[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
TO REVIEW STATE USE OF FEDERAL UNEMPLOYMENT FUNDS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 20, 2003
__________
Serial No. 108-9
__________
Printed for the use of the Committee on Ways and Means
U. S. GOVERNMENT PRINTING OFFICE
88-995 WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Human Resources
WALLY HERGER, California, Chairman
NANCY L. JOHNSON, Connecticut BENJAMIN L. CARDIN, Maryland
SCOTT MCINNIS, Colorado FORTNEY PETE STARK, California
JIM MCCRERY, Louisiana SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan JIM MCDERMOTT, Washington
PHIL ENGLISH, Pennsylvania CHARLES B. RANGEL, New York
RON LEWIS, Kentucky
ERIC CANTOR, Virginia
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2, 4
WITNESSES
U.S. Department of Labor, Hon. Emily S. DeRocco, Assistant
Secretary, Employment and Training Administration.............. 8
U.S. General Accounting Office, Sigurd R. Nilsen................. 21
______
Louisiana Department of Labor, Dawn Romero Watson................ 48
National Association of State Workforce Agencies, and Oklahoma
Employment Security Commission, Jon Brock...................... 35
National Employment Law Project, Maurice Emsellem................ 42
Ohio Department of Job and Family Services, Melissa DeLisio...... 39
SUBMISSIONS FOR THE RECORD
Texas Workforce Commission, Austin, TX, Diane Rath, T.P.
O'Mahoney, and Ron Lehman, letter.............................. 62
UWC--Strategic Services on Unemployment & Workers' Compensation,
Eric Oxfeld, and Society for Human Resources Management, Deron
Zeppelin, joint statement...................................... 63
Virginia Employment Commission, Richmond, VA, Dolores Esser,
statement...................................................... 66
TO REVIEW STATE USE OF FEDERAL UNEMPLOYMENT FUNDS
----------
THURSDAY, MARCH 20, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Human Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:00 p.m., in
room B-318, Rayburn House Office Building, Hon. Wally Herger
(Chairman of the Subcommittee) presiding.
[The advisory and revised advisory announcing the hearing
follow:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HUMAN RESOURCES
CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
March 13, 2003
HR-1
Herger Announces Hearing to Review
State Use of Federal Unemployment Funds
Congressman Wally Herger (R-CA), Chairman of the Subcommittee on
Human Resources of the Committee on Ways and Means, today announced
that the Subcommittee will hold a hearing to review State use of $8
billion in surplus Federal unemployment funds distributed in March
2002. The hearing will take place on Thursday, March 20, 2003, in room
B-318 Rayburn House Office Building, beginning at 1:00 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
The Unemployment Compensation (UC) program is a State-Federal
partnership under which benefits are paid to laid-off workers who have
a history of attachment to the workforce. Federal payroll taxes paid by
employers support Federal responsibilities under the system, including
certain administrative expenses, loans to States, and the Federal half
of extended benefit costs. These Federal taxes are held in accounts
that are part of the unified Federal budget.
When balances in the Federal accounts exceed certain ceilings,
excess funds are generally transferred to State accounts, under a
process known as ``Reed Act transfers'' in reference to legislation
first passed in the 1950s. However, in recent years a provision in the
1997 Balanced Budget Act (P.L. 105-33) retained most excess funds in
the Federal accounts in an effort to reduce Federal deficits. By early
2002, this change had resulted in the accumulation of significant
surpluses in the Federal accounts.
The Job Creation and Worker Assistance Act of 2002 (P.L. 107-147)
transferred a total of $8 billion in Federal unemployment funds to the
States. The legislation provided that these funds could be used for
unemployment program administration, payment of unemployment benefits,
and re-employment efforts. In addition, States could use these funds to
provide unemployment benefits to individuals not otherwise eligible for
regular UC, such as those seeking only part-time work or those eligible
only under an alternative base period.
In announcing the hearing, Chairman Herger stated, ``In March 2002,
Congress transferred an unprecedented $8 billion to help States provide
unemployed workers with benefits and support in finding new jobs,
including by keeping payroll taxes low. This hearing will review how
those funds have been used by States to assist workers and prevent tax
increases, among other important uses.''
FOCUS OF THE HEARING:
The hearing will focus on how States have used the $8 billion in
Federal unemployment funds distributed in March 2002.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Thursday, April 3, 2003.
Those filing written statements who wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the Subcommittee on Human Resources in room
B-317 Rayburn House Office Building, in an open and searchable package
48 hours before the hearing. The U.S. Capitol Police will refuse
sealed-packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
* * * POSSIBLE TIME CHANGE * * *
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HUMAN RESOURCES
CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
March 20, 2003
HR 1-REV
Possible Change in Time for Hearing to
Review State Use of Federal Unemployment Funds
Congressman Wally Herger (R-CA), Chairman, Subcommittee on Human
Resources of the Committee on Ways and Means, today announced the
Subcommittee hearing to review State use of Federal unemployment funds
previously scheduled for Thursday, March 20, 2003, at 1:00 p.m., in
room B-318 Rayburn House Office Building, will begin 30 minutes after
the conclusion of the Health Sub-
committee markup. The Health Subcommittee markup will begin at 11:30
a.m., or at the conclusion of the Republican conference meeting. If the
Health Subcommittee markup ends at 12:30 p.m., then the hearing will
still
begin at 1:00 p.m.
All other details for the hearing remain the same. (See
Subcommittee Advisory No. HR-1, dated March 13, 2003.)
Chairman HERGER. Welcome to today's hearing.
I do want to acknowledge that circumstances in the world
today are much different than they were, when we planned this
hearing; and I appreciate all of you coming to take part in
this important part of our Nation's democratic process. We are
fortunate to live in a free Nation where all opinions are
valued. We owe a great deal of debt to the brave men and women
serving our country today who are laying their lives on the
line to protect this right for all of us.
Now to our hearing.
This Committee has a long history of assisting unemployed
workers. Today's hearing focuses on one specific effort, the $8
billion in Federal funds we provided States last March. I
expect additional hearings in the coming months will review
other features of the Nation's unemployment benefits program,
so we will have ample opportunity to consider ways to improve
this program and make the benefits more responsive to worker
needs.
This Committee also will continue to work to stimulate
economic growth and job creation. That is the only way workers
can receive what they really want, a paycheck, not an
unemployment check.
I want to begin by thanking our Ranking Member, Ben Cardin,
for requesting a U.S. General Accounting Office (GAO) report on
how States used this $8 billion we provided last year. Here is
what we know.
First, when States asked for help with budget demands, this
Committee delivered. The $8 billion Federal unemployment fund
transfer made in March 2002, was unprecedented in size.
According to data from GAO and the Congressional Research
Service, the March, 2002 transfer was six times larger than all
prior transfers combined, using inflation-adjusted dollars.
I have prepared the chart on my right, a copy of which is
also in the Members' folders, that shows how this transfer
compared with prior transfers.
[The chart follows:]
[GRAPHIC NOT AVAILABE IN TIFF FORMAT]
----------
Chairman HERGER. Second, we have detailed information about
how States used the broad flexibility in spending or reserving
this money for their unemployment benefit needs. The GAO
reports 30 States were able to pay promised unemployment
benefits without having to raise State payroll taxes. Absent
this infusion of Federal funds, those States would have had to
raise taxes in a recession. These funds also kept more States
from having to borrow to pay benefits. A number of States have
updated their computer and other systems to better handle
claims and prevent fraud and abuse.
It is noteworthy that only a handful of States used this
money to increase unemployment benefits, but about $6 billion
remains available to extend or expand benefits if States choose
that path.
This hearing also will let us consider the conditions under
which these huge Federal surpluses accumulated. If we had not
torn down the walls around this Federal money, the Federal
accounts would have remained in surplus, while most States had
to raise taxes to pay benefits.
We also should consider whether broader funding reforms
like those proposed by the Administration are needed. These
reforms would allow States to set and collect a more
appropriate amount of taxes to pay for getting unemployment
benefits to workers in need.
Without objection, each Member will have the opportunity to
submit a written statement and have it included in the record
at this point.
Mr. Cardin, would you like to make an opening statement?
[The opening statement of Chairman Herger follows:]
Opening Statement of The Honorable Wally Herger, Chairman, and a
Representative in Congress from the State of California
This Committee has a long history of assisting unemployed workers.
Today's hearing focuses on one specific effort--the $8 billion in
Federal funds we provided States last March. I expect additional
hearings in the coming months will review other features of the
Nation's unemployment benefits program. So we will have ample
opportunity to consider ways to improve this program and make benefits
more responsive to worker needs.
This Committee also will continue to work to stimulate economic
growth and job creation. That's the only way workers can get what they
really want--a paycheck, not an unemployment check.
I want to begin by thanking our ranking Member, Ben Cardin, for
requesting a GAO report on how States used the $8 billion we provided
last year.
Here's what we know. First, when States asked for help with budget
demands, this Committee delivered. The $8 billion Federal unemployment
fund transfer made in March 2002 was unprecedented in size. According
to data from GAO and the Congressional Research Service, the March 2002
transfer was six times larger than all prior transfers combined, using
inflation-adjusted dollars. I have prepared the chart on my right, a
copy of which is also in the Members' folders, that shows how this
transfer compares with prior transfers.
Second, we have detailed information about how States used the
broad flexibility in spending or reserving this money for their
unemployment benefit needs. GAO reports 30 States were able to pay
promised unemployment benefits without having to raise State payroll
taxes. Absent this infusion of Federal funds, those States would have
had to raise taxes in a recession. These funds also kept more States
from having to borrow to pay benefits.
A number of States have updated their computer and other systems to
better handle claims and prevent fraud and abuse. It is noteworthy that
only a handful of States used this money to increase unemployment
benefits. But about $6 billion remains available to extend or expand
benefits if States choose that path.
This hearing also will let us consider the conditions under which
these huge Federal surpluses accumulated. If we had not torn down the
walls around this Federal money, the Federal accounts would have
remained in surplus while most States had to raise taxes to pay
benefits. We also should consider whether broader funding reforms like
those proposed by the Administration are needed. The reforms would
allow States to set and collect a more appropriate amount of taxes to
pay for getting unemployment benefits to workers in need.
Mr. CARDIN. Thank you, Mr. Chairman; and let me join you in
expressing our thoughts for the men and women in armed services
who are in harm's way today. Obviously, it is difficult for us
to continue our business, but we must continue our business.
Our prayers are certainly with our troops, and the subject of
today's hearing is an important hearing dealing with those
people who have lost their jobs who need unemployment insurance
(UI).
Over the last 2 years, our economy has lost 2 million jobs.
A strong unemployment system moderates the negative impact that
these job losses have on individual workers and on our entire
economy. Our UI system is designed to take in more revenue than
it needs during good times so it can pay out more than it takes
in during hard times. It is exactly what has happened.
The Federal Unemployment Insurance Trust Fund played such a
role during this current economic downturn. If you look at what
has happened in recent history, the Federal account paid down
almost $3 for every $1 collected during the last year. These
payments went out in three different forms. We had the Reed Act
distributions that Chairman Herger has referred to, the
extended benefits to dislocated workers, and administrative
payments for State unemployment programs.
We should be extremely careful, though, about undermining
the ability of the unemployment system to provide a similar
response during future economic downturns. In this context, Mr.
Chairman, I challenge the wisdom of the Administration's
proposal to eliminate three-quarters of the revenue now
dedicated to the Federal unemployment trust funds.
Along with Senator Kennedy, I requested the GAO to evaluate
how States utilized the $8 billion in refund distributions 1
year ago. Let me just observe that we supported the legislation
and the transfer of these funds to the States. We thought that
was an appropriate thing to do. However, we did not believe it
would, in fact, add greatly to the States' ability to increase
their UI benefits to their workers, their unemployed workers.
There was some who thought that that would be sufficient, just
give the agreed money to our States and that they would be able
to take care of the increased needs. That was not the case, and
we thought it would not be the case.
The Chairman has already referred to the preliminary
results of that survey showing that, yes, it did help States
from having to increase their UI taxes, but very few States
used that money to expand the benefits itself. This means
Congress still has work to do to eliminate barriers preventing
low-wage workers and part-time workers from receiving
unemployment benefits when they are laid off.
In a GAO report from 2 years ago, you informed us that low-
wage workers are only one-half as likely to receive
unemployment benefits compared to higher wage workers, even
when employed for similar lengths of time. Mr. Chairman, we
should be working on solving that problem, because my
observation is that it is probably even worse today than it was
2 years ago.
I look forward to hearing from our witnesses, some of whom
have traveled to Washington during this very difficult time. We
appreciate you being here, and we look forward to your
testimony.
Chairman HERGER. Thank you, Mr. Cardin.
Before we move on to our testimony, I want to remind to our
witnesses to limit their oral statements to 5 minutes. However,
without objection, all of the written testimony will be made a
part of the permanent record.
For our first witness today, we are honored to have the
Honorable Emily Stover DeRocco, the Assistant Secretary of the
Employment and Training Administration at the U.S. Department
of Labor. Secretary DeRocco.
STATEMENT OF THE HONORABLE EMILY S. DEROCCO, ASSISTANT
SECRETARY, EMPLOYMENT AND TRAINING ADMINISTRATION, U.S.
DEPARTMENT OF LABOR
Ms. DEROCCO. Good afternoon, Chairman Herger and
distinguished Members of the Subcommittee. Thank you for
inviting me to testify. I am extremely pleased to have the
opportunity to talk with you about how States used last year's
Reed Act distribution.
I want to start by thanking you, Mr. Chairman, and the
Subcommittee for your leadership in crafting the legislation
that established the Temporary Extended Unemployment
Compensation (TEUC) program and transferred $8 billion in
Federal unemployment funds to the States via a Reed Act
distribution. This unprecedented action is helping to meet the
present needs of unemployed workers as well as providing
critical economic stimulus.
Before discussing the Reed Act distribution, I would like
to just mention briefly the Administration's proposal to reform
the UI system and to thank and recognize Mr. McCrery and Mr.
Herger for their leadership on that issue.
As you know, our proposal would promote job growth by
cutting Federal unemployment taxes and simplifying the filing;
strengthening the extended benefits program by lowering the
``trigger;'' and giving States new opportunities and
flexibility to administer the UI program. The UI reform is
indeed one of the Administration's highest priorities, and I
want to express my eagerness to work with this Subcommittee on
that issue.
Turning to the Reed Act, since the GAO and the National
Association of State Workforce Agencies (NASWA) are in a better
position to detail their reports to you, I want to give you a
broad overview of State actions; and I do want to thank both of
those organizations for the fine work they have done in
surveying the States.
Further, a complete assessment of the distribution cannot
be made at this time because many States plan to propose
further use of Reed Act funds in 2003.
As to the requirements concerning the use of the 2002 Reed
Act distribution, generally, Federal law requires that these
funds only be used for the payment of unemployment benefits and
for the administration of the UI laws and the State's system of
public employment offices. State legislative action is required
if Reed Act moneys are used for administrative purposes and to
change benefit eligibility provisions.
With respect to benefits, the law specifically referenced
some optional expansions of eligibility to groups of workers
who are not currently eligible in some States and optional
extensions of State benefits for TEUC exhaustees.
The immediate effect of the Reed Act distribution was an
improvement in the account balances of State unemployment
funds. On average, those fund balances were raised by about 20
percent at the time of the distribution. This, in turn, did
postpone or avoid the need to raise employer taxes in many
States, which is important at a time when business investment
is needed to spark economic growth.
The Reed Act distributions also delayed borrowing for some
States. Although we do have some States in borrowing status now
and others may need to borrow in the future, indeed, the Reed
Act distribution helps States that otherwise would have had to
borrow.
The GAO report indicates that, for 2003, the Reed Act
distribution mitigated or avoided tax increases in 26 States.
It is important to note that using Reed Act funds to avoid
or mitigate tax increases now does not preclude States from
using these funds in the future to increase benefits or for
expanded services after their trust fund balances have
recovered. There is no time limit on the use of the Reed Act
distributed funds.
With respect to benefits, the GAO report found that nine
States increased or expanded benefits either temporarily or
permanently. These States either increased their weekly benefit
amounts, they enacted alternative base periods, or they enacted
a State benefits extension for certain exhaustees.
Given the relatively short period of time many State's
legislatures were in session following the distribution last
year and the fact that heavy demands were already being placed
on their State unemployment trust funds, I think this shows
that the States took very seriously your suggestion to consider
expanding eligibility.
The Department of Labor also clarified and encouraged use
of some of these funds for certain administrative purposes:
One, to fund reemployment activities through the One-Stop
Career Center systems; two, in line with your Subcommittee's
concerns and the President's management agenda, to improve
systems for preventing, detecting, and recovering overpayments
of unemployment benefits; three, to improve performance; and,
last, to improve customer service to both claimants and
employers.
As to State actions related to these administrative issues,
according to the GAO, again, 21 States appropriated some funds
for UI administrative improvements such as general technology,
claims systems development and, we are pleased to note, benefit
payment integrity.
So, in sum, the information received so far indicates that
States are using Reed Act funds to meet the unique needs of
their workforce and their labor markets and that these funds
are contributing to local economies as this Subcommittee
intended.
This concludes my remarks, and I will be glad to respond to
any questions.
[The prepared statement of Ms. DeRocco follows:]
Statement of The Honorable Emily S. DeRocco, Assistant Secretary,
Employment and Training Administration, U.S. Department of Labor
Good morning, Chairman Herger and distinguished members of the
Subcommittee. Thank you for inviting me to testify. I am extremely
pleased to have the opportunity to discuss how states have used last
year's Reed Act distribution. I would like to start by thanking you,
Mr. Chairman and the Subcommittee, for your leadership in crafting
legislation that established the Temporary Extended Unemployment
Compensation (TEUC) program and transferred $8 billion in federal
unemployment funds to the states via a Reed Act distribution. This
unprecedented action is helping to meet the present needs of unemployed
workers as well as providing critical economic stimulus.
Before discussing the Reed Act distribution, I would like to
mention briefly the Administration's proposal to reform the
unemployment insurance (UI) program. In the 2004 Budget, the
Administration again proposes long-term reforms that will promote
flexibility and strengthen the critical UI assistance that states
provide to America's workers. Our proposal will promote job growth,
help unemployed workers and businesses alike, and give states new
administrative opportunities. Specifically, the proposal:
LPromotes job growth by cuts in federal unemployment
taxes and simplified filing;
LGives states over $5 billion in ``special'' Reed Act
distributions to phase in the new system over five years;
LHelps unemployed workers by making it easier to access
Extended Benefits by reforming the automatic ``trigger mechanism'';
LAllows states to determine administrative funding
levels and provides new flexibility in program administration; and
LContinues federal oversight and preserves workers' UI
safety net by continuing state access to federal loans to pay benefits,
should states run short of funding.
As you know, the UI program is a key element of our Nation's
economic infrastructure. While the program acts as a critical automatic
stabilizer during economic downturns, the system's administrative
structure is an unwieldy relic that badly needs an overhaul. For this
reason, UI reform is one of the Administration's highest priorities.
I want to express the Administration's eagerness to work with the
Subcommittee to enact reform legislation to make the UI system more
responsive to the needs of workers and employers by giving states
flexibility and control.
Now, turning to the Reed Act, I would like to thank my colleagues
at the General Accounting Office (GAO) and the National Association of
State Workforce Agencies (NASWA) for the fine work they have done to
date in detailing state use of the recent distribution. Since GAO and
NASWA are in a better position to provide detailed information from
their reports, I will give you a broad overview of state actions in the
context of overall economic policy. Further, I will reference the GAO
report since its survey is the most recent. A complete assessment of
the distribution cannot be made at this time because many states plan
to propose further use of Reed Act funds in 2003.
I'd like to briefly recap the requirements concerning the use of
the 2002 Reed Act distribution. In general, federal law requires that
these funds only be used for the payment of unemployment benefits and
for the administration of the state's unemployment laws and its system
of public employment offices. State legislative action is required if
Reed Act moneys are used for administrative purposes and, obviously,
state legislative action is necessary to change benefit eligibility
provisions. With respect to benefits, the law specifically referenced
optional expansions of eligibility to groups of workers who are not
currently eligible in some states, such as those seeking only part-time
work and those workers who would qualify if more recently earned wages
were available for determining benefit eligibility. It also referenced
optional extensions of state benefits for TEUC exhaustees.
The immediate effect of the $8 billion Reed Act distribution was a
marked improvement in the account balances of state unemployment funds.
On average, fund balances were raised by about 20% at the time of the
distribution. This, in turn, postponed or avoided the need to raise
employer taxes in many states, which is important at a time when
business investment is needed to spark the economy. For example, New
York's fund level went from a negative balance to positive when it used
its Reed Act distribution to pay back a loan from the federal
Unemployment Trust Fund.
Broadly speaking, the balance in a state's fund directly affects
employer taxes because the employer tax rates are tied to the
unemployment fund's balance; when the fund's balance goes up, employer
tax rates go down and vice versa. The GAO report indicates that, for
2003, the Reed Act distribution mitigated or avoided tax increases in
26 states.
It is important to note that using Reed Act funds to avoid or
mitigate tax increases now does not preclude states from using these
funds in the future to increase benefits or for expanded services.
Since the law does not establish a time limit with respect to using
Reed Act funds, states may choose to use these funds for new benefits
or services after trust fund balances have recovered from their current
levels.
And even in this time of economic difficulty, some states did use
their Reed Act funds to enhance benefits. The GAO report found that
nine states increased/expanded benefits either temporarily or
permanently. Alabama, Maryland, Oregon, and Vermont increased their
weekly benefit amounts. Connecticut, the District of Columbia, Georgia,
and Oklahoma enacted alternative base periods, which will make more
recent wages available for determining benefit eligibility. Minnesota
enacted a state benefits extension for certain exhaustees. Given the
relatively short period of time many states' legislatures were in
session following the distribution last year, and the fact that heavy
demands were already being placed on state unemployment funds, I think
this shows that states took seriously your suggestion to consider
expanding eligibility in ways that made sense for their own particular
situations.
Before discussing state actions concerning administrative use of
Reed Act funds, I'd like to mention that the Department of Labor has
been very active in encouraging their use for certain administrative
purposes, including:
LFunding activities that support One-Stop Career Center
systems, such as staff for delivery of core and intensive reemployment
services, thereby returning workers to jobs as soon as possible;
LImproving systems for preventing, detecting, and
recovering fraudulent and other types of overpayments of unemployment
benefits, an issue of particular interest to your Subcommittee and
others in Congress, the Department's Inspector General, the GAO, the
President, as reflected in the Management Agenda, and the Department of
Labor, which has been actively providing technical assistance to the
states;
LImproving performance, with an emphasis on areas where
performance problems have persisted through several years, such as
evaluating current delivery systems and funding the costs of
improvement; and
LEnhancing customer service by creating systems that
allow Internet reporting of wage and tax information by employers and
Internet claims filing by workers. We also recommended creating systems
for the electronic payment of employer taxes and direct deposit of
unemployment checks for claimants.
As to state actions, according to the GAO report, 21 states
appropriated some of these funds for UI administrative improvements.
Activities for which funds were appropriated include general
technology, claims system development, and, we are very pleased to
note, benefit payment integrity.
In summation, information received so far indicates that states are
using Reed Act funds to meet the unique needs of their workforce and
local economies, and these funds are contributing to economic stimulus
as this Subcommittee intended.
This concludes my remarks. I will be glad to respond to any
questions you may have. Thank you.
Chairman HERGER. Thank you for your testimony. I would like
to remind Members that they each have 5 minutes for witness
questioning. With that, the gentleman from Louisiana, Mr.
McCrery, to inquire.
Mr. MCCRERY. Thank you, Mr. Chairman. Ms. DeRocco, could
you review for us how we got this money in the first place,
this $8 billion that we sent back to the States? How did that
accumulate?
Ms. DEROCCO. Certainly. These are employer payroll taxes,
as you know, that every employer pays into the unemployment
trust fund. The Federal unemployment accounts, there are three
in the overall unified Federal budget. Those accounts are
dedicated to employment security Administration for the payment
of loans and for the Federal share of extended benefits.
Over time, the payment of dollars into the trust fund with
the interest accrued continues to grow, and when they reach a
certain cap there is an automatic Reed Act distribution.
Because the account levels were so high, this Committee made
the determination to do a Reed Act distribution of $8 billion
to return those employer-paid tax dollars to the States from
whence they came in order for the States to use them more
effectively.
Mr. MCCRERY. So, in those Federal accounts, do we still
have a surplus?
Ms. DEROCCO. Absolutely. Right now, the account's balance
is at $23 billion; and, by all estimations, we have sufficient
dollars for all of our needs long into the future.
Mr. MCCRERY. Now, some of those taxes that are sent to
Washington from the States are supposed to be used for
administrative expenses of the unemployment system, isn't that
correct?
Ms. DEROCCO. That is correct, and the States have long held
that Congress does not appropriate sufficient funds for their
administrative purposes.
Mr. MCCRERY. Well, is there some formula that determines
what amount of the taxes sent to Washington should be set aside
for administrative purposes?
Ms. DEROCCO. We determine administrative needs for the
States based on workloads. So, there is a very strong workload-
driven formula for the identification of administrative needs
for the States and the requests for administrative dollars in
the subsequent appropriation.
Mr. MCCRERY. Until last year when we sent back the $8
billion, were we returning to the States the full amount of the
payroll taxes that they were sending to us for administrative
purposes?
Ms. DEROCCO. Yes, sir. I believe, on average, about 55
cents of every dollar was being returned for administrative
purposes.
Mr. MCCRERY. So every dollar of taxes that were collected
by the States for the purpose of administering their
unemployment systems, they were only getting back 55 cents?
Ms. DEROCCO. That is correct.
Mr. MCCRERY. They were only getting that back because that
amount is subject to an annual appropriation by Congress?
Ms. DEROCCO. That is correct. The level in the unemployment
trust fund allows other spending against the amounts
accumulated in the unemployment trust fund.
Mr. MCCRERY. Was your department hearing complaints from
the States over the last few years about an inability to
administer properly their programs because of insufficient
funds appropriated by the Congress?
Ms. DEROCCO. Absolutely. I would say there is not a State
that has not expressed their concern about not receiving all of
their employer-paid tax dollars back in order to properly
administer this program.
Mr. MCCRERY. Well, is that an important part of the UI
system, this administrative burden that the States have?
Ms. DEROCCO. Well, it is an important Federal-State
partnership at this juncture for----
Mr. MCCRERY. Well, no. The Federal doesn't administer any
of this, does it?
Ms. DEROCCO. No. We have some minimum administrative
requirements as they relate to interstate claims and as they
relate to assurance of conformity with Federal law.
Mr. MCCRERY. Right.
Ms. DEROCCO. The actual operation and Administration of
this program is wholly a State function, and it is in the
State's realm of responsibility to set benefit eligibility
requirements to establish a system that operates effectively
and efficiently on behalf of both claimants and employers.
Mr. MCCRERY. So, does the administrative function have
anything to do with getting the cash to the beneficiaries?
Ms. DEROCCO. It has everything to do with getting the cash
to the beneficiaries. If the administration of the program is
broken, the claimants will not receive timely and accurate
benefits.
Mr. MCCRERY. So, it is kind of important, isn't it?
Ms. DEROCCO. Absolutely.
Mr. MCCRERY. Thank you.
Chairman HERGER. I thank the gentleman. Now the Ranking
Member, Mr. Cardin, from Maryland.
Mr. CARDIN. Thank you, Mr. Chairman.
Just to follow up a little bit with Mr. McCrery's comments.
When the stakeholders came in with recommendations several
years ago that deal with the issues that Mr. McCrery was
raising in addition to other problems concerning low-wage
workers and part-time workers--and we have been looking for a
little leadership for someone to bring these proposals before
the Congress. Can we count on the Administration coming forward
with perhaps that recommendation so at least we have a starting
point for reform of the system?
Ms. DEROCCO. Well, we would like the Administration's
proposal for reform to be the starting point for discussion. I
do have great respect for the stakeholders who came together to
discuss these issues. Many of them I am sure, if not all of
them, will continue to be involved in the public policy
discussions; and it is important for them to continue to be.
Mr. CARDIN. Well, I appreciate that answer, although I
don't think it was an answer.
As you know, the Administration could come in and request
for money in their budgets for the administration of the UI
system by the States. Have you put more money in the budget for
this purpose? Are you requesting more money?
Ms. DEROCCO. We have attempted to request administrative
dollars that are adequate for State Administration that are----
Mr. CARDIN. Does your budget this year----
Ms. DEROCCO.--that are close to the cost that we now assess
based on a new resource justification model as possible and
still stay within the constraints of the overall President's
budget.
Mr. CARDIN. Yes, and I understand that, and I think the
answer is, no. I don't think you have requested the extra
money, nor do I think the budget document that is on the floor
today provides for that extra funds. I could be wrong on that.
Mr. MCCRERY. Will the gentleman yield?
Mr. CARDIN. Yes, I would be glad to.
Mr. MCCRERY. Does the President's budget make room for the
administrative reforms that the Administration has proposed?
Ms. DEROCCO. The President's budget does speak to the
reforms of the Administration's proposal. The President's
budget----
Mr. CARDIN. I guess my point, Mr. McCrery----
Mr. MCCRERY. That is a reform proposal that would give the
States total control over their----
Mr. CARDIN. I understand what you are suggesting. I guess
my point is that the statement has been made that there is more
money paid in than being paid out. I don't think that was true
for last year, we paid out a lot more, because the
administrative cost is only one area that the revenues are used
for. The redistribution money came out of there as well as the
payment for extended benefits.
I guess my point, Secretary Chao was before our Committee
last week, and I raised the issue that the extended benefit
program will terminate in May absent additional action by
Congress. She promised that the Administration will be
monitoring that situation as to whether to recommend a further
extension, and I reminded her that our calendar moves pretty
quickly around here, and Congress doesn't act quickly. So, the
earlier the Administration makes a decision, the more orderly
the process can be.
I just was curious as to what standards the Administration
would be using. I believe the unemployment rate is higher today
than it was when we last extended the benefits by a tenth of a
percentage point. The exhaustee rate is higher. Last month, we
had 308,000 people who lost their jobs. We have three people
unemployed for every person who is trying to seek a job today.
So, can you enlighten this Committee as to what standards the
Administration will be monitoring in order to decide whether to
recommend an extended--further extension of the benefit
program?
Ms. DEROCCO. Yes, sir. We have committed to continuously
assess the state of the economy. The unemployment rate in
February was 5.8 percent, which is below the 6.0 percent high
recorded in December 2002. We are watching the unemployment,
the total unemployment.
Mr. CARDIN. The 5.8 percent is higher than when the benefit
program was first started, isn't that correct? Wasn't it 5.7
percent at that point?
Ms. DEROCCO. I believe the first extension was at a point
when the total unemployment rate was 5.7 percent. We also
monitor the initial claims that are reported every week. We
monitor the index of leading indicators, which for the third
consecutive month had risen as of December. Real personal
income is higher than pre-recession peak and increasing, and
other economic indicators are important to an analysis of the
need for another extension of the temporary extended
unemployment program.
Mr. CARDIN. By what you are suggesting, does that mean the
Administration has made a decision already that it will not
seek further extension?
Ms. DEROCCO. Absolutely not.
Mr. CARDIN. I am glad to hear that.
Ms. DEROCCO. We have not made that decision. We are going
to continually assess the economic situation.
Mr. CARDIN. Let me just make an observation, that I
strongly recommend that you monitor this closely and make a
decision in an orderly way.
I just tell you, on the streets in our community and around
the Nation, people are hurting and can't find employment who
are looking for employment and that, obviously, we need to do
everything we can to strengthen our economy and provide jobs
which the Administration has talked about frequently and which
we in the Congress support. Those who can't find jobs need the
protection of our system, and I would just urge the
Administration to make a decision as early as possible.
Thank you, Mr. Chairman.
Chairman HERGER. Thank you. The gentleman from Kentucky,
Mr. Lewis, to inquire.
Mr. LEWIS OF KENTUCKY. Yes. Thank you, Mr. Chairman.
I just might make a note of the fact that, in 1994, the
unemployment benefits ceased when the unemployment rate was
6.4, so I think we are a little better off with 5.8 today.
Secretary DeRocco, I would like to--you referred to some
stimulant effects to the economy when we transferred this $8
billion to the States, and GAO's report states that 30 States
were able to keep unemployment taxes from rising last year.
Nonetheless, a later witness, Maurice Emsellem, says in his
testimony that it is clear that the $8 billion in funding did
not help stimulate State economies, apparently because States
chose not to use the money to expand benefits.
Can you review for us why you feel the economy has been
helped by this?
Ms. DEROCCO. Absolutely. Employer taxes under the UI system
in virtually all States are tied to the condition of the
unemployment trust fund; and when trust fund levels are low,
employer taxes trigger higher. We believe that higher employer
taxes lead to more difficulty for employers to have a positive
bottom line, and often that results in additional job loss. Our
ability through the good work of this Committee to ensure that
the $8 billion transferred to the States allowed States to
increase their solvency to assure the balance in their
unemployment trust fund and to keep those employer taxes from
increasing dramatically in turn kept the employers operating,
in many cases still creating jobs and keeping people working.
That is an important offspring from this distribution of Reed
Act funds.
Mr. LEWIS OF KENTUCKY. Absolutely. Thank you. Thank you,
Chair.
Chairman HERGER. Thank you. The gentleman from Michigan,
Mr. Levin, to inquire.
Mr. LEVIN. I just would like to pursue these questions from
the point of view of a person who is out of a job. You said
there are $23 billion in the trust fund now, right?
Ms. DEROCCO. Um-hmm.
Mr. LEVIN. Eight billion dollars was distributed to the
States. Most of that money remains in State treasuries, right?
Ms. DEROCCO. That is correct. About $6 billion of it.
Mr. LEVIN. Three-quarters.
Ms. DEROCCO. Right.
Mr. LEVIN. Mr. Lewis talks about the unemployment rate
being lower. What is the exhaustion rate today? Isn't it
higher?
Ms. DEROCCO. Well, right now, we have about 2.7 million
people that have exhausted their extended benefits.
Mr. LEVIN. Okay, and how many are predicted to exhaust
their benefits between now and June?
Ms. DEROCCO. I don't know that. I don't have that.
Mr. LEVIN. I think it is about 200 a month. That sounds
more or less correct?
Ms. DEROCCO. That is a reasonable estimate.
Mr. LEVIN. So, what is your answer to the person who has
exhausted their benefits, who is looking for work and are
required to look for work under State law? That is monitored,
and the exhaustion rate is high. So, tell me, what is your
answer to that unemployed worker?
Ms. DEROCCO. Well, Mr. Levin, I have tremendous compassion
for every worker that is unemployed.
Mr. LEVIN. Tell me what your answer is.
Ms. DEROCCO. My answer is two-fold.
Number one, this economy is in a very dynamic economy. For
example, in the month of November, we had 3.85 million people
who were separated from their jobs. At the same time, 3.96
million were newly hired and 2.8 million job vacancies remained
unfilled. That is just 1 month's data from the Bureau of Labor
Statistics to illustrate that there are job opportunities.
We invest taxpayer dollars in a system called the Workforce
Investment System in the range of $10 to $12 billion a year;
and the intention of that system is to provide employment and
reemployment services for unemployed workers, for those who
don't have the skills that are marketable in their local labor
market, to provide for skills development for the jobs that are
available so they have a chance at reemployment.
Mr. LEVIN. Okay. I am fully aware of that. Those are the
data. So, your conclusion from those data--your conclusion is
that the huge numbers of people who have exhausted their
benefits aren't finding jobs that are there or that they are
not seeking retraining? Just put together your data and look at
it from the individual point of view. There are hundreds and
hundreds of thousands of people who have exhausted their
benefits who are looking for work.
Ms. DEROCCO. There are billions of dollars in services
available to help them find work.
Mr. LEVIN. I know, but they are not finding work.
Ms. DEROCCO. Well, perhaps they are not accessing those
services, either. That is an important component of a plan to
get people back to work. I don't believe unemployed workers
want another unemployment check. I believe they want a
paycheck.
Mr. LEVIN. Okay. Then if they want another paycheck, but
they are not getting one, there is something wrong.
Ms. DEROCCO. Their skills may not match the requirements
for the jobs that are available in their local labor market or
in one close by.
Mr. LEVIN. Okay. So, while they are looking for jobs, why
have an unemployment system that provides less of a base for
living for those people than was true 10 years ago?
Ms. DEROCCO. Well, right now, we have an unemployment
system with extended benefits opportunities that is providing
up to 65 weeks of unemployment.
Mr. LEVIN. Well, that is for a small number of people in a
few States. Yes, you know that.
Ms. DEROCCO. Well, the minimum----
Mr. LEVIN. The 65 weeks is for a very few people. What do
you tell the people in the vast majority of States who have
exhausted their 39 weeks, can't find a job? Give me a simple
answer that I can tell those people.
Ms. DEROCCO. I would tell them that we want to help you
find a job, and we have the services, we have the resources,
and we have the capability to help you find a job.
Mr. LEVIN. So, why aren't they finding it? What is the
problem?
Ms. DEROCCO. I think there is a disconnect among many of
the current services that are available and knowledge of those
services, our ability to reach unemployed workers, which is
why----
Mr. LEVIN. Whose fault is that?
Chairman HERGER. The gentleman's time has expired.
Mr. LEVIN. Whose fault is that?
Ms. DEROCCO. These are State and locally run systems with
Federal oversight, and all of us need to do a better job in
outreach.
Chairman HERGER. The gentleman's time has expired.
Madam Secretary, I note that the GAO report provides
results through November 30, 2002. For those who are concerned
that States have not spent enough of this money, is it quite
possible that some of these States have spent more since then
or plan to spend more this year?
Ms. DEROCCO. Absolutely. We know for a fact that there are
two additional States that have taken action to extend or
expand eligibility. The State of Virginia has an alternative
base period plan pending finalization. The State of Utah has an
extension of extended benefits pending action as well.
Again, because the distribution was made at a time when
State legislatures were partway through their sessions, many
States didn't have an opportunity to consider or to recommend
use of the Reed Act dollars. We expect significantly more
actions in 2003.
Chairman HERGER. Thank you very much. Now I recognize the
gentleman from Washington, Mr. McDermott, to inquire.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
Having been in a State legislature for a number of years
like many on this panel, I sometimes look at it from what it
looks like down their end. Can you give me the names of the
governors who support your plan? It has been out there for a
year for them to look at. Which governors have put their name
in support of it?
Ms. DEROCCO. We do have governors who have support it, but
we----
Mr. MCDERMOTT. Give me the names.
Ms. DEROCCO. We had a significant change in governors as of
the November election.
Mr. MCDERMOTT. I am asking you, what governors do you have?
Give their names.
Ms. DEROCCO. I have not had personal discussions with the
governors yet, because the revised plan was just made available
in the President's budget in February. I have not personally
had meetings with any governors.
Mr. MCDERMOTT. Did he talk to all the governors and say,
here is my plan; what do you think of it?
Ms. DEROCCO. He may have talked to governors. I am not
sure.
Mr. MCDERMOTT. So, this is another one of those plans from
Washington, DC, that is going to help the States, and you
haven't got a single governor's name to give me who is in
support of this.
Ms. DEROCCO. I will be glad to get back----
Mr. MCDERMOTT. Not one single one.
Ms. DEROCCO. With the governors that will be supportive of
it.
Mr. MCDERMOTT. Will be. I see. Well, why wouldn't they have
already come forward and said, this is great thing. Hurry up
and do it.
Ms. DEROCCO. In large measure, because we haven't had the
opportunity to go talk with them, brief them on it, and ask
them for their input.
Mr. MCDERMOTT. What has Administration been doing?
Ms. DEROCCO. Since February?
Mr. MCDERMOTT. Yes.
Ms. DEROCCO. Been working very hard on helping unemployed
workers, on workforce investment system changes to ensure
better reemployment and skills development services, and other
priorities.
Mr. MCDERMOTT. It isn't working in my State, whatever you
are doing. It isn't working. We have still got the highest
unemployment or second or third highest unemployment in the
United States. So, whatever you have been doing since February
has been wasted.
Let me ask another question. The legislatures--I know they
are all imbedded right now in enormous financial problems. The
legislatures have certainly come forward and asked for this
plan, haven't they?
Ms. DEROCCO. For the UI plan?
Mr. MCDERMOTT. Yes.
Ms. DEROCCO. I would suspect most State legislatures are
not familiar with the manner in which their employer-paid taxes
are sent to Washington and kept in Washington and not used for
the benefit of their citizens and their employees.
Mr. MCDERMOTT. So, you are going to pull the money out, but
you haven't talked to them about how they are going to replace
it?
Ms. DEROCCO. No, sir. We pulled the money out a long time
ago. We are going to talk to them about how we are going to
give it back to them.
Mr. MCDERMOTT. Give it back to them how?
Ms. DEROCCO. Transferring administrative financing
responsibility to the States.
Mr. MCDERMOTT. So, you are not giving them money; you are
giving them the responsibility.
Ms. DEROCCO. They will be able to keep their employer taxes
in their States in their budgets.
Mr. MCDERMOTT. So, what you are saying to them is, we are
going to take off a Federal tax, and you people have to raise
the tax to replace it. Right?
Ms. DEROCCO. The States would need a replacement tax but at
a significantly lower level than the----
Mr. MCDERMOTT. Why? Why would it be a significantly lower
level?
Ms. DEROCCO. Right now the taxes that we are assessing
against employers we bring to Washington, we put in the
unemployment trust fund, and it accumulates high balances and
additional interest, leaving us with a situation where you
return to the States in 1 year $8 billion in a Reed Act
distribution.
Mr. MCDERMOTT. Isn't that the point of unemployment? You
save it up during the fat period? This is the Bible story. The
old fat years and the lean years. So, in the fat years, you put
the money in, and then when you come to the lean years, you
have got it to give out. Isn't that exactly the deal?
Ms. DEROCCO. That is exactly what is done in the State
unemployment trust funds, which is--because the State
unemployment trust funds are the source from which the benefits
are paid. So that in those lean years when there is an
additional need for benefits to unemployed workers, the State
unemployment trust fund balances are the important level. The
Federal unemployment trust fund balances in large measure for
administrative purposes have grown to such an extent that there
is more than sufficient dollars.
Mr. MCDERMOTT. Is that fund used for anything besides
administrative purposes?
Ms. DEROCCO. Certainly.
Mr. MCDERMOTT. What?
Ms. DEROCCO. It is used for, 50 percent, the Federal
responsibility, for extended benefits and for----
Mr. MCDERMOTT. So, in the lean times, when you want to put
the extended benefits out there, you have to have that money.
Ms. DEROCCO. We have more than sufficient funds. We now
have a balance of $29 billion.
Mr. MCDERMOTT. Why haven't you extended the benefits if you
have got plenty of money? I am glad to hear you say that. I
hope the press will remember that you said we have plenty of
money. Why is the Administration sitting still on extending
benefits when you have all these people blowing out of their
benefits?
Ms. DEROCCO. It is our intention to return that money to
the States so that if they choose to extend benefits or enhance
benefits they have the opportunity to do it.
Mr. MCDERMOTT. What is it that you think it is better
shipping it back down there? Why is it you just don't extend
the program that is already there?
Ms. DEROCCO. I have more confidence in the State executive
and legislative branches to deal effectively and efficiently
for their employers and their constituents than I do with the
Federal Government.
Mr. MCDERMOTT. You are talking about yourself.
Ms. DEROCCO. I am talking about all of us in Washington.
Mr. MCDERMOTT. You are talking about yourself.
Ms. DEROCCO. Yes.
Mr. MCDERMOTT. You have more.
Ms. DEROCCO. I do.
Chairman HERGER. The gentleman's time has expired.
Mr. MCDERMOTT. What I get from you is that you think you
are incompetent and they are competent. So, if you just ship
the money back to them, they will figure out how to put it to
use.
Chairman HERGER. The gentleman's time has expired.
Ms. DEROCCO. I think they are far more competent than
Washington.
Mr. MCDERMOTT. Boy, that is an amazing admission.
Chairman HERGER. Thank you.
Madam Secretary, could you contrast our March 2002, action
with past legislation, including the 1997 Balanced Budget Act?
Is it correct that if we had behaved in 2002 like Congress had
in the past, all or most of this money probably would have
stayed in Federal accounts? Hasn't there been a number of times
that the Federal account ceilings have been raised, leading to
bigger Federal balances and less being returned to the States
as the Reed Act was intended?
Ms. DEROCCO. Absolutely. The normal course of operation
historically seems to have been to raise the caps in the
Federal accounts, to retain the money in Washington, again
primarily for the purpose of offsetting other spending, because
it all resides in the unified Federal budget and it provides an
opportunity to be used as an offset.
Prior distributions of Reed Act funds since 1956, we have
had only eight occasions for distribution, most of them at
fairly minimal levels, the lowest at $16 million; and, of
course, the highest has been the distribution that this
Congress made last year of $8 billion to the States.
Chairman HERGER. I thank you, Madam Secretary.
As our chart showed, we can see very little was returned in
the years after the Reed Act was enacted, and it really wasn't
until just this last year that we finally did return funding to
the States so that they could use it as they needed it and are
doing so with the balance now.
Madam Secretary, I thank you for your testimony. With that,
I would like to ask the next panel to come up and be seated.
Today we are hearing from Sigurd Nilsen, Director of the
Education, Workforce, and Income Security Division at the U.S.
GAO; Jon Brock, former President of the NASWA and Executive
Director of the Oklahoma Employment Security Commission;
Melissa DeLisio, Assistant Director of the Ohio Department of
Job and Family Services; Maurice Emsellem, Director of Public
Policy at the National Employment Law Project.
To introduce the next witness, I turn to my colleague from
Louisiana, Mr. McCrery.
Mr. MCCRERY. Thank you, Mr. Chairman.
We have with us today on our second panel from my State of
Louisiana the Secretary of Labor, Dawn Watson. Ms. Watson,
prior to becoming Secretary since 1997, served as the Deputy
Secretary of the Department of Labor in Louisiana; and prior to
that she worked as a staff attorney for the Louisiana State
House of Representatives from 1991 to 1997. She is a graduate--
an honor graduate of the University of Southwestern Louisiana,
now the University of Louisiana at Lafayette, and my law school
alma mater, Louisiana State University (LSU). She has her juris
doctorate from LSU.
She brought with her today Mrs. Raj Jindal. Mrs. Jindal's
name may be familiar to the Members of the panel. She is the
mother of Bobby Jindal who has just departed Washington, having
served up here as the Assistant Secretary of Planning and
Evaluation at the U.S. Department of Health and Human Services,
and is now back home in Louisiana about to run for Governor.
So, Mrs. Jindal, welcome; and, Ms. Watson, welcome to you.
Ms. WATSON. Thank you.
Mr. CARDIN. Mr. Chairman, if I might, I would like to
welcome Mr. Emsellem on behalf of Mr. Stark. He apologizes for
not being here, but he wanted to welcome his constituent to our
Committee. It is a pleasure to have you.
Chairman HERGER. I would like to recognize someone who is a
Member of the full Committee to introduce one of our witnesses,
Stephanie Tubbs Jones.
Ms. TUBBS JONES. Thank you, Mr. Chairman.
I would like to introduce to each and every one of you a
Buckeye, Melissa DeLisio, who is the Assistant Director of the
Ohio Department of Job and Family Services in Columbus, Ohio.
We actually just met this afternoon, but I have learned in that
short period of time that she has been with the Department for
23 years; and, say it, gentlemen, she only looks like she is
about 26. Come on, join in. No.
We are pleased to have her here to make some presentations
this afternoon about what is going on in Ohio. We are
struggling in Ohio, and we need help, so we have got to figure
out what to do.
Thank you, Mr. Chairman.
Chairman HERGER. You are welcome. With that, we will hear
from our witnesses. Mr. Nilsen.
STATEMENT OF SIGURD R. NILSEN, DIRECTOR, EDUCATION, WORKFORCE,
AND INCOME SECURITY ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Mr. NILSEN. Thank you, Mr. Chairman, Members of the
Subcommittee. I am pleased to be here today to discuss how
States are using the $8 billion that was allocated to them in
March 2002, under the Reed Act.
These funds, as we have heard earlier, may be used to pay
UI benefits or be appropriated by States for the administrative
costs of UI, Employment Service (ES), or one-stop centers.
Today, I will be providing information from our report that was
issued earlier this month that has been alluded to already.
First, as you can see from the pie chart I have over there,
17 percent of the funds, a relatively small proportion, has
been spent so far; and, again, this is through November 30th,
2002. Almost all of the $1.34 billion that was spent was used
to pay regular UI benefits in three States with very low trust
fund reserves. New York spent about $300 million on regular UI
benefits; and the remainder of its distribution, nearly $190
million, was used to repay a Federal UI loan. North Carolina
spent all of its Reed Act funds, $241 million, on regular UI
benefits. Texas used 90 percent of its Reed Act funds, $535
million, to pay regular UI benefits.
According to the Department of Labor, Texas has since spent
its remaining Reed Act funds and, along with New York, has
received a Federal loan to continue paying UI benefits.
Although nine States reported that they have made or plan
to make enhancements to UI benefits with the help of Reed Act
dollars, Vermont is the only State that told us it was spending
Reed Act funds to do so during 2002, spending $1.67 million to
increase weekly UI benefit payments.
You have already heard Ms. DeRocco relate some of the
findings from our study that found that five States reported
that Reed Act dollars enabled them to enhance UI benefits in
2002, and three others told us that they are planning to do so
in 2003.
Next, as the pie chart also shows, 83 percent of the Reed
Act funds is remaining in State unemployment insurance trust
funds. This $6.66 billion boosted UI reserves in a number of
States and enabled 30 States to avoid automatic employer tax
increases or surcharges in 2002. While five States told us that
they had lowered employer taxes in 2003, only two of them, the
District of Columbia and Maine, said it was because of their
Reed Act distribution.
In addition, nine States made binding policy decisions that
obligated 16 percent or $1.27 billion to their trust funds.
Nearly half of it was accounted for by California, that
obligated about $600 million or two-thirds of its allocation to
its trust fund. Four States--Missouri, Kansas, Nevada, and
Delaware--obligated their entire Reed Act distribution to their
trust funds, most frequently citing their desire to avoid
raising employer taxes as a reason for obligating Reed Act
dollars to UI trust funds.
Finally, over half of the States appropriated some Reed Act
funds for the administrative expenses associated with UI or
employment services, including their one-stops. Twenty-seven
States appropriated a total of $662 million, about 8 percent of
the Reed Act distribution, for these purposes. So far, 15
States have spent about $74 million. Interestingly, two States,
Michigan and Montana, have appropriated almost all of their
Reed Act funds for administrative purposes.
Of the $662 million that was appropriated, a total of $313
million was appropriated in 21 States for UI purposes. These
funds were targeted for a range of purposes, including
enhancing technology, improving systems for handling UI claims,
maintaining or increasing the number of UI staff, and improving
tax filing and payment systems for employers.
For example, New Jersey is completely overhauling its 1970-
era benefit payment system. Michigan is also updating its
computer systems, and California is looking at improving its
tax system.
Eighteen of the 21 States that have appropriated money for
UI have reported that these investments would enhance program
integrity by improving wage reporting for employers,
strengthening its eligibility procedures and enhancing benefit
payment control systems. For example, Virginia is increasing
its staff in its benefit payment control center.
Twenty-two States appropriated roughly $350 million for
their ES or one-stop systems. As with funds appropriated for
the UI system, most States were planning to use these funds to
enhance technology, 12 States plan to use funds to maintain or
increase staff, and 10 States plan to enhance reemployment
services for UI claimants. Some States also plan to use funds
to improve resource rooms in one-stop centers and to increase
their outreach activities.
Mr. Chairman, that concludes my statement, and I would be
happy to answer any questions you or other Members of the
Subcommittee might have.
[The prepared statement of Mr. Nilsen follows:]
Statement of Sigurd R. Nilsen, Director, Education, Workforce, and
Income Security Issues, U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss how states are using the
March 2002 Reed Act distribution, which was part of the Job Creation
and Worker Assistance Act of 2002. This broad stimulus package included
an additional 13 additional weeks of federally-funded extended
unemployment insurance (UI) benefits for all states and a distribution
to states of $8 billion of the unemployment tax revenue it holds in
reserve, referred to as a Reed Act distribution.\1\ Under the act,
these funds may be used to pay UI benefits, and/or to enhance UI
benefits, such as increasing weekly benefit payments, extending the
period of time benefits are paid, or otherwise expanding eligibility to
groups that currently do not qualify for benefits. States may also
appropriate these funds for the administrative costs of UI, including
activities related to program integrity, and employment services (ES)
programs, including one-stop service centers.\2\
---------------------------------------------------------------------------
\1\ The term ``Reed Act'' refers to a part of the Employment
Security Financing Act of 1954. The Reed Act provides that when federal
accounts in the UI trust fund reach their statutory limits at the end
of a federal fiscal year, any excess funds are transferred to state UI
trust funds. Unlike ``traditional'' Reed Act distributions, the
calendar year 2002 distribution was required regardless of the ceilings
and did not take place at the beginning of a fiscal year.
\2\ The employment services system, established by the Wagner-
Peyser Act of 1933, provides job seeker and employer labor exchange
service and information. The Workforce Investment Act (WIA) of 1998
amended the Wagner-Peyser Act to require that the employment service
activities be provided as part of the WIA one-stop system, which is a
centralized service delivery structure consolidating delivery of most
federally funded state and local employment and training assistance.
---------------------------------------------------------------------------
Today, I will be providing information from our recent report on
how states have used the Reed Act distribution so far.\3\ I will
discuss: (1) the proportion of Reed Act dollars that states have spent;
(2) the proportion of total Reed Act dollars that remains in state UI
trust funds and the effect this has had on employer UI taxes; and (3)
the proportion of Reed Act dollars that have been appropriated by
states for administering the UI, ES, or one-stop systems.
---------------------------------------------------------------------------
\3\ See U.S. General Accounting Office, Unemployment Insurance:
States' Use of the 2002 Reed Act Distribution, GAO-03-496 (Washington,
D.C.: Mar. 6, 2003).
---------------------------------------------------------------------------
To determine how Reed Act dollars are being used, we surveyed state
workforce agency administrators in 50 states, the District of Columbia,
Puerto Rico, and the Virgin Islands.\4\ We also reviewed legislation,
federal guidance, and other documents and data relevant to UI and Reed
Act distributions and interviewed U.S. Department of Labor officials
responsible for overseeing state activities related to the 2002 Reed
Act distribution. We also interviewed various interest groups and met
with state UI and workforce agency officials and state legislative
representatives in Virginia and New Jersey.
---------------------------------------------------------------------------
\4\ For UI purposes, federal law designates the District of
Columbia, Puerto Rico, and the Virgin Islands as ``states.''
---------------------------------------------------------------------------
In summary, we found that about 17 percent ($1.34 billion) of the
$8 billion 2002 Reed Act distribution had been spent as of November 30,
2002, primarily on regular UI benefits, and only a small portion had
been spent on benefit enhancements, or administrative costs of UI, ES,
and one-stop systems. A total of $6.66 billion (83 percent) remains in
state trust funds, which, according to state workforce officials, has
prevented automatic increases in employer taxes in 30 states. Twenty-
seven states appropriated about $662 million for administrative costs
of UI, ES, or one-stop systems, of which $74 million has been spent.
Background
The UI program was established by Title III of the Social Security
Act in 1935 and is a key component in ensuring the financial security
of America's workforce. This complex program, which is jointly
administered by the U.S. Department of Labor's Employment and Training
Administration and the states, provides temporary cash benefits to
workers who lose their jobs through no fault of their own. By providing
unemployed workers money for basic needs, UI helps boost demand for
goods and services, thereby stabilizing the economy during recessions.
Although Labor provides oversight and guidance, primary responsibility
for administering the program lies with the states.
The UI program is funded through federal and state taxes levied on
employers. The federal tax generally covers the administrative costs of
the UI and ES programs,\5\ loans to states, and the federal share of
extended UI benefits.\6\ State taxes are used to pay UI benefits.
States deposit their taxes with the U.S. Treasury, which maintains one
trust fund with a separate account for each state. States are
responsible for ensuring the solvency of their individual trust funds.
To ensure trust fund solvency, states can build up trust fund reserves
during good economic times, so that they have sufficient reserves to
pay UI benefits if unemployment rises, without raising taxes or
borrowing money from the Federal Government. Forty-nine states set
triggers that automatically increase employer taxes when UI trust funds
fall below specific levels.
---------------------------------------------------------------------------
\5\ Labor provided about $2.2 billion to states in fiscal year 2003
to administer these programs.
\6\ The federal tax accumulates in three separate accounts. These
three accounts are the (1) Employment Security Administration Account
(ESAA), which covers both federal and state administrative costs of UI
and ES; (2) Extended Unemployment Compensation Account (EUCA), which
covers the federal share of extended UI benefits and has been used to
fund temporary extended unemployment compensation benefits; and (3)
Federal Unemployment Account (FUA), which funds loans to insolvent
state accounts.
---------------------------------------------------------------------------
The current Reed Act distribution was authorized by the Job
Creation and Worker Assistance Act of 2002 on March 9, 2002, and
provided $8 billion, the largest Reed Act distribution to date, to the
UI trust funds of all 50 states, the District of Columbia, Puerto Rico,
and the Virgin Islands. Appendix I presents the Reed Act allotment by
state, the percent expended, and the percent unexpended. The allotted
amounts ranged from $1.95 million to the Virgin Islands to $936.9
million to California. Each state's share was based on its
proportionate share of the Federal Unemployment Tax Act (FUTA) taxable
wages for calendar year 2000.
To use the funds for administrative costs of state UI, ES or one-
stop systems, states are required to have a specific appropriation from
their legislatures. In addition, there is no time limit on using the
2002 Reed Act dollars for administrative purposes. Finally, Labor
issued guidance encouraging states to use 2002 Reed Act dollars to
support one-stop systems.
Only A Small Portion Of The 2002 Reed Act Distribution Had Been Spent
As Of November 30, 2002
Only 17 percent of the $8 billion Reed Act distribution had been
spent as of November 30, 2002. (See fig. 1.) Of the $1.34 billion spent
as of November 30, 2002, almost all was used to pay regular UI benefits
in three states with very low trust fund reserves. New York spent most
of its Reed Act distribution ($302.5 million) on regular UI benefits,
and the remainder ($188.8 million) to repay a federal UI loan. North
Carolina spent all of its Reed Act funds ($240.9 million) on regular UI
benefits. Texas used 90 percent of its Reed Act funds ($534.7 million)
to pay regular UI benefits. According to Labor, Texas has since spent
its remaining Reed Act dollars on UI benefits, and along with New York,
has received a federal loan to continue paying UI benefits.
Figure 1: Status of the $8 Billion Reed Act Distribution (as of
November 30, 2002)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Although nine states reported that they made or plan to make
enhancements to UI benefits with the help of Reed Act dollars, Vermont
is the only state that reported spending any Reed Act funds to do so
during calendar year 2002. Vermont spent $1.67 million to increase
weekly UI benefit payments. Five states reported that Reed Act dollars
enabled their states to use non-Reed Act dollars in their trust funds
to make UI benefit enhancements in 2002:
LAlabama, Maryland, and Oregon increased weekly UI
benefit payments,
LMinnesota extended benefits to individuals who have
exhausted coverage, and
LOklahoma implemented an alternative base period.\7\
---------------------------------------------------------------------------
\7\ Most states use previous earnings--recorded on a quarterly
basis in state wage records--to measure whether a claimant has had a
sufficient employment history. For the most part, states require that a
claimant have earned a certain minimum amount over a specified four
calendar quarters (the ``base period''). Typically, the base period
consists of the first four of the last five completed calendar quarters
immediately preceding the filing of a claim, which is referred to as a
``regular base period.'' An ``alternative base period'' uses wages
earned in more recent quarters as a basis for determining eligibility.
Connecticut, the District of Columbia, and Georgia reported that
they are planning to use Reed Act dollars to implement an alternative
base period in calendar year 2003.
A relatively small amount of Reed Act funds was spent for
administrative costs of the UI, ES, or one-stop systems. Seventeen
states spent a total of about $74 million (1 percent of the total Reed
Act distribution) to cover the administrative costs of the UI, ES, or
one-stop systems.
Most Reed Act Dollars Remained In State Trust Funds And Helped Many
States Avoid UI Tax Increases
Eighty-three percent of the Reed Act distribution had not been
spent as of November 30, 2002. This $6.66 billion boost in state UI
trust fund reserves enabled 30 states to avoid automatic employer tax
increases or surcharges in 2002, according to the workforce agency
officials from those states. (See app. II.) Five states--Alaska, the
District of Columbia, Maine, the Virgin Islands, and Wyoming--reported
lowering employer tax rates for 2003. The District of Columbia and
Maine were able to lower them because of the Reed Act distribution.
Nine states made binding policy decisions that obligated 16
percent, or $1.27 billion, of the Reed Act dollars to their trust
funds. (See fig. 2.) States are not required to pass legislation or
take other official action to retain Reed Act dollars in their UI trust
funds, yet these nine states explicitly specified in legislation, the
governor's budget, or other official documentation, that some or all
Reed Act dollars should be kept in their trust funds. State officials
most frequently cited their desire to avoid raising employer taxes as
the reason for obligating Reed Act dollars to UI trust funds. Other
reasons they gave for obligating these funds to the trust fund
included: to avoid borrowing from the Federal Government, to avoid
cutting benefits, and to enhance benefits.
Figure 2: Reed Act Dollars Obligated to UI Trust Funds (as of November
30, 2002)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Over Half of the States Appropriated Some Funds for Administrative
Costs of the UI, ES, or One-Stop Systems
Twenty-seven states had appropriated a total of $662 million (8
percent) for administrative costs of UI, ES, and one-stop systems--$74
million had been spent and about $590 million had not been spent--as of
November 30, 2002.\8\ (See app. III.) Close to half the states
appropriated Reed Act dollars for ES and one-stop systems. (See table
1.)\9\ About the same number of states appropriated these funds to
enhance UI system technology, operations, and program integrity. Some
states plan to use Reed Act dollars to replace funding that previously
came from other state and/or federal sources.
---------------------------------------------------------------------------
\8\ Two states, Montana and Michigan, have appropriated all or
almost all of their Reed Act funds to administer UI, ES, or one-stop
systems.
\9\ Together, Michigan and New Jersey reported spending about $41
million of the total $74 million spent on UI and ES/one-stop systems.
Neither state was able to report the amount spent on each system,
however.
Table 1: Number of States That Appropriated Reed Act Dollars for
Administrative Costs of UI, ES, and One-Stop Systems, as of November 30,
2002
------------------------------------------------------------------------
Number of
System states
------------------------------------------------------------------------
UI systems, only 5
------------------------------------------------------------------------
ES/one-stop systems, only 6
------------------------------------------------------------------------
Both UI and ES/one-stop systems 16
------------------------------------------------------------------------
Total 27
------------------------------------------------------------------------
Source: GAO survey of states.
States Appropriated Reed Act Dollars to Enhance UI System Technology,
Operations, and Program Integrity
Twenty-one states appropriated $313 million for UI administrative
costs, of which $22 million had been spent by nine states, as of
November 30, 2002. (See app. IV.) Many states appropriated funds for
more than one UI administrative activity. Close to half of the 21
states that appropriated Reed Act dollars for UI activities did so for
at least one of four major purposes. These included establishing,
maintaining, or enhancing technology; improving systems for handling UI
claims; maintaining or increasing the number of UI staff; and improving
tax filing and payment systems for employers. (See table 2.)
Table 2: Number of States That Appropriated Reed Act Dollars for
Various UI Administrative Activities, as of November 30, 2002
------------------------------------------------------------------------
Number of
UI administrative activities states
(n=21)
------------------------------------------------------------------------
Establishing, maintaining, or enhancing technology 14
------------------------------------------------------------------------
Improving systems for handling UI claims 13
------------------------------------------------------------------------
Maintaining/increasing Staff 10
------------------------------------------------------------------------
Improving tax filing and payment systems for employers 9
------------------------------------------------------------------------
Source: GAO survey of states.
States targeted Reed Act dollars toward a variety of UI
administrative activities. Idaho and New Jersey, reported that the Reed
Act distribution provided the ``shot in the arm'' they needed to
upgrade outdated computer systems. New Jersey is funding a complete
overhaul of its 1970's benefit payment system, which will allow it to
provide more self-service information to claimants so that they will be
able to track their own claims. Michigan earmarked funds to enhance an
Internet-based UI claims system, updating computer software systems to
improve customer service. A number of states targeted funds to improve
tax filing and payment systems for employers, including California,
which is funding a review of its employment tax system.
Eighteen of the 21 states that targeted Reed Act dollars for UI
systems reported that these investments would enhance program integrity
by improving wage reporting for employers, strengthening eligibility
procedures, and enhancing benefit payment control systems. For example,
Virginia is increasing staff in the benefit payment control center,
including fraud investigators. New Jersey is enhancing its Benefits
Audit Report and Tracking system, which cross matches data on newly
hired employees with current UI recipients.
States Appropriated Reed Act Dollars to Improve ES and One-Stop Systems
in a Variety of Ways
Twenty-two states appropriated $349 million for ES and one-stop
administrative costs, of which just under $12 million had been spent by
6 states, as of November 30, 2002. (See app. V.) As with funds states
appropriated for administration of UI systems, most of the 22 states
appropriated Reed Act dollars for enhancing technology in ES or one-
stop systems. (See table 3.) For example, Massachusetts, is building a
database for its one-stops that integrates the performance management
systems of a number of programs
Table 3: Number of States That Appropriated Reed Act Dollars for
Various ES and One-Stop Administrative Activities, as of November 30,
2002
------------------------------------------------------------------------
Number of
ES and one-stop administrative activities states
(n=22)
------------------------------------------------------------------------
Enhancing technology 17
------------------------------------------------------------------------
Providing labor exchange and employment services 14
------------------------------------------------------------------------
Maintaining/increasing staff 12
------------------------------------------------------------------------
Providing reemployment services to UI claimants 10
------------------------------------------------------------------------
Enhancing resource room resources, outreach efforts, or 9
informational materials
------------------------------------------------------------------------
Covering the shared costs of operating one-stop centers 7
------------------------------------------------------------------------
Improving access for clients with disabilities or limited 5
English proficiency
------------------------------------------------------------------------
Source: GAO survey of states.
Most of the states that appropriated Reed Act dollars for ES or
one-stop administration, targeted these funds for labor exchange and
employment services; half appropriated them to maintain or increase the
number of ES or one-stop staff; and some earmarked Reed Act dollars to
reemployment services for UI claimants. For example, Louisiana reported
expanding its reemployment services by updating the state's UI client
profiling model, and designing job search workshops for at-risk youth,
older workers, single heads of households, ex-offenders, and other
high-risk groups. Some states committed these funds to enhancing one-
stop resource rooms, outreach efforts, or information materials.
A number of states reported that they appropriated Reed Act dollars
to improve one-stops in other ways. Virginia, for example, targeted
Reed Act dollars for economic recovery crisis centers, enhanced one-
stops that grew out of a center that was established to help workers in
northern Virginia in the aftermath of the September 11, 2001, terrorist
attacks. New Jersey is using Reed Act dollars to pilot test and expand
a scan card technology statewide for all of its one-stop centers, and
to support business service centers that provide services to employers
within the one-stop centers. According to a state official in New
Jersey, these and other Reed Act-funded investments to improve one-
stops and core services have helped transform New Jersey's ES system
into a significant partner in that state's one-stop system.
Some States Plan to Use Reed Act Dollars to Replace Funding from Other
Sources.
As allowed by law, nine states reported they plan to use Reed Act
dollars to replace funding for UI, ES, or one-stop systems that
previously came from other state and/or federal sources. Five states
reported planning to replace funds that previously came from state
funding sources such as general revenue funds or penalty and interest
funds. Three states reported planning to replace funds that previously
came from a combination of state funding sources and federal sources
such as the Workforce Investment Act or the Temporary Assistance for
Needy Families (TANF) \10\ programs. One state reported planning to
replace funds that previously came from the TANF program.
---------------------------------------------------------------------------
\10\ Welfare reform legislation in 1996 created the Temporary
Assistance for Needy Families (TANF) block grants to help move welfare
recipients into jobs and provide greater flexibility to states in
designing training services for TANF clients.
---------------------------------------------------------------------------
Mr. Chairman, this concludes my prepared statement. I would be
pleased to answer any questions you or other members of the
subcommittee may have.
GAO Contacts and Acknowledgments
If you or other members of the Subcommittee have questions
regarding this testimony, please contact Sigurd Nilsen at (202) 512-
7215 or Clarita Mrena at (202) 512-3022. Individuals making key
contributions to this testimony include Laura Heald, Carolyn Blocker,
Cheri Harrington, and Patrick DiBattista.
Appendix I: Status of CY 2002 Reed Act Dollars by State, as of 11/30/2002
----------------------------------------------------------------------------------------------------------------
Unexpended
-----------------------------------------
Percent
appropriated Percent Percent
State Total Reed Act Percent for officially neither
allotment expended administration obligated appropriated
of UI, ES, or to UI nor
one-stop trust fund obligated
systems
----------------------------------------------------------------------------------------------------------------
Alabama $110,623,477 0 15.0 0 85.0
----------------------------------------------------------------------------------------------------------------
Alaska 14,820,932 0.5 19.7 0 79.8
----------------------------------------------------------------------------------------------------------------
Arizona 144,079,575 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Arkansas 63,958,998 0 0 0 100
----------------------------------------------------------------------------------------------------------------
California 936,873,766 0.6 3.7 64.0 31.6
----------------------------------------------------------------------------------------------------------------
Colorado 142,666,574 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Connecticut 100,418,304 0 9.0 0 91.0
----------------------------------------------------------------------------------------------------------------
Delaware 26,024,719 0 0 100 0
----------------------------------------------------------------------------------------------------------------
District of Columbia 25,765,401 0 31.3 0 68.7
----------------------------------------------------------------------------------------------------------------
Florida 449,667,718 0.4 3.2 0 96.4
----------------------------------------------------------------------------------------------------------------
Georgia 249,673,858 0 a 0 100
----------------------------------------------------------------------------------------------------------------
Hawaii 30,761,048 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Idahob 32,244,586 21.7 0 0 78.3
----------------------------------------------------------------------------------------------------------------
Illinois 376,244,918 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Indiana 174,573,012 0 0 42.4 57.6
----------------------------------------------------------------------------------------------------------------
Iowa 82,395,262 1.2 35.2 0 63.6
----------------------------------------------------------------------------------------------------------------
Kansas 78,166,750 0 0 100 0
----------------------------------------------------------------------------------------------------------------
Kentucky 103,829,381 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Louisiana 105,499,296 0 24.9 0 75.1
----------------------------------------------------------------------------------------------------------------
Maine 32,486,816 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Maryland 142,929,005 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Massachusetts 193,639,110 0 1.3 0 98.7
----------------------------------------------------------------------------------------------------------------
Michigan 291,485,481 13.9 85.0 0 1.2
----------------------------------------------------------------------------------------------------------------
Minnesotab 163,061,573 7.4 0 0 92.6
----------------------------------------------------------------------------------------------------------------
Mississippi 64,670,097 1.4 23.3 0 75.3
----------------------------------------------------------------------------------------------------------------
Missouri 161,426,814 0 0 100 0
----------------------------------------------------------------------------------------------------------------
Montana 18,551,627 3.0 97.0 0 0
----------------------------------------------------------------------------------------------------------------
Nebraska 48,380,203 0 0 28.9 71.1
----------------------------------------------------------------------------------------------------------------
Nevada 68,082,942 0 0 100 0
----------------------------------------------------------------------------------------------------------------
New Hampshire 38,475,620 0 0 0 100
----------------------------------------------------------------------------------------------------------------
New Jersey 242,816,310 0.2 15.1 0 84.8
----------------------------------------------------------------------------------------------------------------
New Mexico 38,599,338 0 0 0 100
----------------------------------------------------------------------------------------------------------------
New York 491,343,135 100 0 0 0
----------------------------------------------------------------------------------------------------------------
North Carolina 240,892,032 100 0 0 0
----------------------------------------------------------------------------------------------------------------
North Dakota 15,267,835 0.4 1.1 0 98.5
----------------------------------------------------------------------------------------------------------------
Ohio 343,709,635 0.4 14.4 63.0 22.1
----------------------------------------------------------------------------------------------------------------
Oklahoma 81,441,628 0 2.5 0 97.5
----------------------------------------------------------------------------------------------------------------
Oregon 98,029,105 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Pennsylvania 337,595,975 0.1 4.3 0 95.6
----------------------------------------------------------------------------------------------------------------
Puerto Rico 48,875,605 0 33.8 66.2 0
----------------------------------------------------------------------------------------------------------------
Rhode Island 27,123,409 0 9.6 0 90.4
----------------------------------------------------------------------------------------------------------------
South Carolina 108,203,982 1.5 0 0 98.5
----------------------------------------------------------------------------------------------------------------
South Dakota 19,140,671 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Tennessee 162,633,730 0 4.6 0 95.4
----------------------------------------------------------------------------------------------------------------
Texas 596,446,497 89.7 0 0 10.3
----------------------------------------------------------------------------------------------------------------
Utah 61,627,678 0 3.5 0 96.5
----------------------------------------------------------------------------------------------------------------
Vermont 16,395,967 10.2 0 0 89.8
----------------------------------------------------------------------------------------------------------------
Virgin Islands 1,950,917 5.1 2.9 0 92.0
----------------------------------------------------------------------------------------------------------------
Virginia 214,949,942 1.2 13.2 0 85.6
----------------------------------------------------------------------------------------------------------------
Washington 167,011,815 0 0 0 100
----------------------------------------------------------------------------------------------------------------
West Virginia 36,210,068 0 10.3 0 89.7
----------------------------------------------------------------------------------------------------------------
Wisconsin 166,214,419 0 0 0 100
----------------------------------------------------------------------------------------------------------------
Wyoming 12,043,444 0 0 0 100
----------------------------------------------------------------------------------------------------------------
United States $8,000,000,000 16.8 7.4 15.9 60.0
----------------------------------------------------------------------------------------------------------------
Source: GAO data and U.S. Department of Labor data.
a Appropriated Reed Act funds for administration of UI, but could not specify the dollar amount allocated for
this purpose.
b Appropriated Reed Act funds for administration of UI, ES, or one-stop systems and expended all the dollars
appropriated.
Appendix II: Effect of Reed Act Distribution on Employer Taxes as
Reported by States
------------------------------------------------------------------------
States where automatic increases in UI tax/ Reed Act funds prevented
surcharge are triggered if trust fund falls triggering an increase in a
below certain level tax or surcharge in 2002a
------------------------------------------------------------------------
Alabama
------------------------------------------------------------------------
Alaska
------------------------------------------------------------------------
Arkansas
------------------------------------------------------------------------
California
------------------------------------------------------------------------
Colorado
------------------------------------------------------------------------
Connecticut
------------------------------------------------------------------------
Delaware
------------------------------------------------------------------------
District of Columbia
------------------------------------------------------------------------
Florida
------------------------------------------------------------------------
Georgia
------------------------------------------------------------------------
Hawaii
------------------------------------------------------------------------
Idaho
------------------------------------------------------------------------
Illinois
------------------------------------------------------------------------
Indiana
------------------------------------------------------------------------
Iowa
------------------------------------------------------------------------
Kansas
------------------------------------------------------------------------
Kentucky
------------------------------------------------------------------------
Louisiana
------------------------------------------------------------------------
Maine
------------------------------------------------------------------------
Maryland
------------------------------------------------------------------------
Massachusetts
------------------------------------------------------------------------
Michigan
------------------------------------------------------------------------
Minnesota
------------------------------------------------------------------------
Mississippi
------------------------------------------------------------------------
Missouri
------------------------------------------------------------------------
Montana
------------------------------------------------------------------------
New Hampshire
------------------------------------------------------------------------
New Jersey
------------------------------------------------------------------------
New Mexico
------------------------------------------------------------------------
New York
------------------------------------------------------------------------
North Carolina
------------------------------------------------------------------------
Ohio
------------------------------------------------------------------------
Oklahoma
------------------------------------------------------------------------
Oregon
------------------------------------------------------------------------
Pennsylvania
------------------------------------------------------------------------
Puerto Rico
------------------------------------------------------------------------
Rhode Island
------------------------------------------------------------------------
South Carolina
------------------------------------------------------------------------
South Dakota
------------------------------------------------------------------------
Tennessee
------------------------------------------------------------------------
Texas
------------------------------------------------------------------------
Utah
------------------------------------------------------------------------
Vermont
------------------------------------------------------------------------
Virgin Islands ...........................
------------------------------------------------------------------------
Virginia
------------------------------------------------------------------------
Washington
------------------------------------------------------------------------
West Virginia
------------------------------------------------------------------------
Wisconsin
------------------------------------------------------------------------
Wyoming
------------------------------------------------------------------------
Total: 49 30
------------------------------------------------------------------------
Source: GAO Survey of States.
a According to the Department of Labor, for most states, any increases
triggered in CY 2002 would not have gone into effect until CY 2003.
Appendix III: States with Reed Act Dollars Appropriated by Law for UI, and ES, or One-Stop Systems, as of 11/30/
2002
----------------------------------------------------------------------------------------------------------------
Reed Act dollars
State Reed Act dollars appropriated for UI appropriated for ES or one-
system stop system
----------------------------------------------------------------------------------------------------------------
Alabama
----------------------------------------------------------------------------------------------------------------
Alaska
----------------------------------------------------------------------------------------------------------------
California
----------------------------------------------------------------------------------------------------------------
Connecticut
----------------------------------------------------------------------------------------------------------------
District of Columbia
----------------------------------------------------------------------------------------------------------------
Florida
----------------------------------------------------------------------------------------------------------------
Georgia
----------------------------------------------------------------------------------------------------------------
Idaho
----------------------------------------------------------------------------------------------------------------
Iowa
----------------------------------------------------------------------------------------------------------------
Louisiana
----------------------------------------------------------------------------------------------------------------
Massachusetts
----------------------------------------------------------------------------------------------------------------
Michigan
----------------------------------------------------------------------------------------------------------------
Minnesota
----------------------------------------------------------------------------------------------------------------
Mississippi
----------------------------------------------------------------------------------------------------------------
Montana
----------------------------------------------------------------------------------------------------------------
New Jersey
----------------------------------------------------------------------------------------------------------------
North Dakota
----------------------------------------------------------------------------------------------------------------
Ohio
----------------------------------------------------------------------------------------------------------------
Oklahoma
----------------------------------------------------------------------------------------------------------------
Pennsylvania
----------------------------------------------------------------------------------------------------------------
Puerto Rico
----------------------------------------------------------------------------------------------------------------
Rhode Island
----------------------------------------------------------------------------------------------------------------
Tennessee
----------------------------------------------------------------------------------------------------------------
Utah
----------------------------------------------------------------------------------------------------------------
Virgin Islands
----------------------------------------------------------------------------------------------------------------
Virginia
----------------------------------------------------------------------------------------------------------------
West Virginia
----------------------------------------------------------------------------------------------------------------
Total: 27 21 22
----------------------------------------------------------------------------------------------------------------
Source: GAO survey of states.
Appendix IV: UI Administrative Activities for which CY2002 Reed Act Dollars had been Appropriated, as of 11-30-
2002
----------------------------------------------------------------------------------------------------------------
Direct
General Claims Tax filing Appeals deposit/
State technology Staff system and paying system debit
developments enhancements improvements cards
----------------------------------------------------------------------------------------------------------------
Alabama
----------------------------------------------------------------------------------------------------------------
Alaska
----------------------------------------------------------------------------------------------------------------
California
----------------------------------------------------------------------------------------------------------------
Connecticut
----------------------------------------------------------------------------------------------------------------
District of Columbia
----------------------------------------------------------------------------------------------------------------
Georgiaa
----------------------------------------------------------------------------------------------------------------
Idaho
----------------------------------------------------------------------------------------------------------------
Iowa
----------------------------------------------------------------------------------------------------------------
Louisiana
----------------------------------------------------------------------------------------------------------------
Michigan
----------------------------------------------------------------------------------------------------------------
Minnesota
----------------------------------------------------------------------------------------------------------------
Montana
----------------------------------------------------------------------------------------------------------------
New Jersey
----------------------------------------------------------------------------------------------------------------
North Dakota
----------------------------------------------------------------------------------------------------------------
Ohio
----------------------------------------------------------------------------------------------------------------
Pennsylvania
----------------------------------------------------------------------------------------------------------------
Puerto Rico
----------------------------------------------------------------------------------------------------------------
Tennessee
----------------------------------------------------------------------------------------------------------------
Virgin Islands
----------------------------------------------------------------------------------------------------------------
Virginia
----------------------------------------------------------------------------------------------------------------
West Virginia
----------------------------------------------------------------------------------------------------------------
Total: 21 14 10 13 9 5 4
----------------------------------------------------------------------------------------------------------------
Source: GAO survey of states.
a State was unable to report how dollars were allocated.
Appendix V: ES and One-Stop Administrative Activities for which CY2002 Reed Act Dollars had been Appropriated,
as of 11-30-2002
----------------------------------------------------------------------------------------------------------------
Improve
Labor Shared Resource room access for
exchange Maintain cost of Reemployment resources, those with
State and or operating services to Enhance outreach or disabilities
employment increase one-stop UI claimants technology informational or limited
services staff centers material English
proficiency
----------------------------------------------------------------------------------------------------------------
Alabama
----------------------------------------------------------------------------------------------------------------
Alaska
----------------------------------------------------------------------------------------------------------------
California
----------------------------------------------------------------------------------------------------------------
Connecticut
----------------------------------------------------------------------------------------------------------------
Florida
----------------------------------------------------------------------------------------------------------------
Idaho
----------------------------------------------------------------------------------------------------------------
Louisiana
----------------------------------------------------------------------------------------------------------------
Massachusetts
----------------------------------------------------------------------------------------------------------------
Michigan
----------------------------------------------------------------------------------------------------------------
Mississippi
----------------------------------------------------------------------------------------------------------------
Montana
----------------------------------------------------------------------------------------------------------------
New Jersey
----------------------------------------------------------------------------------------------------------------
Ohio
----------------------------------------------------------------------------------------------------------------
Oklahoma
----------------------------------------------------------------------------------------------------------------
Pennsylvania
----------------------------------------------------------------------------------------------------------------
Puerto Rico
----------------------------------------------------------------------------------------------------------------
Rhode Island
----------------------------------------------------------------------------------------------------------------
Tennessee
----------------------------------------------------------------------------------------------------------------
Utah
----------------------------------------------------------------------------------------------------------------
Virgin Islands
----------------------------------------------------------------------------------------------------------------
Virginia
----------------------------------------------------------------------------------------------------------------
West Virginia
----------------------------------------------------------------------------------------------------------------
Total: 22 14 12 7 10 17 9 5
----------------------------------------------------------------------------------------------------------------
Source: GAO survey of states.
Related GAO Products
Unemployment Insurance: States' Use of the 2002 Reed Act
Distribution. GAO-03-496. Washington, D.C.: Mar. 6, 2003.
Unemployment Insurance: Increased Focus on Program Integrity Could
Reduce Billions in Overpayments. GAO-02-697. Washington, D.C.: July 12,
2002.
Strategies to Manage Improper Payments: Learning From Public and
Private Sector Organizations. GAO-02-69G. Washington, D.C.: Oct. 1,
2001.
Unemployment Insurance: Role as Safety Net for Low-Wage Workers Is
Limited. GAO-01-181. Washington, D.C.: Dec. 29, 2000.
Benefit and Loan Programs: Improved Data Sharing Could Enhance
Program Integrity. GAO/HEHS-00-119. Washington, D.C.: Sept. 13, 2000.
Unemployment Insurance: Program's Ability to Meet Objectives
Jeopardized. GAO/HRD-93-107. Washington, D.C.: Sept. 28, 1993.
Chairman HERGER. Thank you, Mr. Nilsen. Mr. Brock to
testify.
STATEMENT OF JON BROCK, PAST PRESIDENT, NATIONAL ASSOCIATION OF
STATE WORKFORCE AGENCIES, AND EXECUTIVE DIRECTOR, OKLAHOMA
EMPLOYMENT SECURITY COMMISSION, OKLAHOMA CITY, OKLAHOMA, ON
BEHALF OF THE NATIONAL ASSOCIATION OF STATE WORKFORCE AGENCIES
Mr. BROCK. Thank you, sir.
Chairman HERGER. Thank you.
Mr. BROCK. I am coming to you today as past President of
the NASWA and as the Executive Director for the Oklahoma
Employment Security Commission.
On behalf of NASWA today and its 53 State and territorial
workforce agencies, I would like to tell you some of the things
that we have been doing.
Although the $8 billion Reed Act distribution was made
available to States relatively late in the State legislative
cycles, it still had positive effects in 2002 and beyond.
Overall, the $8 billion Reed Act distribution increased the
aggregate balance in the State accounts of the unemployment
trust fund by about 21 percent.
In 2002, the Reed Act distribution helped New York repay a
Federal loan it had obtained to cover the cost of regular State
benefits of about $189 million. New York used its remaining
$302 million to cover UI benefits in 2002 and to avoid further
borrowing. Texas and Minnesota also avoided borrowing in 2002
as a result of receiving Reed Act distributions. However, each
of these three States needed to borrow in 2003; and three more
States have applied for Federal loans. That is Illinois,
Missouri, and North Carolina.
The GAO report noted that States had spent only about $2
billion of the $8 billion Reed Act distribution in 2002. This
should not imply, however, that employers and workers did not
benefit from the additional $6 billion in State unemployment
trust fund accounts. In fact, nearly three out of five States
either avoided automatic employer tax increases or lowered
employer taxes because their State unemployment account
balances were higher as a result of the Reed Act distribution.
This helped maintain employment and wage levels that might have
been dampened by pending payroll tax increases.
In addition, one out of five States were able to improve
benefits in 2002. About two out of five States were able to
appropriate funds for improvements in UI Administration or ES.
Mr. Chairman, Oklahoma received $81 million under the Reed
Act distribution. It could not have come at a better time.
Because of cuts in its ES grant, the Oklahoma Employment
Security Commission was facing a $1.7 million shortfall. The
commission also needed $300,000 to cover its share of the
overhead expenses of the one-stop employment centers. The State
legislature appropriated $2 million of the Reed Act funds to
cover these deficiencies. This action averted a reduction in
force and the loss of much-needed ES.
It has been projected that the Commission will experience a
budget shortfall by the end of this year in its UI division, in
addition to a continuing deficit in ES budget. This year, the
Commission is requesting appropriation from the Reed Act funds
in the amount of $6.2 million to meet these shortfalls. Without
this money, the unemployment service and UI Administration
benefit program in Oklahoma would be severely compromised.
Our employers' tax rates in Oklahoma are set based upon the
health of the UI trust fund. Had we not received the Reed Act
distribution, Oklahoma's employers would have paid another $40
million in taxes in 2003.
Now, on the benefits side. The receipt of the Reed Act
funds gave impetus to the passage of an alternate base period
which will extend UI benefits to some low wage and relatively
inexperienced workers. About three out of five States reported
that they plan to spend more Reed Act funds this year. Utah,
for example, just passed an extension of benefits for 5 weeks
after exhaustion of currently available benefits.
Finally, sir, I would like to ask the Subcommittee to study
a technical change to the law. Under past Reed Act
distribution, States have been able to restore funds spent on
benefits to Reed Act status so that they can use them for UI
Administration or ES later. This restoration authority was not
included with the $8 billion Reed Act distribution in 2002.
Such restoration would be particularly important for less
solvent States. Once these States recover from the recession
and become more solvent, they could restore Reed Act funds and
use them to improve administrative performance of their
programs.
On behalf of the State workforce agencies, we thank you for
the opportunity to testify before the Subcommittee today. The
$8 billion Reed Act distribution has helped States weather the
storm while we await UI and employment reform. We hope you will
begin work on this reform this year.
Thank you, sir.
[The prepared statement of Mr. Brock follows:]
Statement of Jon Brock, Past President, National Association of State
Workforce Agencies, and Executive Director, Oklahoma Employment
Security Commission, Oklahoma City, Oklahoma, on behalf of the National
Association of State Workforce Agencies
Mr. Chairman and Members of the Subcommittee on Human Resources, I
am Jon Brock, Past-President of the National Association of State
Workforce Agencies (NASWA) and Executive Director of the Oklahoma
Employment Security Commission. Thank you for inviting me to testify
today on behalf of NASWA and its members. NASWA represents 53 state and
territorial workforce agencies in general and Unemployment Insurance
and Employment Service programs in particular. Most of our state
members also administer programs authorized under the Workforce
Investment Act, and some administer public assistance programs, such as
Temporary Assistance for Needy Families or ``TANF.''
I want to thank the Chairman for scheduling a hearing to review
states' use of the $8 billion in so-called ``Reed Act'' funds that the
Federal Government distributed from the federal accounts to the state
accounts of the unemployment trust fund in March of 2002 under the Job
Creation and Worker Assistance Act of 2002. Although these funds were
made available to states relatively late in state legislative cycles,
they still had positive effects in 2002 and beyond for employers,
workers, state unemployment insurance programs, and the economy.
Mr. Chairman, today I would like to summarize the results of a
NASWA survey of the states' use of Reed Act funds that was conducted
last September. The results of this survey are similar to the results
of a study conducted by the U.S. General Accounting Office that was
summarized in an ``Advisory'' from the Committee on Ways and Means last
week. In addition, I would like to briefly mention what happened in my
own state, Oklahoma, and what appears to be happening in states early
this year.
Overall, the $8 billion Reed Act distribution increased the balance
in the state accounts of the unemployment trust fund by about 21
percent in March 2002. State shares were based on state shares of
covered taxable wages paid by employers under the Federal Unemployment
Tax Act. The percentage increase was higher in less solvent state
programs because their distribution was relatively large compared to
their unemployment account balances. The distribution increased the
unemployment insurance account balance in nine states by more than 50
percent. These states were Arkansas, Illinois, Minnesota, Missouri, New
York, North Carolina, North Dakota, South Dakota, and Texas.
In 2002, the Reed Act distribution helped New York repay a federal
loan it had obtained to cover the cost of regular state benefits of
about $189 million. New York used its remaining $302 million to cover
UI benefits in 2002 and to avoid further borrowing. Texas and Minnesota
also avoided borrowing in 2002 as a result of receiving Reed Act
distributions.
However, each of these three states needed to borrow in 2003, and
three more states have applied for federal loans in 2003--Illinois,
Missouri, and North Carolina.
Mr. Chairman, the Committee Advisory noted that states had spent
only about $2 billion of the $8 billion Reed Act distribution in 2002.
This should not imply, however, that employers and workers did not
benefit from the additional $6 billion in state unemployment trust fund
accounts. In fact, nearly three out of five states either avoided
automatic employer tax increases or lowered employer taxes because
their state unemployment account balances were higher as a result of
the Reed Act distribution. This helped maintain employment and wage
levels that might have been dampened by payroll tax increases that
might have occurred otherwise. As you said, ``Helping workers, keeping
payroll taxes low, and strengthening the economy is exactly why we
provided States this record support.''
In addition to providing lower taxes, about one out of five states
were able to improve benefits in 2002. These changes included extended
benefits in Minnesota, an increase in weekly benefits in Alabama and
Vermont, and new alternate base periods in Connecticut, the District of
Columbia, and Georgia. Alternate base periods allow some workers to
qualify for benefits even though they did not have enough earnings in
the normal base period, which usually is the first four of the last
five completed calendar quarters. By taking into account the last three
to six months, alternate base periods allow some workers to qualify for
benefits by counting more recent earnings.
About 2 out of five states were able to appropriate funds for
improvements in Unemployment Insurance administration or employment
services. These funds were allocated toward such spending as
implementing telephone claims call centers, modernizing computer
benefit and tax systems, improving timeliness of claims determinations,
reducing fraud, compensating for federal under funding for
administration of unemployment insurance and employment services,
building an internet labor exchange, and purchasing computers, imaging
equipment, and network enhancements.
Mr. Chairman, my state of Oklahoma received $81 million under the
Reed Act distribution. It could not have come at a better time. Because
of cuts in its Employment Service grant, the Oklahoma Employment
Security Commission was facing a $1.7 million budget shortfall. The
Commission also needed $300,000 to cover its share of overhead expenses
in the state One Stop Employment Centers. The state legislature
appropriated $2 million of the Reed Act Funds to cover these
deficiencies. This action averted a reduction in force and the loss of
much needed employment services.
It has been projected that the Oklahoma Employment Security
Commission will experience a budget shortfall by the end of this year
in its Unemployment Insurance Division, in addition to a continuing
deficit in its Employment Service budget. This year, the Commission has
requested an appropriation from the Reed Act Funds in the amount of
$6.2 million to make up for these shortfalls. Without this money, the
Employment Service and the Unemployment Benefit Program in Oklahoma
would be severely compromised.
The Reed Act Distribution also helped to keep Unemployment
Insurance taxes in Oklahoma at the lowest possible level. Oklahoma has
five levels of UI tax scales. As the balance in its UI Trust fund sinks
to certain levels, the tax scale is stepped up to increase taxes for
employers. In 2002, Oklahoma was operating under the lowest tax scale
available. Due to the economic recession which caused a drop in the
Trust Fund balance, Oklahoma could have gone up two steps in the tax
scales for 2003. After the Reed Act Distribution was deposited into the
Oklahoma UI Trust Fund, the balance was raised sufficiently to hold the
increase to only one step up. By being able to set tax rates on the
lower tax scale, Oklahoma employers will save approximately $40 million
in 2003.
On the benefits side, the receipt of the Reed Act funds gave
impetus to the passage of an alternate base period in Oklahoma. The
alternate base period will extend UI benefits to low wage workers and
those who have not been attached to the workforce for long enough to
qualify for benefits under the regular base period.
Nationwide, we believe more positive effects probably will unfold
this year. About three out of five states reported they plan to spend
more Reed Act funds this year. Already, states have been reporting
action early in 2003. Utah just passed an extension of benefits for 5
weeks after exhaustion of currently available benefits; Colorado just
enacted a bill to spend $7 million on additional employment services;
and the Indiana House of Representatives just passed the Governor's
Reed Act proposals, which included spending most of Indiana's Reed Act
funds on a modernizing Unemployment Insurance administration and
helping workers find jobs.
Finally, Mr. Chairman, I would like to ask the Subcommittee to
study a technical change in the Title II of the Job Creation and Worker
Assistance Act of 2002 that authorized the $8 billion Reed Act
distribution. Under past Reed Act distributions, states have been able
to restore funds spent on benefits to Reed Act status so that they can
use them for Unemployment Insurance administration or employment
services later. This restoration authority was not included with the $8
billion Reed Act distribution in 2002. Such restoration would be
particularly important for less solvent states or states that have
borrowed to cover benefit costs already. Once these states recover from
the recession and become more solvent, they could restore Reed Act
funds and use them to improve administrative performance of their
programs in the future.
On behalf of the state workforce agencies, we thank you for the
opportunity to testify before the subcommittee today. The $8 billion
Reed Act distribution was a valuable component of the economic stimulus
package last year that still yields benefits this year. It has helped
states weather the storm while we await Unemployment Insurance and
Employment Service reform. We hope you will begin work on that
difficult task this year.
Thank you.
Chairman HERGER. Thank you very much, Mr. Brock. Now Ms.
DeLisio to testify.
STATEMENT OF MELISSA DELISIO, ASSISTANT DIRECTOR, OHIO
DEPARTMENT OF JOB AND FAMILY SERVICES, COLUMBUS, OHIO
Ms. DELISIO. Thank you, Mr. Chairman; and thank you for
inviting me here today to testify regarding the 2002 Reed Act
distribution. I would also like to thank you and your
colleagues on behalf of Governor Bob Taft, Business and Labor
in Ohio for allowing the Reed Act distribution a year ago.
Ohio received $343 million in Reed Act funds. We treated
this as one-time money and focused Ohio's allocation plan on
one-time expenditures. Our goal was to allocate a portion of
the money to support the administration of both Unemployment
Compensation (UC) and ES programs, as well as ensure the
integrity of Ohio's UI trust fund.
For every dollar of Ohio Federal Unemployment Tax Act
(FUTA) tax paid by employers that was sent to the Federal
Government for 2000, only 36 cents was returned to Ohio to
operate the UC and ES programs. This return has remained low
for a number of years and remains well below 50 percent. As a
result of this lack of return, it has been necessary for Ohio
to use general revenue funds and State penalty and interest
fund dollars to make up that shortfall.
The 2002 Reed Act distribution enabled Ohio to address the
shortfall in administrative needs as follows:
Ohio appropriated up to $18 million per year to reimburse
the General Revenue Fund (GRF) in State fiscal years 2003,
2004, and 2005 for the amount of GRF that would have otherwise
been used to operate the State's UI and ES programs. This will
be advantageous to Ohio as the money to support these
expenditures will be drawn on a reimbursement basis, which will
leave the Reed Act funding in Ohio's unemployment benefit
account for a longer period of time, allowing it to accumulate
interest.
Ohio's current UC tax system is over 26-years-old and has
been targeted as high risk for potential failure. The current
tax system does not lend itself well to modifications to assist
Ohio's employers, to implement law changes, or take advantage
of technological improvements. Reed Act funds will be used to
replace this system, and costs will be spread out over a 3-year
period.
With the implementation of the Federal Workforce Investment
Act (WIA), the local service delivery system for workforce
development services is evolving into local one-stops. Over the
next year, Ohio will transition its traditional ES functions
from former field service delivery offices to local one-stops.
Resource rooms are a critical component of successful one-
stops; and Reed Act funds will be provided so that each
certified one-stop will have a resource room that will offer
services that can be utilized by job seekers and employers
providing them with access to computers, the Internet, fax
machines, telephones, and other services and resources. Ohio
will also provide funds for the development of matching systems
for employers and job seekers.
Ohio will use some of its Reed Act funding in promotion and
marketing of certified one-stops. While getting claims checks
to our claims customers is critical, our ultimate goal is
getting unemployed workers back to work as soon as possible and
providing adequate resources to accomplish that. These one-time
expenses will be spread over 2 to 3 years.
We currently provide specific labor market information to
the Federal Government, but we also provide valuable labor
market information to local one-stops to support decisionmaking
by both employers and job seekers. Our primary goal is to
expand locally focused labor market information products and
ensure that information is complete, timely, accessible, and
user friendly. Reed Act funds will be used for this as well.
As the services Ohio provides under the UC and ES programs
are delivered by call and processing centers and one-stops, it
is apparent that our staff will need additional training and
equipment to meet the demands of the new ways of doing
business. Due to continued underfunding at the Federal level,
we have not committed the resources necessary to continuously
improve the skills of our staff and upgrade equipment. We will
use Reed Act funds for this as well.
Ohio employers will benefit from Reed Act distribution
funds of approximately $216 million remaining in the UC Trust
Fund after these administrative expenditures. One solvency tax
associated with the mutualized portion of the State's
unemployment tax structure will be avoided in 2003 and 2004,
and the magnitude of the other solvency tax will be lessened
for 2003. We completely avoided a tax rate schedule increase
for calendar year 2003, and the severity of an increase for
2004 will be lessened as a result of this distribution.
Our allocation plan was unanimously approved by our
Unemployment Compensation Advisory Council (UCAC), cochaired by
the president of the Ohio American Federation of Labor-Congress
of Industrial Organizations (AFL-CIO) and the president of the
Ohio Chamber of Commerce. As a result of this allocation plan,
the advisory council also assigned a Subcommittee to review
Ohio's law with respect to requirements of eligibility for
benefits.
In the past 24 months, benefit payouts have increased
dramatically; and the maximum weekly benefit amounts increased
automatically under Ohio law at the same rate as average weekly
wages. Without this Reed Act distribution, these automatic
increases would have been frozen as they were from 1982 through
1987 in Ohio.
Ms. DELISIO. We are in the process of proposing additional
allocation of $25 million to complete the planned closing of 56
local offices, and transitioning of services to call centers,
process centers and one-stops. That will leave an unobligated
balance of $11 million of Reed Act funds in Ohio's trust fund
account. Additional information regarding the cost of each of
these items I mentioned is attached to my written testimony.
Thank you again for the opportunity to testify and for the Reed
Act distribution, and I would be happy to answer questions.
[The prepared statement of Ms. DeLisio follows:]
Statement of Melissa DeLisio, Assistant Director, Ohio Department of
Job and Family Services, Columbus, Ohio
Mr. Chairman and Members of the Subcommittee:
My name is Melissa DeLisio and I am Assistant Director of the Ohio
Department of Job and Family Services. Thank you for inviting me to
testify today regarding the 2002 Reed Act distribution. I would also
like to thank you and your colleagues on behalf of Governor Bob Taft,
business and labor in Ohio for allowing the Reed Act distribution a
year ago.
Ohio received $343 million in Reed Act funds. We treated this
distribution as ``one time'' money and focused Ohio's allocation plan
on ``one time'' expenditures. Our goal was to allocate a portion of the
money to support the administration of both Unemployment Compensation
and Employment Service programs as well as ensure the integrity of
Ohio's Unemployment Insurance trust fund.
For every dollar of Ohio FUTA tax paid by employers that was sent
to the Federal Government for 2000, only 36 cents was returned to Ohio
to operate the Unemployment Compensation and Employment Service
programs. This return has remained low for a number of years, and
remains well below 50 percent. As a result of this lack of return, it
has been necessary for Ohio to use General Revenue Fund (GRF) & State
Penalty & Interest Fund dollars to make up the shortfall. The 2002 Reed
Act distribution enabled Ohio to address the shortfall in
administrative needs as follows:
Ohio appropriated up to $18 million per year to reimburse the
General Revenue Fund in SFY 2003, 2004 and 2005 for the amount of GRF
that would have otherwise been used to operate the state's Unemployment
Insurance and Employment Services programs. This will be advantageous
to Ohio as the money to support these expenditures will be drawn on a
reimbursement basis, which will leave the Reed Act funding in Ohio's
unemployment benefit account for a longer period of time, allowing it
to accumulate interest.
Ohio's current UC Tax system is 26 years old and has been targeted
as ``high risk'' for potential system failure. The current tax system
does not lend itself to modifications to assist Ohio employers,
implement law changes or take advantage of technological improvements.
Reed Act funds will be used to replace this system and costs will be
spread out over a three year period.
With the implementation of the federal Workforce Investment Act
the local delivery system for workforce development services is
evolving into the local One Stops. Over the next year, Ohio will
transition its traditional employment service functions from former
field service delivery offices to local One Stops.
Resource rooms are a critical component of successful One Stops.
Reed Act funds will be provided so that each certified One Stop will
have a resource room that will offer services that can be utilized by
local job seekers and employers providing them access to computers, the
Internet, fax machines, telephones and other services and resources.
Ohio will also provide funds for the development of user friendly
computer links that allow on-line interactive access within various
local workforce systems that link employers and jobs seekers.
Ohio will also use some Reed Act funding in the promotion and
marketing of certified One Stops and services provided in local
communities. While paying benefits in a timely fashion is critical to
claims customers, our ultimate goal is getting unemployed workers back
to work as soon as possible and providing adequate resources to
accomplish that. Again, these are one-time expenses that will be spread
over 2-3 years.
We are currently required to provide specific Labor Market
Information to the Federal Government, but we also provide valuable
information to local One Stops to support decision-making by employers
and job seekers. A primary goal is to expand locally focused Labor
Market Information products and ensure the information is complete,
timely, accessible and user friendly for local employers and job
seekers.
As the services Ohio provides under the Unemployment Compensation
and Employment Service programs are delivered by call and processing
centers and One Stops it has become apparent that our staff will need
training and equipment to meet the demands of the new ways of doing
business. Due to continued under funding at the federal level we have
not committed the resources necessary to continuously improve the
skills of our staff or upgrade equipment. Reed Act funds will be used
for staff training and equipment upgrades.
Ohio employers will benefit from Reed Act distribution funds of
approximately $216 million remaining in the Unemployment Compensation
Trust Fund after these administrative expenditures. One solvency tax
associated with the mutualized portion of the state's unemployment tax
structure will be avoided for 2003 and 2004. The magnitude of the other
solvency tax will be lessened for 2003. We completely avoided a tax
rate schedule increase for calendar year 2003. The severity of the
increase for 2004 will be lessened as a result of the Reed Act
distribution.
Our allocation plan was unanimously approved by our Unemployment
Compensation Advisory Council (UCAC), which is co-chaired by the
President of the Ohio AFL-CIO and the President of the Ohio Chamber of
Commerce. As a result of this allocation plan, the advisory council
also assigned a subcommittee the task of reviewing Ohio's law with
respect to requirements of eligibility for benefits.
In the past 24 months, benefit payouts have increased dramatically
and the maximum weekly benefit amounts increased automatically under
Ohio law at the same rate as average weekly wages. Without this Reed
Act distribution, these automatic increases may have been frozen as
they were in Ohio from 1982 through 1987.
We are in the process of proposing an additional allocation of $25
million to complete the planned closing of 56 local offices and
transitioning services to call centers, processing centers and One
Stops. That will leave an unobligated balance of $191 million in Reed
Act funds within Ohio's Trust Fund Account.
Additional information regarding the cost of each allocation item
I mentioned is attached to my written testimony.
Again, thank you for the opportunity to testify and I would be
happy to answer any questions.
__________
ATTACHMENT
The Ohio Reed Act Appropriation Plan is as follows:
1. LUp to $26 million each year in SFY '03, '04, and '05 to
offset GRF & Penalty & Interest.
2. LUp to $30 million to replace the current Unemployment
Compensation Tax system.
3. LUp to $10 million for operation of local One Stops.
4. LUp to $3 million for one time improvements to ODJFS's Labor
Market Information system.
5. LUp to $6 million for one time equipment and training
expenses for program delivery and policy staff.
6. LUp to $216 million to remain in the Unemployment
Compensation Employers' Trust Fund.
* Under consideration as of March 18, 2003, an additional $25
million to complete the local office transition plan.
Chairman HERGER. Thank you, Ms. DeLisio. Now Mr. Emsellem
to testify.
STATEMENT OF MAURICE EMSELLEM, DIRECTOR, PUBLIC POLICY,
NATIONAL EMPLOYMENT LAW PROJECT, OAKLAND, CALIFORNIA
Mr. EMSELLEM. Thank you, Chairman. Thank you, Members of
the Committee. I would like to discuss a few key concerns
related to the Reed Act distribution. As a result of these
concerns, we believe that the Reed Act survey, findings of the
GAO support the conclusion that Congress should enact more
targeted reforms to expand benefits and that proposals to
further devolve Federal UI funding to the States should be
reconsidered.
First, has the Reed Act distribution helped to close the
major gaps in the unemployment system? In our view, it has not,
as documented by the GAO. Even during the recession, most
unemployed workers are not collecting unemployment benefits in
the United States, because the State laws have failed to keep
pace with changes in the labor market, the growth of low wage,
part time and women worker. Low wage workers are especially
hard hit. They are half as likely to collect unemployment
benefits compared to hire wage workers. That is at a rate of 18
percent. When Congress passed the Reed Act measure along with
the temporary extension of unemployment benefits, the
opportunity existed for States to bring many more workers into
the unemployment system. Certainly the funding is there to help
do it. For example, compared to the $8 billion in funding, the
Department of Labor estimated that the annual cost, if every
State adopted the key eligibility reforms benefiting low-wage
and part-time workers, would not exceed $1.16 billion.
However, while Congress nearly tripled the amount of Reed
Act funding that was scheduled to be released in October, it
did not target any specific portion of the Reed Act funds to
fill the gaps in the unemployment program. According to the
GAO, only 9 States indicated that they expanded benefits or
even planned to do so as a result of the Reed Act funds, and of
the 14 States with the most solvent trust funds that also pay
benefits below the average recipiency rate, only 3 indicated
that they were expanding benefits. Thus, as of today, there are
only 35 States that have not adopted the alternative base
period and 31 States that failed to provide protections to
part-time workers.
The GAO findings thus support the conclusion that block
granting has not substantially helped to bring more workers
into the unemployment system and that more target of Federal
reforms are necessary to close the gaps in the program.
Second, if the Reed Act funds were not used to help close
the gaps in the program, has the funding helped to produce
other significant benefits in line or commensurate with the
unprecedented size of the 2002 distribution? In our view, the
answer is no, primarily because the funding was block-granted
to the States and held in reserve to reduce unemployment taxes.
First, it is clear that the $8 billion funding did not help
stimulate State economies. According to the GAO, 88 percent of
the funding was held, and most of the Reed Act funding that was
spent for regular benefits in those States--was for those
States experiencing funding problems, not for new programs.
Second, and most significant, the States were lobbied
aggressively to ensure that the Reed Act funding was held in
the State trust funds to benefit employers in the form of
reduced unemployment taxes. However, two-thirds of the States
that benefited most as a result were already paying relatively
low unemployment taxes, that is, below the national average.
The national average has fallen in recent years to literally
record-low levels.
Thus, even from the standpoint of reducing employer taxes,
it is fair to say that the Reed Act funding could have been
better targeted.
Third, the Reed Act funding provided some support to the
underfunded UI Administration ES, amounting to 7 percent of the
total. However, a significant percentage of this represents
Reed Act funding appropriated in just a few States.
Finally, Reed Act funds have had the effect of reducing
trust fund levels in the States at a time when more benefits
are being paid as a result of the recession. However, while the
extra funding is welcome, it is important to emphasize that the
solvency situation cannot be characterized as severe, except in
the limited number of States.
So, we believe that the Reed Act block grant did not
produce substantial benefits commensurate with the
unprecedented size of the program. As the UI stakeholder
consensus proposal concluded, specific targeting of Reed Act
funds to provide greater administrative resources, expand
eligibility and tax relief to employers will produce more
results at far less cost to the Federal trust fund.
Finally, what lessons can be learned from the Reed Act
experience as applied to the Administration's new balance
proposal? We believe that the experience documented by the GAO
underscores the serious limitations of the Administration's
initiatives, especially when the demands on the UI system are
the greatest in times of recession.
This year's Reed Act experience demonstrates that the
Administration's initiative will probably fail to achieve the
goal of increasing administrative funding for the States,
because most States were unable or unwilling to use the funds
for anything other than UI payroll tax deductions despite the
substantial demand for services.
I guess my time is up. Can I take a couple more seconds to
conclude?
Chairman HERGER. Your time is up, but certainly your
testimony will be submitted for the record.
Mr. EMSELLEM. Thank you.
[The prepared statement of Mr. Emsellem follows:]
Statement of Maurice Emsellem, Director, Public Policy, National
Employment Law Project, Oakland, California
Good afternoon, Chairman Herger and members of the Committee. My
name is Maurice Emsellem, and I am Director of Public Policy with the
National Employment Law Project. Thank you for this opportunity to
testify with regard to the $8 billion in federal unemployment funds
(``Reed Act'') distributed to the states as part of the Job Creation
and Worker Assistance Act of 2002 (P.L. 107-147, Section 209).
For the reasons described below, we believe that the Reed Act
survey findings of the U.S. General Accounting Office (GAO)
(Unemployment Insurance: States' Use of the 2002 Reed Act Distribution,
March 2003) support the conclusion that Congress should enact more
targeted reforms to expand unemployment benefits and that proposals to
further devolve federal unemployment insurance (UI) funding to the
states should be rejected.
The National Employment Law Project (NELP) is a non-profit
organization that specializes in the unemployment insurance system. We
provide technical assistance to state lawmakers and advocates in
support of reforms of the unemployment system to fill the gaps in
coverage that deny benefits to many low-wage and women workers. We have
published extensively on the unemployment system, including a recent
analysis of the 2002 Reed Act distribution (Strengthening the UI Safety
Net with $8 Billion in New Federal Reed Act Funding: State Findings and
Recommendations).
In today's testimony, I will expand on the following key concerns
related to the 2002 Reed Act distribution.
LEven in those states with especially solvent trust
funds and where most unemployed workers still do not collect
unemployment benefits, the 2002 Reed Act funding has failed to help
close the major gaps in the unemployment system.
LBecause the Reed Act block grant was most often held in
the state trust funds to reduce unemployment taxes, it has thus far
failed to produce other significant benefits commensurate with the
unprecedented size of the 2002 distribution.
LThe Reed Act experience documented by the GAO
underscores the serious limitations of the Administration's ``New
Balance'' proposal especially when the demands on the UI system are the
greatest in times of recession.
* * *
LEven in those states with especially solvent trust
funds and where most unemployed workers still do not collect
unemployment benefits, the 2002 Reed Act funding has failed to help
close the major gaps in the unemployment system.
The critical question is whether the Federal Government received a
fair return on its investment of $8 billion in Reed Act funds
distributed to the states in March 2002. In our view, it has not thus
far, especially given the failure of the states to expand unemployment
benefits to meet the needs of today's working families.
The unemployment insurance safety net is being sorely tested, as
monthly layoffs show few signs of subsiding and long-term unemployment
reached a 10-year high last month. According to our recent
analysis,1 the long-term jobless now represent nearly all
sectors of the workforce. For example, the most significant increases
in long-term unemployment since 2000 have been among manufacturing
workers (177% increase from 2000-2002), professional workers (up 234%)
and the college educated (up 207%).
---------------------------------------------------------------------------
\1\ National Employment Law Project, ``Crisis of Long-Term
Unemployment is Far From Over Now Reaching Most Segments of the Labor
Market'' (February 2003).
---------------------------------------------------------------------------
Yet even during the recession, most unemployed workers are not
collecting unemployment benefits in the United States. That is because
state unemployment laws have failed to keep pace with the changes in
the labor market, including the growth in the number of low-wage
workers, part-time and women workers. As of the 3rd Quarter
of 2002, the average state provided unemployment benefits to 41% of the
unemployed (a figure which has increased since the recession began in
March 2001 because a larger percentage of laid off workers qualify for
benefits). In 14 states, less than one-third of all unemployed workers
collect benefits, while only twelve states provide benefits to more
than 50% of the unemployed. As documented by another GAO report, low-
wage workers are especially hard hit--they are half as likely to
collect unemployment benefits compared to higher-wage
workers.2
---------------------------------------------------------------------------
\2\ U.S. General Accounting Office, Unemployment Insurance: Role as
Safety Net for Low-Wage Workers is Limited (December 2000).
---------------------------------------------------------------------------
When Congress passed the Reed Act measure along with the temporary
extension of unemployment benefits, the expectation of many was that
the states would take advantage of the $8 billion in funding to bring
more workers into the unemployment system. The costs of most
eligibility measures, compared with the significant amount of funding
available, raised the hopes for significant state reform. The Reed Act
funds represented the equivalent of 38% of the revenue collected in an
entire year by the states. It represents even more of the UI revenue
collected in those states where unemployed workers have the hardest
time collecting benefits (of the 14 states providing unemployment
benefits to less than one-third of the unemployed, Reed Act funds
represented an average of 81% of the state's revenue generated in one
year). In contrast, the Labor Department estimated that the annual cost
if every state adopted two of the key eligibility reforms benefiting
low-wage and part-time workers (630,000 workers total) would not exceed
$1.16 billion.
However, while Congress nearly tripled the amount of Reed Act
funding that was scheduled to be released in October 2002, it did not
target any specific portion of the Reed Act funds to fill the gaps in
the unemployment program. Instead, the law listed several categories of
UI reforms that the states could adopt at their option, including
state-funded extended unemployment benefits (limited to those workers
who were able to first access the temporary extension program),
coverage for workers who do not qualify for state UI benefits because
the state does not count their recent earnings (the ``alternative base
period''), and benefits for workers who are only available for part-
time employment.
As the GAO survey found, only a small percentage of the states took
advantage of their Reed Act funds to expand their UI programs.
According to the GAO, only nine states indicated that they expanded
unemployment benefits, or even planned to do so, as a result of their
Reed Act funds. That is true as well of the states with the most
solvent UI trust funds. Of the 21 states that had sufficient trust fund
reserves (as of October 2002) to pay benefits for more than one year at
peak recession levels (the recommended solvency level recognized by the
U.S. Department of Labor), just six states (Alabama, District of
Columbia, Georgia, Oklahoma, Oregon, and Vermont) indicated that they
planned to expand benefits as a result of Reed Act funding.3
---------------------------------------------------------------------------
\3\ Even more alarming is the lack of meaningful progress in those
states that have especially abundant UI reserves and a below-average
proportion of workers collecting unemployment benefits. 14 states
(Alabama, Arizona, Florida, Georgia, Indiana, Louisiana, Maine,
Mississippi, Montana, New Hampshire, New Mexico, Oklahoma, Utah,
Wyoming) fall in this category, while and only three of them (Alabama,
Georgia, Oklahoma) reported that they planned on expanding benefits as
a result of Reed Act funding.
---------------------------------------------------------------------------
While it is still possible that some of these states will
eventually adopt eligibility reforms, most of them will not according
to judgment of the state officials that responded to the survey. Thus,
as of today, there are still 35 states that have not adopted the
alternative base period and 31 states that fail to provide unemployment
benefits to workers who cannot look for full-time work.
The GAO findings thus support the conclusion that block granting
did not work to help bring more workers into the UI system and thus
that more targeted federal reforms are necessary to close the gaps in
the program. Federal legislation should include structural reform of
the unemployment system to cover more low-wage and part-time workers
and provide additional weeks of benefits for those who have exhausted
their federal extension or will do so come May when the federal program
expires.
LBecause the Reed Act block grant was most often held in
the state trust funds to reduce unemployment taxes, it has thus far
failed to produce other significant benefits commensurate with the
unprecedented size of the 2002 distribution.
If the Reed Act funds were not used to help close the gaps in the
unemployment program, then the question is whether the funding produced
other measurable benefits in proportion to the size of the Reed Act
distribution. In our view, the answer is thus far no, primarily because
the funding was block granted to the states and held in reserve to
reduce unemployment taxes.
First, it's clear that the $8 billion in funding did not help
stimulate state economies. Local economies would have benefited if the
funding were directed to pay for expanded unemployment benefits, thus
building purchasing power in those areas hit hardest by unemployment
and paying for goods and services. However, according to the GAO, 88%
of the funding had not been spent ($6.66 billion) as of November 2002.
And most of the Reed Act funding that was spent paid for regular
benefits in those states experiencing funding problems (especially New
York and Texas), not for new programs.
Second, and probably most significant, the states were lobbied
aggressively to ensure that the Reed Act funding was held in the state
trust funds to benefit employers in the form of reduced unemployment
taxes. However, those states that benefited most as a result were
already paying relatively low unemployment taxes. Thus, even from the
standpoint of reducing employer taxes, it's fair to say that the Reed
Act funding was poorly targeted.
According to the GAO, 30 states held onto their Reed Act funds,
which had the effect of avoiding scheduled increases in taxes or new
solvency taxes. However, in two-thirds of these states (19),
unemployment taxes were already at or below the national average of
just half of one percent of total wages (.5%). In eight of these states
(Colorado, Florida, Indiana, Missouri, New Hampshire, Oklahoma, Utah
and Virginia), unemployment taxes were already below three-tenths of
one percent (.3%) of total wages.
It's important to point out that unemployment taxes have fallen to
historic low levels in recent years. In 2001, the average tax was lower
than at any time since 1950 when the data were first collected, and
from 1994 to 2002 (2002 rates estimated by the Labor Department) the
average UI tax rate fell nearly in half (from .92% to.5%). The story of
the last decade is that the states have moved to ``pay as you go''
financing, thus maintaining the lowest possible unemployment taxes even
during those periods when the unemployment trust funds should be
building reserves to pay benefits during a recession.4
---------------------------------------------------------------------------
\4\ Marc Baldwin, Beyond Boom and Bust: Financing Unemployment
Insurance in a Changing Economy (National Employment Law Project, April
2001)
---------------------------------------------------------------------------
Third, the 2002 Reed Act funding provided some support to the
under-funded UI administration and employment services, amounting to 7%
of the total distribution (or $590 million). However, a significant
percentage of this total represents Reed Act funding appropriated in
just a small number of states, most notably Michigan and Ohio. Thus,
even assuming that double or triple the current amount is appropriated
by the states in future years, the Reed Act funding would still
represent a relatively modest portion of the need and a limited amount
of the total funds available.
Finally, Reed Act funds have had the effect of raising trust fund
levels in the states at a time when more benefits are being paid as a
result of the recession. While the extra funding is welcome, it's
important to emphasize that the solvency situation cannot be
characterized as a crisis except in a handful of states. Without the
Reed Act funding, about half the states (23) had sufficient reserves as
of September 2002 to pay benefits at peak recession levels for a least
nine months. That is not significantly short of the one-year standard
that applies before a recession begins, not 19 months after a recession
started. Moreover, the solvency measure assumes that the states are not
taking in any additional revenue. Yet the states are still accumulating
significant reserves which are projected to total $28 billion in 2003.
With the Reed Act funding, the number of states with at least nine
months of recession-level reserves increased from 23 to 32.
In sum, the Reed Act block grant did not produce substantial
benefits commensurate with the unprecedented size of the distribution.
As the UI stakeholder ``consensus'' proposal concluded in 2001,
specific targeting of Reed Act funds to provide greater administrative
resources, expanded eligiblity and tax relief to employers would still
likely produce more results at far less cost to the federal UI trust
fund.
LThe Reed Act experience documented by the GAO
underscores the serious limitations of the Administration's ``New
Balance'' proposal especially when the demands on the UI system are the
greatest in times of recession.
Lastly, it is important to evaluate the Administration's ``New
Balance'' proposal in light of the state experience with the latest
Reed Act distribution. In our view, the experience documented by the
GAO underscores the serious limitations of the Administration's
initiative especially when the demands on the UI system are the
greatest in times of recession.
The ``New Balance'' initiative calls for a 75% cut in federal
unemployment taxes, coinciding with a major shift in responsibility for
UI administrative funding from the Federal Government to the states.
The states would be expected to raise the necessary funding to
administer the UI system by creating a new state tax. During the
transition, they would receive an additional $5.4 billion in Reed Act
funding. The primary rationale for the proposal is that the states do
not receive sufficient funding to pay for administration of their UI
programs.
This year's Reed Act experience demonstrates that the
Administration's initiative will probably fail to achieve its stated
goal because most states were unable or unwilling to use the funds for
anything other than UI payroll tax reductions despite the substantial
demand for services for unemployed workers and the extreme pressures on
state government budgets. Thus, in most states, there is every reason
to believe that the $5.4 billion in proposed Reed Act funding will end
up remaining in the state trust funds to reduce unemployment taxes, not
to pay for administration of a state's UI program. Even more
significant, the proposal introduces a new political dynamic into state
UI funding by requiring the states to create a tax to fund
administration that will for the first time compete with other more
salient state priorities (e.g., state police, homeland security,
Medicaid) and even with the funding necessary to pay UI benefits. After
the dust settles, we strongly believe that the Administration's
initiative will lead to reduced services and even more pressure to
restrict benefits for unemployed workers.
Moreover, by eliminating most of the federal unemployment tax, the
Administration's proposal also eliminates most of the federal role that
exists to support the states especially during recessions. For example,
the prospects of building sufficient federal reserves to fund an
adequate extension of unemployment benefits when a severe recession
hits or to distribute large sums of Reed Act funding are far more
limited if the unemployment tax is substantially reduced. And
certainly, the states will not be in a position to raise enough revenue
on their own to fill the void, as demonstrated by the state budget
crisis they are currently experiencing as a result of the recession.
A recent analysis prepared by the Congressional Research Service
documents the critical role that segregated federal funding plays,
especially during recessions. It examines how much the states received
in 2002 compared with how much they contributed to the federal trust
funds in UI taxes. The analysis found that the states contributed about
$7 billion to the federal trust funds in 2002, while they received
about $19.5 billion in the form of administrative grants, Reed Act
funding and federal extended benefits.
These figures call into question the claims that the states do not
receive a proportion share of the funding that they contribute to the
federal unemployment trust funds. Indeed, when recessions hit, they
receive much more. The funding is thus targeted to respond to
recessions in order to serve the key federal role of the program--to
help stimulate the economy and ensure that all unemployed workers
(regardless of where they live) receive the income support they need to
survive hard economic times.
Accordingly, we urge the Committee to reexamine the ``New Balance''
proposal and reject the initiative in light of the significant
limitations described above. We strongly agree that UI administrative
funding should be increased, and thus we also urge the Committee to
consider the measures adopted by the 2001 ``consensus'' proposal to
address this key concern.
Chairman Herger and members of the Committee, thank you again for
this opportunity to testify.
Chairman HERGER. Thank you, Mr. Emsellem. Now Ms. Watson to
testify.
STATEMENT OF DAWN ROMERO WATSON, SECRETARY, LOUISIANA
DEPARTMENT OF LABOR, BATON ROUGE, LOUISIANA
Ms. WATSON. Mr. Chairman and Members of the Subcommittee,
my name is Dawn Romero Watson, and I am the secretary for the
Louisiana Department of Labor. I am honored to be invited to
testify before you today and would like to thank you personally
and your colleagues on behalf of our Governor and the workers
and employers in Louisiana for allowing the Reed Act
distribution to take place a year ago. Louisiana's trust fund
received over $105 million as a result of the distribution.
As has been said earlier, dollars in the trust fund are
dedicated exclusively for the payment of benefits. The use of
Reed Act dollars can be used for administrative purposes only
by State-legislated appropriation. The distribution occurred in
mid March of last year, and our Legislature was scheduled to go
into a 60-day session beginning at the end of April. The
timeframe for developing the proposal, building consensus and
passing it was very tight. As soon as our allocations per State
were set and the guidance from the Department of Labor were
released, we began developing our proposal.
As in most States, our law provides triggers based on the
UI trust fund for increases and decreases in benefits. It
actually provides what will be the taxable wage base, which tax
rate table will be used, how the benefits will be calculated
and what is the maximum weekly benefit amount. They are always
in equal percentages. If benefits are going up by 5 percent,
then taxes are going down by 5 percent. These are carefully
negotiated in the State law by our State leaders on the
business side and the labor side.
For a variety of reasons, we decided that about half of our
$105 million needed to remain in the trust fund to guarantee we
would not trigger an increase in taxes or decrease in benefits
in the foreseeable future. With the balance of the
distribution, we put our best thinking into developing projects
using one-time money to invest in our department to provide
better services to both our business and worker customer. We
presented our legislature with a $36.5 million proposal,
leaving about $69 million for benefits and future appropriation
for administrative needs.
Our proposal can be divided into three different
categories, a comprehensive UI tax and benefit system redesign;
second, integration of new technology and upgrading of existing
technology infrastructure to improve the services and
accountability. Third, professional development of and
additional resources for our staff to address special needs of
targeted populations.
The single most critical project to the future of the
Department in terms of its ability to provide services and to
respond to its business and worker customers is the
comprehensive redesign of the UI tax and benefit system. The
current system has been in place since 1970, and it was state
of the art in 1970, but there has been substantial changes
through the years to laws and also the way the employment
relationship has evolved.
The last major upgrade to the system was in 1985. Our
proposal is to move to an object-oriented programming
environment and an enterprise-wide relational database with
access through a browser or portal. Specific areas in work flow
processes that will be included are delinquency and legal
accounting, remittance processing--which is how we process
taxes received--experience rating, benefit charges and
maintenance of employer information, claimant information, wage
record information, benefit payments and benefit overpayments.
Modernization of the system will significantly impact the
integrity of our programs and our ability to provide quality
services timely. We anticipate this being a 3-year to 5-year
project and costing upwards of $20 million. We are currently in
the planning stages, and should be releasing either a Request
for Information or a Request for Proposal (RFP) later this year
or early next year.
The second major category is an investment of about $10
million in the integration of new technologies and upgrading of
existing technology infrastructure to improve our service,
delivery and accountability. Projects included the replacement
of about 700 computer workstations in our local offices and
one-stops, expansion of an imaging system to local offices,
upgrading the interactive voice response system to be Web-
enabled and substantial network enhancements to accommodate the
additional traffic. We are also adding a card scan system in
our local offices and one-stop centers so we can better track
the services that are being delivered and evaluate them and
adjust our offerings.
Another major category is about $5.8 million for
professional development of and additional resources for our
staff to assist targeted populations. These projects are
largely in response to feedback gained from legislative
hearings and from our customers directly. They include the
development of workshops and materials customized to the
typical needs of older workers, ex-offenders, at-risk use and
single heads of household.
Prior to the Committee hearing, our proposal was endorsed
by both Louisiana Association of Business and Industry, which
is our counterpart to the State Chambers of Commerce, and the
State AFL-CIO. It passed all Committee hearings in the House
and Senate floors unanimously and became Act No. 76 of the 2002
regular session of the Louisiana Legislature.
This concludes my formal remarks. Again, I am honored to be
before you today, and on behalf of Louisiana, I sincerely
appreciate the Reed Act distribution last March. I will be
happy to answer any questions. Thank you.
[The prepared statement of Ms. Watson follows:]
Statement of Dawn Romero Watson, Secretary, Louisiana Department of
Labor, Baton Rouge, Louisiana
Mr. Chairman and Members of the Subcommittee:
My name is Dawn Romero Watson and I am the Louisiana Secretary of
Labor. I am honored to be invited to testify before you today and would
like to personally thank you and your colleagues on behalf of our
Governor M.J. ``Mike'' Foster and the employers and workers in
Louisiana for allowing for the Reed Act distribution a year ago.
Louisiana's trust fund received over $105 Million as a result of the
distribution.
I'm going to begin by telling you a little about our state so you
will have a point of reference in relation to other states, then talk
about how our proposal was developed and outline the major projects
approved. A complete list of projects, with a short description and
amount appropriated, is attached to my submitted remarks.
At the time of the distribution, Louisiana's Trust Fund Balance was
just over $1.4 Billion, making us one of the most solvent states in the
country. We have an employer base of approximately 97,000, and in 2001,
we collected approximately $130 Million in state unemployment taxes. We
have a workforce of about 1.9 Million people, and in 2001, we paid out
about $220 Million in unemployment insurance (UI) benefits. Prior to
the distribution, growth in our trust fund occurred because taxes and
interest exceeded benefits paid.
By law, dollars in the trust fund are dedicated exclusively for the
payment of benefits. The use of Reed Act dollars for administrative
expenses can only be accomplished by state legislative appropriation.
The distribution occurred mid-March of last year and our Legislature
was scheduled to go into a sixty (60) day session beginning at the end
of April. The time frame for developing a proposal, building consensus
and passing it was very tight. As soon as allocations per state were
set and the guidance from the United States Department of Labor was
released, we began developing our proposal.
As in most states, our law provides triggers, based on our UI Trust
Fund balance, for increases and decreases in taxes and benefits. For a
variety of reasons, we decided that about half of the $105 Million
needed to remain in the trust fund to guarantee we would not trigger an
increase in taxes and a decrease in benefits in the foreseeable future.
With the balance of the distribution, we put our best thinking into
developing projects using ``one-time'' money to invest in our
department to provide better services to our business and worker
customers.
We presented our Legislature with a $36.5 Million proposal, leaving
$69 Million for benefits or future appropriation for administrative
needs. Our proposal can be divided into three major categories: (1)
Comprehensive UI tax and benefit system redesign for $20.5 Million; (2)
Integration of new technologies and upgrades to existing technology
infrastructure to improve services and accountability for $10 Million;
and, (3) Professional development of and additional resources for our
staff to address special needs of targeted populations for $5.8
Million.
The single most critical project to the future of the department in
terms of its ability to provide services and to respond to its business
and worker customers is the comprehensive redesign of the UI tax and
benefit system. The current system has been in place since 1970. It has
been modified many times over the years as laws were changed and the
nature of employers and employment evolved. The last major upgrade to
the system was in 1985. Our proposal is to move to an ``object
oriented'' programming environment and enterprise wide relational
database with access through a browser or portal. Specific areas and
workflow processes that will be included are Delinquency and Legal
Accounting, Remittance Processing, Experience Rating, Benefit Charges,
and Maintenance of Employer Information, Claimant Information, Wage
Record Information, Benefit Payments and Benefit Overpayments.
Modernization of system will significantly impact integrity of programs
and our ability to provide quality services timely. We anticipate this
being a three to five year project and costing upwards of $20 Million.
We are currently in the planning stage and should be releasing a
Request for Information and Request for Proposal later this year or
early next year.
The second major category is an investment of about $10 Million in
the integration of new technologies and upgrades to existing technology
infrastructure to improve our service delivery and accountability.
Projects included replacement of about 700 computer workstations in our
local offices, expansion of imaging system to local offices, upgrading
of interactive voice response system to be web enabled, and substantial
network enhancements to accommodate the additional traffic. We are also
adding a card scan system in our local offices and One Stop Centers so
we can better track services delivered and evaluate and adjust
offerings. We are also investing in technologies to provide better
services to our customers with disabilities in our local offices and
through the Internet.
The final major category is about $5.8 Million for professional
development of and additional resources for our staff to assist
targeted populations. These projects are largely in response to
feedback gained from legislative hearings and from our customers
directly. They include the development of workshops and materials
customized to the typical needs of older workers, ex-offenders, ``at-
risk'' youth, and single heads of households. For example, older
workers seeking employment desire information on how wages will impact
their social security benefits and tend to be less concerned about
health insurance. On the other hand, health insurance and career
advancement opportunity as part of an employment package tend to be
critical concerns for single heads of households.
To improve our services to employers, we plan to hire an outside
facilitator to moderate employer forums to gather information from the
employer's perspective on awareness and quality of the services that
the Department is currently providing. The forum will also solicit
suggestions in the mode of continuous improvement to meet the needs of
our business customer. We are also piloting a CD-ROM package that
provides basic information on each of the department's major program
areas related to employers with hyperlinks directly to the online
version of those services.
Prior to the first committee hearing, our proposal was endorsed by
both the Louisiana Association of Business and Industry (similar to
other state's State Chamber of Commerce) and the Louisiana AFL-CIO. It
passed all committee hearings and the House and Senate floors
unanimously and became Act No. 76 of the 2002 Regular Session of the
Louisiana Legislature.
This concludes my formal remarks. Again, I am honored to be before
you today, and on behalf of Louisiana, I sincerely appreciate the Reed
Act distribution last March. I'll be happy to answer any questions.
Thank you.
------------------------------------------------------------------------
Project Appropriation Description
------------------------------------------------------------------------
UI Tax and Benefit $20,000,000 Comprehensive redesign of our
Redesign automated UI tax and benefit
system. Move to an ``object
oriented'' programming
environment and relational
database with browser/portal
access. Modernization of
system will significantly
improve integrity of
programs and ability to
provide services.
------------------------------------------------------------------------
Remittance Processing $580,571 Upgrading of current system
with additional software to
capture check amount by
Intelligence Character
recognition, additional
scanners and mail openers,
customized index programming
and creation of a test site.
------------------------------------------------------------------------
LaVOS VOScan System $292,254 A card scan system to be
implemented in local offices
and OneStop Centers to more
easily and accurately record
services provided to
customers. Data accumulated
will then be used to
evaluate success of services
and adjust offerings. The
data captured will be
integrated into our network
operating system called
Louisiana's Virtual OneStop
System.
------------------------------------------------------------------------
Network Enhancements $791,000 Router Upgrades for our field
offices to support
additional voice ports for
additional traffic on our
interactive voice response
system. Additional gigabit
support for growing
bandwidth for additional
file services, imaging,
database, and web activity.
Additional network
management and monitoring
support.
------------------------------------------------------------------------
Imaging $1,802,500 Expand use of imaging system
to local offices. This will
allow documents relative to
a customer's contact with
the department to be readily
available throughout the
state thereby enabling our
staff to provide better and
faster service to the
employer and the claimant
concerning UI matters.
------------------------------------------------------------------------
Interactive Voice $395,000 Upgrade to allow current IVR
Response applications (claim renewal,
check status, employer
inquiries, etc.) to also be
deployed on the web.
------------------------------------------------------------------------
Mainframe $430,200 Upgrade will reduce the
processing capacity in order
to ``right size'' the
equipment to current load.
This will lower the software
license cost and operating
cost.
------------------------------------------------------------------------
Streaming Media- $523,000 Intranet/Internet website
Content Distribution enhancements, as well as on-
demand training for all
local offices. Adds
capability to distribute
rich media content close to
our target users, overcoming
issues such as network
bandwidth availability/
congestion and latency.
Allows consistent
information or instruction
to be disseminated
simultaneously without the
added cost of travel to a
central location and time
out of the office.
------------------------------------------------------------------------
Computer Equipment $1,456,690 Replaced workstations in
local offices with updated
computers and laptops.
------------------------------------------------------------------------
ADA Compliance $1,956,780 Added ADA workstations and
Technology software in each local
office. Workstations will
integrate speech
recognition, print and
screen to speech
technologies, screen and
print magnification, work
prediction, tools for
learning differences,
Braille embossing and
refreshable Braille. Also,
staff training.
------------------------------------------------------------------------
Storage Area Network $750,000 Provides a high-speed network
direct central storage for
all department client
servers in one centrally
managed storage array.
Simplifies off site backup
procedure to assure data is
protected.
------------------------------------------------------------------------
Color Copier $130,000 Expands color copy or
printing capabilities of the
Department.
------------------------------------------------------------------------
Administrative Office $1,508,100 Building and parking lot
Improvements improvements including
handicap access, fire alarm
system, lighting,
furnishings, restrooms, etc.
------------------------------------------------------------------------
Technical Training for $755,000 Training for staff on
Wagner Peyser Staff promoting labor exchange
services of the department
and providing such services.
Hire a consultant through an
RFP to evaluate staff skills
and abilities; develop
performance measures and
establish measurement
methodology; develop a
training needs matrix and
identify training to meet
the identified needs; and,
develop follow-up evaluation
tool to measure training
effectiveness and ensure
continuous improvement.
------------------------------------------------------------------------
Specialized Assistance $650,000 Increase capacity for
for Older Workers outreach to older workers
though partnerships & local
affiliates of the AARP and
correlating outreach,
promotion and support to
employers. Develop more
specialized job preparatory
and job search workshops
customized to unique needs
of older workers.
------------------------------------------------------------------------
Specialized Assistance $693,000 Develop an automated match of
for Single Heads of individual's education major
Households to careers and availability
of those careers in
Louisiana. Identify
standards to enable an
automated match of skill
sets and employment needs to
jobs and job seekers.
Develop an online mock
interviewing service to
better prepare job seekers
for job interviews. Automate
resource mapping to identify
services in close proximity
to where an individual lives
or works.
------------------------------------------------------------------------
Specialized Assistance $1,100,000 Conduct focus groups with
for At-Risk Youth youth and high school
counselors to gain feedback
on needs and services
currently provided. Use
information to improve job
development efforts,
identification of
internships, part-time after
school jobs, youth job fairs
and summer job fairs, etc.
------------------------------------------------------------------------
Specialized Assistance $652,000 Develop special workshops for
for Ex-Offender unique needs that can be
Population delivered in different
formats such as paper-based
materials, computer-based
software, video technology
and lectures. Design
workshop materials and job
fairs using current labor
market information to
determine industries most
likely to hire and
appropriate skills set
requirements. Outreach to
target industries tax
credits associated with the
hiring from this population.
------------------------------------------------------------------------
Expansion of Reemployment $1,200,000 Expand REI program to more
Initiative job seekers. Also, update
videos and instructional
materials and add workshops.
------------------------------------------------------------------------
Employer Forums $200,000 Facilitate employer forums to
gain information on how to
continue changing and
improving to meet the needs
of the employer and
ultimately our citizens.
Gauge awareness and quality
of services to adjust
program delivery.
------------------------------------------------------------------------
Assistance to Alien Labor $565,000 Amnesty legislation inundated
Program office and tremendous
backlog of cases exists.
Professional services
contract to review processes
and make recommendations and
automate where ever
possible.
------------------------------------------------------------------------
Employer Services $11,200 CD providing basic
CD-ROM information on each of the
department's major programs
areas related to employers.
CD has hyperlinks to take
the user directly to the
online version of services.
This funding is to test
market and pilot before a
mass distribution. CD's
provide a mechanism for
feedback on the content and
the usefulness of the
product.
------------------------------------------------------------------------
Chairman HERGER. Thank you very much, Ms. Watson. The
gentleman from Louisiana, Mr. McCrery, to inquire.
Mr. MCCRERY. Thank you, Mr. Chairman. Mr. Brock, you are
here from Oklahoma, but you also represent a nationwide
organization.
Mr. BROCK. Yes, I do.
Mr. MCCRERY. Which organization is that?
Mr. BROCK. It is the NASWA.
Mr. MCCRERY. So, that is the employment agencies?
Mr. BROCK. That is correct. Ms. Watson is a Member of that
organization.
Mr. MCCRERY. Has your organization looked at the
Administration's proposal for overall reform of the UI system?
Mr. BROCK. Yes, we have.
Mr. MCCRERY. What is your impression of it?
Mr. BROCK. We are still--we are as diverse as the States
and territories, and we are in the process of developing a
consensus on that, but at this time, we do not have one.
Mr. MCCRERY. Okay. You worked, though, on a former
proposal, which I introduced into--in the Congress, and the
purpose of--or one of the purposes of my legislation was to
give States more control over the tax dollars that they were
collecting for administrative purposes. Wouldn't the
Administration's newest proposal--or new proposal accomplish
that goal?
Mr. BROCK. Yes, it would, sir.
Mr. MCCRERY. Mr. Brock, Ms. DeLisio, Ms. Watson, I would
like for you to briefly explain how the--your use of the Reed
Act money so far has helped workers in your State. Just
briefly, if you can explain how the expenditures--I think Mr.
Brock already mentioned that Oklahoma, for example, created an
alternative base----
Mr. BROCK. That is correct, sir.
Mr. MCCRERY. For eligibility. That clearly would help some
workers. Anything else, Mr. Brock?
Mr. BROCK. That is primarily--from the benefits side that
is all that was accomplished last year. That is right.
Mr. MCDERMOTT. Would the gentleman yield?
Mr. MCCRERY. Yes.
Mr. MCDERMOTT. Do you know what he means by an alternative
base?
Mr. MCCRERY. Yes, sir.
Mr. MCDERMOTT. Can you explain that for the rest of us?
Mr. MCCRERY. On your time you can ask him that.
Mr. MCDERMOTT. Thank you very much.
Mr. MCCRERY. Ms. DeLisio.
Ms. DELISIO. Yes. In Ohio, we have a had an alternate base
period from about 1988. So, that was already in existence. The
ways that we have worked to benefit the claimant customer first
is the Subcommittee that I mentioned. There have been two
issues that have been significant in Ohio for a number of years
and debatable between business and labor around our eligibility
requirements, and the Reed Act distribution was the impetus to
bring both parties to the table to talk about it. One is
dependency. In Ohio, we are one of the few States that still
has dependency, which means you make more or less dependent on
the number of dependencies you have. The second issue is around
weeks and wages. We still require both in order to be eligible
while most States go just with the wages. This is the first
time that we have been able to have a thoughtful discussion
with both parties at the table about that issue, which would
help our claimants as we resolve that issue.
The investment in the one-stops and the resource rooms. Our
one-stops are very anxious to begin moving on that, because in
the one-stop setting, claimants really need to get access to
the Internet. They need to get access to job-matching services.
They need to have access to information about what wages are
reasonable, what training is available, if I need retrained.
This really helps support getting them back to work.
Our employer community certainly has commented that keeping
their tax rates lower has kept them in a position to be less
likely to lay off again or even considering reducing staff or
going out of the business considering with other tax issues
they are dealing with.
Mr. MCCRERY. Ms. Watson.
Ms. WATSON. The projects that stand out the most to me were
our investments, like Ohio did, in our resource rooms that are
in the one-stops and upgrading of the computer stations there.
We also have a several RFPs that we have been awarded, and they
are developing the products for the specialized workshops to
help the unique needs of the targeted populations. Those are
the ones that I mentioned at the end for the single heads of
household, the older workers and the at-risk youth and the
former customers of our correctional institutions. The special
needs that they have in attaching to the labor force.
Mr. MCCRERY. All of these expenditures that you have done
from the Reed Act distribution would be classified generally as
administrative expenditures?
Ms. WATSON. That is correct.
Mr. MCCRERY. Ms. DeLisio, same thing?
Ms. DELISIO. That is correct.
Mr. MCCRERY. Briefly, Mr. Emsellem talked about the need
for the Federal Government in any future Reed Act distributions
to be more specific in how those funds could be used and
specifically maybe having to use part or all of it for benefits
or increasing benefits. Do you representatives from the States
think that is a good idea?
Mr. BROCK. That is an issue for the States to decide
myself, and I think I pretty well represent that opinion within
my State.
Ms. DELISIO. I would agree that it is an issue for the
States to decide, and it is exactly why we have an UCAC that is
so active between business and labor to decide those kinds of
issues.
Mr. MCCRERY. Thank you.
Chairman HERGER. The time of the gentleman has expired. The
gentleman Mr. Levin from Michigan to inquire.
Mr. LEVIN. Well, thank you for being here. Let me ask you a
question of the three people from the State agencies you all
hold responsible, I guess key positions, and at least two of
you have been in those agencies for some time. I am not sure,
Ms. Watson, how long you have been there. How long?
Ms. WATSON. I went in 1997 to the Louisiana Department of
Labor.
Mr. LEVIN. This recession has seen a lot of exhaustion of
benefits. Right?
Ms. WATSON. Yes, sir.
Mr. BROCK. Yes, sir.
Mr. LEVIN. In fact, in terms of exhaustions, it has
exceeded the recession of the early nineties. We spent out of
the trust fund, as I understand it, in the nineties, early
nineties, about $28 billion. We have spent less than half of
that, as I understand it, this recession. There are $20-some
billion in the trust fund. So, let me ask you, are the States
suggesting, urging the Federal Government to be more vigilant
and diligent about the extension of benefits, and if not, why
not?
Mr. BROCK. I can speak for Oklahoma. Just looking at
exhaustions compared to 2001, our exhaustions are up 150
percent. Our initial claims are up 50 percent over that period
of time, the last 2 years. Obviously, the need for this system
continues to increase, and not only does there need to be the
money there for the benefits, which is obvious, but there has
to be the money there, too, to administer the programs.
Mr. LEVIN. Ms. DeLisio, you go back into the early nineties
and a bit before, like at the figures for Ohio, you have got,
as of February, over 40,000 people who had exhausted their
benefits and were out of work. So, what is your response? Is
the State urging this Congress and White House to pass a
broader extended benefit program when there are 20-some billion
dollars in the fund?
Ms. DELISIO. Ohio would be looking at it from a couple of
different angles. We would--there are several pieces of
legislation, the President's proposal on WIA reform, that could
impact whether or not we get full funding and that could change
decisions about how we administer our benefits in the State.
We are also paying close attention to what is happening
with the WIA reauthorization around that and the potential
block granting of the re-employment dollars, the training
dollars, the Wagner-Peyser dollars, what impact that could
have.
Also paying close attention to the economic picture. We are
seeing a very similar situation that was mentioned earlier that
the skills aren't necessarily matching the jobs that we have
today.
Mr. LEVIN. Let me just interrupt. Look, you have run these
programs. You run these programs. You have got 40,000 plus
people. Now it is probably 50--who has exhausted their
benefits. In the earlier recession, we exhausted benefits
beyond the 39 weeks.
Now, what do you tell an unemployed worker, you are
responsible for the training programs, you monitor whether to
look for work? How do you tell the person that in this
recession with the higher rate of exhaustion, they don't get
any help? What do you say to that individual that you are
looking at reforms or that--what do you tell that person?
Ms. DELISIO. We do our absolute best to invest in getting
them either retrained or matched up with jobs that are in the
labor market.
Mr. LEVIN. I know, but you have got 40,000 plus people, for
whom that hasn't worked, and with $20 some billion in this
trust fund, you logged the $8 billion that was given back. Why
aren't you asking for the Federal Government in this recession
to allocate more money in extended benefits?
Ms. DELISIO. It is not that we have not done that yet. We
also are paying attention to what is happening with the
economic climate, and we are also paying attention to the other
legislation that could affect how much more money we have
available----
Mr. LEVIN. Look--my time is up. You come to Michigan. You
are not very far. Or I will come to Ohio and meet unemployed
workers, and you tell them that, face to face. Essentially, you
are saying I am not doing a good enough job. You are in charge
of matchmaking, and I don't know why you are not here with all
this money available for unemployed workers asking that this
institution---
Chairman HERGER. The gentleman's time has expired.
Mr. LEVIN. Meet its responsibilities.
Chairman HERGER. The gentleman's time has expired. The
gentleman from Kentucky, Mr. Lewis, to inquire.
Mr. LEWIS OF KENTUCKY. Yes. Thanks, Mr. Chairman. There is
always, I think--the testimony of Mr. Emsellem and some of
those that have directed question at the witnesses, there seems
to be this paternalistic view of Washington, DC and only good
things can be done here. It reminds me of the Wizard of Oz
movie, that you have got this wizard behind this screen behind
these curtains cranking out lightning and these thunderous
sounds, and the only good thing that can happen has to come
from the wizard. It seems to be that there is this thought that
States and the people who run the States have no brains, they
have no heart, they have no courage, that only can happen here
in Washington, DC.
That is kind of amusing, because it is the same human
beings that are elected to offices here that are elected to
offices in our States, and it is a lot closer for the people
that are out of work to go down the street and talk to their
State legislator or to call or to visit the governor or to come
to your offices when they have needs than to come to
Washington, DC.
I don't know about some folks here, but I pretty well trust
the people in our States to make good judgments, to know what
is going on in their communities and have just as much
compassion for people out of work as those that would have
compassion here. I think the ability to have--and by the way,
where does the money come from? What money are we talking
about? Where does it come from? Does it come out of the pockets
of bureaucrats in Washington, DC? Where does it come from?
Whose money is it? Maybe you would like to answer that, Mr.
Brock.
Mr. BROCK. Well, that money comes from employers within the
States. It is the State's money. I have been involved with this
system coming out of the private sector about 7-years-ago, and
the more I learned about this system, frankly, the more--the
angrier I became, in the sense that it seemed to me like it was
a pretty good deal at the beginning, between the States and the
Federal Government. As time went by, for whatever reason, the
money that was paid, particularly from employers to administer
this program, I know in my State, I think on the average, we
have gotten back about 60 percent.
The last year that we have a measurement of a couple of
years ago, it was about 43 percent, and this money stays up
here for some reason. It seems to me and particularly, too,
when I am trying to administer a program, that is exponentially
increasing, as I have pointed out, from our exhaustions and
from our increased claims and so on, and we don't have the
resources to keep up with the need. The system is broke.
Mr. LEWIS OF KENTUCKY. Yes. I think, Ms. Watson, you said
you get back 36 cents on the dollar?
Ms. WATSON. Thirty eight cents.
Mr. LEWIS OF KENTUCKY. Thirty eight cents on the dollar.
That is a bad deal. You are paying in 100 percent and getting
back 38 percent. That is a bad deal. So, it just amazes me that
there is this elitist attitude here in Washington, DC that all
good things can only happen here, and that the States and their
elected officials and the administrators of their laws can't do
as good a job as what can be done here in DC it amazes me.
Thank you.
Chairman HERGER. I thank the gentleman. Next the gentleman
from Washington, Mr. McDermott, to inquire.
Mr. MCDERMOTT. That last discussion was kind of
interesting. You get 36 cents back on every dollar.
Mr. BROCK. That was Louisiana. We get----
Mr. MCDERMOTT. How much do you get?
Mr. BROCK. On the average--well, you may have more recent
numbers than I do, but the most recent number I have seen was
about 2-years-old, and I think it was about 43 percent. On the
average, I said over the last 10 years or so, I think we have
gotten back about 60 percent.
Mr. MCDERMOTT. So, where does that money evaporate to?
Mr. BROCK. You tell me.
Mr. MCDERMOTT. You think it goes into that reserve fund,
that $28 billion that is sitting there that they don't give you
back for extended benefits? Maybe that is where some of it is?
Mr. BROCK. These pots continue to swell here in Washington,
and that money does not flow back to the States, as was the
original deal with the States.
Mr. MCDERMOTT. Mr. Emsellem, can you tell me why it is that
these States have not picked up their part-time workers? What
is it? We gave them $8 billion. They are sitting on a bunch of
it, $6 billion or whatever. Why haven't they picked up--why
haven't they changed their base--their base cost so they can
get them?
Mr. EMSELLEM. Well, that is the problem, and it is
partially in response to Congressman Lewis's point as well. We
have a problem. Eighteen percent of low-wage workers are
collecting unemployment benefits. Everybody agrees you need to
expand the program to bring more workers into the system.
So, the question is, as you have asked, why is it that
there are still 35 States that don't have the alternate base
and 31 States that don't cover part-time workers? Of the
measures that have been passed, very few States have done very
much to bring more people into the system. It has mostly been
in response to raising benefits.
So, the reality of the situation is that it is a dog fight
in the States. To be blunt, it is a dog fight in the States.
The politics there make it very difficult----
Mr. MCDERMOTT. So, it is between these guys and the Social
Health Services Department and the welfare. If these women that
they have kicked off welfare go out and get a low-wage job as a
maid in a motel, and they work 30 hours a week or 25 hours a
week and they don't qualify for unemployment benefits, when
they get laid off, where do they go? Back to welfare. Right?
These people don't care. That is basically--as long as it isn't
on their watch, they are glad to get it--get rid of them?
Mr. EMSELLEM. If I can elaborate briefly, I think it speaks
very directly to the problems with the new balance proposal and
devolution. These are the realities of the politics in the
State. It is very hard for workers in most States to get what
they need to expand benefits, and now with devolution, you are
asking States to create a new tax on its own that now is going
to compete with other State priorities, Medicaid, everything
else under the sun related to budgets, against employers, their
tax interests and against the States, literally the agencies
seeking administrative funding. All that gets thrown into the
pot now when workers are going to try to argue for expanded
benefits. That is the reality of the politics of the situation.
It would be great if every State did everything right, but
the reality is that there is still 18 percent of the wage----
Mr. MCDERMOTT. Okay. Let me stop you, because I want to ask
these three----
Mr. MCCRERY. Would the gentleman yield for just a
clarification?
Mr. MCDERMOTT. Yes.
Mr. MCCRERY. States now set their tax rates for
unemployment. So, it is already in competition with everything
else.
Mr. MCDERMOTT. Okay. We got that. The next thing is, the
President has said we are going to take this tax away. So, not
going to send you any money anymore. That is built into the
budget that is going to go out of here in a few hours. How many
of your governors are going to ask for a rate increase to pick
up this money, or where are they going to get the
administrative money for their program when it no longer comes
from us, when we have devolved it down to you? What will your
governors do?
Ms. WATSON. Do you want to go first?
Mr. MCDERMOTT. Any one of you. Start anyplace. I have got a
couple Republicans and a Democrat, so we will see what they
say.
Ms. WATSON. Well, I am a Democrat, but I work for a
Republican governor. So, I am not sure----
Mr. MCDERMOTT. I am talking about your governor. All that
matters is your governor.
Ms. WATSON. Our State--our employers already subsidize our
UI grant to the tune of about $5 million. Now, what we plan to
do in our State is try to--because I think that we can work--I
respectfully disagree that we don't care about our workers,
because we really do, and I think our State leaders advocate
strongly on their behalf, and so does the business community
advocate strongly on the business's side. We try to work it
out. I really think that we can show that employers will save
money if you devolve it to the State, because you are not going
to--if----
Mr. MCDERMOTT. So, you don't expect your governor is going
to raise taxes?
Ms. WATSON. He is going to have to raise taxes, but to the
employer who pays the tax, he should get a net savings, because
he is not going to pay as much----
Mr. MCDERMOTT. He is not going to raise it as much. Is that
it?
Ms. WATSON. That is right, as the reduction is from the
FUTA.
Mr. MCDERMOTT. For Ohio?
Chairman HERGER. The gentleman's time has expired.
Mr. MCDERMOTT. Well, but let them answer. Tell me--okay.
Ms. TUBBS JONES. I will ask them.
Mr. MCDERMOTT. Okay. You don't want to know the answer.
That is your problem.
Mr. MCCRERY. Well, the only answer we got was yes.
Chairman HERGER. We will give the gentlelady a turn here,
but I would just like follow up on this line of questioning
myself. We hear there isn't a free lunch. In the long run,
States will use up the $8 billion we transfer to them, and then
the lasting effects of increasing benefits or expanding
eligibility will fall to them. That means they would have to
raise State unemployment taxes above levels they would have
otherwise been to pay for the higher benefits or expanded
eligibility. Is that correct, Mr. Brock, Ms. DeLisio?
Ms. DELISIO. That is correct.
Chairman HERGER. Thank you. Now, I do turn to the
gentlelady, who even though she does not serve on this
Subcommittee, is on our full Committee, for questioning. Ms.
Tubbs Jones.
Ms. TUBBS JONES. Thank you, Mr. Chairman. I would like to
yield to my colleague to complete his questioning on that one
issue. Go ahead.
Mr. MCDERMOTT. I'd like Ohio and Oklahoma to tell me what
your governor is going to do.
Ms. DELISIO. Our governor supports devolution as we know it
today, and we would be in a similar situation as in Louisiana
that we would have to raise taxes, but there would still be a
net gain, because we are one of the States that gets 36 cents
back on every dollar, and to keep the money in the State and
allow us the administration of the fund and the money would be
beneficial to us.
As far as the----
Mr. MCDERMOTT. Is he going to do anything else with the
benefit package or the base on which people are eligible or
anything else? Is he going to keep everything the same and just
raise the money for administration, or is he going to cut some
corners?
Ms. DELISIO. First, we haven't seen--the complete
legislative bill is not available, obviously, to get into
specifics, but anything we would do to change our benefit
package would go through our UCAC that is equally cochaired
with business and labor, Senate and House, Democrat,
Republican, and equal amounts of business and labor membership.
We would work that out together with them about what their
desires are to take that forward to our governor. That
Committee has been active for over 60 years, and every piece of
legislation that they have taken forward, 17 pieces have passed
unanimously. So, we would work together to what is in the
benefit and best interest of both of those parties and what
they agree to.
Mr. MCDERMOTT. Even though they have to cut? They are going
to get less money from the Federal Government. They are going
to be--he is going to put the taxes up in the business
community in Ohio?
Ms. DELISIO. The business community in Ohio would support
us having more control over the money today and the likelihood
of getting more than 36 cents back on the dollar than we have
been, yes.
Mr. BROCK. Well, basically, we would see a net decrease in
taxes to the employers. By the way, I am a Republican in a
Democratic Administration.
Mr. MCDERMOTT. I said it doesn't make any difference.
Mr. BROCK. You are exactly right. It doesn't matter what I
am. I would tell you that, sir, that in Oklahoma, we do have--
we do cover part-time workers, and we----
Ms. WATSON. We cover them, too.
Mr. BROCK. We have just passed, as I said, the alternate
base period. As for those inexperienced short-term workers, it
gives a----
Ms. TUBBS JONES. If you don't mind, very quickly, in Ohio
we have got so many more problems with regard to taxing issues
in Ohio right now, that our Governor is getting ready to--we
are getting ready to tax manicures, tax hairdos, tax all kinds
of things because of the economic situation Ohio finds itself
in. Can you tell me how many more workers are unemployed
currently in Ohio than there were 6-months-ago?
Ms. DELISIO. I can tell you the difference in our claims
from 2001 to 2002. In 2001, we processed 811,000 new claims. In
2001. In 2002 we processed 794,000 new claims.
Ms. TUBBS JONES. In 2002 as of December?
Ms. DELISIO. As of December. That does not take into
consideration----
Ms. TUBBS JONES. It was 800 or----
Ms. DELISIO. In 2001 there was 811,000, and 794,000 in
2002.
Ms. TUBBS JONES. Can you tell me how many as of the
beginning of this year?
Ms. DELISIO. I do not have that number with me, but we had
several weeks where it actually decreased as compared to last
year, but we did have some weeks it increased.
Ms. TUBBS JONES. That number is based on how many people
actually apply for unemployment. It may not be accurately
reflecting the number of people who are out here unemployed.
Ms. DELISIO. That is correct. That is the number that filed
for UC.
Ms. TUBBS JONES. So, if, in certain instances, for example,
in Ohio, you are not eligible--we had this discussion before
the hearing about how you become eligible if you are a part-
time worker, and it is too complicated to get through in this
session, but there are a significant number of people who are
working part-time in some capacity, who under Ohio law, are not
eligible to claim, and so they are not counted in that number
either, are they?
Ms. DELISIO. That is possible. However, in a situation
where if you are working full-time and laid off and you would
accept a part-time job, we would pay partial benefits to those
who are working part-time if there was a difference between
what they were making in their wages and what their weekly
benefit amount would be. So, it is possible for a part-time
worker to get partial benefits. We do not currently have part-
time benefits for part-time workers as a result of the
discussion between the UCAC on dependency and weeks and wages.
Ms. TUBBS JONES. Thank you, Mr. Chairman, for the
opportunity to be heard. I look forward to talking to you more
at a later time.
Ms. DELISIO. Thank you.
Chairman HERGER. The gentlelady is welcome. Just so Mr.
Nilsen doesn't feel left out here, I would like to address a
final question to you. What was the effect of artificially
keeping this surplus money in the Federal accounts since 1997
in terms of the Federal deficit instead of returning it to the
States, and has the law ever been changed in the past to raise
the Federal ceiling, which would have the same effect of
keeping more Federal money in the Federal accounts instead of
returning it to the States?
Mr. NILSEN. Well, the way the UI system and the budget
works is if money raised by the States is put into Federal
accounts and less money is transferred back to the States, in a
sense, that has the net effect of reducing the deficit. Over
some periods of time when actually less dollars have been sent
back to the States, that has been the case.
Overall, given the fact that there is still $23 billion in
the trust funds, that has, over time, a cumulative effect of
reducing the deficit by that much.
Caps on the Federal trust funds have been raised a number
of times. The Reed Act provides that when they hit the cap in
those funds, then the excess funds are to be transferred back
to the States. A number of times legislation has been passed
that raised those caps, so that additional funds were built up
in those accounts.
Chairman HERGER. So, the essence of that would be that the
Federal deficit would appear to be less than----
Mr. NILSEN. Exactly.
Chairman HERGER. It would have been if these funds had been
transferred to the States to be used as they had been intended
to be used?
Mr. NILSEN. Yes.
Chairman HERGER. I thank you, and I want to thank each of
our witnesses for appearing before us today. With that, this
hearing stands adjourned.
[Whereupon, at 2:40 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Texas Workforce Commission
Austin, Texas 78778
March 25, 2003
The Texas Workforce Commission appreciates the opportunity to
comment on our use of the Reed Act distribution that was included in
the Job Creation and Worker Assistance Act of 2002.
Texas received $596.4 million through the Reed Act distribution at
a critical moment for Texas; our fund was close to insolvency. We
greatly appreciated having the flexibility to spend it in the way that
most benefited Texas. In our case, due to the rapid depletion of our
Unemployment Trust Fund, we decided to put 100% of the funds toward
paying benefits for eligible laid-off workers. Not only did local
economies and laid-off workers benefit, but because employers had paid
the taxes that made the distribution possible, we felt that the
distribution should go toward mitigating the inevitable employer tax
rate increases that accompany any economic downturn.
Per the U.S. Department of Labor, the Federal Trust Fund Accounts
still hold $22 billion. We urge the Congress to consider returning a
portion of those funds in another flexible Reed Act distribution this
year. With the national economy in an uncertain recovery, another
distribution of employer tax money would allow states to provide
additional tax relief to the business community at a time when business
hiring is the key to an economic rebound.
Thank you for hearing our comments.
Sincerely,
Diane D. Rath
Chair and Commissioner Representing the Public
T.P. O'Mahoney
Commissioner Representing Labor
Ron Lehman
Commissioner Representing Employers
Statement of Eric Oxfeld, UWC--Strategic Services on Unemployment &
Workers' Compensation, and Deron Zeppelin, Society for Human Resources
Development
We appreciate the Human Resource Subcommittee's ongoing oversight
of the unemployment insurance (UI) system and specifically the $8.1
billion ``Reed Act'' distribution to state unemployment insurance trust
accounts pursuant to the Job Creation and Worker Assistance Act of 2002
(H.R. 3090). The Reed Act distribution was a very important and helpful
response to the economic recession and the economic dislocation
resulting from the terrorist attacks on September 11. It also provides
funding available for use by the states to make over-due administrative
improvements that otherwise are not possible because of the chronic
under-funding of state UI and employment services (ES) agencies through
the normal UI/ES administrative financing mechanism.
These comments are submitted jointly by UWC--Strategic Services on
Unemployment & Workers' Compensation (UWC) and the Society for Human
Resource Management (SHRM). UWC and SHRM support a strong UI/ES program
through which employers provide fair and affordable insurance benefits
for a temporary period of time to workers with a strong attachment to
work who are temporarily and involuntarily jobless when suitable work
is no longer available. We believe that a sound UI program is best
embodied through the state UI/ES system, with a limited federal role
where uniformity of state law is considered essential.
UWC is the only association exclusively devoted to providing
legislative/regulatory representation for the business community in
connection with national UI and workers' compensation public policy
(WC) issues. UWC's members include employers of all sizes, industries
and geographic locations; national and state business associations;
third party service companies; accounting and law firms and other
organizations who advocate sound, cost effective UI and WC programs for
workers and employers. UWC members and their clients and members
represent a major share of the business community in the United States.
The Society for Human Resource Management (SHRM) is the world's largest
association devoted to human resource management. Representing more
than 170,000 individual members, the Society's mission is to serve the
needs of HR professionals by providing the most essential and
comprehensive resources available. As an influential voice, the
Society's mission is also to advance the human resource profession to
ensure that HR is recognized as an essential partner in developing and
executing organizational strategy. Founded in 1948, SHRM currently has
more than 500 affiliated chapters within the United States and members
in more than 120 countries.
UWC and SHRM support the UI program and its purposes. For more than
65 years, the UI program has protected jobless workers, employers, and
the public by assuring that workers who lose their jobs when employers
do not have work can receive temporary partial income replacement
during their transition to new employment. The UI system is funded by
dual state and federal payroll taxes paid by employers. State UI (SUI)
taxes are deposited into a trust account for each state, dedicated to
the payment of UI benefits. The Federal Unemployment Tax (FUT) is
deposited into 3 accounts: the Employment Security Administration
Account (ESAA), which funds the administrative costs of the UI program
(state and federal) and the public labor exchange under the Wagner-
Peyser Act (state); the Extended Unemployment Compensation Account
(EUCA), which funds 50% of the benefits payable under the permanent
Federal-State Extended Benefits (EB) program; and the Federal
Unemployment Account, which funds loans to states who deplete their UI
benefits trust accounts. Congress has from time to time dipped into the
EUCA account to finance special federal UI benefit extensions, such as
the Temporary Extended Unemployment Compensation (TEUC) program now in
effect. The state benefits accounts and the three federal accounts are
held by the US Treasury in the Unemployment Trust Fund and are included
in the unified federal budget.
In recent years, the FUT has been excessive relative to the need
for these funds. Less than half the FUT revenue was actually spent in
many years, leading to an unhealthy accumulation in the FUT accounts in
the Trust Fund. Despite the fact that Congress doubled the ceiling on
these accounts in 1997, as recently as 2 years ago the Department of
Labor projected that FUT revenue would exceed the legal ceiling by more
than $40 billion over 10 years. Federal law (known as the Reed Act)
requires distribution of FUT balances above the ceiling into the state
UI trust accounts, where the funds will be available to pay for UI
benefits or may be appropriated by the state legislature to pay for UI/
ES administrative costs.
The principal reason for the excessive FUT revenue is the
continuation of a ``temporary'' FUT surtax, which originally was
imposed in 1976 to finance a supplemental benefits extension in the
1970's. The surtax was to expire when the deficit was retired, which
would have occurred in 1987. However, driven by the federal budget
process, Congress intervened 4 times to continue this unnecessary
surtax. The surtax was most recently extended in 1997, and under
current law it does not expire until the end of 2007.
It is especially maddening for employers that despite the excessive
FUT tax, states are not receiving enough money to provide the services
for workers and employers that business has paid for through the FUT
tax. The Federal Government has chronically declined to appropriate
adequate funding for the state UI/ES agencies. To avoid this very
situation, the FUT revenue is held in a dedicated Trust Fund and by law
may be expended only for the specific purposes for which the FUT is
levied. However, in practice, the inclusion of FUT revenue and
expenditures in the federal budget means that the Federal Government
can meet its tax and spending targets for other, general revenue funded
programs by keeping the FUT rate at inflated levels and by
appropriating less than the amount needed for efficient and effective
UI/ES agencies. The now-chronic under-funding for UI/ES administration
has caused many states to impose add-on state payroll taxes and/or dip
into their own general funds to supplement inadequate FUT funding.
Under-funding of state UI/ES agencies has many unintended
consequences which adversely affect workers, employers, and states, as
well as the federal budget. Inadequate administrative funding has
directly contributed to an unacceptable level of fraud, abuse, and
improper payments involving UI claims, running into payment of billions
of dollars each year on improper claims that should never have been
paid in the first place. It has resulted in inadequate re-employment
services for UI claimants, which in turn causes an increase in the
average length of time UI claimants receive benefits before finding new
employment and an increased total payout for UI claims. In turn, the
higher expenditures needlessly inflate state payroll tax levels needed
to fund the benefits. At the same time, inadequate administrative
funding reduces state UI tax collections because states lack the
financial resources to detect, prevent and recover under payment of UI
taxes by employers. The consequence of higher payouts and reduced
revenue is the bleeding down of UI benefits trust fund balances.
Depleted reserves means that states lack funds needed to ride out
recessionary periods and avoid federal loans and the imposition of
payroll tax increases during economic recovery--the worst possible time
to raise payroll taxes. And because state UI benefits trust accounts
are included in the federal budget, outside the appropriations process,
higher spending on UI benefits, lower state revenue from state UI
payroll taxes, and federal loans to the states negatively affect the
federal budget, also.
The UI system is designed to be countercyclical. During economic
downturns the state trust accounts are caught in a financial squeeze
that results from layoffs: a simultaneous reduction in revenue from the
shrinkage of taxable payroll and increase in expenditures as UI claims
increase in number and duration. Inadequate administrative funding
makes the states especially vulnerable during recessions and their
aftermath, when the sudden spike in claims workload simply overwhelms
the administrative infrastructure.
The recent recession is extremely mild by historical standards but
follows a period of near-record low unemployment. Despite (or perhaps
because of) the low unemployment rate preceding the recession, balances
in state UI trust accounts were generally well below recommended
reserve levels. Consequently, the recession quickly depleted many state
accounts. Five states have received federal loans, and several more may
need them soon. In many states, UI taxes are headed sharply upward,
creating a new burden on employment that will weaken or delay full
economic recovery.
In this environment, the decision by Congress in 2002 to distribute
the $8.1 billion in Reed Act funds to the state UI benefits trust funds
was an exceptionally helpful response to the recession because it
returned to the states FUT tax revenue that should never have been
collected in the first place, thereby providing a boost to state trust
fund balances and the flexibility for each state to decide how best to
use its own UI needs.
LThirty states were able to avoid automatic tax
increases or additional surcharges because the $8 billion distribution
sufficiently replenished their trust fund accounts. And as Assistant
Secretary Emily De Rocco testified, increasing employer taxes
inevitably means more layoffs and fewer jobs for workers, a result
which simply must be avoided in an already sluggish economy. Sigurd
Nilsen of the General Accounting Office also noted that the
distribution actually allowed the District of Columbia and Maine to
lower employer taxes.
LNew York and Texas were able to repay federal loans
they had already received in order to continue paying benefits.
Repaying these loans as soon as possible reduced interest rate charges
for the states, monies which are inevitably recouped from employers and
workers in the form of higher taxes. It also avoided or reduced the
state tax increases or repayment of the loans through an increase in
the FUT rate for employers in states with overdue UI loans.
LMany states provided much needed employment services to
unemployed workers. Twenty-seven states appropriated approximately $662
million for UI/ES administrative services, and to their ``one stop''
centers. Access to adequate UI/ES services is critical to ensuring that
unemployed workers return to work as soon as possible, a fact which
reduces benefit duration and therefore the UI tax rates paid by
employers.
LStates improved the integrity of their programs and
reduce fraud and benefit overpayments, which again inevitably lowers
costs and taxes for employers and workers.
LStates had more funding available if they wanted to
provide benefit extensions or other expansions of eligibility. Five
states used Reed Act monies in this fashion, including the
implementation of an alternative base period in Oklahoma.
An important issue for Congress is whether states should or must
use their Reed Act funds to increase benefits or expand eligibility. We
strongly oppose any federal pressure on states to implement expansions.
Benefit eligibility and weekly benefit amounts are decisions most
appropriately made at the state level. Decisions on these issues are
better made at the state level, because states are more responsive to
local needs and conditions, which vary widely. Furthermore, states have
the general responsibility for benefit levels and eligibility and are
thus better able to balance the competing interests of their workers
and employers. Federal decisions even on limited questions of
eligibility or benefits will inevitably upset the delicate balance on
the entire range of such questions. For example, some states have
chosen to help low wage workers by lowering the minimum qualifying
earnings during the standard base period, rather than using an
alternative base period that is more burdensome to administer. A
federal mandate for an alternative base period would needlessly
overturn this judgment.
Furthermore, we are constrained to point out the inherent flaws in
using the temporary infusion of Reed Act funds to finance permanent
benefit expansions. Once the Reed Act funds are spent, states are faced
with the choice of restricting eligibility or reducing benefits, or
more likely, adding to the ``sticker price'' for the UI program,
directly inflating future UI payroll taxes on employers. UI is after
all an insurance program. We hope Congress won't be misled into
thinking that because the insurance premiums are collected through a
tax mechanism, somehow the premiums will not increase when benefits are
expanded.
Although the flexibility the Reed Act distribution afforded the
states is one of its strengths, there are a few states where the Reed
Act funds have not been used as intended by being functionally diverted
to purposes completely unrelated to UI benefits or UI/ES
administration. Michigan and New Jersey used part of their Reed Act
money to plug holes in the state general revenue budget. New Jersey did
this by in effect reducing the state UI tax and then imposing a new tax
that will generate an amount of state revenue equivalent to the Reed
Act funds. Michigan did this by stretching the definition of
``employment services'' to include expenditures that are only tenuously
connected to the UI/ES system, such as placing internet-enabled
computers in public libraries general use. Although a computer housed
in a library can be used to file UI claims or access employment
services over the internet, such use is incidental to other purposes.
If this use can be considered ``employment services,'' there may be
very few uses that are not! We do not believe it is appropriate public
policy to impose unemployment payroll taxes on employers to buy
computers for libraries, and we believe that clearer boundaries of what
are acceptable and unacceptable uses are needed.
Notwithstanding the foregoing problems, we believe that in general
the Reed Act distribution has been very successful in achieving its
purpose. We want to stress that this purpose is one that is not only
limited in the scope of allowable use, but also in time. The Reed Act
money does not eliminate the need to repeal the FUT surtax, enact
permanent administrative financing reform, and address other chronic
problems such as fraud and abuse. Additional reforms to the UI system
which will help employers and workers, and reduce fraud and abuse,
include the following:
LRepeal of the 0.2% FUTA surtax.
LAllowing the state UI agencies access to the National
Directory of New Hires (NDNH) in order to verify that claimants are not
currently employed.
LProhibiting the collection of FUTA and state UI taxes
more often than quarterly.
We look forward to working with the Human Resources Subcommittee on
these and other UI policy issues, as well as on a reduction in the
Federal Unemployment Tax and reform of the UI administrative financing
system.
Statement of Dolores Esser, Virginia Employment Commission, Richmond,
Virginia
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to submit testimony regarding the
Virginia Employment Commission's use of Reed Act funds distributed
under the Job Creation and Worker Assistance Act of 2002. The Reed Act
distribution provided timely financial support to the Commission and to
the Commonwealth's unemployed.
The Commonwealth of Virginia received a Reed Act distribution of
$214.9 million. This amount was deposited in Virginia's unemployment
insurance trust fund on March 13, 2002. The Reed Act distribution
provided significant assistance in maintaining the solvency of the
trust fund, compensating for administrative funding shortfalls for the
past decade, offsetting the cost of enhanced unemployment compensation
benefits instituted after September 11, 2001, and helping the Virginia
Employment Commission (VEC) to enhance customer service to job seekers
and employers.
Reed Act Distribution Compensated for Administrative Under Funding
Before the Reed Act distribution, the VEC had experienced declining
federal funding for Unemployment Insurance (UI) and Employment Services
(ES) administration for a decade. As a result of significant under
funding, the VEC has unfortunately experienced decreased levels of
services, particularly among employer services and follow up services.
Circumstances had become so critical that field staff have had to
devote a greater proportion of resources to ``front-end'' services to
respond to increases in the number of claimants. In the six years prior
to the Reed Act distribution, staff in the ES program had decreased by
more than 20% while the number of claimants seeking services increased.
The number of registrations with job services in the first half of
program year 2002 (368,446) is almost equal to registrations for the
entire program year in 2000 (385,677). In addition, the ES program was
expecting to have to absorb substantial increases in infrastructure
costs when UI services transition from field offices to telephone and
Internet services.
Unlike several states, Virginia imposed no additional surtax on
employers to maintain levels of UI and ES services. Instead, Virginia
initiated program efficiency improvements, including cross-training
staff, streamlining processes, and instituting information technology
improvements. Although these measures helped, the VEC's costs were
increasing faster than its grant revenues.
Frankly, we are of the view that if Reed Act funds had been
distributed regularly, the UI and ES administrative funding would have
kept pace with service demands, and our customers would not have faced
a decade of service declines. Instead, as the Ways and Means Advisory
notes, the Congress kept ``excess'' funds in the federal accounts in an
effort to reduce federal deficits. So while we are appreciative that
the Reed Act distribution allowed us to restore service levels, we
would have preferred to maintain a consistent level of service with
predictable adequate funding.
In 2000, the most recent year for which we have figures, Virginia
received only 28% return on FUTA taxes paid by Virginia employers. We
are not asking that the state receive 100% of the FUTA taxes paid by
our employers for state administration, as we appreciate the need to
maintain adequate balances in the federal accounts for purposes that
are appropriate. What we are asking for, however, is adequate funding
for proper and efficient administration of the Unemployment Insurance
program.
In order to effect this change, we suggest that the Congress
continue with its annual discretionary appropriation for UI
administration, but supplement insufficient amounts appropriated with
annual mandatory special Reed Act distributions. These special Reed Act
Distributions would make up for the difference between adequate funding
and inadequate discretional appropriations. A workload formula based on
Average Weekly Insured Unemployment (AWIU) and the cost of
administration, as determined by the new UI administration resource
justification model, would determine the mandatory special Reed Act
spending. If implemented, this would give states an opportunity, for
the first time in a decade, to administer their UI programs in a proper
and efficient manner.
Background Before Reed Act Distribution:
Virginia received the Reed Act distribution between the close of
the state's regular General Assembly session and it's reconvened or
``veto'' session. In the months before the distribution, the
Commonwealth had experienced a significant increase in unemployment due
to major plant closings in Southwest and Southside Virginia and because
of the terrorist attacks of September 11, 2001. Virginia's rural
regions had been experiencing significant declines in manufacturing
jobs prior to September 11, 2001, and plant closures accelerated after
September 11. In addition, the terrorist attacks had an immediate and
widespread impact on the economy of Northern Virginia. The closure of
Reagan National Airport and loss of tourism in the wake of the attacks
cost tens of thousands of jobs immediately and sent shock waves
throughout the regional service and transportation economy.
In the weeks following the terrorist attack, then-Governor Gilmore
instituted a 37.3% increase in unemployment benefits. The Virginia
Employment Commission also incurred nearly $1 million in administrative
costs to establish temporary unemployment offices at Reagan National
Airport to process thousands of unemployment claims expeditiously.
During the General Assembly Session immediately following these
events, the legislature grappled with the issue of either extending or
curtailing the enhanced benefits provided by emergency executive order.
Members weighed the sudden drain on the unemployment trust fund and the
need to enhance benefits, and compromised on an approach that allowed
the 37.3% increase to continue until January 2003, at which time it was
reduced by half. In January 2004, benefit levels were scheduled to
revert to their pre September 11, 2001 with a maximum benefit of $268
per week.
2002 General Assembly Appropriations
The Reed Act distribution in March 2002 immediately followed the
achievement of this hard-fought compromise on unemployment insurance
benefit levels. Although the Governor proposed using a portion of the
Reed Act funding to maintain the 37.3% benefit increase for an
additional six months, the legislature rejected the proposal. However,
during the veto session, the General Assembly did approve the VEC and
Governor's request to appropriate approximately $30.9 million of the
state's Reed Act Distribution to supplement the VEC's ES and UI program
administration. Of this amount, $6.16 million was appropriated for the
biennium for administering the ES program, and $24.74 million was
appropriated for the biennium for administering the UI program. The
remainder of the distribution, $184 million, remained in the
unemployment insurance trust fund to offset the increasing cost of
benefits and ensure the fund's continued solvency.
Recent Statutory Changes to UI Benefits
During the past year, UI payouts to claimants have continued to be
high. The deposit of $184 million in Reed Act funding has provided a
cushion to our trust fund that has prevented our solvency level from
declining and tax rates increasing as rapidly as projected. Without the
Reed Act distribution, increases in benefit payments would have
increased employer tax rates higher and more rapidly than is currently
projected. Because of the improved solvency of the trust fund,
employers are projected to save an average of $8.53 per employee per
year through 2008. The per-employee tax savings for 2003 is projected
to be $5.93.
With the Reed Act funding, Virginia UI trust fund is 80% solvent
for calendar year 2003. Without the Reed Act funding, the trust fund
would have been 60% solvent this year. Without the Reed Act funding,
solvency was projected to drop to 20% next year and the year after.
Instead, trust fund solvency is projected to decline to 40% in CY 2004
and 2005 before increasing again in 2006.
To the extent that the Reed Act distribution improved trust fund
solvency by 20% over projected levels, the increased solvency may have
weighed into the General Assembly's decision this year to maintain
rather than decrease current benefit levels. Rather than allowing the
maximum benefit to revert from it's current $318 per week to the pre-
September 11, 2001 maximum of $268, the General Assembly elected to
reduce benefits by only $2 per week for the state fiscal year beginning
July 1, 2003. Additionally, the maximum will increase in July 2004 to
$326. Had the trust fund been projected to decrease to 20% solvency for
the next two years, it is unlikely that the General Assembly would have
maintained benefits amounts at these levels.
During the 2003 Session, the General Assembly also elected to
institute an alternative base period and to eliminate 50% of the offset
of Social Security benefits from UI benefits. Although the cost of
these two benefit enhancements is comparatively minor, these measures
may not have been approved without the positive impact of the Reed Act
distribution.
Conclusion
Thank you again for the opportunity to present testimony. The Reed
Act distribution allowed us to partially compensate for 10 years of
administrative under funding and to restore and maintain certain
services to our customers. The funds also helped maintain state trust
fund solvency in the face of significant increases in unemployment. We
urge the subcommittee to support adequate funding for the UI and ES
programs to prevent serious declines in services and benefits in the
future.
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