BILL ANALYSIS �
AB 226
Page 1
Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 226 (Solorio) - As Amended: April 14, 2011
Policy Committee: InsuranceVote:12
- 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Employment Development Department (EDD)
to include in its semiannual unemployment report to the
Legislature information on the impact of the insolvency of the
Unemployment Insurance (UI) fund on employers and the General
Fund in any year the UI fund carries a negative balance.
FISCAL EFFECT
Workload associated with providing the required information in
an existing report would be minor and absorbable for EDD.
COMMENTS
1)Rationale . The author states that if this this bill were in
effect today, it would require EDD to disclose the interest
charge on the federal loan will cost California $301 million
(GF) 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 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.
2)Unemployment Insurance . The UI program is a federal-state
program authorized in federal law, but with broad discretion
AB 226
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for states to set benefit and employer contribution levels.
The program is financed by unemployment tax contributions paid
by employers for each covered worker. The UI program provides
weekly unemployment insurance payments to eligible workers who
lose their jobs through no fault of their own. To be eligible
for benefits, a claimant must be able to work, be seeking
work, and be willing to accept a suitable job.
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.)
3)Unemployment Insurance Fund . Due to continued high
unemployment and significant pressure placed on the fund, it
is currently insolvent. The October 2010 UI Fund Forecast
report notes that as of September 2010, the fund carried a
deficit of $8.3 billion. EDD projects the deficit will grow
to $13.4 billion by the end of 2011 and $16 billion by the end
of 2012. In addition, this report provides one of the elements
required by this legislation. In the report, EDD notes the
estimated interest due to the federal government by September
2011 will be $362.3 million.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081