BILL ANALYSIS �
AB 152
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Date of Hearing: April 10, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 152 (Yamada) - As Amended: March 21, 2013
Policy Committee: InsuranceVote:9 -
2
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes the Self-Employment Assistance Program
(SEA) and requires unemployment insurance (UI) benefits be paid
to eligible individuals who are pursuing training related to
self-employment. Specifically, this bill:
1)Requires the SEA weekly benefits to be equal to current law UI
benefits.
2)Limits the number of SEA UI beneficiaries to 5% of the total
statewide UI beneficiaries.
3)Requires that the cost of SEA administration be paid from the
proceeds of a federal grant of approximately $5.3 million.
4)Codifies findings and declarations pertaining to California's
economy and unemployment.
5)Specifies that the bill shall become effective immediately and
specifies that the SEA program becomes operative the later of
two-weeks following the effective date or two-weeks following
the approval of the United States Department of Labor.
FISCAL EFFECT
1)One-time costs for the Employment Development Department (EDD)
to implement the SEA program would be approximately $6.6
million. Of this amount, the majority is for automation, at a
cost of approximately $6.5 million. The remaining amount is
for additional staffing costs to develop and deliver training
for One-Stop Career Centers to provide SEA workshops.
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2)Ongoing annual costs for EDD to operate and monitor the SEA
program to ensure that enrollment does not exceed 5% of UI
beneficiaries would be approximately $1.2 million. This
includes IT costs to maintain the new database and the
connections with other EDD systems. It also includes ongoing
staff costs in the One-Stop Career Centers to deliver,
monitor, and process outcomes from SEA program orientations
and workshops.
3)The Middle Class Tax Relief and Job Creation Act of 2012
(PL112-96) provides a total of $35 million for SEA grants.
The Department of Labor estimates California's share of the
SEA grant would be approximately $5.4 million. Of this
amount, $4.6 million may be used for establishment or improved
administration of the SEA program, and the remaining
approximately $800,000 may be used for promotion and
enrollment purposes.
The estimated grant amount of $5.4 million that California
would receive would not cover EDD's estimated one-time
implementation costs of $6.6 million, leaving $1.2 million in
costs that would have to be covered by current UI
administrative funding to get the program up and running. In
addition, the ongoing annual costs of approximately $1.2
million to operate the program would also need to come from UI
administrative funds.
4)This year the UI program is facing a substantial funding
shortfall to operate the program. EDD received $128 million
less in federal funds than what was requested to operate the
program. In addition, the federal sequestration that went
into effect on March 1, 2013, will reduce EDD's UI
administrative funding by another $50 million over the next 15
months, for a total funding cut of $180 million for the UI
program.
5)Due to continued high unemployment and significant pressure,
the Unemployment Insurance Fund is currently insolvent. The
October 2012 UI Fund Forecast report notes that as of the end
of 2011, the fund carried a deficit of $9.9 billion. EDD
projected that the deficit would grow to $10.3 billion by the
end of 2012 and $10.2 billion by the end of 2013. In addition,
EDD notes the estimated interest due to the federal government
by September 2013 will be $291.2 million.
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COMMENTS
1)Purpose . The purpose of this legislation is to reestablish an
SEA program to allow unemployed individuals to continue to
receive UI benefits as they pursue self-employment. Under
current law, individuals pursuing training to become
self-employed as small business owners are not eligible to
continue receiving unemployment benefits.
2)Past Experience with SEA . Under a previous iteration of the
SEA program, of the 52 service delivery areas statewide, only
five programs agreed to operate the program and by the summer
of 1997, all but two of the service delivery areas dropped the
SEA program due to lack of interest. Despite efforts by EDD to
market the program and local efforts to engage claimants, the
SEA program failed to gain traction at that time.
3)Committee Concern . As written, this bill requires the SEA
program to become operable within two weeks of passage or
within two weeks of the approval of the United States
Department of Labor. In addition, it requires EDD to obtain
federal grant funding to implement the program. Finally, the
bill limits participation in the program to 5% of UI
recipients. This limitation requires EDD to develop a system
to track participants in the program in order to ensure the
state does not exceed the maximum limit.
EDD does not have the funding or the authority to develop the
required tracking system for a program that is not in
existence. The development will require EDD to not only
obtain the federal grant funding but also the budget authority
to expend those federal funds. No such authority currently
exists in the 2013-14 proposed budget. Given the timing of
this legislation and the passage of the budget, it is unlikely
that authority will be available to EDD in the 2013-14 budget.
Therefore, action would need to be taken outside of the
traditional budget process after the federal funds become
available. At that point EDD could begin development of the
automation system. Even without the budget limitation, EDD
will need months, rather than weeks, to develop the new
program and create the required tracking system. Thus the
current two-week implementation requirement in the bill
appears to be unworkable.
AB 152
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4)Suggested Amendments .
a) Remove codified findings and declarations (Sec. 2).
b) Remove requirement that EDD implement the program within
two weeks (Page 6, Lines 31 through ""date is later." on
line 36)
5)UI Benefits . The UI program is a federal-state program that
provides weekly UI payments to eligible workers who lose jobs
through no fault of their own. The UI program is financed by
unemployment tax contributions paid by employers for each
worker. During relatively low rates of unemployment, eligible
individuals receive weekly UI payments for up to 26 weeks. Due
to on-going high rates of unemployment the federal government
has provided emergency extensions to these benefits.
In order to receive weekly benefits, an individual must meet
specific requirements, including being totally or partially
unemployed through no fault of their own, being physically
able to work, actively looking for work, and ready and willing
to immediately accept employment. An individual is prohibited
from pursuing training or further education while receiving
unemployment benefits unless he or she receives prior
permission from EDD.
Employers currently pay a combination of federal and state
unemployment taxes on up to the first $7,000 in wages paid to
each employee. The federal portion of the tax funds program
administration, while the state portion funds benefit
payments. Effectively, employers pay a federal tax rate of 0.8
percent as long as the state's UI program is in compliance
with federal requirements. (If the state fails to comply, the
federal administrative tax rate increases by 5.4 percent to a
total of 6.2 percent.)
6)Support . The American Federation of State, County and
Municipal Employees (AFSCME) notes that by giving Californians
the tools to start their own businesses, this bill would
encourage entrepreneurship and creativity. They further note
their organization supports self-employed workers and that
reestablishing an SEA program will incentivize job creation
and allow those who wish to start their own businesses the
means to do so without unnecessary financial strain.
7)Opposition . Opponents of this legislation, including the
California Chamber of Commerce, the California Farm Bureau and
AB 152
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the California Grocers Association note that the bill requires
paying the cost of administering SEA benefits out of normal UI
revenues at a time when the federal grant is exhausted. Those
costs of administration would be paid by shifting already
scarce administration dollars away from regular UI claims.
Opponents also question the prudence of diverting resources
away from the UI administrative budget to fund a program that
has proven unsuccessful when EDD is currently struggling to
deliver UI benefits on a timely basis.
8)Related Legislation . This bill is substantially similar to AB
2030 (Yamada) from 2010, which was held on this committee's
suspense file.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081