BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Senator Ben Hueso, Chair
Date of Hearing: June 25, 2014 2013-2014 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 37
Author: Perea
As Introduced/Amended: August 12, 2013
SUBJECT
Unemployment insurance: reporting requirements: status of funds.
KEY ISSUE
Should the Legislature require that the Employment Development
Department include additional information in their annual report
to the Legislature if the Unemployment Fund shows a negative
balance?
ANALYSIS
Existing law vests the Employment Development Department (EDD)
with the responsibility of ensuring employers remit appropriate
Unemployment Insurance (UI) contributions and to collect the
employee wage deductions to the Disability Fund. EDD uses these
funds to finance the Unemployment Insurance and Disability
Insurance (DI) Programs.
(Unemployment Insurance Code �� 301, 976, 984, 1025-1037,
1555-1562, & 3001-3015)
Existing law requires that EDD collects appropriate data in
order to carry out the responsibilities listed above. This
information includes the employer's name and address, the number
and contact information of employees employed by an employer,
the wages paid to those employees, and any independent
contractors that have performed services for an employer.
(Unemployment Insurance Code �� 1085-1093)
Existing law requires that EDD submits 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.
(Unemployment Insurance Code �995)
Existing law requires that a bill introduced or amended in the
Legislature which would require a state agency to submit a
report on any subject to either house of the Legislature shall
include a provision that repeals the reporting requirement, or
makes the requirement inoperative, no later than a date four
years following the date upon which the bill, as enacted,
becomes operative. (Government Code �10231.5)
This bill would require that, if the Unemployment Fund indicates
a negative balance, EDD must include in the annual report to the
Legislature what the estimated cost impact on employers from the
changes in the Federal Unemployment Tax Act (FUTA) tax credit
and the estimated amount the state is expected to pay in
interest charges on any outstanding loan to the federal
government.
This bill would also exempt this annual report from the four
year repeal requirement for legislative reports.
COMMENTS
1. Need for this bill?
As a joint state-federal program, California's unemployment
insurance system is funded through two employer taxes. The
federal unemployment insurance tax act (FUTA) charges a tax
for the administration of the program, while the state
unemployment insurance tax pays for benefits and is set by the
state. The FUTA tax is largely offset by a federal tax
credit, but this credit is only awarded if the state's
unemployment insurance fund is solvent and the state's
unemployment insurance system is in compliance with federal
law. If a state's unemployment insurance fund is not solvent
and therefore borrowing funds from the federal government, the
FUTA tax credit is diminished, with the increased tax revenues
going to repaying the borrowed federal funds.
Hearing Date: June 25, 2014 AB 37
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
As was noted above, EDD is required to submit two annual
reports to the Legislature on the state of the unemployment
insurance system, including fund balances and employment
levels. However, this report is not required to contain
special information if the unemployment insurance fund balance
falls into the red. Noting that borrowing from the federal
government to pay unemployment insurance benefits results in
higher taxes for employers, the author believes that the
impacts should be included in any report to the Legislature.
AB 37 ensures that this would occur.
In the May 2014 report, EDD discussed the impact of the
declining FUTA tax credit. Specifically, the EDD report
estimated the impact on employers as $928.6 million in 2014
and $1.3 billion in 2015. The report also detailed interest
payments due in 2014 ($218.5 million) and 2015 ($187.3
million). The current balance (as of April 2014) of
California's unemployment insurance fund remains negative at
$(9,930,033,454.07).
2. Proponent Arguments :
None on file.
3. Opponent Arguments :
None on file.
4. Prior Legislation :
AB 226 (Solorio) of 2011 was virtually identical to this bill.
AB 226 was moved to the inactive file and not heard on the
Senate Floor.
SUPPORT
None on file.
Hearing Date: June 25, 2014 AB 37
Consultant: Gideon L. Baum Page 3
Senate Committee on Labor and Industrial Relations
OPPOSITION
None on file.
Hearing Date: June 25, 2014 AB 37
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations