BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 22, 2011 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:Yes
Urgency: No
Bill No: AB 226
Author: Solorio
Version: As amended April 14, 2011
SUBJECT
Unemployment insurance: reporting requirements: status of funds
KEY ISSUE
Should the Employment Development Department be required to
report information to the Legislature estimating interest owed
on loans from the federal government used to pay for
Unemployment Insurance benefits?
PURPOSE
To require the Employment Development Department to include
specified additional information in their semiannual status
report to the Legislature on the Unemployment Insurance Fund.
ANALYSIS
Existing law provides for the Unemployment Insurance (UI)
program is a federal-state program administered by the
Employment Development Department (EDD). The UI program provides
workers, who lose their jobs through no fault of their own, with
weekly partial wage replacement payments. Eligibility for
benefits requires that the claimant be able to work, be seeking
work, and be willing to accept a suitable job. The UI program
is financed by employers who pay unemployment taxes on up to
$7,000 in wages paid to each worker.
Existing law requires the Employment Development Department to
submit to the Legislature in May and October of each year a
report on the status of the Unemployment Fund and the
Unemployment Compensation Disability Fund. Each report shall
include both actual and forecasted information on the fund
balances, receipts, disbursements, claim data, tax rates, and
employment levels.
This Bill would require that the Employment Development
Department, whenever the Unemployment Fund indicates a negative
balance, include in its status report the estimated impact on
employers from changes in federal tax credits and the estimated
amount the state is expected to pay in interest charges on any
outstanding loan to the federal government.
COMMENTS
1. Need for this bill?
Beginning in 2008, the state has been experiencing 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 April 2011, California's
unemployment rate decreased to 11.9 percent.
Due to continued high unemployment and significant pressure
placed on the Unemployment Insurance Fund, it is currently
insolvent. The "May 2011 UI Fund Forecast" report notes that
the UI Fund balance had a deficit of $6.2 billion at the end
of 2009, a deficit of $9.8 billion at the end of 2010, a
projected deficit of $11.1 billion at the end of 2011, and a
projected deficit of $12.7 billion at the end of 2012, if not
changes are made to the financing structure. Beginning on
January 26, 2009, California began borrowing from the Federal
Hearing Date: June 22, 2011 AB 226
Consultant: Alma Perez Page 2
Senate Committee on Labor and Industrial Relations
Government to pay UI benefits. Interest owed on borrowed
federal funds were waived through December 2010; however,
interest began accruing on January 1, 2011. Repayment to the
U.S. Department of Labor would need to occur no later than
September 30, 2011. The estimated interest due on September
30, 2011, is $319.5 million and $592.8 million on September
30, 2012. This situation will trigger both increased costs to
the state General Fund and increased taxes on employers.
This bill requires the Employment Development Department (EDD)
to include in its semiannual unemployment insurance fund
report, information on the impact on employers from changes in
federal tax credits and the estimated amount the state is
expected to pay in interest charges on any outstanding loan to
the federal government.
2. Proponent Arguments :
According to the author, the state UI Fund has experienced a
negative balance during the last three years and this fund
presently owes the federal government $10.9 billion, a
situation that the author feels will trigger both increased
costs to the state General Fund and increased taxes on
employers. The author argues that as a result, employers in
California will be required to pay higher federal UI taxes in
2012 and the state General Fund will be required this year to
pay the federal government an estimated $320 million in
interest charges on the federal UI loan.
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.
3. Opponent Arguments :
None received.
SUPPORT
Hearing Date: June 22, 2011 AB 226
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
California Labor Federation
OPPOSITION
None received
Hearing Date: June 22, 2011 AB 226
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations