BILL ANALYSIS �
AB 1638
Page 1
Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 1638 (Bocanegra) - As Amended: February 11, 2014
SUBJECT : Unemployment Insurance: classified school employees
SUMMARY : Allows employees of government and non-profit
educational institutions who are not in an instructional or
administrative role to collect unemployment insurance (UI)
benefits between school years. Specifically, this bill :
1)Repeals the prohibition on classified school employees from
receiving UI benefits.
2)Repeals the requirement that school employers provide an
employee with reasonable assurance of being rehired if they
intend to rehire that employee for the next term or year.
3)Repeals a number of exceptions to the prohibition on providing
UI benefits to classified school employees
4)Makes other technical and conforming changes.
EXISTING LAW :
1)Provides UI benefits to employees who lose their job through
no fault of their own.
2)Requires employers to pay state and federal taxes to pay the
costs of administering and providing UI benefits.
3)Permits public employers to provide UI benefits to their
employees on a reimbursement basis in lieu of payroll taxes.
4)Prohibits employees of public and private non-profit
educational institutions from collecting UI benefits between
academic years if they have reasonable assurance of being
employed in the next academic term.
5)Permits non-professional employees of public and non-profit
educational institutions to collect UI benefits retroactively
should they not be employed in the next academic term after
receiving reasonable assurance of future employment.
AB 1638
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6)Requires employers to provide documentation of the reasonable
assurance when that notice is given.
7)Prohibits, as a matter of federal law, providing UI benefits
to professional employees between academic years.
FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . According to the author, federal law requires States
to deny UI benefits to professional school employees
(certificated employees) between and within the academic years
or terms when there is a reasonable assurance the employee
will go back to work in the same or similar capacity in the
ensuing academic year or term. However, states have the
option of providing UI benefits to classified employees
between and within the academic years or terms even when a
reasonable assurance to return to work exists. California has
opted to deny UI benefits to classified employees. Classified
employees are being denied their right to equal treatment
under the law, and this policy has real consequences for
classified employees, most of whom are low income workers and
parents of school age children of their own who are being paid
well below the federal poverty level. Previously, many school
employees were able to work in the summer during summer
school. However since 2007, budget cuts have led to the
elimination of summer school in districts, leaving tens of
thousands of employees without steady summer income or
unemployment insurance benefits.
1)Federal Law . Federal law generally requires equal treatment
for the payment of UI benefits on the basis of service to
certain nonprofit organizations, Indian tribes, and state and
local government workers in the same amount, on the same
terms, and subject to the same conditions, as other service
subject to state law. An exception to the equal treatment
requirement pertains to the denial of UI for "professional"
and "nonprofessional" employees of educational institutions
during a period between or within academic years or terms when
there is a contract or reasonable assurance that the employee
will go back to work in the same or similar capacity in the
ensuing academic year/term. State law must deny UI benefits
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to professional school employees between and within the
academic years or terms when a contract or reasonable
assurance exists. State law may deny UI benefits to
nonprofessional school employees between and within the
academic years or terms when a contract or reasonable
assurance exists.
2)Public Agency Costs . This bill would likely have relatively
minor impact to the Unemployment Insurance Trust Fund (trust
fund) that pays for most UIC benefits because public K-12
school districts and community colleges commonly elect to
participate in the School Employees Fund (SEF) in lieu of
paying payroll taxes. The SEF is a special reimbursable
financing method administered by the Employment Development
Department which collects contributions based upon a
percentage of total wages paid by public schools and community
college districts. Money deposited in the SEF is used to
reimburse the trust fund for the cost of benefits paid to
former employees. All 72 community college districts and
1,298 county offices of education, public school districts,
and charter schools participate in the SEF. The SEF has a
projected fund balance of over $550 million at the end of the
2012-13 fiscal year. The costs of paying for these
additional benefits from this bill will be borne by the SEF,
and the SEF costs will have to be reimbursed by the
participating schools.
Opponents note that the bill would result in significant cost
increases for K-12 school districts and other local
educational agencies that have experienced dramatic budget
cuts in recent years and continue to operate within very tight
budgets.
3)Non-Profit Costs . The bill also expands eligibility for
employees of non-profit educational institutions whose
benefits are not reimbursed through the SEF. Rather,
non-profit schools and universities pay state UI taxes like
other employers, and the cost of benefits for their employees
are taken from the trust fund. The trust fund deficit was
$10.2 billion at the end of 2012 is projected to be $9.7
billion at the end of 2013. The most recent projection from
EDD has the trust fund deficit continuing to decline in coming
years. The bill will increase costs to the trust fund in some
measure by expanding eligibility for UI benefits to the
employees of private, non-profit educational institutions.
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4)Retroactive Benefits . School employees expect to not work at
school (and generally not be paid) during the break between
academic years. In recognition of this reality, current law
provides a mechanism for classified employees to receive
unemployment benefits retroactively should they not be
employed at the next school year. This ensures that a
classified employee who expected to be employed in the next
school year, but was not, can collect UIC benefits from the
end of the prior school year.
5)Federal UI Tax Credit . California employers are currently
paying higher federal UI taxes as a result of the incremental
loss of a tax credit resulting from California's outstanding
federal trust fund loan. The incremental reduction of the
federal tax credit is designed to provide a means to ensure
the federal government that the loan is repaid. California
employers have been subject to this incremental credit
reduction since 2011. Outstanding trust fund debt to the
federal government can also trigger other federal rules that
reduce the credit more quickly. California may be subject to
one of these additional credit reductions this year, but
California (like other states) can obtain a waiver from this
additional credit reduction as long as the state does not take
any action that would worsen the condition of the trust fund.
Bills that increase the cost of benefits from the trust fund
or reduce revenue to the trust fund could prevent California
from receiving the required waiver. If California does not
qualify for the necessary waiver, it is estimated that
employer tax liabilities would increase by $2 billion on top
of what they currently pay. This additional liability would
start with the 2014 tax year, which employers would begin
paying in 2015.
6)Amendments . The author intends to offer amendments to the
Committee that would apply the expansion of UI benefits
contemplated by the bill only to classified employees of
public schools.
7)Previous Legislation . In 2013, this committee passed AB 615
(Bocanegra) which is nearly identical to this bill. The bill
was held on the Assembly Appropriations Committee Suspense
File. The Assembly Appropriations Committee estimated that AB
615 would have resulted in $75 million in increased costs to
the SEF and that school districts statewide would be subject
AB 1638
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to millions of dollars of increased payments to the SEF.
REGISTERED SUPPORT / OPPOSITION :
Support
California School Employees Association
California Teachers Association
Communications Workers of America, Local 9003
SEIU
Opposition
Association of California School Administrators
California Association of School Business Officials
California School Boards Association
Fresno Unified School District
Riverside County Superintendent of Schools
San Diego Unified School District
School Employers Association of California (SEAC)
Small School Districts' Association (SSDA)
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086