BILL ANALYSIS Senate Committee on Labor and Industrial Relations Mark DeSaulnier, Chair Date of Hearing: June 23, 2010 2009-2010 Regular Session Consultant: Gideon L. Baum Fiscal:Yes Urgency: No Bill No: AB 2538 Author: Niello Version: As Amended April 28, 2010 SUBJECT Unemployment insurance: eligibility for benefits: notification. KEY ISSUE Should the Legislature remove the requirement that the Employment Development Department to pay all Disability Insurance benefits by check, as well as clean-up out-of-date statute in the Unemployment Insurance Code? PURPOSE To allow the Employment Development Department to contract with a vendor to deliver Disability Insurance benefits through direct deposit and debit card, as well as to remove and clarify certain dated sections of the Unemployment Insurance Code. ANALYSIS Existing law: a) Authorizes the Director of EDD to collect delinquent tax contributions or penalties from a person or an employing unit no later than three years after these taxes or penalties become delinquent by levy served personally or by certified mail to any person who has possession of any personal property belonging to the delinquent person or employing unit. b) Specifies that if the levy is made on a deposit or personal property in the possession or control of a bank or savings and loan association, the notice of levy shall be delivered or mailed to the branch or office of the bank or savings and loan association at which the deposit or personal property is held. c) Specifies that the place of trial for violations of the laws governing the Unemployment Insurance (UI) Program and the Disability Insurance (DI) Program shall be the county of residence or principal place of business of the defendant. d) References obsolete provisions in two sections of law that formerly established eligibility and benefit levels in the DI Program when a person completed a vocational rehabilitation plan, received a maintenance allowance, or received permanent disability indemnity under the workers' compensation system. e) Requires the Director of EDD to deposit moneys from the Disability Fund into a bank or public depository in order to pay DI benefits by checks drawn on a disability benefit payment account. This Bill: 1) Authorizes the Director of EDD to collect delinquent tax contributions or penalties from a person or an employing unit by levy served personally or by first-class mail to any person who has possession of any personal property belonging to the delinquent person or employing unit. 2) Specifies that if the levy is made on a deposit or personal property in the possession or control of a bank or savings and loan association, the notice of levy shall be delivered or mailed to the centralized processing unit or location designated by that bank or savings and loan association where the credits or other property are held. 3) Authorizes EDD to serve notice to an "address" for any Hearing Date: June 23, 2010 AB 2538 Consultant: Gideon L. Baum Page 2 Senate Committee on Labor and Industrial Relations bank or savings and loan by means of magnetic media, electronic transmission, or other electronic technology. "Address" is defined as a telephone or modem number, facsimile machine, or any other reference number designated by the bank or savings and loan to receive data by electronic means. 4) Specifies that the place of trial for violations of the laws governing the Unemployment Insurance (UI) Program and the Disability Insurance (DI) Program can also occur in any county where the defendant was transacting business that resulted in the alleged violations. 5) Repeals obsolete references in two sections of law that formerly determined eligibility for, and the amount of, DI benefits in connection with people who were covered under the workers' compensation program. 6) Repeals the requirement that the Director of EDD pay DI benefits by checks drawn on a disability benefit payment account, allowing for electronic pay cards or other pay methods. COMMENTS 1. Need for this bill? The sponsor of the bill, the Employment Development Department (EDD), states that AB 2538 will clean up the Unemployment Insurance Code and ensure the proper operation of the Unemployment Insurance Program. EDD reports that the current process of serving the Notice of Levy (NOL) personally or by certified mail is time consuming and expensive. Certified mail costs $3.24 per NOL compared with 44 cents for first-class mail, or minimal cost if sent electronically. Current law only allows for the prosecution of violations of the California Unemployment Insurance Code to take place in the county where the defendant resides or conducts business. According to EDD, in 2007 and 2008 prosecutors cited Hearing Date: June 23, 2010 AB 2538 Consultant: Gideon L. Baum Page 3 Senate Committee on Labor and Industrial Relations limitations in current law as the cause for rejecting several EDD criminal investigative cases. The suspects in these cases were owners of construction and other businesses who were suspected of payroll tax fraud. However, their actions took place in counties other than the place of their business. EDD states that clarifying where prosecutions can take place will aid enforcement action. The Unemployment Insurance Code contains outdated references to sections of the Labor Code that formerly determined eligibility for, and the amount of, DI benefits to claimants that had been eligible for benefits under the workers' compensation system. Removal of these sections will clean-up the Unemployment Insurance Code. Finally, EDD currently issues Unemployment Insurance (UI) and Disability Insurance (DI) benefits to eligible claimants by check. However, it is more expensive to issue individual checks to claimants than the use of electronic payments such as direct deposit. Current law already provides the flexibility to modernize UI benefit delivery, but requires checks for DI benefit delivery. This bill would allow electronic benefit delivery for DI benefits. 2. Electronic Benefit Delivery and the Bank of America Contract: Earlier this month, EDD selected Bank of America (BOA) as its vendor for the electronic delivery of Unemployment Insurance (UI), Disability Insurance (DI), and Paid Family Leave (PFL) benefits, which met or exceeded all of the standards included in AB 2188. This included BOA charging virtually no fees for use of the debit cards, allowing unlimited ATM withdrawals within the BOA network, cash access at point-of-sale terminals, and use of the debit card wherever Visa is accepted. Moreover, Bank of America will not charge a fee for the providing this service, but rather make their money through fees paid by businesses that utilize debit cards. Noting that this measure and AB 2188 are virtually identical and share the same goal, the Committee may wish to consider if it makes sense to pass out both measures and risk possible Hearing Date: June 23, 2010 AB 2538 Consultant: Gideon L. Baum Page 4 Senate Committee on Labor and Industrial Relations chaptering-out issues which could endanger the Bank of American contract. 3. Proponent Arguments : The Employment Development Department (EDD) notes that this bill would align the Notice of Levy (NOL) with other state tax agencies such as the Franchise Tax Board and the Board of Equalization which are authorized to send NOL's to financial institutions by first-class mail, or electronic transmission, instead of certified mail. This bill would enhance EDD's ability to increase collections and decrease costs. Each year, EDD collects more than $42 billion in payroll taxes, including nearly $35 billion in Personal Income Taxes. EDD also argues that amending current law to allow for greater flexibility in the location for prosecuting cases would enhance EDD's ability to help law enforcement agencies prosecute cases and recover tax payments due the state. This bill would assist local district attorneys as cases could be prosecuted in locations where the crime occurred. Finally, EDD has negotiated a contract for direct deposit and debit card services in connection with the Unemployment Insurance (UI) Program. This bill would give EDD the legal authority to also issue DI payments by direct deposit or debit cards. These would provide eligible claimants with a faster and more convenient way to receive payments, and a more secure and less costly means for EDD to disburse these payments. 4. Opponent Arguments : None on file. 5. Similar Legislation : AB 2188 (Bradford), which will also be heard today in this committee, also removes the requirement that the Employment Development Department pays all Disability Insurance benefits Hearing Date: June 23, 2010 AB 2538 Consultant: Gideon L. Baum Page 5 Senate Committee on Labor and Industrial Relations with a check. SUPPORT The Employment Development Department (Sponsor) OPPOSITION None on file. * * * Hearing Date: June 23, 2010 AB 2538 Consultant: Gideon L. Baum Page 6 Senate Committee on Labor and Industrial Relations