unemployment Compensation Act of 1970
is codified in state law. Although this emergency extension
has been available for almost 40 years, the trigger on has
only been pulled once, in 1983. Because state eligibility
relies on higher than historic unemployment rates over a
sustained period of time, the trigger is difficult to for
states to achieve. Only nine states have accessed these
benefits during the current economic downturn. California is
expected to join this group of states in late April 2009.
State eligibility under the 1970 statute provides 13 additional
weeks of UI benefits at a federal cost for most employers and
without any legislative action. AB 23 makes additional
statutory changes to ensure the availability of seven
additional weeks of UI emergency benefits, for a total of 20
weeks of extended benefits. This extension means some
long-term unemployed workers will gain access to 79 total
weeks of UI benefits.
4)Federal Funding for Administration . In addition to the
numerous and significant fiscal effects discussed above, the
federal ARRA includes several other funding features for state
UI relief. A one-time $60 million allocation is provided to
EDD for administrative workload and system modernization. No
state legislation is necessary to draw down this funding.
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5)UI Trust Fund Deterioration . Due to chronic underfunding of
the UI Trust Fund, California faces UI insolvency for the
foreseeable future, absent corrective action. The UI program
is financed by employers who pay taxes each year on wages paid
up to $7,000 for each employee. California's tax rate for UI
is the lowest allowed by federal law and has not been
increased since the 1980s. Other large states have taxable
wage bases that range up to $12,500. Almost 20 states have a
taxable wage base of more than $15,000 and range up to
$35,000. Taxable wages in California are neither indexed nor
inflation-adjusted. These factors and the major increases in
unemployment have generated the UI Trust Fund insolvency.
6)Federal Relief for Loan Interest Accrual . When the UI Trust
Fund becomes insolvent, California must borrow from the
federal government. California currently has the authority to
borrow up to $1.6 billion from the federal government to pay
benefits through March of 2009. At this point, $500 million,
or less than half of this authority has been used.
Historically, loans repaid within a fiscal year are
interest-free. When loans are not repaid in a timely manner,
however, interest accrues. Generally, the payment of interest
on these loans creates a GF risk, as neither UI Trust Funds
nor federal administrative grants may be used for interest
payments. ARRA waives interest payments of $22 million in
2009-10 and $150 million in 2010-11. These interest waivers do
not require legislation.
7)ABP . A UI base period describes the duration over which
earnings are reviewed to determine a weekly UI benefit level.
Under current law, UI eligibility is based on earnings prior
to the most recent three to five months of wages. For example,
if a worker becomes unemployed in February of 2009, the
worker's wages from September 2007 to September 2008 are used
for UI benefit calculations. Sufficient wages are required in
the base period to receive UI benefits. An ABP requires review
of more recent wage data than is currently collected for
eligibility determinations. Adopting an ABP will reduce the
number UI benefit denials of low-wage workers and employees
with uneven earnings who are otherwise income-eligible.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081