BILL ANALYSIS �
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Date of Hearing: March 30, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 226 (Solorio) - As Introduced: February 2, 2011
SUBJECT : Unemployment Insurance Fund: status report
SUMMARY : Requires the Employment Development Department (EDD),
as part of a regular report, to estimate the changes in the
taxable wage ceiling or tax rates necessary to return the
Unemployment Insurance (UI) Fund to solvency. Specifically,
this bill requires that whenever the UI Fund contains a negative
balance, the EDD shall include in the status report on the UI
Fund an estimate of the change in the taxable wage ceiling or
tax rates necessary to return this fund to solvency within five
years.
EXISTING LAW :
1)Requires the Employment Development Department (EDD) to report
to the Legislature on the status of the Unemployment Fund in
May and October of each year.
2)Specifies that the status report on the Unemployment Fund
shall include both actual and forecasted information on the
fund balance, receipts, disbursements, claim data, tax rates,
and employment levels.
FISCAL EFFECT : Expected minor and absorbable cost to EDD.
COMMENTS :
1)Background. The UI Program provides a partial wage
replacement on a weekly basis to eligible workers who lose
their job through no fault of their own. UI is a federal and
state program created by Congress in 1935 as part of the
Social Security Act. In 1935, California enacted the
Unemployment Insurance Act, which authorized the state
Unemployment Fund (commonly referred to as the Unemployment
Insurance Fund) that receives the payroll tax revenues used to
pay the UI benefits. The state administering agency for the
UI Program and the UI Fund is EDD.
Starting in 2008, the state has experienced a major economic
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recession that has increased unemployment to the highest level
in 69 years. In 2007, prior to this Great Recession, one
million people were unemployed in California, comprising an
unemployment rate of 5.8 percent. In December 2010, 2.3
million people were unemployed, comprising a 12.5 percent
unemployment rate. The latest statistics, for January 2011,
show only a minor improvement in this job picture with 2.2
million people unemployed, comprising an unemployment rate of
12.4%.
2)Status of the UI Fund. The UI Fund is presently insolvent.
The state owes the federal government $10.1 billion in loans
taken to pay UI benefits. This situation will trigger both
increased costs to the state General Fund and increased taxes
on employers. The EDD estimates that it will cost the state
General Fund $301 this calendar year (in September 2011) to
pay the federal interest charges on this loan. Additionally,
under the provisions of existing law, employers in California
will be facing an increase in federal UI taxes totaling $367
million next year.
3)Argument in support. The author states that there is a need
for more timely information on legislative options that would
help to maintain the UI Fund in balance. This bill will
require EDD to prepare and report on estimates necessary to
restore the UI Fund to a balanced state.
4)Argument in opposition. The California Chamber of Commerce
states that the bill appears to limit the paths to solvency
for the UI Fund, and would like to see the bill encourage all
alternatives or options that may be available. The Chamber
would also like to see a seven- year time frame to return to
solvency as well as a definition of solvency.
5)Possible amendments. The author suggests the following
amendments:
a) Expected consequences. The bill should clarify that
EDD would be required to report on the consequences to
employers and employees, without a change in law, when
the UI Fund is insolvent. This amendment could read:
"Whenever the Unemployment Fund contains a negative
balance, the department shall include in the status
report on the Unemployment Fund a description of the
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expected consequences to employers, employees, and the
state General Fund that would result under existing law
if the Unemployment Fund is not returned to solvency
within seven years."
b) Definition of solvency. Solvency in connection with
the Unemployment Fund should be defined as containing a
positive balance in this fund and the ability to pay its
obligations at all times during the calendar year.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation
Opposition
California Chamber of Commerce
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086