BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
29X3 (Coto)
Hearing Date: 3/26/2009 Amended: 3/25/2009
Consultant: Bob Franzoia Policy Vote: Labor 4-0
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BILL SUMMARY: AB 29 (3x) would do the following:
- For unemployment insurance (UI) claims filed with an effective
date no later than April 3, 2011, for which a valid claim or
benefit year cannot be established under the currently defined
base periods, establish an alternative base period (ABP), as
provided.
- Require a claimant to submit specified information regarding
wages to the Employment Development Department (EDD) via an
affidavit.
- Require the EDD to promptly notify each of a claimant's (for
UI benefits) base period employers of the computation on the
claim, as specified.
- Require the Unemployment Insurance Appeals Board to permit a
party or representative to participate in a hearing by telephone
upon the party's request and a showing of good cause, in
accordance with regulations adopted by the board.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Establish alternate base period
Increased UI payments $35,000 $69,000
ongoing Special*
Administration
Computer system upgrade $23,700 one time
Federal
Alternate base period
$30,500 ongoing Federal/
eligibility determinations
General**
Appeals Board hearings Unknown, potential costs and
savings Special*** via telephone
* Unemployment Fund (0871), $839,000 of federal fund will be
transferred to the Unemployment Trust Fund Account within this
fund. While this is new funding and will be used to pay
benefits, it counts against the amount the state owes to the
federal Unemployment Trust Fund
** EDD Contingent Fund (0185) (penalties and interest collected
pursuant to the UI Code, with exceptions), increased
expenditures from this fund results in reduced year end
transfers to the General Fund
*** The Appeals Board is funded primarily by federal funds
deposited in the Unemployment Administration Fund (0870) and by
the Unemployment Compensation Disability Fund (0588). For
2009-10, it will receive less than $1,500 total from the General
Fund, EDD Contingent Fund and reimbursements (0995)
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
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AB 29 x3 (Coto)
The rise in unemployment due to the current recession has
created an increased demand for UI benefits. The number of
people filing for benefits has increased at least 80 percent
from the same time last year and the number of calls coming into
EDD UI call centers has doubled. Adding to the demand is the
federal extension of UI benefits that EDD also processes.
UI benefits are funded by employer payroll taxes collected by
the EDD and held by the US Treasury. The monies are drawn down
by the state to cover the cost of benefit
payments. An October 2008 EDD forecast projects an Unemployment
Fund deficit of $2.4 billion by the end of 2009, increasing to a
deficit of $4.9 billion by the end of 2010. The state has
borrowed federal funds to pay UI benefits and will continue to
borrow until the fund is solvent. All loans must be repaid with
interest. The interest rate for UI federal loans for a calendar
year is based on the yield on Unemployment Trust Fund
investments for the quarter ending in December. For the 2009
calendar year, the interest rate determined by the US Treasury
as of December 2008 was 4.6 percent.
Under current law, the base period upon which UI benefits shall
be based excludes earnings in the last three to six months of
employment. The federal American Recovery and Reinvestment Act
(ARRA) provides the state $839 million one time to support the
UI program if the state adopts an ABP method of calculating UI
benefits. This bill proposes an ABP such that unemployed
persons who fail to qualify for benefits under current law would
have their eligibility determined by counting earnings as recent
as one to three months. This proposed change can establish UI
eligibility for some seasonal or low wage workers.
The number of potential ABP claims for investigation is based on
the following:
(1) For calendar year 2007, of all new UI claims (2,126,863 from
October 2008 forecast) 13.35 percent (283,936) had no earnings
or insufficient earnings to establish a valid UI claim under the
current base period (first four of last five completed calendar
quarters). This percentage is used to project the total of new
claims for calendar year 2009.
(2) Of the estimated new UI claims with no earnings or
insufficient earnings (13.35 percent), based on historical data,
approximately 30 percent (85,181) are invalid due to lack of
earnings.
This results in an estimated 198,755 claims.
The ARRA also provides monetary incentives for states to
modernize their UI programs. Of the $60 million available for
this purpose, any funds available after EDD modernizes its
computer system could be used to fund increased EDD costs
associated with the administering the ABP. After these ARRA
funds are exhausted, likely within one or two years, these costs
will be paid from the EDD Contingent Fund which has a General
Fund impact. As noted above, all monies remaining in the
Contingent Fund at the end of the fiscal year are transferred to
the General Fund. Additionally, there are insufficient monies
in the Contingent Fund to fully cover the increased
administrative costs. Thus, the fiscal impact is either an
increase in General Fund costs to backfill the Contingent Fund
when it is low or a reduction in year end transfers to the
General Fund because all Contingent Funds have been expended.
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AB 29 x3 (Coto)
Beginning 2011-12, Contingent Fund and General Fund monies will
be needed to repay the interest on the state's loan from the
federal unemployment trust fund. The ARRA
funds have acted, and will continue to act, as an interest free
loan through December 31, 2010. The state is not required to
make payments between January 2011 and October 2011 but will
continue to incur interest on the loan. The ARRA interest
waiver will save the state an estimated $20 million in 2009 and
$133.5 million in 2010.
The Appeals Board conducts hearings of cases concerning claims
for unemployment and disability benefits. These cases are
appeals of determinations made by the EDD. The Appeals Board
also holds hearings on petitions from taxpayers concerning
assessments made by EDD's tax branch. The initial hearings and
decisions are heard in 12 Offices of Appeals throughout the
state. These offices conduct the first level of appeal. A losing
party at the first level may appeal to the second level. The
Appeals Board decides over 300,000 separate cases per year.
260,000 decided in one of the field offices at the first
level of appeal.
40,000 cases are decided at the second level of appeal.
Good cause for scheduling an electronic hearing is presumed:
- For the department if there is no department branch office
within a 50 mile radius from the place of the hearing.
- For any other party, excluding any representative, if it has
no residence or office within a 50 mile radius from the place of
the hearing,
- For a representative if a hearing is scheduled as an
electronic hearing for its client, and the representative will
be at the client's location during the hearing, or
- For a witness if the witness resides outside a 50 mile radius
from the place of the hearing.
The Appeals Board commenced a telephone pilot project this year
and has not collected sufficient data to determine the costs or
savings to provide electronic hearings. Increasing electronic
or telephone hearings should assist the Appeals Board in
reducing a hearing backlog but may increase the need for
additional staff while decreasing the need for capital
facilities.
Under current law, EDD is required to make a computation on a
new claim for UI benefits that sets forth the maximum amount of
benefits potentially payable during the benefit year and the
weekly benefit amount and notify the claimant's base period
employers. EDD should have absorbable costs to increase the
information that must be reported to include the number of weeks
that the claimant will be eligible for benefits in the benefit
year, the weekly benefit amount, and the maximum amount of
benefits potentially payable during the benefit year based on a
specified determination.