BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          AB 1845 (Solorio) - Unemployment compensation benefits: 
          overpayment assessments: termination: income tax withholding.
          
          Amended: August 6, 2012         Policy Vote: L&IR 5-0
          Urgency: No                     Mandate: No
          Hearing Date: August 6, 2012                      Consultant: 
          Bob Franzoia  
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: AB 1845 would conform the state's unemployment 
          insurance (UI) program administered by the Employment 
          Development Department (department) to changes in federal law.

          Fiscal Impact: Adoption of federal conformity requirements would 
          continue state administration of the UI program and a grant of 
          approximately $340 million annually to the Unemployment 
          Insurance Trust Fund.
              Continuation of federal tax credit for employers of 
              approximately $6 billion annually.
              Beginning October 2013 reduction in penalty revenue 
              available for appropriation to the General Fund. 
              Minor additional department administrative costs annually, 
              offset by federal funds.
              By depositing additional amounts into the Unemployment 
              Trust in the continuously appropriated Unemployment Fund, 
              this bill would make an appropriation.
               
          Background: The unemployment insurance program, commonly 
          referred to as UI, provides workers, who lose their jobs through 
          no fault of their own, with weekly unemployment insurance 
          payments.  The program is 100 percent funded by employers who 
          pay taxes on wages paid to employees.

          Proposed Law: This bill would:
          - Provide that an employer's reserve account is not relieved of 
          charges relating to a benefit overpayment if the department 
          determines that the employer was at fault for failing to respond 
          to any request for information relating to an unemployment 
          compensation benefits claim.
          - Provide that the cost of benefits charged to an employer 








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          electing to pay the cost of benefits into the Unemployment Fund 
          in lieu of paying contributions required of employers include 
          credits of benefit overpayments actually collected by the 
          department, unless the department determines that the payment 
          was made because the entity was at fault for failing to respond 
          to any request of the department for information relating to the 
          claim for unemployment compensation benefits.  This provision 
          would apply to overpayments after October 22, 2013.
          - Require employers to report the hiring of any employee who 
          previously worked for the employer, but had been separated from 
          such prior employment for at least 60 days.
          - Expand the reasons on notification of termination lists to 
          include the claimant leaving the employer for reason of a 
          substantially better job or to protect his or her family or 
          himself or herself from domestic violence abuse.
          - Require in order to cancel a claim for unemployment 
          compensation benefits, that the person request to cancel the 
          claim during the benefit year of that claim or the extended 
          duration period of that claim.
          - For penalty assessments established after October 22, 2013, 
          require that overpayment assessment amount be deposited 50 
          percent into the Unemployment Trust Fund and 50 percent into the 
          Benefit Audit Fund (BAF).

          - This bill would instead provide that the penalty be assessed 
          on an employer or agent of the employer, depending on who the 
          director finds was at fault for willfully making a false 
          statement or representation or for willfully failing to report a 
          material fact concerning that termination or the reasonable 
          assurance of that reemployment.
          -  The bill would provide that if both the employer and the 
          agent of the employer were at fault, this penalty would be 
          assessed against the employer and another penalty would be 
          assessed against the agent of the employer.
          - This bill would further provide that the additional penalties 
          that are assessed against an agent of the employer be available 
          for the specified purposes upon appropriation by the Legislature 
          for those purposes. 

          Staff Comments: The BAF is used to fund the department's 
          administrative costs for the detection, prevention, and 
          collection of UI benefit overpayments.  The shift of penalty 
          revenue from the BAF to the Unemployment Insurance Trust Fund 
          results from a federal conformity requirement (Section 303 (a) 








          AB 1845 (Solorio)
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          (11)) that amended penalty and deposit provisions.  

          The fiscal effect on the state will be to direct one half of the 
          penalty revenue to the Unemployment Insurance Trust Fund and one 
          half to the BAF.  Federal law requires a 15 percent penalty (on 
          the overpayment amount).  However, since the state has a 30 
          percent penalty, the remainder (one half of the 30 percent state 
          penalty revenue) would remain in the BAF.  

          The amount of penalty revenue in the BAF that is appropriated 
          annually to the General Fund varies.  Generally, the department 
          receives one half of the penalty revenue in the BAF and the 
          remainder is appropriated to the General Fund.  In 2010-11, 
          penalty revenues totaling $25.7 million were split $14.6 million 
          to the BAF and $11.1 million to the General Fund.

          If this conformity requirement had been in place in previous 
          years, in 2010-11 for example, BAF revenues totaling $25.7 
          million would have been split $12,850,000 to the Unemployment 
          Insurance Trust Fund and $12,850,000 to the BAF thereby 
          decreasing the availability of funds for appropriation to the 
          General Fund by one half or $6,425,000.