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 AB 1845 (Solorio) Page 1 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) Page 2 (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.