BILL ANALYSIS �
AB 226
Page 1
Date of Hearing: March 30, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 226 (Solorio) - As Amended: April 6, 2011
SUBJECT : Unemployment Insurance Fund: status report
SUMMARY : Requires the Employment Development Department (EDD),
as part of a regular report, to estimate the impact on employers
and the General Fund if the Unemployment Insurance (UI) Fund is
not returned to solvency. Specifically, this bill:
1)Requires that whenever the UI Fund indicates a negative
balance, the EDD shall include in the status report on the UI
Fund the estimated impact on employers of the changes in the
Federal Unemployment Tax Act (FUTA) tax credit, any estimated
impact on employees, and the estimated impact on the state
General Fund that would result pursuant to existing law if the
UI Fund is not returned to solvency within 7 years.
2)Defines the term "solvency" to mean that the UI Fund contains
a positive balance so that this fund is able to pay all of its
obligations during the calendar year.
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
AB 226
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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
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. In January 2011, the job picture slightly
improved with 2.2 million people unemployed, comprising an
unemployment rate of 12.4 percent. In February 2011, 2.2
million people were unemployed, the unemployment rate dropped
slightly to 12.2 percent, and the California labor market
experienced 96,500 more nonfarm jobs than the previous month.
2)Status of the UI Fund. The UI Fund is presently insolvent.
The state owes the federal government $10.3 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.
3)Argument in support. The author states that if this this bill
were in effect today, it would require EDD to disclose that
the interest charge on the federal loan will cost the State of
California and the state General Fund the sum of $301 million
by September 2011. Additionally, EDD would be required to
disclose that, under the terms of existing federal law,
employers in California will be facing an increase in federal
UI taxes totaling $367 million next year as a result of the
negative balance in the UI Fund.
The author states that there is a need for employers and the
state to know, as soon as possible, the impact of a negative
balance in the UI Fund in order to better prepare for actions
that may be necessary to return the UI Fund to solvency. This
bill will require EDD to prepare and report these estimates.
4)Argument in opposition. The California Manufacturers and
Technology Association, which opposes the bill unless amended,
states that the bill should clarify exactly what additional
reporting requirements EDD must include in its bi-annual
AB 226
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report of the Unemployment Fund. This Association states that
the following amendments are necessary to remove its
opposition to the bill: a) eliminate or clarify the phrase
"any estimated impact on employees" as it is unclear as to
what EDD would evaluate exactly; b) focus on the impact to the
state of the interest on a federal loan that is not paid on
time; and c) eliminate the definition of solvency which would
be inconsistent with a federal definition.
5)Proposed amendment. The author proposes the following
amendment to address the concerns expressed by the California
Manufacturers and Technology Association:
On page 2 of the bill, strike out lines 15 - 24, and
insert:
(b) Whenever the Unemployment Fund indicates a negative
balance, the department shall include in the status report
on the Unemployment Fund the estimated cost impact on
employers from the changes in the Federal Unemployment Tax
Act (FUTA) tax credit and the estimated amount that the
state is expected to pay in interest charges on any
outstanding loan to the federal government.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Oppose, unless amended
California Manufacturers and Technology Association
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086