```

[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
                       UNEMPLOYMENT COMPENSATION

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 7, 2000

                               __________

                             Serial 106-58

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
66-964 CC                   WASHINGTON : 2000

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
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
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    Subcommittee on Human Resources

                NANCY L. JOHNSON, Connecticut, Chairman

PHILIP S. ENGLISH, Pennsylvania      BENJAMIN L. CARDIN, Maryland
WES WATKINS, Oklahoma                FORTNEY PETE STARK, California
RON LEWIS, Kentucky                  ROBERT T. MATSUI, California
MARK FOLEY, Florida                  WILLIAM J. COYNE, Pennsylvania
SCOTT McINNIS, Colorado              WILLIAM J. JEFFERSON, Louisiana
JIM McCRERY, Louisiana
DAVE CAMP, Michigan

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

Advisory of August 31, 2000, announcing the hearing..............     2

                               WITNESSES

U.S. Department of Labor, Raymond J. Uhalde, Deputy Assistant 
  Secretary, Employment and Training Administration, accompanied 
  by Grace Kilbane, Administrator, Office of Workforce Security..     6

                                 ______

American Federation of Labor-Congress of Industrial 
  Organizations, David A. Smith..................................    16
Interstate Conference of Employment Security Agencies, Inc., and 
  Utah Department of Workforce Services, Robert C. Gross.........    11
UWC-Strategic Services of Unemployment & Workers' Compensation, 
  and Tyson Foods, Inc., Chuck Yarbrough.........................    19

                       SUBMISSIONS FOR THE RECORD

American Federation of State, County and Municipal Employees, 
  AFL-CIO, statement.............................................    46
National Governors' Association, Hon. Jim Hodges, Governor, State 
  of South Carolina, and Hon. Bob Taft, Governor, State of Ohio, 
  letter and attachment..........................................    49
National Payroll Reporting Consortium, statement.................    50
National Retail Federation, statement............................    52
Rhode Island Department of Labor and Training, Lee H. Arnold, 
  letter.........................................................    53
Screen Actors Guild, Bethesda, MD, statement and attachments.....    54
Society for Human Resource Management, Alexandria, VA, statement 
  and attachments................................................    55
Taft, Hon. Bob, Governor, State of Ohio, statement...............    60

                       UNEMPLOYMENT COMPENSATION

                              ----------                              

                      THURSDAY, SEPTEMBER 7, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:07 a.m., in 
room B-318, Rayburn House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE

August 31, 2000

No. HR-24

          Johnson Announces Unemployment Compensation Hearing

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Human Resources of the Committee on Ways and Means, today announced 
that the Subcommittee will hold a hearing on reform of the Unemployment 
Compensation (UC) system. The hearing will take place on Thursday, 
September 7, 2000, in room B-318 Rayburn House Office Building, 
beginning at 10:00 a.m.
      
    Oral testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from the U.S. Department of 
Labor, the business community, State government, and organized labor. 
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 UC program provides benefits to unemployed workers who have a 
history of employment. Within a broad Federal framework, each State 
designs its own benefit program and imposes taxes on employers to pay 
for regular unemployment benefits. A Federal tax is also imposed on 
employers to fund the Federal parts of the system, including State and 
Federal administration, the U.S. Employment Service which helps 
unemployed workers find new jobs, loans to States with bankrupt 
programs, and half of extended unemployment benefits for workers in 
States with very high levels of unemployment. All funds are kept in 
Federal trust funds that are part of the unified Federal budget.
      
    In February of this year, the Subcommittee held a hearing that 
covered both introduced legislation and proposals to reform and improve 
the UC program. Major provisions of these proposals included 
eliminating the temporary 0.2 percent surcharge on the Federal 
Unemployment Tax Act (FUTA) taxes paid by employers, allowing more 
workers to qualify for unemployment benefits, providing incentives for 
States to improve the solvency of their benefit accounts, making the 
extended benefits program more accessible, and helping State programs 
get more money back from the FUTA taxes paid by their employers.
      
    Both before and since that hearing, a coalition of groups with an 
interest in UC, consisting of representatives from the Administration, 
organized labor, the business community, and the States, has met to 
work out a consensus reform proposal and is now prepared to present 
this proposal to the Subcommittee.
      
    In announcing the hearing, Chairman Johnson stated: ``The 
unemployment program currently provides real peace of mind to millions 
of hardworking Americans. However, it is also a system in need of 
reform and improvement. I am committed to preserving and strengthening 
these benefits for workers. That is why it is so encouraging that a 
broad coalition of interested parties has now developed a proposal to 
make these much needed reforms. This is a unique opportunity for the 
Subcommittee to learn more about this proposal.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the UC reform proposal developed by a 
broad coalition of interested parties.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
September 21, 2000, to A.L. Singleton, Chief of Staff, Committee on 
Ways and Means, U.S. House of Representatives, 1102 Longworth House 
Office Building, Washington, D.C. 20515. If those filing written 
statements wish to have their statements distributed to the press and 
interested public at the hearing, they may deliver 200 additional 
copies for this purpose to the Subcommittee on Human Resources office, 
room B-317 Rayburn House Office Building, by close of business the day 
before the hearing.
      

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. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette WordPerfect or MS 
Word format, typed in single space and may 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. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://waysandmeans.house.''
      

    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.
      

                                

    Chairman Johnson. Welcome. The hearing will come to order. 
Unfortunately, the Subcommittee has a bill on the floor and a 
number of other things going on so we are going to have to move 
right through. Those who have come to testify, thank you very 
much.
    As always let me start by welcoming our guests. Not only 
are you distinguished but you have achieved something that the 
Subcommittee greatly admires. That is a bipartisan agreement on 
a very important policy issue. So I commend all of you from 
labor, business, State administrators and the Administration 
for working hard to formulate a very interesting and promising 
proposal to reform the Unemployment Compensation Fund. We look 
forward to hearing your comments today and having a little 
opportunity to gain a better understanding of the depth of your 
proposal.
    Ben and I are going to make only brief statements so that 
we will have a chance to maximize our questioning time on a 
complicated day. Thank you.
    [The opening statement follows:]

Opening Statement of Chairman Nancy L. Johnson, a Representative in 
Congress from the State of Connecticut

    I begin as always by welcoming our distinguished guests. 
Not only are our guests distinguished, but they have worked 
together for over a year to achieve something that this 
Subcommittee greatly admires--bipartisan agreement on an 
important policy proposal. I commend each of you, representing 
labor, business, State administrators, and the Administration, 
for working so hard to formulate this very interesting and 
significant proposal on reform of the nation's Unemployment 
Compensation program.
    The purpose of our hearing today is to provide your 
Coalition with a forum to carefully explain your proposal and 
to answer questions members of our Subcommittee have about the 
proposal. Ben Cardin and I are going to make only brief opening 
statements because we have a bill on the House Floor later this 
morning and we want to give you the maximum time possible to 
explain your proposal.
    The biggest question before this Subcommittee is whether we 
intend to take action on the Coalition proposal this Fall. The 
major reason we are conducting this hearing the first week back 
from recess is that we want to talk both with our witnesses and 
among ourselves about the feasibility of trying to enact 
legislation this Fall based on the Coalition proposal. We must 
all begin with the realization that even under the best of 
circumstances, it would be very difficult to enact legislation 
of this magnitude in just four weeks.
    Even so, the problems of the Unemployment Compensation 
system are serious. We need more money for administration. We 
need more money for the U.S. Employment Service. We need more 
State control of administrative funding and the Employment 
Service. And many of us think we need to allow benefits to 
workers who are available only for part-time work and to create 
a better trigger for the Extended Benefits program.
    My intention is to learn as much as we can about the 
Coalition proposal this morning and then decide, based on 
today's testimony and questioning, and of course on 
consultation with my colleagues on both sides of the aisle, 
what our next step should be.
      

                                

    Mr. Cardin. Thank you, Madam Chair. It might seem strange 
to some that we are here today to discuss Unemployment 
Insurance when the number of jobless Americans is lower than it 
has been anytime in the last 30 years. However, despite the low 
unemployment rate it is worth remembering that 2 million 
Americans still depend upon Unemployment Insurance every week 
and many more require services to upgrade or change their job 
skills.
    Furthermore, none of us should be under the delusion that 
we have repealed the business cycle. Madam Chair, I can tell 
you an experience that I had when I was Speaker of the Maryland 
General Assembly, and we thought things were going rather well 
and we hit a bump in the road and all of a sudden our 
Unemployment Insurance funds were inadequate to deal with the 
problems of our recession. It required a special session of the 
General Assembly and a lot of pain for our State in order to 
overcome.
    And as the name suggests, the Unemployment Insurance system 
is one of our best insurance policies to counter the negative 
effects of an economic slow down. I am, therefore, very pleased 
to see the major stakeholders in the UI system including groups 
representing workers, business, the States and the Federal 
Government have agreed to a comprehensive plan to improve the 
program. One of the most important contributions of the 
consensus proposal is the recognition that there are 
unnecessary barriers now standing between low wage workers and 
UI coverage.
    The GAO currently is assessing the extent of this problem 
but its preliminary data suggests that workers earning eight 
dollars or less an hour are only one-half as likely to receive 
UI when they become unemployed compared to higher wage workers, 
even when working for a similar length of time. To address this 
inequity the consensus UI plan would require States to use the 
most current work information when making eligibility 
decisions. It would make the extended benefit program more 
sensitive to changes in the economy and would prevent States 
from denying UI benefits to otherwise eligible part-time 
workers solely because they are seeking part-time rather than 
full-time employment.
    This last provision is very similar to legislation I 
introduced called the Parity for Part-Time Workers Act. Its 
purpose is to prevent discrimination against workers who have 
earned the right to benefits based on part-time employment. To 
help States finance the cost of the coverage improvements, 
which will help more than 500,000 laid off workers every year, 
the plan suggests slowly reducing the amount of funds in the 
Federal UI loan account and then providing the proceeds to the 
States' UI systems. As long as such proposals leaves adequate 
resources in the fund to respond to recession, this approach 
warrants our careful consideration.
    The consensus UI proposal also recommends new financing 
structures for the administration of both the UI and Employment 
Services System. The impetus for this proposal is easily 
identified, the growing shortfall between the administrative 
needs of the State employment security agencies and the level 
of funding appropriated by Congress. A bipartisan group of this 
committee's members have already expressed its concern about 
this funding shortfall in a letter to the Appropriations' 
committee. So I think it is safe to say that there is a fair 
amount of sympathy here for addressing this issue.
    Finally, Madam Chair, let me talk about the acceleration of 
the repeal of the 0.2 percent FUTA surcharge. I agree that it 
is time that this tax repeal has come, as long as such changes 
occur in context to comprehensive plans to improve the UI 
system. The debt for which the surtax was designed to reimburse 
has long since been paid, so we should take this opportunity to 
provide employers with a $1.75 billion annual tax cut.
    Madam Chair, I look forward to hearing from our witnesses 
today and hopefully working out consensus bipartisan 
legislation that can move forward the recommendations of this 
task force. And I yield back my time.
    [The opening statement of Hon. Mark Foley follows:]

Opening Statement of Hon. Mark Foley, a Representative in Congress from 
the State of Florida

    Madam Chairwoman, I know that the issues we are discussing 
today are of great importance to all Americans and especially 
to those Americans who need to access Unemployment Compensation 
benefits in times of need. But there is another area of 
Unemployment Compensation that I hope we will also direct our 
attention to in the future and this is the Federal Unemployment 
Tax Act of 1986 as it relates to Native American Tribes. As 
sovereign bodies, it is only right that federally recognized 
tribes receive equitable treatment under the provisions of the 
1986 Act.
    Under current provisions of the law, the fifty States and 
federally tax-exempt organizations are permitted a reimbursable 
rate while Native American tribes are treated as private 
entities and are compelled to pay unemployment taxes at a flat 
rate. The result is millions of tribal dollars that could be 
used for development, job training, education, housing and any 
number of other projects that strengthen a tribe's self 
reliance are taken off the reservation and sent to the 
government.
    Madam Chairwoman, again, I hope that the Committee will 
take the time to investigate this important issue before the 
end of the 106th Congress.
      

                                

    Chairman Johnson. Thank you. If other members have 
statements they would like to offer, they can submit them to 
the record. Let us open our hearing by recognizing first Mr. 
Raymond Uhalde, the Deputy Assistant Secretary for Employment 
and Training at the Department of Labor.

  STATEMENT OF RAYMOND J. UHALDE, DEPUTY ASSISTANT SECRETARY, 
  EMPLOYMENT AND TRAINING ADMINISTRATION, U.S. DEPARTMENT OF 
 LABOR, ACCOMPANIED BY GRACE KILBANE, ADMINISTRATOR, OFFICE OF 
                       WORKFORCE SECURITY

    Mr. Uhalde. Thank you. Madam Chairwoman and members of the 
Subcommittee, I will abbreviate my remarks. Thank you once 
again for the opportunity to address the Subcommittee on the 
reform of the Unemployment Insurance and Employment Service 
programs. With me today is Grace Kilbane, Administrator of the 
Office of Workforce Security who is the Department of Labor's 
principal participant in the discussions that led to this 
historic agreement.
    Although your last hearing on this topic was not very long 
ago, just February 29th, there have been positive developments 
since then. As you can see, we are all sitting at the same 
table. That is certainly symbolic of what has happened over 
this last several weeks. I believe that the last hearing and 
the efforts of this Subcommittee contributed greatly to the 
progress that has been made, and I would like to acknowledge 
and thank you for your role.
    I am extremely pleased and excited to be here today because 
this is a historic event, an event that many believe could not 
happen. On June 27th, with the participation of the Department 
of Labor, the Interstate Conference of Employment Security 
Agencies, UWC, organized labor and representatives from a 
State-Business Employment Security Reform Coalition reached 
agreement on the elements of the comprehensive reform proposal 
that could garner bipartisan support. The Administration 
believes that the hard work and policy accommodations made by 
the parties who worked on this proposal have resulted in a 
package that meets the objectives established for the reform 
effort. We are eager to work with Congress to move this forward 
to enactment and work out the technical details.
    As you know, reform of the UI and ES systems has been a 
topic of discussion at the national level for some time. My 
prepared statement outlines many of these efforts. This 
proposal sets a sound framework to secure program reform and 
adequate funding because it addresses the major concerns of the 
partners and stakeholders, and, we anticipate, will garner 
broad and bipartisan support. This is a unique agreement in the 
history of these programs. The advantages of this proposal 
include: helping about 600,000 more of today's workers each 
year, especially women and low-wage workers, access 
unemployment benefits--without increasing State taxes in the 
near term; ensuring that about 600,000 more unemployed workers 
annually receive the reemployment services they need; improving 
the recession readiness of the UI program; cutting employers' 
Federal unemployment taxes by $1.75 billion per year--nearly 
$13 billion over the next 7 years; and providing adequate 
resources to fund the program service needs for UI and 
Employment Services within the one-stop system of America's 
Workforce Network.
    My written testimony describes why the Administration 
believes this proposal meets the objectives of the reform 
effort. The key features include making extended benefits more 
responsive during recessions, expanding benefits to many part-
time workers, making more recent wages available for 
determining benefit eligibility, repealing the 0.2 percent 
Federal unemployment tax surcharge and improving administrative 
funding.
    Changing the budget structure presents challenges for both 
the Congress and the Administration, but we recognize, as you 
do, that these programs have unique features, a separate 
dedicated Federal payroll tax is levied to fund their 
administration. When the Federal accounts in the UTF exceed 
their ceilings, these ``surplus'' funds are distributed to 
State accounts in the UTF, can be used for administration, and 
are from the mandatory side of the budget. The benefit side of 
the UI program is self-financing through State taxes; many 
other federally supported social benefit programs are fully 
financed by Federal taxes.
    We believe these unique features justify moving the funding 
for these programs out from under the discretionary caps to the 
mandatory side. We would add that if such changes are made, we 
believe it is essential that the proper budgetary review and 
accountability exercised by the department and Congress 
continue. I also note that the Senate Appropriations Committee 
acknowledged the problem of UI benefits being classified as 
mandatory while operational costs are discretionary, and 
included report language in the fiscal year 2001 budget seeking 
a solution to this problem with the authorizing committees.
    Clearly this is an ambitious package of proposals, and we 
recognize the challenges that face us in making these reforms a 
reality. Time is short, and there is much legislative business 
to be completed. However, with the work group's enthusiasm and 
bipartisan support, we believe that it should be possible to 
achieve enactment this year. We pledge to work with the 
Congress, this committee in crafting legislation to secure 
these reforms this year.
    Before closing I want to thank you, Madam Chair and members 
of the Subcommittee, for your support in this very important 
endeavor and also for your request to Appropriations 
Subcommittee Chairman Porter urging the Subcommittee to provide 
increased funding for the administration of our Nation's 
employment security system.
    Madam Chair, this concludes my formal remarks and I look 
forward to testimony of my colleagues, and I will be glad to 
respond to some questions.
    [The prepared statement follows:]

Statement of Raymond J. Uhalde, Deputy Assistant Secretary, Employment 
and Training Administration, U.S. Department of Labor

Madam Chair and Members of the Subcommittee:
    Thank you once again for the opportunity to address the 
Subcommittee on reform of the Unemployment Insurance (UI) and 
employment service (ES) programs. Although your last hearing on 
this topic was not very long ago--just February 29th--there 
have been positive developments since that time. As you can 
see, we are all sitting together today instead of on separate 
panels. I believe that the last hearing and the efforts of this 
Subcommittee contributed greatly to the progress that has been 
made, and I would like to acknowledge and thank you for that.
    I am here today to testify on a proposal developed by a 
broad group of stakeholders in the UI and ES system that I 
believe was presented to you early last month and now is in the 
process of being converted to legislative language. With me 
today is Grace Kilbane, Administrator of the Office of 
Workforce Security, who was the Department of Labor's principal 
participant in the discussions that resulted in this agreement.
    I am extremely pleased to be here today because this is an 
historic event--an event that many believed could not happen. 
On June 27, the Interstate Conference of Employment Security 
Agencies (ICESA), UWC, and organized labor, with the 
participation of the Department of Labor, reached agreement on 
the elements of a comprehensive reform proposal that they 
believed could garner bipartisan support. I realize that there 
is a long way to go, but the Administration believes that the 
hard work and policy accommodations made by the parties who 
worked on this proposal have resulted in a package that meets 
the objectives established for the reform effort, and we are 
committed to working with Congress to move this forward and 
work out the technical details.
    I will begin with some brief background comments on the 
importance of the UI and ES programs for America's Workforce 
Network--which is the brand name we use to identify workforce 
investment activities administered through the Department--and 
then discuss the reform effort.

                  Background on the UI and ES Programs

    UI is the primary source of temporary, partial wage 
replacement for eligible unemployed workers--it literally helps 
put food on the table. It is also the Nation's leading 
automatic stabilizer during economic downturns--according to 
our analysis for every $1.00 spent on benefits, the economy 
gains $2.15. Even in this unprecedented economic expansion, the 
UI system helps about 7 million workers annually bridge the 
financial gap between jobs, and will pay an estimated $22 
billion in benefits in fiscal year (FY) 2000. During 
recessions, these benefit payments soar as UI plays its role of 
stabilizing the economy in communities hard hit by 
unemployment.
    The UI program operates as a Federal-State partnership 
under which Federal law defines broad requirements for the UI 
program and State law sets forth most benefit provisions and 
the State tax structure. The UI program is administered in 
connection with the ES program which helps unemployed workers 
and others find jobs and assists employers in finding new 
workers. In program year 1998 (the latest data available), 17.3 
million job seekers contacted ES offices to obtain services.
    The UI and ES programs are major partners in the One-Stop 
delivery system that was established by the landmark, 
bipartisan Workforce Investment Act of 1998. This new system 
was designed in partnership with employers, labor 
organizations, education, and community groups. Each of the 
participating One-Stop partner programs make certain applicable 
core services (e.g., skill assessments and job search 
assistance) available through the One-Stop system. As a result 
of WIA, the labor exchange services provided by the ES have 
been revitalized and integrated into the One-Stop system. In 
fact, ES is the ``backbone'' of the One-Stop system. Its 
services are available to all jobseekers and employers. It 
provides a major share of the operating costs of One-Stop 
centers nationwide. Finally, the ES offers electronic tools 
that were unimaginable just 10 years ago. For example, 
America's Job Bank provides the public with access to about 1.7 
million job vacancies on a daily basis, allows job seekers to 
develop and post resumes on the Internet and employers to 
review those resumes.

                             Reform Efforts

    Reform of the UI and ES systems has been a topic of 
discussion at the national level for some time. As you know, 
Congress authorized the bipartisan Advisory Council on 
Unemployment Compensation in 1991. The Council issued findings 
and recommendations in 1994, 1995, and 1996 that concerned many 
of the same issues addressed by this reform proposal.
    This Administration's efforts to reform the UI and ES 
programs began in early 1998 with legislation proposed by the 
Administration as a ``down payment'' on more comprehensive 
reform and we were pleased that the legislation was introduced 
on a bipartisan basis by Representatives Levin, English, and 
Rangel. But these reform efforts, like others initiated by only 
one of the partners or stakeholders of this system, were not 
successful because they were neither sufficiently comprehensive 
nor did they have sufficiently broad-based stakeholder support.
    The reform effort continued in mid-1998, with the 
Department of Labor convening 65 dialogue sessions throughout 
the country to provide the public opportunities to offer 
suggestions for reform; over 3,800 individuals participated. 
What we heard from employers, workers, and State officials in 
these sessions informed development of principles for reform 
which were articulated in the President's proposed budgets for 
FY 2000 and 2001.
    In these budgets, the President committed the 
Administration to working with stakeholders and Congress to 
develop a comprehensive, bipartisan legislative proposal of 
system reforms centered on the following five principles:

     expand coverage and eligibility for benefits;
     streamline filing and reduce tax burden where 
possible;
     emphasize reemployment;
     combat fraud and abuse; and
     Improve administration.

    To meet this considerable challenge, ICESA convened a 
workgroup comprised of employer and worker representatives, 
State agency and Department of Labor officials which has been 
meeting for over a year. Subsequent to the Subcommittee's 
February 29 hearing on reform, the ICESA-convened workgroup was 
joined by another group representing a coalition of States and 
employers, and since that time group members made intensive 
efforts to reach a comprehensive agreement.

                          The Reform Agreement

    On June 27, a group representing the ICESA-convened 
workgroup and the State-business coalition reached agreement on 
a comprehensive proposal for UI and ES reform. This proposal 
sets a sound framework to secure program reform and adequate 
funding for services to workers and employers because it 
addresses the major concerns of the partners and stakeholders 
and, we anticipate, will garner broad and bipartisan support. 
This is a unique agreement in the history of these programs. 
The advantages of this proposal include:

     helping about 600,000 more of today's workers, 
especially women and low-wage workers, access unemployment 
benefits--without increasing State taxes in the near term;
     ensuring that about 600,000 more unemployed 
workers receive the reemployment services they need;
     Improving the recession readiness of the UI 
program;
     cutting employers' Federal unemployment taxes by 
$1.75 billion per year--nearly $13 billion over the next seven 
years; and
     providing adequate resources to fund the program 
service needs for UI and ES within America's Workforce Network.

    We believe that the proposal addresses all of the 
principles presented in the President's budgets for FY 2000 and 
2001, and I would like to take a few moments to tell you why 
the Administration believes this proposal meets the objectives 
laid out for the reform effort.

     Make extended benefits available sooner during 
recessions. The proposal lowers the extended benefit (EB) 
trigger rate to 4 percent insured unemployment from the current 
5 percent threshold. This trigger rate was increased from 4 
percent to 5 percent in 1982, and in the recession of the early 
1990s only 10 States met that 5 percent trigger. In reaction to 
this limited economic response, a special Federal program was 
enacted that made benefits available in all States, not just 
those that had higher unemployment. We believe that this reform 
element will improve the responsiveness of EB in future 
economic downturns, will target benefits where they are most 
needed, and as a result will also be less costly to the Federal 
budget.
     Expand benefits to part-time workers. This element 
will ensure that most part-time workers who lose their jobs 
will be able to qualify for benefits while they seek new part-
time work. In most States laid-off part-time workers are not 
eligible for benefits solely because they are not looking for 
full-time work. We believe that this does not reflect the 
importance of part-time work in today's labor market and is 
inequitable since unemployment taxes have been paid on these 
workers' wages. These workers must meet the same requirements 
with respect to their wages and work history as other workers 
who qualify for benefits under this proposal. We believe this 
provision, in combination with the next, would help 600,000 
workers gain access to unemployment benefits.
     Make more recent wages available for determining 
benefit eligibility. This element would require that States use 
wage data for the most recently completed quarter in making 
benefit eligibility determinations when unemployed workers 
would not otherwise qualify for benefits and when the data have 
been received by the State agency from employers. Currently in 
many States some unemployed workers do not qualify for benefits 
simply because their work and earnings are too recent and, 
although reported to the States, are not entered into automated 
systems. We believe that this time lag should not result in 
denial of benefits and that improved technology will help to 
make wage data available more quickly.
     Repeal the 0.2 percent Federal Unemployment Tax 
Act (FUTA) surcharge. The 0.2 percent FUTA surcharge long ago 
fulfilled the purpose for which it was originally enacted--to 
pay back loans that were made to States in the 1974-75 
recession. The remaining permanent 0.6 percent tax aligns 
program revenue with program need and avoids build up of 
balances in the Federal accounts in the unemployment trust fund 
(UTF) beyond apparent need. We believe that in the context of 
this comprehensive proposal the 0.2 percent should be 
eliminated in 2001. This change would save employers $1.75 
billion annually.
     Improve funding for UI and employment services. 
The proposal would establish statutory funding formulas for UI, 
ES and Veterans' Employment and Training Services, which would 
determine the national total amount available each year for 
these activities. The formulas would reflect projected 
workloads and make adjustments for inflation. This funding 
would be moved from the discretionary to the mandatory side of 
the budget.

    State administration of the UI and ES programs have been 
under-funded for too long due to Federal budget rules and 
constraints. Under-funding is affecting services to unemployed 
workers in a number of ways: benefit payment and appeals 
timeliness have declined; benefit overpayments have increased; 
and services were provided to only one-third of UI 
beneficiaries who were identified as likely to exhaust benefits 
and in need of reemployment services under State worker 
profiling systems. In addition, States are spending an 
increasing amount, about $250 million a year, to supplement 
Federal funding to keep local offices open and UI and ES 
services available statewide--especially in rural communities. 
We believe that these programs--which are of vital importance 
to the labor force and the economy--should be adequately 
funded.
    Expanded services and improved administrative funding would 
include:

     new tools to detect and prevent fraud and 
overpayments; ability to provide universal core services 
through the One-Stop system so that more WIA funds can be 
targeted to intensive and job training services;
     Increased audits of employers, eligibility reviews 
of claimants, and other integrity activities;

     the provision of a significant proportion of the 
reemployment services necessary to meet the President's 
commitment to make such services universally available to all 
who need them; and
     adequate funding for the administration of UI, ES, 
and Veterans' Employment and Training Services.

    Changing the budget structure presents challenges for both 
the Congress and the Administration, but we recognize, as you 
do, that these programs have unique features:

     A separate, dedicated Federal payroll tax is 
levied to fund their administration.
     When Federal accounts in the UTF exceed their 
ceilings, these ``surplus'' funds are distributed to State 
accounts in the UTF, can be used for administration, and are 
from the mandatory side of the budget.
     The benefit side of the UI program is self-
financing through State taxes; many other federally supported 
social benefit programs are fully financed by Federal taxes.

    We believe these unique features justify moving the funding 
for these programs from the discretionary to the mandatory side 
of the budget for purposes of the Budget Enforcement Act.
    I would also note that the Senate Appropriations Committee 
acknowledged the problem of UI benefits being classified as 
mandatory while operational costs are discretionary, including 
report language in the FY 2001 budget seeking a solution to 
this problem.
    Clearly this is an ambitious package of proposals, and we 
recognize the challenges that face us in making these reforms a 
reality. Time is short, and there is much legislative business 
to be completed, but with bipartisan support, we believe that 
it should be possible to achieve enactment this year. We 
recognize the budget challenges this proposal faces. However, 
we believe that these challenges can be met successfully, and 
the Administration is committed to achieving these reforms 
within a balanced fiscal framework.
    I believe I have touched on the five major provisions in 
the package, but there are changes that we have not discussed 
today. We look forward to working with Congress on these issues 
as well, which include topics such as: needed privacy 
protections as we address fraud and abuse, particularly related 
to access to the National Directory on New Hires; streamlined 
tax filing; and improved administrative procedures.
    In sum, we believe this proposal sets a sound framework for 
securing reform and meets the Administration's objectives for 
reform of the employment security system. We pledge to work 
with the Congress in crafting legislation to secure these 
reforms. I am encouraged by the workgroup's enthusiasm and your 
leadership, and sincerely hope that we will cap this historic 
event with the passage of a reform bill by year's end.
    Before closing, I want to thank you, Madam Chair, and 
Representatives English, McCrery, Cardin, and Levin for your 
request to Appropriations Subcommittee Chairman Porter urging 
the Subcommittee to provide increased funding for the 
administration of our Nation's employment security system. 
Funding a larger portion of each State's projected total 
workload in the base grant at the beginning of the year will 
certainly enhance State operations. We would also like to thank 
the members of the Subcommittee for the bipartisan interest you 
have shown in the sponsorship of a reform bill that reflects 
the efforts of the workgroup.
    Madam Chair, this concludes my formal remarks. I look 
forward to the testimony of my colleagues, and I will be glad 
to respond to any questions you or Members of the Subcommittee 
may have.
      

                                

    Chairman Johnson. Thank you very much, Mr. Uhalde.
    Mr. Gross.

STATEMENT OF ROBERT C. GROSS, PRESIDENT, INTERSTATE CONFERENCE 
OF EMPLOYMENT SECURITY AGENCIES, INC., AND EXECUTIVE DIRECTOR, 
             UTAH DEPARTMENT OF WORKFORCE SERVICES

    Mr. Gross. Madam Chair, Members of the Subcommittee, thank 
you for the opportunity and the invitation to be here. My name 
is Robert Gross. I am currently serving as the President of the 
Interstate Conference of Employment Security Agencies on a 
part-time basis and full-time serve as the Executive Director 
of the Utah Department of Workforce Services. ICESA or the 
Interstate Conference of Employment Security Agencies, Madam 
Chair, just to refresh your memory, generally serves the 
State's workforce service agencies in general and in particular 
those State agencies responsible for the Employment Security 
programs consisting of Unemployment Insurance and the 
Employment Service.
    A growing number of States are also linking or tying to 
those efforts welfare-to-work provisions or the entire area of 
welfare reform, including my own State of Utah, States such as 
Wisconsin, Ohio and so on.
    As Mr. Uhalde indicated, and as I believe members of the 
Subcommittee are well aware, we do believe that we have 
achieved what we would refer to as an historic compromise in 
terms of bringing these four broad constituency groups together 
to essentially effect a workable solution to today's problems 
and challenges with the Unemployment Insurance Administration 
and Employment Service systems.
    You have copies of my prepared testimony. I would like to 
spend the balance of my time essentially addressing 
particularly the concerns from the aspects of State 
administrators. As Mr. Uhalde indicated there are four broad 
provisions that make up this compromise. One, improved 
administrative funding for both Unemployment Insurance and the 
Employment Service. Two, repealing the 0.2 surtax and reducing 
employer tax filing burdens. Three, expanding eligibility to 
low-income, part-time workers, and former welfare recipients. 
And four, improving certain technical aspects of the program.
    As I indicated the most important part of this compromise 
for State administrators is certainly the adequacy of 
administrative funding. In terms of what this particular 
compromise would do is it would insure adequate administrative 
funds for Unemployment Insurance. Many States are currently 
experiencing shortfalls in their Unemployment Insurance 
administration. They have essentially gone to their State 
legislatures in which general funds from those States have been 
appropriated to supplement the Unemployment Insurance 
administration system. This compromise would restore integrity 
to that funding system and allow States to move into ever 
greater technological advantages and changes which serve 
today's employers and job seekers. In particular, such things 
as Unemployment Insurance call centers and other kinds of 
technology are greatly and rapidly facilitating the interchange 
and exchange in terms of today's workers and employers.
    A second major component that I want to talk about is the 
impact that this would have on adequate funding for the 
Employment Service which has been grossly underfunded since at 
least the 1980s. Now, as Mr. Cardin indicated, the question 
often arises why do we need adequate funding at a time of 
perhaps our lowest unemployment in many years? And Madam Chair, 
I would indicate that now is the time to make the investment 
but I would also point out the critical nature of the 
Employment Service and the constituent groups that it serves. 
It is essentially the backbone of what we call the one-stop 
delivery service system.
    Madam Chair, you may recall that a couple of months ago I 
was invited to testify on the status of today's one-stop 
centers under the Workforce Investment Act since its adoption 
in 1998. We are finding from discussions among State 
administrators a complete linkage and an unqualified necessity 
to look at the Employment Service as the backbone of today's 
emerging workforce development system. Without adequate funding 
for the Employment Service, that system is simply crippled and 
is not performing as effectively as it otherwise could.
    This particular compromise program will restore the 
integrity of that funding and allow us to make the complete 
linkage of the spectrum of job seekers from those people who 
are leaving welfare roles to those employees who may be 
unemployed through no fault of their own and are collecting 
Unemployment Insurance. A portion of the Employment Service 
funding will be dedicated to reemployment services so that 
unemployed workers will be served as well as supplementing the 
funding available under the Workforce Investment Act or at 
least leveraging with that funding to insure adequacy of the 
job connection function which is now important in our emerging 
one-stop service delivery system.
    I guess I would indicate in conclusion, Madam Chair, that 
this is an anomaly as far as States are concerned, and it is an 
interesting anomaly. As we look at the funding that is 
currently available in terms of the taxes paid by employers or 
employees depending on how you view that, and we look at the 
amount of money available currently the view I believe that 
States and many of our States' governors share is that Congress 
is inequitably impounding those funds for other purposes and 
under this particular compromise, those funds would be restored 
and the integrity of the Unemployment Insurance and Employment 
Service systems would be adequately served.
    Thank you for the opportunity of being here and thank you 
for your continued support.
    [The prepared statement follows:]

Statement of Robert C. Gross, President, Interstate Conference of 
Employment Security Agencies, Inc., and Executive Director, Utah 
Department of Workforce Services

    Madame Chair and Members of the Subcommittee on Human 
Resources, I am Robert C. Gross, President of the Interstate 
Conference of Employment Security Agencies (ICESA) and 
Executive Director of the Utah Department of Workforce 
Services. Thank you for inviting me to testify today on behalf 
of ICESA and its 53 State and territorial members. ICESA 
represents State workforce agencies in general and the 
Unemployment Insurance (UI) and Employment Service (ES) 
programs in particular. Virtually all of our State members 
administer the full array of workforce services; many also 
administer welfare-to-work programs and some administer other 
public assistance programs, such as TANF, under the 
jurisdiction of the Subcommittee on Human Resources.
    I want to thank and commend the Chair for scheduling a 
hearing on the historic comprehensive UI and ES reform package 
worked out this summer by business, labor, States, and the 
Federal government. When I last testified on UI and ES reform 
on February 29, 2000, I thought we had reached an impasse. 
Employer representatives wanted a repeal of the Federal 
Unemployment Tax Act (FUTA) 0.2 percent surtax, but could not 
agree to UI eligibility expansions. Employee representatives 
could not agree to repeal the FUTA 0.2 percent surtax without 
including UI eligibility expansions in the package. However, at 
your urging, we went back to the table and were able to reach 
an agreement in our workgroup on June 27, 2000. Since then, we 
have been explaining the agreement to our constituents and 
others, and gaining support almost daily.
    Today, I want to describe the most important components of 
the reform package from the perspective of ICESA, and then I 
want to address two major issues.

The ICESA Leadership Supports Fully the UI and ES Reform 
Package

    The ICESA leadership supports fully the comprehensive UI 
and ES reform package. It is a balanced package that takes into 
account the interests of business, labor, States, and the 
Federal government. It reflects the very nature of a 
compromise. There are elements that each of the parties likes, 
and there are elements that each of the parties dislikes. As a 
whole, however, all of the parties in our workgroup support 
this package.
    The comprehensive UI and ES reform package has four main 
components:

     Improving administrative funding of UI and 
employment services.
     Repealing the FUTA 0.2 percent surtax and reducing 
employer tax filing burden.
     Expanding UI eligibility for low-wage workers, 
part-time workers, and former welfare recipients.
     Improving certain technical and administrative 
aspects of the UI program.

Improving Administrative Funding of State UI Programs and 
Funding of the ES Program

    The most important component of this package for State 
administrators and ICESA is improving administrative funding 
for UI and funding of employment services.

Administrative Funding of State UI Programs

    Improving administrative funding of State UI programs 
includes:

     Fully funding State administration of State UI 
programs.
     Enacting a statutory formula based on workload and 
cost for determining the total amount available to States for 
administration of State UI programs.
     Distributing funds available to States for UI 
administration under current law, which delegates to the 
Secretary of Labor the authority to determine the funds States 
need for ``proper and efficient'' administration of UI.

    According to preliminary U.S. Department of Labor (USDOL) 
estimates, the package would provide about $2.52 billion for 
the administration of State UI programs if it were in effect in 
fiscal year 2001. This is about $275 million more than the 
estimated amount under current appropriations levels. This 
total amount would fund the ``proper and efficient'' 
administration of State UI programs as required by the Social 
Security Act. It also would allow States to reallocate to other 
State priorities nearly $120 million per year of their own 
funds they have appropriated to fill the gap between what is 
needed to administer UI and what is currently provided. Since 
1994 when ICESA first began surveying States about their 
efforts to fill this funding gap, States have spent nearly $600 
million on State administration of UI programs. We can only 
imagine what States could have done with these funds if they 
had not been forced by Federal under-funding to spend these 
amounts on administration of State UI programs.
    With additional resources to properly and efficiently 
administer the UI program, States would be able to better serve 
UI claimants and employers. For example, States could meet the 
demand for more and better service delivery channels, including 
telephone call centers and the internet. Additional resources 
are also needed to rebuild aging Unemployment Insurance 
information technology systems to ensure the timely 
determination of eligibility and payment of claims as well as 
detection of fraudulent claims to preserve the integrity of the 
system. And, to hasten UI claimants' return to work, States 
need to expand the worker profiling initiative to better 
connect unemployed workers to necessary reemployment services.
    The statutory formula for determining the total amount 
available to States for administration of State UI programs 
would be updated to adjust for under funding of UI workloads 
and ``real'' or inflation-adjusted costs since fiscal year 
1995. Beyond fiscal year 2000, this revised base amount would 
be indexed to inflation and projected workload, measured by the 
number of covered employers and the number of covered workers 
claiming benefits. As under current law, additional amounts 
would be available if unemployment rose above projected levels 
during the year.
    The amount available to States for administration of State 
UI programs would be distributed among the States according to 
current law. Title III of the Social Security Act delegates the 
authority to the Secretary of Labor to distribute these funds 
to States. Further, the Act states the formula must be based on 
population of the State, an estimate of covered employment in 
the State, the cost of proper and efficient administration of 
the State UI law, and ``such other factors as the Secretary of 
Labor finds relevant.'' In addition, ICESA is forming a 
workgroup to work with USDOL in the next few months to update 
the methods the Department uses to execute this authority.

Funding for Employment Services

    Improving funding of employment services includes:

     Restoring the purchasing power of ES grants to 
levels reached in the late 1980s.
     Enacting a statutory formula for determining the 
total amount available for State ES programs based on the size 
of the civilian labor force and cost of administration.

     Distributing funds available to States for the ES 
program based on the current formula in the Wagner-Peyser Act 
that uses State shares of the civilian labor force and 
unemployment.
    According to preliminary USDOL estimates, restoring the 
purchasing power of ES grants to levels reached in the late 
1980s requires an initial increase of about 40 percent to about 
$998 million if the package were in effect in fiscal year 2000. 
This increase is comparable to the increase authorized under 
the business-State coalition bill (H.R. 3174) introduced by Mr. 
McCrery last year. These sums would pay for services for 
employers looking for qualified workers and workers searching 
for work through the new local one-stop career centers created 
by the Workforce Investment Act (WIA). In addition, this will 
allow States to reallocate to other State priorities nearly 
$140 million per year of their own funds that they have 
appropriated to fill the gap in what is needed to provide these 
critical services and what is currently made available. Since 
1994, ICESA surveys show States have spent over $1 billion in 
State funds to provide employment services, labor market 
information, and other services for employers and workers.
    As States have aggressively sought to implement their one-
stop employment and career centers, local flexibility adapted 
to local labor market conditions has been an essential 
principle. However, as service delivery systems have been 
retooled, one truth has emerged anywhere you go--the core 
function of the one-stop system is ``job connection.'' That is, 
at the very heart of a one-stop center is the ability of an 
employer to find an individual who is ready for work and can 
play a productive role in that business.
    Only one funding source supports the core function, job 
connection, and is universal--all customers can access it 
regardless of income or household size. It is the Wagner-Peyser 
Employment Service. The Employment Service literally serves as 
the ``heart'' of the one-stop employment center. The rest of 
the one-stop employment center cannot function as an 
integrated, cohesive whole without the Employment Service 
functioning properly.
    In addition, one-fourth of the increase in funding for 
employment services, or about $74 million, would be earmarked 
for reemployment services for UI claimants. State 
administrators want to assure employers that sufficient amounts 
will be spent on reemployment of UI claimants in suitable jobs. 
This would benefit workers by helping them go back to work 
sooner in good jobs, and it would cut UI costs and employer 
taxes by reducing UI claims and the average duration of 
unemployment. The amount available for State ES programs would 
be distributed by the current formula in the Wagner-Peyser Act. 
Under this formula, two-thirds of the funds are distributed 
based on State shares of the total civilian labor force and 
one-third of the funds is distributed based on State shares of 
total unemployment.
    State officials have been disappointed and baffled by the 
lack of support in the Nation's capitol for employment services 
for employers and workers. Outside of the U.S. Capitol and 
inside State capitols, there is so much support that States 
have filled part of the resource gap with their own funds. Why 
has this happened? We asked a few States, and here are some of 
the answers:

     North Carolina added nearly 20 percent to its 
Federal grants in fiscal year 1999 to avoid closing local 
offices in communities across the State. Also, this 
supplemental State funding allowed the State to fill 130 
positions providing job search assistance to workers.
     Iowa imposed an administrative surcharge on 
employers in the State to avoid closing local offices. These 
supplemental State funds added nearly 25 percent to the Federal 
grants in fiscal year 1999, and currently finance 56 of the 71 
local offices in Iowa. With this surcharge expiring in June 
2001, Iowa faces either extending the surcharge on employers or 
closing most of the local offices that deliver services to 
constituents in the State.
     South Carolina added nearly 15 percent to its 
Federal grants in fiscal year 1999. Employers in South Carolina 
strongly supported this supplemental State funding as an 
investment in reemployment services. The South Carolina 
Employment Commission said these reemployment services would 
save the State $3 for every $1 spent. The savings was derived 
from reduced UI benefit duration and taxes paid as a result of 
new employment.

Repealing the FUTA 0.2 Percent Surtax and Reducing Employer Tax 
Filing Burden

    As I testified in February, the Federal government has 
collected excessive Federal unemployment taxes for sometime. 
This package corrects this problem by repealing the unnecessary 
FUTA 0.2 percent surtax. The ICESA leadership supports 
repealing the FUTA 0.2 percent surtax and reducing employer tax 
filing burden as part of this package.

Expanding Eligibility

    The ICESA leadership compromised on one of ICESA's most 
important principles when it agreed with business, labor, and 
the Federal government to establish certain Federal mandates 
expanding UI eligibility as part of the package. ICESA members 
believe eligibility for State UI programs should be determined 
in individual State UI laws, not Federal law. However, the 
ICESA leadership told the workgroup it could agree with Federal 
UI eligibility expansions if business and labor could agree, 
and the eligibility expansions were part of a comprehensive 
reform package that met States' program funding goals. Because 
the comprehensive package meets States' goals, the ICESA 
leadership supports the eligibility expansions as part of the 
package.

Improving Certain Technical and Administrative Aspects of the 
UI Program

    The ICESA leadership supports the technical amendments in 
this package that improve the operation of the Unemployment 
Trust Fund specifically and State UI programs generally. 
Granting State UI programs access to the National Directory of 
New Hires (NDNH) is an important provision. As I testified in 
February, this provision will help States reduce UI 
overpayments to individuals who have not informed the UI 
program that they have gone back to work and are no longer 
eligible for UI benefits. I am pleased the House of 
Representatives passed this provision last year in the 
``Fathers Count'' bill.
    Madame Chair, ICESA, its Federal partner, and business and 
worker representatives are very proud of this proposed 
comprehensive UI and ES program reform. Please pass this 
historic reform package this year.
    Thank you.
      

                                

    Chairman Johnson. Thank you, Mr. Gross.
    Mr. Smith?

  STATEMENT OF DAVID A. SMITH, DIRECTOR, DEPARTMENT OF PUBLIC 
  POLICY, AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL 
                         ORGANIZATIONS

    Mr. SMITH. Madam Chair, members of the Subcommittee, I am 
delighted to be here today representing the AFL-CIO and 
delighted to be here with Ray and Bob and Chuck to sing the 
same song. I am reminded at times like this, of a time when I 
worked on the other side of Capitol Hill. I approached Senator 
Bumpers one night, he was managing a debate. I asked him how 
long he thought it would go on and his answer was that he did 
not know because while everything has been said but not 
everybody has said it. I am going to try to avoid saying what 
Ray and Bob have said and simply associate myself with it.
    We were here in February and addressing this same subject 
and I suggested to the Committee that at that point it looked 
very difficult to come to an agreement. An enormous amount of 
hard work and, Madam Chairman, a lot of that work occurred, at 
your urging has gone on since then.
    We have reached an agreement, an agreement that actually 
gives me a chance to use an arcane construct I learned in 
graduate school and never figured out how to use. Economists 
talk about pareto optimality. It is that moment where you 
cannot make anybody better off without making somebody else 
worse off. I think this agreement fits that description. None 
of us have achieved everything in this agreement that we came 
to the table seeking. There still will be work to do for this 
Subcommittee, and for all of us, but the agreement carefully 
balances a set of important objectives. It enhances 
eligibility. It improves funding. It secures that funding. It 
allows the Employment Service to do the important job that it 
has to do both for our members and for Chuck's colleagues. This 
is an historic deal.
    We appreciate your support and look forward to being able 
to celebrate enactment later this fall. Thank you.
    [The prepared statement of follows:]

Statement of David A. Smith, Director, Department of Public Policy, 
American Federation of Labor-Congress of Industrial Organizations

    On behalf of the American Federation of Labor-Congress of 
Industrial Organizations, (AFL-CIO), I want to thank you for 
holding this hearing to discuss the historic agreement between 
labor, business, State governments and the Department of Labor 
(DOL) that we all believe will result in dramatic reforms to 
the Unemployment Insurance (UI) and Employment Services (ES). 
It is a carefully balanced approach that will make many more 
workers eligible for UI benefits at a vulnerable economic time 
in their lives, and provide all workers facing unemployment 
with services that will help them get back to work sooner at 
good jobs. I am especially pleased to be here with colleagues 
from all of the stakeholder groups whose hard work over many 
years made this agreement possible.
    You will remember on February 29, 2000, I along with my 
colleagues representing the States and business frankly 
testified that despite the tremendous need for comprehensive 
UI/ES reform legislation, we had been unable to reach a 
consensus. Ultimately, however, the recognition of each of us 
that this opportunity may not present itself again in the near 
future has brought us to a place where key goals were achieved 
and modest concessions made resulting in the proposal we 
discuss today.
    Even during this period of relatively good economic health 
the Federal-State partnership that is the basis of UI and ES 
does not adequately addresses the needs of unemployed workers 
or employers seeking new workers. Although worker advocates did 
not achieve all of the changes to the UI/ES program that we 
believe are necessary to serve workers well in the new economy, 
the eligibility enhancements are significant advancements, 
especially when coupled with administrative funding to provide 
``proper and efficient'' services to those workers. On balance 
this is a strong package and puts the program on a strong 
footing for the next century.
    Worker advocates have long fought for changes in the UI/ES 
system that would make more workers, especially low wage 
workers, eligible for UI benefits, and for adequate funding for 
ES programs to provide services to those workers to help them 
get back to work as soon as possible. Because the package 
before us takes significant steps towards meeting those goals, 
the AFL-CIO strongly supports the proposal and urges Congress 
to move the bill in its entirety before the current session 
ends.

Eligibility Expansion

    The proposal includes three significant expansions of 
worker eligibility: Using a worker's most recent wages to 
determine eligibility; coverage of part-time workers seeking 
part-time work; and reforms that make the Extended Benefit (EB) 
program more responsive to economic downturns. These three 
eligibility enhancements will provide economic stability for 
low-wage workers, their families and communities, and also 
provide a bridge to re-employment services to help workers find 
a new job.
    For far too long, many U.S. workers has been denied 
eligibility for UI benefits despite the fact that they have a 
strong attachment to the workforce. As wages have fallen and 
work patterns became increasingly irregular, the old monetary 
requirements for UI benefits no longer accurately reflect a 
worker's commitment to work. The most significant bar to UI 
eligibility is the failure of many States to use wage and 
employment information from the most recently completed quarter 
of worker, instead counting the first four of the last five 
quarters worked, to determine minimum monetary eligibility. 
This method discounts a worker's most recent wages, which is 
usually the period when workers make the most money. With only 
11 States using the most recent earnings to calculate 
eligibility, more workers are denied eligibility for UI 
benefits for this reason than any other criteria. The 
comprehensive proposal makes it a conformity requirement for 
States to use the most recent wages to calculate monetary 
eligibility when a worker fails to qualify under an alternative 
calculation. DOL will provide administrative funding for the 
cost of technology changes making it easier for employers to 
report and State agencies to post accurate wage and employment 
information. Some 6 percent of the unemployed , estimated by 
DOL at 320,000 workers annually, will become eligible for UI 
benefits because of this provision.
    In the recent publication The State of Working America, 
2000-2001, the Economic Policy Institute reports that 17 
percent of all workers were employed on a part-time basis in 
1999, including 3.3 million who wanted full-time work but could 
not find it. Currently, most State eligibility standards do not 
reflect this working relationship. The prohibition against 
part-time worker eligibility in most States has had a 
dramatically detrimental effect on the eligibility of women, 
who comprise 68 percent of all part-time workers. Only 13 
States currently pay benefits to part-time workers seeking 
part-time work, even though in many instances, workers are 
confined to part-time work not by choice, but by the dictate of 
employers or dependent care obligations. The comprehensive 
reform proposal would require all States to pay UI benefits to 
part-time workers seeking suitable and comparable part-time 
work who are otherwise eligible for benefits. DOL estimates 
that 260,000 workers currently ineligible under State UI 
programs would be eligible for benefits under this provision.
    The proposal addresses the trigger for the Extended Benefit 
(EB) program prior to a recession by adjusting the EB trigger 
to better reflect economic downturns. Moving the EB trigger to 
4 percent of a State's Insured Unemployment Rate will enable 
730,000 additional workers to receive EB under's situation 
similar to the last recession, while also streamlining 
eligibility requirements to mirror those in the standard UI 
program. The last time Congress attempted to provide a 
temporary fix of the EB trigger during the middle of the 
recession, additional benefits were paid in all States, some of 
which were not facing as severe an economic situation as 
others. This band-aid approach was far more expensive than fine 
tuning the EB trigger to target funds to States hardest hit 
during a recession.
    States will not have to raise employer taxes or raid other 
State funds to pay for these eligibility enhancements. The 
proposal uses the funds from a special Reed Act distribution to 
offset the cost of the eligibility enhancements during the 
first 5 years of the proposal.

Administrative Finance Reform

    The first item in the proposal that was unanimously agreed 
upon by all the parties was the decision to move UI/ES 
administrative funding to the mandatory side of the budget. The 
longstanding bargain that was struck by those who proposed the 
UI/ES system years ago was meant to ensure that workers would 
receive the help they needed to find jobs as quickly as 
possible in order to minimize benefit costs and pressure on 
employer taxes has been compromised by severe under funding. To 
equal the FY 85 appropriation adjusted for inflation, FY 99 
spending would have to be over $1.2 billion. ES staffing levels 
have dropped more than 50 percent. During the same period that 
the civilian labor force grew by approximately 20 percent. UI 
as well as ES funding has been flat for the last 5 years. This 
inadequate level of funding has destabilized State 
infrastructures and compromise service quality. As highly 
trained ES staff have been laid-off, States have closed 
offices, and adopted methods of service where UI claimants 
often never speak directly to an ES worker during the entire 
time they are eligible for UI benefits and service. In person 
assistance for job seekers has declined substantially--replaced 
by automated systems, which may usefully augment certain 
services, but are hardly a substitute for personal assistance 
for unemployed workers.
    Expansion of UI eligibility to hundreds of thousands of 
workers will not be meaningful unless it is accompanied by full 
funding for UI and ES programs. This is especially important to 
those hundreds of thousands of newly eligible workers who can 
serve as a ready trained and available source of workers for 
employers with openings to fill. The proposal uses a formula 
for distribution of administrative funding that is based on 
workload, which will result in States that provide good, 
comprehensive services to workers receiving additional funds to 
support their work. The AFL-CIO supports increased resources 
for the employment service to rebuild the system because we 
recognize the importance of these services to business and to 
the workers who want and need more effective help finding new 
employment.
    The remainder of the package includes provisions that 
either the AFL-CIO has either been noncommittal about in the 
past (such as technical amendments allowing States to access 
the Directory of New Hires to track UI claimants), or even 
opposed, such as repeal of the .02 percent employer surtax. 
These provisions would not be supported individually, or in a 
different package. However, because the proposal includes 
significant advancements in worker eligibility and 
administrative financing, the AFL-CIO is fully supportive of 
this proposal in its entirety.
    Again, the AFL-CIO strongly States its support for the 
comprehensive UI/ES reform proposal, and we look forward to 
working with the Subcommittee towards passage and 
implementation of reforms that are essential to U.S. workers.
      

                                

    Chairman Johnson. Thank you, Mr. Smith.
    Mr. Yarbrough?

  STATEMENT OF CHUCK YARBROUGH, CHAIRMAN, BOARD OF DIRECTORS, 
UWC-STRATEGIC SERVICES ON UNEMPLOYMENT & WORKERS' COMPENSATION, 
AND DIVISION PERSONNEL MANAGER, TYSON FOODS, INC., SPRINGDALE, 
                            ARKANSAS

    Mr. Yarbrough. Thank you. Good morning. It is certainly 
exciting to be here today and this is a privilege to be back 
before this Committee.
    Madam Chairman and members of the Committee, my name is 
Chuck Yarbrough. I am Division Human Resource Manager for Tyson 
Foods. I am testifying today on behalf of UWC which is 
Strategic Services of Unemployment and Workers' Compensation. I 
am proud to serve as Chairman of the UWC Board, which was 
founded in 1933 and is the only business organization 
specializing exclusively in public policy advocacy on national 
Unemployment Insurance and Employment Services.
    I am a 25-year user of the system. I think it is extremely 
important to realize that the unemployment and Employment 
Services that are out there are definitely needed in this day 
and time for the war on workers, trying to get folks in to work 
and trying to work. And using this agency and using the 
services is what a lot of us that are Federal contract 
employers must do and want to do. And so we are excited about 
the opportunity.
    I will tell you that when we came together in a meeting 
after your urging for us to get back together we had to check a 
few egos at the door. We had to leave a few agenda items 
outside and as I said we were loosely holding hands. And today 
I think we basically got our arms almost on each other's 
shoulder marching forward trying to come to you seeking reform.
    I do have some I guess history as far as using. I have 
served as the National Employers Council representative of 
Region VI working with the Secretary, Department of Labor of 
Arkansas, Louisiana, New Mexico, Oklahoma, and Texas and feel 
like as a user of the system and hopefully, as Chairman of UWC, 
will say that after coming to the last hearing we realized that 
maybe we were the ones that needed to extend out and ask for us 
to sit back down at the table together.
    And with a lot of encouragement and a lot of support by 
Grace and Bob and other folks where we actually sat down and I 
think hammered out an excellent agreement. It is something that 
we feel like that we can support as a group. I would like to 
begin by reviewing the development and say that when we sat 
down together as UWC, DOL, ICESA and organized labor we knew we 
had to come to an agreement.
    Time is short. This is the opportunity that we need to move 
forward. This is the time to fix it because it is really not at 
a point in time that unemployment is such a high level that we 
are using the dollars. This is time to really take a good hard 
look at it and dissect the problem. Unfortunately, the current 
system is not working effectively. Workers are underserved, 
employers are over-taxed and we are only getting about 50 
percent, whichever side you want to look at that, of the 
dollars returned that are paid up here.
    Because of the chronic underfunding of the agencies, we are 
in the midst of a labor work shortage, collecting more weeks of 
unemployment benefits at employer expense. The States are 
reaching into their own general revenues, employer pockets or 
levying add-on taxes and making up the shortfall for FUTA fund.
    The good news is we have a chance and historic opportunity 
to enact a joint comprehensive UI reform package and therefore 
improve the efficiency and streamline the system. Now, for 
jobless workers reducing taxes on employers and alleviating the 
financial pinch on State administrators. And that is what we 
call a win-win-win situation around this table.
    A couple of things that this does is, of course, eliminates 
the 0.2 percent FUTA tax, 1.6 billion savings for a year to 
employers. It improves the UI/ES funding. If we do not get this 
turned around, my State alone I know is asking for additional 
taxes and additional money to provide the funding. We are 
looking at a lay-off of full-time, permanent people working in 
the agency just to be able to afford cost of living increases. 
That is sad. My particular company because of a lack of 
funding, we have actually written checks for rent to keep the 
Employment Services open in the State of Texas and east Texas 
just so we had a local office that could provide the Employment 
Service to our company as well as many others in that small 
community.
    Finally, on top of paying higher taxes many employers have 
been forced to expend additional resources of Employment 
Service that they have already paid for through FUTA but have 
not received. Lots of employers have opened up Employment 
Services with their own money. You cannot drive up and down 
Main Street, America, finding help wanted signs everywhere but 
yet the Employment Service, the place where we should be 
sending people, the cornerstone of the one-stop is definitely 
underfunded.
    The ES partnership and one-stop will insure employers' 
input in decisions about using additional ES fund and increased 
ES funding will also aid in implementing the Workforce 
Investment Act. We will see Reed Act distributions back to 
normal. We will see dedicated funding for reemployment services 
strictly for UI claimants to help them get back to work sooner, 
increased access to the National New Hire database. We feel 
like that will definitely help prevent some fraud. Reduce tax 
complication costs. And the joint comprehensive ES/UI reform 
package also contains UI benefits expansion, previously opposed 
to in this package but we believe they are acceptable as part 
of this comprehensive package.
    My grandfather reminded me do not forget where you come 
from and in my career in human resources we have used the 
Employment Service. And I am here today to tell you that we 
need to continue to use those services and we need proper 
funding to help those people do what they do best and that is 
serve as a labor exchange for those people seeking.
    Thank you very much for the opportunity to be here today.
    [The statement of Mr. Yarbrough follows:]

Statement of Chuck Yarbrough, Chairman, Board of Directors, UWC-
Strategic Services on Unemployment & Workers' Compensation, and 
Division Personnel Manager, Tyson Foods, Inc., Springdale, Arkansas

    Good morning, Madam Chairman and members of the committee. 
My name is Chuck Yarbrough, and I am Division Personnel Manager 
for Tyson Foods, Inc., the nation's leading producer, processor 
and marketer of poultry and poultry based food products, as 
well as other convenience food products.
    I am testifying on behalf of UWC--Strategic Services on 
Unemployment & Workers' Compensation. I am proud to serve as 
the Chairman of the UWC Board of Directors. UWC, which was 
founded in 1933, is the only business organization specializing 
exclusively in public policy advocacy on national Unemployment 
Insurance and employment services (UI/ES) and workers' 
compensation issues. UWC is intimately acquainted with UI laws; 
our research arm, the National Foundation for Unemployment 
Compensation & Workers' Compensation, publishes numerous 
materials on UI, including the annual Highlights of State 
Unemployment Compensation Laws. In addition to UWC, I have 
extensive experience with UI/ES issues through the National 
Employers Council (NEC). I served as NEC's elected 
representative for employers in the Department of Labor's 
Region VI (Arkansas, Louisiana, New Mexico, Oklahoma, and 
Texas). In this capacity, I represented employers before the 
Department of Labor (DOL) and State employment security (ES) 
administrators.
    UWC supports 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. UWC believes 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 has a long history as the voice of business on UI/ES 
reform. UWC led the Coalition for Employment Security Financing 
Reform, a coalition of more than 100 business organizations and 
32 States who supported H.R. 3174, the Employment Security 
Financing Reform Act, introduced by Rep. Jim McCrery with 35 
bipartisan co-sponsors.
    I would like to begin by reviewing developments on UI 
reform subsequent to the hearing in this Subcommittee on 
February 29, 2000. As you will recall, at the hearing Chairman 
Johnson urged that all interested parties--business, States, 
labor unions and DOL--come together on one proposal. Late last 
spring, when it became clear that H.R. 3174 would not move 
forward this year, UWC approached DOL and requested that we 
meet in order to craft a compromise on UI reform. A workgroup 
consisting of representatives from UWC, DOL, ICESA and 
organized labor convened in May. After intense discussions, the 
work group reached consensus on a package of comprehensive UI 
and ES reforms. Subsequently, UWC's UI Committee and Board of 
Directors actively debated the package and voted to support it.
    UWC believes that the swift enactment of the joint 
comprehensive UI reform proposal is essential to strengthen the 
Federal-State (UI/ES) system and the workers and employers whom 
it is designed to serve. The comprehensive UI reform proposal 
will improve the method by which Federal Unemployment Tax Act 
(FUTA) taxes are collected and funds are provided to administer 
the State UI and ES programs. This proposal will fix serious 
problems with the State UI and ES system resulting from the 
Federal government's failure to provide adequate funding, and 
it will also provide funds needed to implement the Workforce 
Investment Act.
    Unfortunately, the present UI/ES system is not working 
effectively. Workers are under-served, employers are over-
taxed, and State UI/ES agencies are under-funded. Under the 
current system the Federal government collects 100 percent of 
(FUTA) receipts but returns only 50 percent to the States.
    Because of the chronic under-funding of UI/ES agencies, 
workers in the midst of a labor shortage are collecting more 
weeks of unemployment benefits--at employer expense--and States 
are reaching into their own general revenues--and employer 
pockets--by levying add-on taxes to make up for the shortfall 
in FUTA funds coming back to the States.
    The good news is that we now have at hand a historic 
opportunity to enact H.R. 3174 the joint comprehensive UI 
reform package and thereby improve efficiency and streamline 
the system by funding UI/ES administrative costs. This funding 
is necessary to improve services for jobless workers, reduce 
taxes on employers, and alleviate the financial pinch on State 
administrators. Now that's what I'd call a ``win-win-win'' 
situation.
    Under the joint comprehensive UI/ES reform package, the 0.2 
percent FUTA surtax will expire at the end of this year rather 
than the year 2007. UI/ES funding will be moved to the 
mandatory side of the budget, and statutory funding formulas 
will be used to determine the national total amount available 
each year. The formulas will reflect workload, and funding 
levels will be adjusted for inflation. These formulas, in 
conjunction with the fiscal controls currently utilized by 
State UI/ES agencies, will ensure increased accountability for 
the funding given to the States.
    In addition, FUTA and State unemployment taxes will be 
payable no more often than quarterly, and the FUTA tax form 
will be simplified. This approach will reduce unnecessary 
paperwork.
    Specific advantages to employers in of H.R. 3174the joint 
comprehensive UI/ES reform proposal are as follows:

Elimination of 0.2 Percent FUTA Surtax

    Employers will save $14 per worker per year, starting in 
2001. Aggregate savings will be $1.6 billion or more per year 
(a total of $12.8 billion through calendar year 2007). Under 
current law, the Federal Unemployment Tax Act (FUTA) rate is 
0.8 percent. This rate is 25 percent too high as the result of 
a 0.2 percent ``temporary'' surtax which is no longer needed 
and which is now being collected only because inclusion of FUTA 
surpluses in the unified Federal budget allows the Federal 
government to meet budget targets for other spending programs. 
Federal law expressly limits the use of FUTA funds to UI/ES 
functions spelled out by statute. The practice of counting FUTA 
funds for spending on other programs, leaving only an IOU and 
an accounting entry behind, is contrary to the very reason why 
Congress placed these funds in the Unemployment Trust Fund in 
the first place. In effect, the budget rules allow the misuse 
of FUTA funds for purposes unrelated to the UI/ES system.
    Congress originally imposed the 0.2 percent FUTA surtax in 
1976 to pay for a temporary Federal program of supplemental 
benefits for workers who had exhausted the 6 months of regular 
State UI and the 3 month extension under the permanent Extended 
Benefits (EB) program. Although we believe the supplemental 
extension should never have been an employer obligation in the 
first place, the deficit created by this program was retired in 
1987, yet the surtax has been extended until 2007.

Improved UI/ES Administrative Funding

    To serve its customers effectively, UI/ES agencies must be 
efficiently administered. In recent years, this goal has been 
frustrated. Employers pay more than enough in FUTA taxes to 
provide proper funding. FUTA revenue is legally dedicated to 
funding the operations of State UI/ES administrative agencies 
and paying for 50 percent of the permanent EB program. 
Nevertheless, in practice the budget laws and the 
appropriations process force State UI/ES administration to 
compete for funding against other programs that are funded from 
general revenues. As a result, appropriations for State UI 
agencies have been severely inadequate, leading to a reduction 
in services for workers and employers. Failure to provide 
adequate UI/ES funding, in turn, results in indirect State tax 
increases.
    As a business organization, UWC understands the importance 
of balancing the Federal budget, but the budget rules are 
fatally flawed as applied to UI/ES financing, creating 
unintended adverse consequences. The inadequate Federal grants 
have directly increased the State tax burden on employers--and 
Federal budget outlays--in several ways. Employers have been 
required to pay a second, third, and fourth time--quadruple 
taxation. This indirect taxation comes about partly because the 
average UI claim duration is longer (and thus benefit costs are 
higher) than necessary.
    For example, inadequate funding to combat fraud and abuse 
and provide reemployment services also adds to results in 
workers collecting additional weeks of UI benefits. DOL 
estimates that UI claims on average now last 2 weeks longer 
than expected in this tight labor market.
    Another indirect tax arises because many States have been 
forced to dip into their own general revenues or impose new 
add-on payroll taxes on employers--above and beyond the State 
tax used to finance UI benefits--to make up some of the 
shortfall in FUTA funding from Washington. As ICESA has 
reported, since 1994, States have spent more than $1.6 billion 
of their general revenue. Most of the resulting additional tax 
burden falls on employers.
    Finally, on top of paying higher State taxes, many 
employers are forced to expend additional resources for 
employment services they paid for through FUTA but did not 
receive because States have been forced to close offices and 
eliminate employment counselors and other services. For 
example, Tyson Foods has actually paid the rent to keep the 
local employment service office open in Carthage, Texas.
    The joint comprehensive UI reform package begins will 
correct this situation. UI/ES funding will be moved to the 
mandatory side of the Federal budget, and statutory funding 
formulas will be used to determine the amount of funding. The 
first year the formulas are implemented (estimated to be fiscal 
year 2002), funding will increase by approximately $450 million 
for UI and $240 million for ES. The increased funding will 
reduce or eliminate the need for separate add-on State taxes 
for administration. Dedicating part of ES resources to UI 
claimants will reduce UI claim duration by getting unemployed 
workers employed sooner. If average duration is reduced by one 
week, annual savings are approximately $1.5 billion at current 
unemployment rates. Increased funding for ES will provide 
additional services to employers, UI claimants and others in 
the labor market. Increased funding for UI will increase 
accuracy and quality of UI benefit payments, which will result 
in fewer under/overpayments. Increased funding for UI 
administration will also increase ``integrity'' activities--
e.g., periodic eligibility reviews of claimant work search 
activities and benefit payment control activities, which in 
turn will help claimants make realistic assessments of what 
they need to do to return to work. ES partnership in One-Stops 
will ensure employer input into decisions about use of 
additional ES funds. The increased ES funding will also aid in 
implementing the Workforce Investment Act.

Reed Act Distribution Returns to Normal

    The joint comprehensive UI/ES reform package returns about 
$5 billion in excess FUTA dollars to State UI trust funds from 
2002 to 2007. These funds will reduce the State UI payroll tax 
burden and provide additional funds for improved 
administration. When the FUTA accounts are all at their 
statutory maximum, as they are today and into the foreseeable 
future, a law known as the ``Reed Act'' requires any surplus to 
be distributed into the State UI benefits accounts. However, 
instead of making this disbursement, under current law the Reed 
Act distribution has been limited to $100 million a year. 
Consequently FUTA funds are building up despite the statutory 
ceilings.

Dedicated Funding for Re-employment Services for UI Claimants

    The comprehensive UI/ES reform proposals provides 
approximately $74 million dedicated for re-employment services 
for UI claimants. Employers believe this provision is a very 
important piece of the proposal, as it will aid in getting UI 
claimants--who traditionally are often the last to receive re-
employment services--back to work sooner.

Increased Access to National New Hire Database

    Consistent with similar provisions in the Fathers Count Act 
(H.R. 3073) introduced by Chairman Nancy Johnson, State UI/ES 
agencies will have multistate access to the National Directory 
of New Hires. This proposal provides a powerful new tool for 
States to prevent, detect and recover overpayment of UI 
benefits to workers who have returned to work, at no additional 
burden to employers.

Reduced Tax Compliance Costs

    The FUTA tax is not only too high, but compliance is 
needlessly complex and burdensome. The joint comprehensive UI/
ES reform package will reduce the complexity and burden by 1) 
prohibiting collection of FUTA or State UI taxes more often 
than quarterly; 2) simplifying the complex FUTA tax form 
without affecting the amount of tax or changing the definitions 
of wages and employment; and 3) enabling the Federal government 
and States to share information which will remove an impediment 
to allowing employers to file combined Federal and State wage 
reports.
    The joint comprehensive UI/ES reform package also contains 
UI benefit expansions. UWC previously opposed these expansions, 
but believes that they are acceptable as part of this 
comprehensive reform package. The benefit expansions have been 
crafted in a way that minimizes the burden on employers. The 
specific benefit expansions and their impact on employers are 
as follows:

Federal Extended Benefits (EB) Requirements

    The joint comprehensive UI/ES reform package will repeal 
special eligibility requirements for EB claimants. It allows 
States to establish and use their own eligibility requirements 
instead.
    The joint comprehensive UI/ES reform package will also 
restore the standard State EB ``trigger used until 1981. It 
does not change the other optional triggers or use the Total 
Unemployment Rate (TUR), which would be opposed by employers.
Use of More Recent Wages

    In most States, workers who are otherwise eligible may be 
denied UI benefits simply because earnings reported by the 
employees are too recent and have not been entered into the 
automated data systems used by State agencies. The joint 
comprehensive UI/ES reform package responds to this 
administrative problem and improves the fairness perception for 
these workers who must wait a quarter to receive benefits. As 
crafted, the provision will not impose an additional 
administrative burden on employers. Moreover it will not 
require States or employers to use affidavits or wage requests 
unlike many ``alternative base period'' (ABP) proposals. It 
gives States more latitude, as it does not dictate a specific 
ABP or procedures. It does not change frequency or deadlines 
for reports. Nor does it change benefit calculations. To assist 
in covering the cost of system modifications necessary to 
effectuate this provision, the joint comprehensive UI/ES reform 
package gives ``technology grants'' to States.

UI Benefits for Part-Time Workers

    The joint comprehensive UI/ES reform package will require 
States to pay UI benefits to otherwise eligible unemployed 
workers who (1) have met monetary eligibility requirements on 
the basis of their part time work and (2) are seeking and 
available for suitable and comparable part time work. The 
purpose of this provision is to eliminate the disqualification 
of a part time worker solely for being unavailable for full 
time work.
    UWC believes the benefit expansions have been drafted to 
minimize Federal intrusion in areas traditionally and 
appropriately the province of the States. Funding adjustments 
in the package will provide financing to States, to ensure no 
State will need to raise UI taxes in the near future to cover 
the costs of these benefit expansions.

                               Conclusion

    Employers, who finance the UI program through Federal and 
State payroll taxes, regard UI as an integral part of the array 
of the employee benefits they provide. Because employers pay 
for UI, UI costs are a part of business overhead. UWC believes 
it is important to keep UI costs as low as possible consistent 
with its basic goals: prompt return to suitable work by workers 
with a strong work attachment who lose their jobs through no 
fault of their own, as the result of action taken by their 
employer in managing its workforce. By design, UI allows such 
workers to collect benefits partially replacing wages during 
short-term unemployment, while they are able to work and are 
actively seeking suitable full-time employment. How much work 
constitutes ``attachment,'' what percentage of lost income is 
sufficient ``partial wage replacement,'' how long is ``short-
term,'' what makes unemployment ``involuntary,'' and which work 
is ``suitable,'' are all key issues that bear on the cost of 
the program to employers. We believe these questions are best 
resolved by each State under its own UI statute, in light of 
its own needs and economic circumstances.
    UWC advocates responsible funding for the UI system and 
opposes over-taxation. Payroll taxes for UI should be at the 
minimum level necessary to provide the protections promised, 
because unnecessary taxes harm corporate competitiveness in the 
United States. It is especially important for the counter-
cyclical UI program to be mindful of this principle, because 
benefit improvements instituted during periods of low 
unemployment could create damaging cost increases when the 
economic cycle turns, as it eventually will.
    UWC supports a strong UI/ES system and the concept of a 
Federal-State partnership, under which the UI system has been a 
general success. However, the present UI/ES system is not 
working effectively. The Federal budget process as now applied 
to FUTA taxes and UI/ES administrative funding is detrimental 
to a sound, efficiently administered program. The joint 
comprehensive UI/ES reform package was developed with these 
concerns in mind. It is the most expedient and workable way to 
fix some of the most significant problems facing the UI/ES 
system.
    Today the UI program is not perceived to be in a ``crisis'' 
mode. Consequently, this is the most propitious time to 
institute meaningful reforms that can improve service for 
jobless workers, save money for the Federal government, free 
resources for the States, and reduce the tax burden on 
employers. I therefore urge that you actively work to enact the 
joint comprehensive UI/ES reform proposal on a bipartisan 
basis. It is sound public and fiscal policy, and we 
respectfully urge you to support and actively work for its 
speedy enactment.
      

                                

    Chairman Johnson. I thank the panel very much for their 
comments and congratulate you on your hard work. Honestly, in 
February it did not look possible and I am very pleased to have 
you back here with a proposal that you agree on. Personally, I 
want to see our job service become not just a job placement 
bureau but an arm of government capable of helping people 
develop their careers. So it is not just a job but the next job 
and the next job and linking an advisory capacity that enables 
people to link training and career development.
    So I do consider this a very important initiative but I do 
also consider it a first step. As one also who really deeply 
believes in the importance of parents being home with their 
children, I think we as a Nation have to do a much better job 
supporting part-time work. And for a part-timer to be compelled 
to be available for work full-time because their part-time job 
is eliminated is really a disservice not only to that person 
but to the concept of raising strong children.
    So I think both the part-time compensation aspect of this 
proposal and the new links that it will provide to our 
Workforce Investment Act and welfare reform are extremely 
important. Although I think the latter links may not be 
adequate.
    There are a couple of questions that I want to pursue and 
then I am going to turn it over. I am trying to keep each of us 
to five minutes in questioning so we will get through everybody 
that is here at least once. I do have a deadline but I can let 
others go on after that.
    But very briefly, first of all, very shortly in terms of 
the business community do you have letters of endorsement of 
this proposal from, for instance, small business organizations, 
the chamber, other business organizations?
    Mr. Yarbrough. UWC is a recognized authority on 
Unemployment Insurance and a lot of the companies have asked us 
to carry this ball for them. So as far as actual letters, we 
have educated those people and currently have no opposition 
that I am aware of. A lot of questions about expansions and 
things of that nature but everybody realizes it is a 
comprehensive package.
    Chairman Johnson. We will need to plumb that.
    Mr. Yarbrough. Yes.
    Chairman Johnson. On the same line, Mr. Smith, have you had 
any contact with the non-union workers segment in terms of 
their interest in this proposal?
    Mr. Smith. I think, Madam Chair, all workers were 
represented on the stakeholder group, colleagues representing 
workers in general participated in the development of the 
compromise. We have not had any contact with unorganized 
workers because it is hard to do that. But I cannot imagine 
that the show of support that you have gotten from women's 
organizations, from organized labor, and from both users of the 
system and beneficiaries of the system do not speak very 
broadly for the amount of support out here.
    Chairman Johnson. We do need to plumb that issue, both 
those matters. Mr. Uhalde, does the Administration have any 
views on moving this funding from discretionary to mandatory?
    Mr. Uhalde. The Administration supports moving it from the 
discretionary side, out from under the discretionary caps, to 
the mandatory side, but wants to do it in a manner where budget 
review and accountability are maintained. So the details of the 
how to do that, to determine those mechanisms, are to be worked 
out.
    Chairman Johnson. So they do have some refinements that 
they would like to see in that section of the bill?
    Mr. Uhalde. Yes.
    Chairman Johnson. Have those been shared with the other 
members of the working group?
    Mr. Uhalde. We have spoken verbally. We have nothing in 
writing at this time, but that is something to be worked out.
    Chairman Johnson. At this point in the session I would 
advise you to get things in writing.
    Mr. Uhalde. We are working very hard, but it is a historic 
move to get the Administration to move in this direction.
    Chairman Johnson. Yes, I appreciate that. There are a 
couple of bigger issues I want to raise. There are some 
industries that are using the Unemployment Compensation system 
as back-up income for laid off workers whom they will need to 
rehire and we know that. Could these companies incur any extra 
costs for taking advantage of the system for this purpose as 
opposed to other employers who really take advantage of it only 
when they have to layoff permanently?
    In other words, there are companies who use this for 
seasonal income for employees that they actually do not want 
rehired by other people. And we know that. We know that these 
companies sometimes send out clear messages to the Employment 
Service not to place their employees in other jobs because they 
really want them back.
    Now I am not saying this is illegitimate. First of all, 
there are a lot of family needs that lead people to be more 
comfortable and be more capable of handling seasonal work but I 
wonder whether in thinking this through you have thought 
through any greater obligation of an employer who wants to use 
the system that way than the employer who does not want to use 
the system that way?
    Mr. Yarbrough. Madam Chairman, there are other programs 
like shared work programs where folks might be having a 
retooling of a plant or redoing something new inside their 
facility and they do not want to lose that core worker and, 
therefore, they allow that person to draw out of their 
unemployment account while they are off, while that tooling 
change is being made or for short turn downs.
    The point is that all of those dollars are charged to that 
employer's account. His experience rating and all of his taxes 
that he pays are based upon that. So anyone that uses the 
system in the means, methods in which you are describing, their 
experience ratings are greatly impacted and affected on how 
many more dollars----
    Chairman Johnson. I do appreciate that, Mr. Yarbrough. 
Sorry to cut you off but I want to stay to my five minutes too. 
I do appreciate the experience rating and how that affects 
employers who do that. Nonetheless, where there is a pattern of 
seasonal use have you had any discussion about whether or not 
the experience rating actually ought to be upped for those 
employers who repeatedly year after year have a certain pattern 
of lay-off and reemployment? The answer to that I assume is no 
so let us go on. But I think this is a significant issue and I 
just wanted to raise it.
    Another significant issue that I want to be sure to raise, 
there are several others but I will not have time to raise them 
all, is one of the problems with the current unemployment 
system is that it is very different from a number of our other 
systems in the sense that you actually have the right to 
receive unemployment for a certain number of weeks. And while 
there are requirements that you must be available to work and 
demonstrate that you are looking for work, we all know that 
those requirements can be met artificially.
    So if we are going to open the program to part-time workers 
and move into an age in which everyone's skills are going to 
have to grow, have you given any thought to an obligation for 
unemployed people to participate in any kind of job training 
until they do find a job? In other words, is the old system of 
yes, you can draw unemployment and do nothing really in 
anyone's interest anymore? Or if you are not able to find 
another job or if there is not a job at your pay level, is 
there any obligation to participate in education programs or 
training programs?
    And have you made any improvement in this bill in enforcing 
our ability to implement the availability to work requirements? 
They are going to be harder to implement when we include part-
timers. So what thought did you give to how we oversee 
availability of work requirements? How have you thought about 
that time of unemployment in the context of all workers' needs 
for employment improvement?
    Now, go back to the seasonal worker and if those seasonal 
workers had an opportunity to receive unemployment benefits 
while receiving training they may not go back to that seasonal 
job. They might go to a higher paying job--or a higher paying 
part-time job. Did you try to address this issue of 
implementing the availability for work requirements and linking 
that to skill development?
    Mr. Uhalde. Madam Chairman, this was a central feature of 
the conversation and the proposal addresses that. There is a 
provision for worker profiling and reemployment services which 
requires that workers as they apply for Unemployment Insurance 
are profiled and determined whether or not they are likely to 
exhaust their benefits and whether they will, therefore, need 
reemployment services in order to avoid that.
    Currently, about 2.2 million workers or claimants are 
judged in need of reemployment services based on this 
profiling. And the problem is the funding for reemployment 
services has been able to take care of about a third of those 
workers. This proposal in addressing the reemployment services 
would make sure that the large majority of those workers who 
are profiled, essentially identified ahead of time as likely to 
exhaust and needing assistance, will be able to get the 
services.
    Chairman Johnson. Yes. Thank you very much. That is very 
helpful. My time has run out. I have also been told by the 
staff that the lights were not done properly so I really am 
overtime. So we will come back to this issue of profiling and 
how it could perhaps be better employed. Mr. Cardin?
    Mr. Cardin. Thank you, Madam Chair. And let me join with 
you in offering my congratulations to those that are at the 
table, the stakeholders not only for your testimony today, 
which I found very helpful, but for the hard work that you did 
in bringing consensus in this area.
    UI has been an area that historically has been very 
difficult to reach agreement between the different 
stakeholders. So we congratulate you on that. And we have a 
rather large attendance of our Subcommittee here which I think 
speaks well to this issue. There is a lot of interest. And I 
hope that we can get this package moving, but it is a package 
and I would just urge you in dealing with your constituencies 
to make it very clear that this package comes together as a 
package and if you start fooling around with any of the 
different parts, there will be no opportunity to enact 
legislation this year.
    I particularly just want to make one observation as to the 
people that are affected, and I agree with Mr. Smith that all 
workers are going to be benefitted by this recommendation, but 
particularly women who make up a larger percentage of the part-
time workers, and the lower wage workers. I think this proposal 
is going to be particularly beneficial to them, and I think we 
should acknowledge that.
    I want to deal with one part of the proposal. The package 
deals with administrative costs. It deals with removable 
barriers and reimbursing the States for the cost of those 
removable barriers and the permanent removal of the 0.2 percent 
surtax. But on the changing from the discretionary to mandatory 
spending there seems to be broad consensus that we do not want 
it subject to the budget caps. I am somewhat concerned by what 
you mean by budgetary review and the purpose for budgetary 
review.
    I think all of us agree that Congress needs to oversight 
whether the formula is correct and whether the dollar amounts 
are correct for reimbursing the States or the administrative 
costs of the programs. I am not exactly sure what benefit, 
other than perhaps the internal politics of this institution 
would be served by subjecting this to an annual appropriation 
review. And I would just appreciate your thoughts as to what is 
meant by adequate budgetary review. If you are referring to 
review by Congress on oversighting the formula, you have my 
complete understanding and support, but if you are talking 
about subjecting the States to some form of an annual 
appropriation, I would like to be convinced as to why that is 
necessary.
    Mr. Uhalde. Mr. Cardin, I do not have the details of that. 
As I told Madam Chair, I do not have the language to provide 
but there is an interest beyond establishing one time the 
formula, interest in making sure and having some ability for 
the Congress to be able to review whether those funds are 
appropriate and adequate for purposes and whether there are 
other special needs. For example, are there special technology 
needs that need to be funded additionally and so forth. The 
important feature of the Administration's commitment is that we 
need to get them out from under the caps. We need to adequately 
fund the system which we acknowledge has not been done either 
on UI or the Employment Services for a number of years.
    Mr. Cardin. We are in agreement on that. We are in 
agreement. I guess my concern is that we do not set up a system 
that subjects the States to unnecessary Congressional politics 
unrelated to the performance of the UI administrative system.
    Mr. Uhalde. I do not believe that is the intention at all. 
There will be an extensive review, as currently exists between 
the department and the States, of the expenditures as we 
release monies on a quarterly basis to States and whether they 
need additional funds. And that process about proper 
expenditure will continue.
    Mr. Cardin. We will come back to that because I am very 
concerned that we do not overdo and make this too bureaucratic 
on how these funds are going to end up being released.
    The second point I would raise, and just get anyone's 
thoughts on this as to whether there was any thought given by 
the stakeholders. There is a system to reimburse the States for 
the cost of removing these barriers by reducing the Federal cap 
and then getting those funds back to the States. I take it in 
some cases States would then have monies freed up or in some 
cases we might be reimbursing more than the cost. Was there any 
thought given that the States should have some expectation of 
using these funds in this area to improve the solvency of their 
UI systems?
    Mr. Uhalde. I will also let some of the others discuss 
this. It is true that some of the benefit extensions already 
exist in some States. So in the reduction of the cap on the FUA 
account and the distribution back to the States, some of those 
States may be able to use that money to improve their solvency. 
But I cannot say that there was a requirement as to how beyond 
the benefit extensions the funds would be used. Maybe some of 
my colleagues would know.
    Mr. Gross. I might respond, Mr. Cardin, that the interest 
of the States as you might imagine do vary on this. And the 
States as Mr. Uhalde suggested are in various kinds of 
condition in terms of the adequacy of their funding in 
particular area.
    In attempting to represent the States, and there were a 
number of us at the table that attempted to do so, we tried to 
take in the divergence of opinions and needs of the States as 
part of forging this compromise. I would suggest to you that I 
think some of your assumptions are correct. But as I indicated 
in my verbal testimony where one State may benefit, for 
example, from the provisions of Unemployment Insurance 
administrative funding additions in the area of technology 
another State may use those funds for something else.
    Mr. Cardin. But the States are going to have extra revenues 
and they have a problem on solvency on their funds currently. 
It would be useful if some of that money was used to improve 
solvency; wouldn't it?
    Mr. Gross. Yes. But there is nothing in the recommendations 
to deal with that. A considerable amount of discussion took 
place and there was I think a tacit understanding that, again, 
those questions in the attempt and spirit of attempting to 
reach a compromise there were some issues, while they were 
discussed, they were essentially taken off the table for 
purposes of this compromise with the tacit understanding that 
the general framework and structure of the system would remain 
intact in terms of State authority.
    Mr. Cardin. It would seem to me something should be in the 
legislation to at least raise the expectation that States that 
are getting extra resources then have problems of solvency 
should be working to improve their solvencies. Thank you, Madam 
Chair.
    Chairman Johnson. Thank you. Mr. McCrery?
    Mr. McCrery. Well, here we are again. And I have to say I 
like my proposal better but I do congratulate all the 
participants in this effort in getting together what appears to 
be a reasonable proposal, although there are some questions I 
think that need to be answered.
    One, Mr. Smith, let me start with you. I would like to know 
what you did not get in this? You said that if anybody gets 
anything else, the whole thing falls apart. Can you list for me 
some things that you would like to have that you did not get?
    Mr. Smith. Sure. Some of the things that were on our list, 
Mr. McCrery, and still are frankly, mandatory solvency 
standards for State funds. We would like to see the taxable 
wage base raised. We would like to see UI benefits available 
more generally for circumstances where an employee leaves for 
family health or dependent care reasons. Those were some of the 
issues where we hoped that this agreement might make progress 
where it did not.
    And as I said in both in my written and verbal testimony I 
think we are in a situation where had we pressed, and made any 
of those do or die issues, this agreement would have fallen 
apart. And I think my colleagues can probably recite a similar 
list.
    Mr. McCrery. Well, for some of those things that you 
mentioned indicate a desire to get the UI benefit up. And it 
seems to me that by mandating that we include part-time workers 
you risk in some States dampening the enthusiasm for raising 
benefits for full-time workers because isn't this going to cost 
something? I mean if we expand this, if we mandate that all 
States cover part-time workers, isn't it going to cost 
something to employers?
    Mr. Smith. Well, employers and employees already pay 
Unemployment Insurance premiums for their employees. We were 
more concerned at the end of the day at extending the reach of 
the system to larger numbers of men and women and as 
Representative Cardin points out a disproportionate number of 
women are currently excluded from benefits.
    Our primary objective was extending benefits to those 
millions. Some 30 million part-time workers are potentially 
affected who the system does not currently serve adequately. It 
is not as if these workers do not pay taxes and their employers 
do not pay taxes. They already do so there is both a justice 
issue but there is also a dealing with the realities of our new 
economy issue.
    The pattern of attachment to the labor force is changing. 
There are more workers who are employed part-time. There are 
more workers who are employed for short periods of time, serial 
employment, contract work. It is important to update the system 
to reflect those realities. And again, extending the reach of 
the benefits was our priority rather than extending the value 
of the benefits. It does not mean that we would not like to do 
that and we will not come back and raise those issues at 
another time.
    Mr. McCrery. And I appreciate that and I appreciate your 
being frank about that being a higher priority than raising 
benefits generally. But somebody else maybe can answer my 
question. Don't we expect this proposal to cost employers when 
we mandate in all States that part-time workers are covered? 
Won't that cost employers in terms of their UI taxes?
    Mr. Uhalde. Mr. McCrery, the two issues, one, in the 
aggregate, the proposal is designed such that there is money 
that would be distributed out of the Federal unemployment 
account so that States would not have to raise taxes in order 
to be able to do this expansion of benefits or access to the 
benefits. However, it is true that for any individual employer 
who disproportionately uses part-time workers, because of the 
experience rating nature of the system, will eventually pay 
higher taxes because of that. But that is the part of this 
system that is right if you accept the fact that part-time 
workers are, in fact, a major part of this economy, are, in 
fact, having taxes already paid on their behalf, are laid off 
through no fault of their own and, but for the fact that they 
are part-time, qualify in every other respect for benefits, 
then they ought to be able to get their benefits. And the 
experience rating would hit those who hire part-time workers 
disproportionately harder.
    Mr. Smith. Ray is absolutely right but it would only affect 
employers who hired and laid off part-time workers 
disproportionately. And the experience rating is not affected 
by whether or not the worker is part-time or full-time but by 
whether or not the employer lays off workers.
    Mr. McCrery. Madam Chair, I have a lot more questions and I 
would like to explore this a little bit longer but I will wait 
until the second round.
    Chairman Johnson. I appreciate the gentleman doing that. I 
would like to get through once. But the issue he raises and the 
response, Mr. Uhalde, that you gave him, the experience rating 
hitting equally whether it is a part-time layoff or a full-time 
layoff is an issue we do need to address, I mean in fairness. 
So that is one. And we will try to get through everyone.
    I am going to have to leave at 10 after for a few minutes 
but Mr. English is going to take over because there are a lot 
of questions and we need to get through them. Next I will 
recognize Mr. Coyne.
    Mr. Coyne. I have no questions.
    Chairman Johnson. Mr. Foley?
    Mr. Foley. Thank you very much, Madam Chairman. First, I 
would just like to remind the Committee an issue that is 
important to me and that is Federal Unemployment Tax Act of 
1986 as it relates to Native American tribes. And we discussed 
it at the last hearing and I hope the Committee will continue 
to give consideration for exempting them from the taxes much 
like we do for Federal agencies and State agencies.
    The questioning that was just taking place on the 
unemployment, the rating if you will and the concern I have at 
least from a part-time position, UPS for instance probably 
hires a great deal of people in the seasonal months, Christmas, 
for shipping purposes, to help packaging because of the volume 
if you will of orders that will occur around that period. In 
fact, when I was in high school a lot of my friends would go to 
UPS for two, three, four six weeks prior to Christmas. And it 
was substantially good income for them. A large company like 
that obviously would then put those people out of work if you 
will after the season.
    How will that affect somebody like UPS's rating in 
insurance purposes, if these potential part-timers become 
eligible for the benefits as if they were full-time? Maybe Mr. 
Smith can help?
    Mr. Smith. I cannot help, Mr. Foley, with the details of 
any particular company but the example of seasonal work and of 
a couple weeks here or there really is not much affected by 
this proposal. The people who will be affected by this proposal 
are the some 30 million full-time part-time workers.
    And the language here gets a little awkward but there are 
today slightly in excess of 17 percent, 18 percent of all 
workers who are permanent part-time workers. Three and a half 
million I think, Ray, of those workers suggest that they would 
rather work full-time and are looking for full-time employment 
but that still leaves a very large number of people who by 
their choice, or because of family obligations, or because of 
employer preference are permanently working part-time. That is 
who this proposal would affect; those men and women currently 
pay into the system.
    Their employers pay into this system. They are subject to 
the same labor market vicissitudes that full-time employers 
are. They are a critical part of our economy and the UI system 
ought to pay attention to them. Ray can help me here but with 
respect to the occasional couple weeks work at Christmas time 
or busy order time, the arrangement would not create additional 
burdens for companies where those were the employees that we 
are talking about. UPS does have a large number of full-time 
part-timers and depending on their experience rating they might 
be affected.
    Mr. Foley. Could it have an adverse affect on a company 
willing to hire part-time workers if it does cause their 
experience ratings to go up? Could that diminish the number of 
part-time full-time jobs that may be available in the market 
place?
    Mr. Smith. No, I think we need to remember here that it is 
not the part-time, full-time ratio that affects their 
experience rating. It is laying people off. To the extent that 
the experience rating is in part designed to deter an employer 
from using the system in precisely the way that the chair 
described, as sort of a sink to pick up labor costs that they 
do not want to pay during a slack period of time.
    The experience rating system is designed to deter that 
behavior. Perhaps we need to take a look at it and see whether 
or not it does it adequately. But we should not assume I think 
that the choices of either employees for full or part-time work 
or of employers for how they manage their work force are very 
much likely to be affected by the Unemployment Insurance 
system. That is a relatively small fraction of overall labor 
costs and generally these costs do not drive hiring or layoff 
decisions.
    Mr. Foley. Let me also underscore the concerns of Mr. 
Cardin as expressed relative to solvency because I believe when 
we were here in February the testimony from Connecticut was 
they were still paying out bonds as it related to the 1990-1991 
recession that was experienced in their State and we were 
concerned about any additional unfunded commitments or 
liabilities that would be involved with that.
    Now if we are going to have Federal resources available it 
would be my hope that we would, in fact, solidify the financial 
underpinnings of their system before they go on a spree of 
buying technology or other things in order to make themselves 
competitive. And that is a concern. Now, Mr. Gross, can you 
quickly, I know my yellow light is on, tell us how this 
proposal is different from those discussed on the February 29th 
hearing?
    Mr. Gross. Essentially, in the February 27th hearing, Mr. 
Foley, there were a number of issues that the four constituents 
were still at variance with, primarily with respect to the 
eligibility of workers, which we have just been discussing and 
a number of other provisions. And essentially at the direction 
or as a result of comments of the Chair and others on the 
Subcommittee we essentially got back together as has been 
indicated and we are willing in the spirit of compromise to lay 
aside our differences recognizing that this package does not 
achieve many of the complete or concrete objectives that we all 
have or that we each have individually but in the spirit of 
compromise it achieves the things that we are outlining for you 
today.
    So I guess the easiest way to say that would be that we 
were not in agreement on February 27th on some key provisions 
and we are today.
    Mr. Foley. Thank God for palm pilots. It was February 29th.
    Mr. Gross. 29th. Leap year. I beg your pardon.
    Mr. Smith. We were not in agreement on the 27th either.
    Mr. Gross. June 27th is the date that sticks in my mind 
which was the day we reached our compromise. Thank you very 
much. Madam Chair?
    Chairman Johnson. Mr. English?
    Mr. English. Thank you, Madam Chair. Madam Chair, this is a 
very positive development to have these four very diverse 
viewpoints coming before us. In speaking with a fair degree of 
unanimity the proposal that they have put before us I think is 
a solid move in the right direction and I think is achievable.
    I would like to though ask about a number of issues that 
have not been focused on today. And first of all, I would like 
to associate myself with Mr. Foley's remarks. I think at some 
point it would be appropriate that we take a look at the status 
of Native American tribes as sovereigns and the way they are 
treated under the Unemployment Insurance system.
    But there are a number of other issues that have not come 
up here that I would like to get some response on. I like the 
idea of codifying the availability of an alternate base year as 
one of the ways to extend part-time workers the opportunity to 
participate in the UC system and not be excluded arbitrarily 
because of one aspect of their work history. But I also am 
concerned about the potential cost to certain kinds of 
employers of the reporting requirements that might be imposed.
    And Mr. Yarbrough, for example, I suspect many retailers 
might be concerned if some States were permitted to move to an 
alternate base year. Did anyone look at the potential costs to 
certain kinds of employers of allowing this option?
    Mr. Yarbrough. There were lots of discussions over that, 
but in the spirit of compromise we felt like that if you will 
notice in the proposal using the information that is most 
current. You have large employers who file their information 
electronically and therefore, it is more readily available to 
the system. You have a lot of small employers who still go 
through the quarterly process of filing with their local 
bookkeeper in getting their taxes paid.
    We did not look at the alternative base period because we 
felt like it was probably going to be a deal killer in the 
retail area and a lot of other areas but we felt like the right 
thing to do was make the information that is currently in the 
system available to those people in determining their benefit.
    Mr. English. And in ratifying the idea of quarterly 
reporting you as a group have moved away from a position 
previously expressed by the administration that there should be 
monthly reporting. Many of us viewed this as actually a one-
shot revenue source to plug a hole in the budget. Mr. Uhalde, 
is the Administration now comfortable with the idea of sticking 
with the quarterly reporting?
    Mr. Uhalde. Yes.
    Mr. English. Good answer. One of the proposals made years 
ago by the Advisory Committee on Unemployment Insurance, and I 
would like you all to comment on the extent to which you looked 
at some of their past recommendations, was to impose new 
requirements on States that in order to benefit from the system 
that States would be required to maintain an actuarially sound 
balance in their UC funds in order to take full advantage of 
Federal support in the event of a downturn.
    Mr. Gross, you are here representing States. Was this 
proposal or was this idea explored at all in your discussions?
    Mr. Gross. Mr. English, let me indicate that a number of 
proposals were explored over nearly a 2-year period of time. 
Essentially the process worked this way. We began with 
essentially identifying all of the issues.
    Mr. English. Can I focus you, Mr. Gross, specifically did 
the group explore the idea of imposing any new requirements on 
States to maintain actuarially sound reserves?
    Mr. Gross. Yes. We looked at a number of those provisions. 
The State administrators I think collectively are steadfastly 
against the imposition of a lot of new kinds of actuarial 
reporting requirements or review requirements. And again in 
working our way through essentially all of these provisions 
those were among the things that were left on the table 
essentially by the various parties.
    Mr. English. My time has expired. Madam Chairman, I 
appreciate your indulgence and I will have further questions. 
Thank you, Mr. Gross.
    Chairman Johnson. Thank you. Mr. Lewis?
    Mr. Lewis of Kentucky. Thank you, Madam Chairwoman. Mr. 
Smith, I think you touched on this a little while ago with Mr. 
Foley. But can you give me a clear definition of part-time 
work, what the definition would be? How many hours are we 
talking about? Is it 20 hours, 30 hours? Is it an average of a 
12-month period?
    Mr. Smith. There is not a precise, of course, national 
definition of part-time work. Those definitions now exist 
State-by-State.
    What we are looking for here is a system, Mr. Lewis, which 
treats permanent part-time employment for purposes of 
determining eligibility in a way that is comparable to and 
equivalent to the way in which permanent full-time employment 
is treated. Those workers have the same relationship to the 
system, have the same relationship to their employer's 
contributions to the system and we believe ought to be treated 
in an evenhanded way. We are not arguing that part-time workers 
ought to get full-time benefits. We are arguing that part-time 
workers ought to get benefits which are appropriate to the 
number of hours that they put in on a permanent basis in this 
economy.
    Mr. Lewis of Kentucky. Thank you.
    Chairman Johnson. Mr. Levin?
    Mr. LEVIN. Thank you.
    Chairman Johnson. Not a member of the Subcommittee but you 
were a member of the Subcommittee during the consideration of 
this issue in the past and we are pleased to have you with us.
    Mr. LEVIN. Glad to be here. I appreciate the chance to 
participate. I hope we can seize the moment here of a coming 
together.
    And let me just say one thing. We sometimes confuse low 
wage and part-time workers. And I think we should realize they 
are not one and the same. A number of us asked GAO for an 
analysis of UI benefits for low-wage workers and the study has 
not come out, their full-scale final analysis, but 
preliminarily it can be said that based on their study of data, 
and I take it was the most recent available, the low-wage 
workers were nearly twice as likely to be unemployed as higher-
wage workers and they were only one-half as likely to be 
receiving UI benefits.
    So part of what you have worked on is an attempt to address 
this issue as well as the needs of part-time workers who often 
cannot receive benefits because they have to, as I understand 
it in many States, say that they are seeking full-time work 
though they were working part-time and for family reasons are 
not able to work full-time.
    And I will close because we have to vote because I think 
Mr. McCrery as usual has asked a salient question of Mr. Smith. 
And I would like to if I might supplement the answer in terms 
of what this agreement does not cover. For example, the 
Extended Benefit Programs, there has been some agreement here 
that would move it along but I think we found out in the last 
recession how inadequate the Extended Benefit Program is. And 
we were forced as a result to come back here time after time 
rather painfully to improve the system. And I think it is just 
one example of why this consensus is a step forward but there 
are some unresolved issues out there.
    And lastly, I would like to say that I think one of the 
important aspects of this consensus is that it once again 
reemphasizes the importance of the Employment Service's 
program. I think in this time of prosperity we have forgotten 
how important and effective Employment Service can be for 
employers and employees. And there has been some diminution in 
its effectiveness in some places. And I think that what we have 
before us is an urgent statement that we need to have an 
effective set of services in time of prosperity but surely we 
need to prepare for the day which will come sooner or later 
when we do not have the high level of employment that we have 
today.
    So, Mrs. Johnson, I think your hearing today is really of 
critical importance and I hope it will spark re-attention to 
this issue to act on what has come out of these discussions 
with the help of this Subcommittee as well as our continuing to 
work on some of the larger unresolved structural issues. Thank 
you very much.
    Chairman Johnson. Thank you, Mr. Levin. And I would like to 
say since I will have to go as we proceed with other questions, 
and Mr. English did go vote so he can come back and we can keep 
moving, that I appreciate the difficulty of your coming 
together around this package. It is also true that we are 
elected and this package has to serve all the States and so it 
is unlikely that it will move forward with no change.
    We will certainly work with all of you to make sure that 
the changes are harmonious with your thinking but as you have 
seen from the questioning there are very big matters at stake 
in this program and in this bill. And the way business is done 
here in Washington is that if we do a major bill in a subject 
matter area we do not work on it again for five years. That is 
just the way it is whether it is daycare or whether it is 
welfare. So we will not come back to this for awhile and that 
is why we really do need to look more carefully at the impact 
of experience rating on employers for part-time people. Is 
there a way we should be modifying that to reduce the impact? 
There is a role in any economy for very temporary part-timers. 
We now have built into our economy sort of a permanent part-
time employment system and it is that permanent part-time 
employment system that we want to include in the Unemployment 
Compensation system.
    I would generally say some of us are not nearly as 
knowledgeable as you are about the interaction of all the 
requirements to be eligible for unemployment and the way you 
have structured that for part-time employees. So we do need to 
look at the part-time employee issue. That is why I asked you, 
I would have loved it if you said yes, here is a letter from 
NFIB saying we agree absolutely, here is a letter from so and 
so. So we do need to see these letters. We do need to see that 
this will serve the non-union sector as well as you think it 
will serve the union sector because after all, that is America.
    So I think there are issues we need to get into. I think 
this issue of seasonal employment and the use of the 
Unemployment Compensation system for actually an alternate wage 
base, it is not illegitimate. We ought to recognize it but if 
that is the way you want to use it, maybe you ought to be 
contributing more. So what is that trigger? Is it a pattern of 
2 years of seasonal pattern of layoffs that is similar in 2 
years then your experience rating, your tithe goes up?
    So let us look at those things. Are there ways that we 
should be responding? It is perfectly legitimate for employers 
to use Unemployment Compensation as an alternate wage but they 
ought to be paying more than the employer who is trying 
desperately. I have manufacturers in my district who have 
people paint the walls just to keep them employed during a 
downturn, even during those awful years in Connecticut of the 
early 1990s.
    So those guys ought not to have to share the burden of 
sectors that are consciously using the Unemployment 
Compensation as an alternate wage base during seasonal layoffs. 
And we are going to see more and more of this with part-time 
employees because a lot of part-time permanent employees are 
seasonal employees-at least that is my experience, cafeteria 
workers in schools and things like that. So we will have to get 
into some of those issues.
    I am interested in this issue of coordination of services 
between the Workforce Investment Act and TANF. In many States 
that coordination has not been adequate. Are you doing anything 
in this bill to force better coordination? In the States where 
there has been the best coordination welfare reform has worked 
best. In the States where there has been the least 
coordination, welfare reform has worked poorly.
    Mr. Gross. Madam Chair, I think the thing that this bill, 
while it does not directly impact that or offer mandates on 
States, the thing that it does do is provides adequate funding 
for the Employment Service. And as I have previously testified 
and testified as well again today in a State like Utah which 
has, in fact, consolidated its TANF or assistance related 
services with the traditional workforce development system 
including employment security, we are finding, as has been 
indicated I think by my colleagues as well as myself, that the 
employment exchange or labor exchange or job connection, 
however you want to refer to that, is critical to that spectrum 
and that population to be served as well as others. And by 
simply providing adequate funding we will begin to address some 
of the issues that you refer to in terms of not only 
reemployment services but that next job beyond just an entry 
level job. Those are the kinds of things currently that the 
Employment Service in virtually every State is unable to get 
itself involved in currently.
    Chairman Johnson. Thank you very much, Mr. Gross. And 
thanks to all of you for your determination and tenacity. And 
we look forward to working with you and I will turn the chair 
over to Mr. English. Thank you.
    Mr. English [presiding]. Thank you, Madam Chair. One of the 
questions that I wanted to pose to you as a group has to do 
with an issue that has come up occasionally in the past and too 
often has been excluded from the discussions of structural 
reform in the UC system. That is the taxation of employment 
compensation benefits.
    As all of you are aware in 1986 for the first time we 
started to treat UC benefits as taxable. The system was not 
originally designed for UC benefits to be taxed and as a result 
many people who became unemployed subsequently discovered that 
they had a large tax liability the following year in lieu of 
withholding. Some have proposed as a solution, and I know this 
is an option for States now, the withholding of part of the UC 
benefits. But as I said UC benefit levels were set with the 
idea that they would not be taxable.
    This is to me a very difficult issue and one that I think 
needs to be resolved by restoring the tax exempt status of UC 
benefits. I know that in the past both labor and business 
organizations have come out in favor of making UC benefits tax-
free. Other organizations have not taken a position. My 
question to you as a group is, was the taxation of UC benefits 
one of the issues that you considered as part of your 
discussion? Or is it something outside of the purview of what 
you were looking at and something that could be yet addressed 
at another forum? Who would like to start?
    Mr. Gross. I will respond, Mr. English. Yes, it was 
considered, discussed at some length. When we weighed the 
relative advantages and disadvantages of including this I 
believe that we came out with the conclusion that the relative 
costs of that sort of enactment and repeal was just something 
that we were not interested in, while we were interested in it 
we were not interested in making it a part of this package. We 
just thought it was too problematic.
    Mr. English. You were concerned primarily about revenue 
loss?
    Mr. Gross. That is right.
    Mr. English. Okay.
    Mr. Uhalde. About $3-4 billion a year.
    Mr. English. Right. That is one of those things that might 
be called reckless in a certain context, although with the 
surplus we are running I would probably be less concerned but I 
take your point. It is something that would certainly attach a 
very substantial cost to a UC reform package. Would any of the 
rest of you like to comment on it? Were there any other reasons 
why you felt obliged----
    Mr. Yarbrough. No other reasons other than the budget 
constraints. I mean we are in support of the elimination of 
that. That is nothing more than taxing employer benefit for 
folks who really, truly need it at the time in which needed and 
then it seems like when they get right back on their feet in 
the safety net, here comes the tax again in another form in 
which most people do not anticipate.
    Mr. English. Mr. Smith?
    Mr. Smith. As you know, Mr. English, we have long supported 
repeal of the tax liability on unemployment benefits. We 
continue to have that position and hope we will be able to 
address it as you all consider other tax measures. But the cost 
concerns drove it off the table for the stakeholders group.
    Mr. English. Very good. Were there any other issues that 
you would care to bring before us that were a point of 
discussion and where there was substantial support but for one 
reason or another you were reluctant to include them as part of 
this package?
    Mr. Smith. Let me very briefly, I indicated in response I 
think it was to Mr. Foley's question some of the things that we 
had put on the table at the beginning of these conversations a 
couple of years ago that did not find their way into the 
agreement. I could expand on that list but I would hesitate to, 
Mr. English. I really want to echo something that Mr. Cardin 
and Mrs. Johnson said, this package was very carefully put 
together and with enormous difficulty individually and 
collectively. I do not think I would be doing justice to the 
process if I started to detail all the things I was unhappy 
about.
    Mr. English. Sure.
    Mr. Smith. This is an important historic agreement that 
makes progress on a number of issues which all of us care 
deeply about and I think that is why we are all here today 
saying essentially the same thing. This package is not entirely 
satisfactory to any of us but it makes such important progress 
on major issues that we are asking you to join us in taking it 
and enacting it as drafted.
    Mr. English. Mr. Smith, do you know of any labor 
organizations which have specifically registered concerns about 
any element of this package?
    Mr. Smith. No, I do not and we have consulted very widely 
with our affiliates during the process, both during the process 
of discussion and subsequent to the agreement in June. So it is 
not only that I do not know, Mr. English, but I think I can say 
that there is no opposition from any part of organized labor. 
And again there are things which some of us wish had been in 
here and are not but we have agreed that this package ought to 
go forward.
    Mr. English. Mr. Yarbrough, are you aware of any in the 
employer community who have so far registered a strong 
objection to any components in this package or reservations 
about the package as a whole?
    Mr. Yarbrough. Let me just say that there probably are 
some. I think the point being that we took this package in its 
entirety back to our constituents in our group and there were 
some bumps but we did get commitment from our Subcommittees. We 
did get commitment from our board to go forward in support. So 
although maybe this quilt of colors is weaved together by 
thorns, and there might be some things that we all do not agree 
upon, we do think that as from an employer community and UWC 
that we are in support of this package in its entirety.
    There are things that we would like to see. There are 
things that we do not necessarily agree with in some of the 
expansion areas but here is the real cost. The cost is 
integrity. The cost is in credibility. The cost is in the 
number of dollars that are not getting back to the States to 
provide service to the employer community and to those 
employees who are seeking job opportunities. The real cost is 
the dollars that are not coming back currently. And if we do 
not make some change and if we do not hold hands together to 
move forward for some change, the system is never going to have 
the status that it had in the past nor the status that it 
deserves in its future of the one-stop and bringing the labor 
exchange together.
    Mr. English. Mr. Gross, are you aware of any State 
governments or State administrations, any of your colleagues 
who have registered any concerns or reservations with regard to 
this agreement?
    Mr. Gross. In all honesty, Mr. English, yes. There are 
States which have expressed concerns. And I would echo the 
sentiments of my colleagues if you look at the timing in which 
we achieved the compromise of this package and the fluid nature 
of the way this package sort of rolled forward, we have been in 
the education of our constituents' process at the same time we 
have been discussing this with members of staff, members of 
Congress and so on. So yes, there are State administrators or 
those in the States who have expressed concerns. We are dealing 
with those concerns. And as we go through that education 
process what we find again is that most of our State 
administrators understand that what we have achieved here is a 
compromise. We did not get everything we wanted, neither did 
anybody else at this table.
    Mr. English. And a final question, Mr. Uhalde, has the 
Administration shared this proposal with the Advisory Committee 
on Unemployment Insurance and have you received any reaction 
from them?
    Mr. Uhalde. That was the commission, I believe, chaired by 
Dr. Norwood?
    Mr. English. That may be. It is a statutory committee that 
exists. It was created under the Federal Unemployment Tax Act.
    Mr. Uhalde. I do not know. The commission is defunct. We 
did not continue funding the commission. We have had 
conversations with Dr. Norwood and some of the members of it 
during the course of the process. We did put on the table 
during the 2 years of discussion all 100 or so ACUC 
recommendations as part of the dialogue we conducted around the 
country and the conversation with the stakeholders.
    Mr. English. I appreciate knowing that. I guess my final 
question has to do with services for employees who have been 
laid off and who are looking for work. You may have already 
answered this question in another context but I appreciate your 
patience. Under this proposal how would coordination be 
advanced between the Employment Service, the Workforce 
Investment Act and TANF? That to me is a very important issue 
and I wonder if any of you would like to speak to how this 
proposal would improve that interaction?
    Mr. Uhalde. Let me address a couple aspects and my 
colleagues can certainly add. A key feature for welfare reform 
and this proposal is the coverage for part-time workers; 
welfare recipients oftentimes are emerging in the labor market 
and taking part-time work as their first steps; this is great, 
but sometimes those first or second jobs are lost. If they do 
not have access back to the regular labor market systems 
including Unemployment Insurance benefits, the alternative is 
to fall back to the welfare system. We believe that this system 
will keep people in labor markets and labor market systems.
    Secondly, as Bob mentioned, with the limited funding in the 
Employment Service, in the one-stop systems what has happened 
is that TANF dollars and other Workforce Investment Act dollars 
have been diverted to labor exchange to supplement the ES. And 
it has been shorting the training that can be provided to 
welfare recipients, dislocated workers and the like. So with 
this proposal, more training would result in the other 
programs, too, I believe.
    Mr. English. Would you like to add to that, Mr. Gross?
    Mr. Gross. I would only add again that the provisions do 
provide a portion of the funds for the Employment Service would 
go toward reemployment activity, specifically for unemployed 
workers.
    And I would just add to what Mr. Uhalde suggested again 
representing all of the States but particularly coming from a 
State which has consolidated the TANF or assistance functions 
as part of an overall consolidation of welfare reform with 
other employment and workforce development systems that the 
whole thing is really emerging and changing in terms of the 
continuum as far as employees. Just as you have heard us all 
collectively and individually testify this morning definitions 
in terms of part-time workers and such other things have 
changed dramatically with the workforce as it is emerging 
today.
    I would just add that the most fundamental difference that 
we have found in assistance programs under welfare reform is 
essentially the focus on employment. And so if you consider the 
backbone of the system, the welfare reform system as employment 
you can readily understand the linkage between the Employment 
Service and the activities that are generated. And as Mr. 
Uhalde said we are finding increasingly States which are using 
and leveraging dollars back and forth in allowable ways to 
supplement the shortfall in the Employment Service.
    Mr. English. That is an excellent perspective and I thank 
you. And I would like to yield to Mr. McCrery who I understand 
has a number of additional questions.
    Mr. McCrery. Thank you, Mr. Chairman. I think the 
Chairwoman, Ms. Johnson, summed up what I was getting to on the 
question of industries that do regularly hire part-time workers 
on a seasonal basis and I think we do have to look at the 
impact of this proposal on those industries. It may be that 
there is nothing we can do about that. But I think it clearly 
will be a cost imposition on those industries. And certainly if 
anybody wants to discuss that further, feel free.
    Mr. Uhalde. Mr. McCrery?
    Mr. McCrery. Yes?
    Mr. Uhalde. If I might just add on that point, those 
provisions that apply to what States have for full-time workers 
governing seasonal aspects would also apply equally to part-
time workers. For example, individuals, I think the example was 
given, hired over the Christmas season--students would be 
returning to school, whether they are hired part-time or full-
time, they would not then be eligible.
    Workers hired for a short period of time often do not 
qualify monetary. Also other seasonal provisions of State law 
would apply to part-time as they do full-time. So there are 
protections already built in the part-time work and 13 States 
already have part-time coverage. So we can look to those for 
some experience and guidance on this.
    Mr. McCrery. What has been the experience in those 13 
States that allow part-time workers to qualify, since you 
brought it up, what has been the experience in those 13 States?
    Mr. Gross. I was just going to indicate that we have heard, 
in terms of the agency that represents all States, no 
substantial problems in and among those States.
    Mr. McCrery. It is easy for the State to say there is no 
problem but what about the industries that are affected; what 
has been their experience?
    Mr. Yarbrough. I guess I would like to say that we realize 
especially in the retail field there is a lot of folks that are 
going to be entering and leaving, especially in peak times of 
year, back-to-school sales.
    Mr. McCrery. Or maybe they are working part-time most of 
the year and then in that peak season they work full-time.
    Mr. Yarbrough. They work full-time. And I think what we 
need to say here is that there are attachments to the 
workforce. And there are as we say whenever folks are going to 
leave and then become eligible, they are going to still be 
seeking comparable work.
    If that employer has been offering a 20-hour work week, a 
30-hour work week, in order for that person to be eligible they 
are still going to need to be seeking employment of that same 
type of work. And they are not going to receive maybe a full-
time benefit that a 40-hour person is going to receive but they 
are going to receive a reduced benefit. And there are dollars 
being paid into the system currently to make sure at the same 
tax rate for that individual as it would be for a full-time 
person.
    We need to be aware that the employer community is offering 
signing bonuses. They are offering full-time medical benefits 
to folks that are working in a normally perceived temporary-
type work area or a part-time work area. I think that we have 
to be aware that there are a lot of folks that have been 
recruited to the workforce today that were normally not even 
involved in the workforce. We have got a lot of employers that 
are providing shared work or job sharing or different types of 
activities out there that when those people lost their job due 
to no fault of their own they had no safety net. They had 
nothing to fall back upon.
    Now I think in a lot of areas that there is a need for that 
type of benefit. And we need to be aware of that. We do not 
believe that we answer all questions with our compromise. In 
fact, we left several questions unanswered on the table. We do 
not necessarily feel good about that but I will say that I feel 
like that the cost to the system, the loss of credibility 
because of no dollars being funded back in there for people who 
use the system the extended dollars that not only retail but 
hospital groups, employer manufacturer groups are spending 
additional dollars out of their own budgets and their own 
pockets because we cannot get dollars out of the system back to 
do what needs to be done.
    Mr. McCrery. Don't get me wrong, I am not pooh-poohing this 
whole thing. I think it is incumbent on us though to explore 
these questions that you did not answer and at least get some 
information on the table before we move forward because this is 
a fairly substantial break with traditional Unemployment 
Insurance at the Federal level. So don't get me wrong. There 
are a lot of good things in this proposal. And I am not saying 
that the part-time worker mandate is a bad thing. I just think 
we need to talk about it openly and see who is going to be 
disadvantaged, if anybody, and to what extent and is there 
anything we can do about that.
    Let us go to the alternative base period. This is something 
that we discussed in February. I do not know that we have 
clarified it very much since that discussion. I still have some 
concerns about that. I agree that we ought to allow the States 
to use the latest available information. Do we define in this 
legislation what types of information can be used by a State or 
is it just general, is it wide open, can an employee just 
provide information that he has got pay stubs or whatever it 
might be and can the State rely on that until it gets more 
official documentation from the employer? What are we using 
here?
    Mr. Uhalde. The proposal does not dictate any particular 
base period. It does say that they have to use the wage record, 
the automated wage record that is available. It does not 
require the States or prohibit them--it doesn't require States 
to say go after pay stubs or call the employer or make any 
additional efforts on that.
    Mr. McCrery. So the State has to have something from the 
employer; is that what you are saying?
    Mr. Uhalde. Yes, sir.
    Mr. McCrery. An official work record from the employer to 
base the calculation on. Okay. So really, correct me if I am 
wrong, it sounds like in your legislation we are merely giving 
the States the opportunity to collect data faster from 
employers and use that if they want to?
    Mr. Gross. Yes. Mr. McCrery, one of the discussion points, 
and I think my colleagues may have their own perspectives but 
again speaking from the State's perspective one of the things 
that drove us in terms of this discussion point was what will 
this do in terms of the administrative burden and how fair 
would that be to not only the State administrators but to 
employers as well as workers. And the key point I think on 
behalf of States is that we believe this is a self-correcting 
issue over time with technology and the other kinds of wage 
records and wage information availability. And I think that we 
achieved a fairly broad consensus as a discussion point among 
the four constituency groups and that is the reason that the 
discussion more or less turned the way it did in terms of this 
particular area.
    Mr. McCrery. Can you tell me exactly what the legislation 
does with respect to the alternative base period? Does it 
mandate that the States do this or is it an option?
    Mr. Uhalde. It requires that the States use wages in 
employment from the most recently completed quarter under 
certain conditions. It also provides $60 million to assist 
States with the cost of technology to be able to do this. As 
Mr. Gross said, we think this is soluble with the technology. 
Once wage record information is available to the State, then 
they would be required to use it.
    Mr. McCrery. So we are giving $60 million to the States to 
help them with this conversion. What about employers; are they 
going to be required to do anything in terms of technology or 
anything to hasten their getting the information to the States?
    Mr. Gross. There are no additional requirements for 
employers under this provision.
    Mr. McCrery. So you are saying under this provision the 
employers can do exactly what they are doing now?
    Mr. Gross. Yes.
    Mr. McCrery. They do not have to speed up their reporting?
    Mr. Gross. No.
    Mr. English. Would the gentlemen yield?
    Mr. Uhalde. Beyond delinquency I mean they have to adhere 
to the regular reporting----
    Mr. English. Would the gentlemen yield?
    Mr. McCrery. Sure, be glad to.
    Mr. English. Mr. Gross, on that point would there be an 
opportunity for States to individually step in and impose any 
additional reporting requirements; and was that discussed 
within your group?
    Mr. Gross. Yes, I believe there would be an opportunity and 
it was discussed.
    Mr. English. I thank the gentlemen.
    Mr. McCrery. Is that possible under current law?
    Mr. Gross. Yes.
    Mr. McCrery. So you do not change current law with respect 
to this?
    Mr. Gross. No, we do not, not in this area.
    Mr. Smith. Just briefly on this point, Mr. McCrery. The 
obligation is to use the most current available data. The 
commitment is to assist States in acquiring and installing the 
technology that makes that the best data available. This is a 
virtuous circle. There is no reason, and you and I talked about 
this in February, to the extent that we have data available to 
us and can improve our ability to use the most recent wage 
records we should, and it will have an eligibility impact. 
There is no question about that. But we ought not to think 
about that as an additional cost but as finally the system 
being able to catch up with the work that people have already 
performed.
    Mr. McCrery. Yes. I do not disagree. We do need to 
acknowledge that there will be an additional eligibility 
because of this but I think the rationale is sound. So I do not 
have any problem with it, unless we cause some burdens on the 
employer community that they do not currently have, then I 
would have to have some concerns about that.
    Mr. Yarbrough. I would just like to say it is important to 
realize that the part-time provision is indeed going to 
increase some costs. And we need more information to see how 
much that is going to impact especially those people that use 
part-time. But I think companies like Penney's, Wal Mart, folks 
like that that use part-time folks also use a lot of full-time 
people. And we realize there are going to be some cost impact 
upon those people.
    But hopefully what is gained here is that the number of 
dollars that are going to come back are going to positively 
impact the system because currently as I might have mentioned 
earlier it is losing credibility. It is not getting the dollars 
back in the system upon the timely manner in which it needs to 
be there.
    Mr. McCrery. Yes. And I am sure Penney's and Wal Mart and 
all those folks would agree with you on that. I do not think 
they have any quarrel with the States being underfunded and the 
administration of their services.
    Mr. Yarbrough. Right. Definitely, and we would agree too.
    Mr. McCrery. They just do not want to have to pay the bill 
for improving those services. And you can understand that. What 
is the trend? We have 13 States now that include part-time 
workers. Is there a trend that is out there? What has been the 
rate of States changing their law to include part-time workers? 
Do you know, Mr. Smith?
    Mr. Smith. I do not know the answer to the pace as which it 
has occurred, Mr. McCrery. We can try to find that out for you.
    [The following was subsequently received:]

                           Part-Time Workers

    Eligibility of part-time workers for Unemployment Insurance 
(UI) is an administrative determination based on the 
application of State law, rules (or regulations), and court 
decisions. For this reason, a review of State laws alone will 
not give an accurate account of which States pay part-time 
workers. Therefore, the Advisory Council on Unemployment 
Compensation undertook a survey of all State UI agencies in 
1994 to determine how States treat part-time workers. The 
survey results showed that part-time workers who meet the 
monetary eligibility requirements are:

     eligible in only 13 States (CO, DE, FL, IA, LA, 
NE, NY, PA, PR, RI, SD, VT, WY);
     precluded from receiving UI in 31 States; and
     may or may not (varies with specific 
circumstances) be eligible in 9 States.

    The Department of Labor has not discerned any changes in 
the eligibility of part-time workers since the 1994 survey.
    Note: Total of States adds to 53-50 States, plus DC, PR, 
and VI.
      

                                

    Mr. McCrery. Finally, let me just talk about the trust 
funds for a moment because there is some concern about how this 
mandating the distribution to the States will affect the trust 
funds. Are you all satisfied, and particularly I guess Mr. 
Smith, since labor has traditionally expressed concern about 
the soundness of the trust funds and so forth. Are you 
satisfied that this legislation does not imperil the soundness 
of the system?
    Mr. Smith. Two answers, Mr. McCrery. Yes, we are satisfied 
that the legislation does not imperil the State funds, and we 
are concerned that the legislation does not go as far as we 
would have liked to go toward a mandatory solvency requirement. 
That is one of the issues I mentioned earlier. It is something 
that remains on the table for all of us and all of you.
    Mr. McCrery. But you are satisfied with this?
    Mr. Smith. That this proposal does not jeopardize and, in 
fact, will strengthen both the solvency and the capacity of the 
system in the ways that Mr. Yarbrough and Mr. Gross have talked 
about.
    Mr. McCrery. The only other concern I have is the formula 
for distribution. It is somewhat different from my bill and I 
have not had a chance to really dive into the particulars of 
your approach but I am told that the States will receive a 
distribution that will serve as a base period and then that 
will be increased by inflation. It will not necessarily be 
determined by the factors that currently determine the 
distribution; is that right?
    Mr. Uhalde. I think what you just described is the formula 
in determining the aggregate amount for each year.
    Mr. McCrery. For the trust funds?
    Mr. Uhalde. For distributions say on Unemployment Insurance 
administrative costs. There would be a base amount, and then it 
would be increased each year based on aggregate workload and an 
inflation indicator. I thought you were starting your question 
with the distribution formula back to the States?
    Mr. McCrery. Yes.
    Mr. Uhalde. From that aggregate amount. And maybe one of 
the others would like to comment on that formula.
    Mr. Gross. There was considerable discussion both about the 
formula in terms of--your question specifically is about 
distribution and I think what this bill would do is essentially 
leave in place the current distribution methodology, although 
there are concerns that the four constituent groups or the 
parties at the table have and there are a couple of areas where 
we intend to work in reviewing that methodology. In terms of 
the distribution it leaves pretty much in place the current 
distribution.
    Mr. McCrery. Okay. Then I misunderstood the information I 
was given because I thought you had a different formula for 
distribution to the various States but if you do not, then I do 
not have that concern. Thank you very much, gentlemen, for your 
participation here and your work on this product.
    Mr. English. Mr. Camp?
    Mr. CAMP. Thank you, Mr. Chairman. I know some of these 
questions have been asked before and I am coming in a little 
late to this hearing but I do have a concern, and whoever 
thinks it is appropriate chime in here, please.
    I am a little concerned about the part-time work issue and 
the definition of eligibility for Unemployment Compensation and 
particularly as that relates to seasonal workers, especially in 
agricultural areas where we have a lot of seasonal workers. 
Could somebody comment on how you think this compromise might 
affect those issues or this legislation?
    Mr. Uhalde. I think some of the discussion we had 
previously, first, that the provisions in State laws now that 
govern seasonal activity amongst full-time workers would also 
apply typically in States for part-time workers as well. And 
things like students working and then returning to school 
typically they are not eligible whether they work full-time or 
part-time. So I think those provisions would apply. Also to the 
extent that the work is of such a short duration that does not 
qualify again whether it is full-time or part-time under base 
period monetary requirements. Those would apply as well.
    Mr. Smith. We have, Mr. Camp, as you suspected talked about 
this at some length. I would just make two points quickly. This 
proposal catches up with an important reality in the labor 
force and that reality is the emergence and persistence of 
permanent part-time employment for a variety of reasons. Both 
the demands on the business side, in many cases the schedule 
preferences of workers and because the system was designed with 
an architecture that assumed that most of us worked full-time 
permanently it left an important hole that has grown in its 
urgency to repair as the pattern of labor force attachment has 
changed. And the coverage of part-time workers goes a long way 
to curing the problem of lack of eligibility for that large 
group of people.
    But it is important just to underscore what Ray Uhalde 
said. The casual attachment to the labor force, whether it is 
permanent or part-time is not affected by this proposal. So 
when my daughter comes home from school and works at a store 
for a couple of weeks over Christmas her eligibility is not 
changed or employers' liability is not changed. Nothing happens 
to the system whether or not she works 4 hours a day or 12 
during that period.
    Mr. CAMP. Thank you. Thank you, Mr. Chairman.
    Mr. English. Thank you. Would anyone else like to inquire? 
If not, I would like to thank the panel. This has been an 
excellent presentation and certainly has brought some focus to 
a very important issue that I hope we will be able to move 
quickly forward on. And I thank all of you for participating.
    The meeting is adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of the American Federation of State, County and Municipal 
Employees (AFSCME)

    The American Federation of State, County and Municipal 
Employees (AFSCME) submits the following statement in support 
of the Unemployment Insurance (UI) and Employment Service (ES) 
reform package. AFSCME has 1.3 million members who work in 
Federal, State, county and local government offices, health 
care and educational institutions and other non-profit agencies 
across the country. Our members include the State employees who 
process unemployment benefits, adjudicate claims, collect 
employer taxes and help workers find jobs and employers find 
workers. We also represent a broad cross section of the 
American workforce from doctors to engineers, home health aides 
to school crossing guards, and clerical personnel to laborers.
    AFSCME is proud to have been one of the organized labor 
representatives to the stakeholder dialogue process that 
produced agreement in June on this bipartisan consensus package 
of reforms to the nation's employment security system. The 
package would look different if we had written our own reform, 
and we continue to oppose some individual parts of the 
package--especially the Federal unemployment surtax (FUTA 
surtax) repeal--as freestanding proposals outside of 
comprehensive reform. Nonetheless, we think the package strikes 
a fair balance among the interests of all of the parties, 
contains important improvements for workers and should be 
enacted this year.
    The UI/ES reform package is the product of over a year of 
negotiations among parties that have deep policy and 
ideological differences. Our discussions were not always easy 
and at times threatened to break down. Ultimately, the 
compelling need to strengthen this vital employment security 
system led us to set aside our ideological differences in the 
interest of seeking a pragmatic consensus that respects the 
primary interests of each stakeholder. While this process may 
be novel at the Federal level, it is in fact, a familiar one at 
the State level where UI changes frequently move as part of a 
package in which business and labor each gain policy changes.
    For AFSCME and organized labor, the benefit enhancements 
are a critical part of the UI/ES reform package. Workers have 
been slow to reap the benefits of the healthy economy, and 
recipiency rates still stand at an historically low level of 
about one-third of all unemployed workers. In contrast, as 
State trust fund balances surged, employers have realized 
automatic tax reductions through the experience rating system 
and have secured additional tax cuts through State 
legislatures.
    The inclusion of the benefit enhancements provides 
reasonable balance in the reform package to the surtax repeal 
sought by employers and will allow workers to share more 
equally in the fruits of the current economic expansion. These 
enhancements include the following improvements to the extended 
benefits program, base period changes and part-time worker 
provisions:
     Extended Benefits (EB)--Effective July 1, 2002, 
the Federal EB program would activate sooner during economic 
downturns with the lowering of the required Insured 
Unemployment Rate (IUR) trigger from five percent to four 
percent. In addition, Federal work search requirements, which 
were imposed in the early 1980s, would be eliminated, and the 
Federal program would conform to State law in each State.
    Impact--In the early 1990s recession, extended benefits 
were paid in only 10 States. The proposed trigger would have 
activated the program in 15 States, making EB available to an 
additional 730,000 workers and getting an additional $1.4 
billion to workers and the economy during the peak year of 
unemployment and reducing the need to enact a special Federal 
supplemental benefits program.
     Using more recent based period wages--Otherwise 
eligible workers can be denied benefits simply because their 
most recent earnings are not considered, or their earnings are 
not yet entered into automated systems. Since most States count 
the first four of the last five completed quarters of earnings 
to determine eligibility, up to 6 months of a worker's most 
recent earnings may not be counted, depending on when that 
worker files for benefits. Under the proposal, the Department 
of Labor will provide technology improvement grants to 
accelerate access to wage and employment information. Effective 
January 1, 2003, if individuals are initially ruled ineligible, 
and the State agency has received more recent information from 
employers, the State must use that information to determine 
eligibility. In most cases, the most recent completed quarter 
of earnings will be available.
    Impact--An estimated 320,000 more workers per year will 
receive benefits under current economic conditions. Individuals 
most affected would be workers in low-wage, high turnover or 
seasonal employment, including those in construction and 
service sector jobs, and low wage single women with children 
who have entered the workforce as a result of welfare reform.
     Part-time workers--Effective July 1, 2002, States 
will be required to pay UI to otherwise eligible laid off part-
time workers who seek suitable and comparable part-time work 
under provisions of State law. Most States currently deny 
benefits to individuals who are not seeking full-time work, 
even if they had worked part-time and met State earnings 
requirements for eligibility.
    Impact--An estimated 260,000 more workers, many of them 
low-wage and women workers, annually will receive benefits in 
the current economy.
    The provisions strengthening Federal financing of State 
unemployment insurance and employment service operations are a 
goal sought by all of the stakeholders, and agreement on 
increasing funding levels and converting the financing from 
discretionary to mandatory spending was achieved early in our 
discussions.
    Underfunding had reached a critical stage in recent years 
and threatened to destabilize both State operations and the 
longstanding political consensus on the appropriate Federal and 
State roles in the system. For example, ES funding has been 
flat funded for five years and, at $762 million, is $15.7 
million less than the 1985 appropriation. ES staffing levels 
dropped more than 50 percent, while the civilian labor force 
grew by approximately 20 percent since 1985. UI funding has 
been flat for the last five years as well.
    Continued deterioration of State operations drove some 
States to use their own money to shore up the system even as 
Federal Unemployment Trust Fund surpluses grew and were used to 
offset Federal spending on other programs. It was not without 
good reason that some of them concluded that nothing short of 
devolution was the answer even though organized labor strongly 
opposed that solution.
    The bipartisan consensus package breaks the stalemate 
created by ideological disagreement among States, labor, and 
business on a solution to the underfunding problem. It is also 
a necessary companion to the benefit enhancements. The 
agreement assures States that they will have enough money to 
process a larger unemployment claims workload. It also shores 
up the employment service, thus strengthening the long-standing 
consensus shared by business and labor that unemployment 
insurance claimants will receive help returning to work as 
quickly as possible.
    The UI/ES reform proposal creates a rational way to spend 
UI Trust Fund dollars in contrast to the arbitrary way in which 
the Federal Government now sets funding levels, which produces 
amounts well below what the system needs and ever increasing 
Trust Fund balances to offset spending elsewhere. UI and ES 
[including Veterans Employment and Training Service (VETS)] 
appropriations will be based on statutory funding formulas to 
determine the national total amount available each year. The 
formulas will adjust annually for changes in workload and 
inflation, and funds will be provided automatically instead of 
being subject to the annual appropriations process.
    The reform proposal creates a new dedicated appropriation 
for reemployment services to UI claimants in order to restore 
the ability of the employment service to administer the 
program's job search requirements, commonly known as the UI 
``work test.'' States currently do not have the resources to 
administer a meaningful work test and provide targeted 
reemployment services to UI claimants.
    The combination of the targeted funding and the general 
strengthening of the employment service infrastructure will 
allow States to rebuild key functions that have been eliminated 
as a result of severe underfunding. These include a staff of 
employer representatives who used to maintain a network of 
relationships with employers in local communities to help serve 
their workforce needs as well as personalized assistance for 
unemployed workers seeking new jobs.
    In addition, to the benefit enhancements and administrative 
financing provisions, the reform package also simplifies 
employer filings and repeals the unemployment surtax, a key 
objective of business which organized labor has strongly 
opposed for over a year. We made this concession in the context 
of this reform package because we believe that the final 
package is reasonable and fair.
    While the time remaining in this session of Congress is 
short, we have a historic chance to revitalize and modernize an 
important part of our economic fabric. We urge you to seize 
this opportunity and pass this historic reform proposal this 
year.
      

                                

                            National Governors' Association
                                  Washington, DC 20001-1512
                                                  September 6, 2000

The Honorable Nancy L. Johnson
Chair, Subcommittee on Human Resources
Committee on Ways and Means
U.S. House of Representatives
2113 Rayburn House Office Building
Washington, D.C. 20515

Dear Madam Chair:
    As your Subcommittee considers proposals to reform the Unemployment 
Compensation (UC) system, we want to share with you the position of the 
National Governors' Association on this issue. During our annual 
meeting this summer, we approved an ``Employment Security System 
Policy.'' A copy of our policy is attached for your review and possible 
inclusion for the record at your Subcommittee hearing on this matter.
            Sincerely,
                                        Governor Jim Hodges
                                                              Chair
                                       Committee on Human Resources

                                          Governor Bob Taft
                                                         Vice Chair
                                       Committee on Human Resources

    Enclosure: HR-35. Employment Security System Policy

National Governors' Association

              H.R.-35. EMPLOYMENT SECURITY SYSTEM POLICY*

    The Governors support a national system administered by the 
States, of unemployment benefits, employment service, and labor 
market information. Such a system of benefits serves an 
important public function to unemployed workers, job seekers, 
and the nation's business community.
---------------------------------------------------------------------------
    * Identical to Policy EDC-17. The Committee on Human Resources and 
the Committee on Economic Development and Commerce have joint 
jurisdiction over this policy.
---------------------------------------------------------------------------
    The Governors are concerned with inefficiencies in the 
current system of collecting taxes from employers to support 
the employment security system and in the current system of 
distributing administrative funds. Under current law, States 
collect taxes to support program benefits, while the Internal 
Revenue Service collects taxes to support program 
administration and certain extended benefits programs. Over the 
past several years, the return of taxes paid from States to 
fund important employment security services has decreased to an 
average of only 51 percent, with some States receiving back as 
little as 32 percent.
    In addition, the Governors are concerned that the 
``temporary surtax'' of 0.2 percent, enacted in 1976, is still 
being collected today despite the fact that Federal trust funds 
have extraordinary balances-more than $30 billion by the end of 
fiscal 2000-and not all of the funds are being used for the 
purposes for which they were collected. Program flexibility has 
also been reduced by the fiscal 2000-2002 restrictions on Reed 
Act funds, which can only be used for administering the 
unemployment compensation law. These funds should be 
distributed to the States pursuant to the original intent of 
the Reed Act with maximum flexibility to also support the 
Employment Security System.
    The Governors' legislative priorities include repealing the 
Federal Unemployment Tax Act (FUTA) surtax, preserving 
protections for workers, funding administration adequately, 
promoting reemployment, reducing fraud and abuse, increasing 
State flexibility, ensuring economic stabilization, and 
improving efficiency in FUTA tax collection.
    The Governors are aware of and support discussions aimed at 
reaching consensus among workers, employers, and State and 
Federal entities to develop comprehensive recommendations for 
Congress to address these priorities and inadequacies in the 
current system.
    The Governors call on Congress and the President to enact 
comprehensive legislation that is consistent with the 
Governors' priorities.
    Time limited (effective Annual Meeting 2000-Annual Meeting 
2002).Adopted Annual Meeting 1996; revised and reaffirmed 
Annual Meeting 1998; revised Annual Meeting 2000.
      

                                

Statement of the National Payroll Reporting Consortium

    The members of the National Payroll Reporting Consortium 
(NPRC) appreciate the opportunity to submit this statement for 
the record of the Subcommittee's September 7, 2000, hearing 
concerning unemployment compensation reform.
    NPRC supports the comprehensive Unemployment Insurance 
(``;UI'') / Employment Services (``;ES'') proposal recently 
presented to the Subcommittee by the joint government (Federal 
and State) / business / labor workgroup (``;Workgroup''). We 
commend the unprecedented cooperative effort by these groups, 
and believe that the reforms proposed by the Workgroup are 
critical for the future of the UI and ES programs.
    NPRC represents businesses providing payroll processing and 
employment tax services directly to employers. NPRC members 
(``;reporting agents'') serve more than 800,000 employers with 
a combined total of more than 35 million employees, process 
payroll for more than one-third of the private sector 
workforce, and are responsible for paying more than 25 percent 
of all Federal payroll taxes received from private industry by 
the Treasury. The following companies are members of NPRC: 
Automatic Data Processing, Inc.; Advantage Business Services 
Holdings, Inc.; Ceridian Corporation; Compupay, Inc.; Federal 
Liaison Services, Inc.; Fidelity Employer Services Company LLC; 
Interpay, Inc.; Intuit, Inc.; Paychex, Inc.; Payroll People, 
Inc.; Primepay, Inc.; ProBusiness Services, Inc.; and Zurich 
Payroll Solutions, Ltd.
    This country's UI system is complex, inefficient and costly 
for business and government to administer, and our 
organizations have long supported its reform. By strengthening 
funding for UI and ES programs, modernizing UI benefits to 
reflect today's workforce, and streamlining employer UI filing 
requirements, we believe that the Workgroup proposal 
appropriately balances the interests of business, labor, the 
Federal Government, and State governments alike, and would 
significantly improve the operation of the UI system for all 
involved. The Workgroup's efforts in this matter have produced 
an important proposal, and we encourage the Subcommittee to act 
expeditiously to promote its enactment.
    The following describes some of the major complexities of 
current UI tax administration faced by employers and highlights 
some of the benefits of the Workgroup's reform proposal.

I. Current Tax Collection System 

    The current UI tax collection system involves a two-tier 
process to collect the Federal Unemployment Tax Act (FUTA) and 
State Unemployment Insurance (SUI) tax. This process includes 
the calculation and payment of the tax at two levels of 
government, and the determination of an ``offset credit'' as 
part of an annual reconciliation of State and Federal UI taxes 
paid. This annual reconciliation is filed with the IRS Form 
940.
    Under the current tax structure, employers make FUTA and 
SUI tax deposits on a quarterly basis. The 6.2 percent FUTA tax 
(which includes the 0.2 percent ``surtax'') is reduced by the 
offset credit for States with laws conforming to Federal 
requirements (currently all 53 UI jurisdictions). The offset 
credit allows 5.4 percent of the FUTA tax to be offset by 
qualifying SUI tax paid with respect to a covered employee. 
This complex structure was intended to provide an inducement 
for States to participate in the UI program. The manner in 
which the credit is calculated on Form 940 also was intended to 
provide the Federal Government sufficient data to impose the 
full Federal tax on employers in States that fall out of 
conformity with the program.
    The primary purpose of Form 940 is to allow the Federal 
Government to track what employers would owe if States did not 
have conforming programs. This determination can be made 
without the complex reconciliation of an employer's State and 
Federal UI tax payments provided on Part II of the form.
    The same information collected from employers in Part II of 
Form 940 is provided electronically by the States to the IRS in 
an annual summary by employer of wages reported and UI taxes 
paid. Additionally, the 1996 welfare reform bill (PRWORA) 
requires the States to report wage information quarterly to the 
Federal new hire directory. These alternative sources of 
employee wage information, along with other redundancies, allow 
for the simplification of Form 940.

II. The Workgroup Proposal

    The Workgroup's proposal embodies the goals first set forth 
in 1998 at the commencement of its dialogue: expand coverage 
and eligibility for benefits; streamline filing and reduce tax 
burden where possible; emphasize reemployment; combat fraud and 
abuse; and improve administration. While our organizations' 
interests are especially focused on streamlining tax filing, we 
are also supportive of the rest of the goals of the proposal.
    The following provisions of the Workgroup proposal are of 
particular interest to our organizations:
    A. Provide for quarterly collection of FUTA and State UI 
taxes.
    Before reaching agreement on this proposal as part of the 
Workgroup, the Administration had on several occasions proposed 
changing Federal law to require monthly UI collection rather 
than the quarterly schedule currently set forth in regulations. 
This would have increased from 8 to 24 the number of UI payment 
deadlines imposed on virtually every employer. NPRC, other 
employer organizations, and States have repeatedly expressed 
strong opposition to this acceleration proposal. This 
acceleration proposal is fundamentally inconsistent with 
streamlining the operation of the UI system and reducing 
paperwork and regulatory burdens. Further, imposing monthly 
collection of Federal and State UI taxes would have generated 
only a one-time artificial revenue increase for budget-scoring 
purposes and real, every year increases in both compliance 
costs for employers and collection costs for State unemployment 
insurance administrators. Congress has recognized the many 
weaknesses in this proposal and has consistently refused to 
enact it. As such we very much appreciate that as part of this 
Workgroup proposal, the Administration has directly reversed 
its position and agreed to support a statutory requirement that 
would prescribe quarterly collection of both FUTA and State UI 
taxes.

B. Simplification of IRS Form 940.

    Form 940 is likely the most complex employment tax form 
with which employers have to comply. The IRS has estimated that 
employers take an average of 12 hours and 31 minutes to 
complete and file the FUTA tax return on Form 940. Thus, annual 
compliance costs associated with FUTA reporting for the six 
million FUTA-paying employers easily exceed $1 billion. By 
amending the Federal Unemployment Tax Act to reflect the 
current taxing practices in all States, the proposal would 
allow the IRS to simplify significantly Form 940 without the 
need for State law changes. Specifically, since all States 
currently have a maximum rate of at least 5.4 percent, amending 
FUTA to make the 5.4 percent maximum rate a conformity 
requirement would make certain calculations unnecessary, and 
allow for the elimination of five columns from the Form 940 
based on this change alone.

C. Enable the Federal Government and States to share 
information to remove an impediment to allowing employers to 
file combined Federal and State wage reports.

    By amending Federal law to permit the disclosure of minimal 
IRS information to State tax agencies for combined Federal and 
State employment tax reporting, the proposal would remove the 
major statutory impediment to consolidated Federal and State 
employment tax reporting.

D. Repeal the 0.2 percent FUTA surtax.

    Congress imposed the ``temporary'' 0.2 percent FUTA surtax 
in 1976 to pay for supplemental unemployment benefits for 
unemployed workers who had exhausted their six-month State 
unemployment benefits and their three months of extended 
benefits. The deficit created by the supplemental benefit was 
retired in 1987, but the FUTA surtax was recently extended 
until 2007. In recognizing that the FUTA surtax achieved its 
purpose and is no longer necessary to pay for supplemental 
benefits, the proposal would repeal the 0.2 percent FUTA 
surtax.
    NPRC believes that the consideration of comprehensive 
restructuring of the UI system offers an important opportunity 
to improve the UI/ES system in general, and, specifically, to 
simplify the tax administration aspects of the system. We 
appreciate that each party to these discussions had different 
reform priorities and that every party had to make concessions 
to achieve a balanced compromise. The political challenges of 
reforming the UI system are complex, and the issues are often 
arcane. While our national UI system is not in crisis, we 
encourage the Congress to use this balanced proposal to make 
valuable improvements in the system. It is unfortunate that, in 
the past, employers, workers and government have only focused 
on the UI system in times of economic crisis and high 
unemployment. Our organization believes that we should utilize 
the opportunity created by our current strong economic 
condition to improve and modernize the system so that it will 
be strengthened for times of future need. The NPRC supports the 
enactment of the Workgroup's carefully crafted compromise and 
looks forward to working with the Subcommittee in this 
endeavor.
      

                                

Statement of the National Retail Federation

  Retail Industry Comments on Proposed Unemployment Compensation (UC) 
                            Reform Proposal

    On behalf of the U.S. retail industry, the National Retail 
Federation (NRF) would like to take this opportunity to express 
its concern with the Unemployment Insurance-Employment Service 
Reform Proposal that is the subject of today's hearing. As 
background, NRF is the world's largest retail trade association 
with membership that comprises all retail formats and channels 
of distribution including department, specialty, discount, 
catalogue, Internet and independent stores. NRF members 
represent an industry that encompasses more than 1.4 million 
U.S. retail establishments, employs more than 22 million 
people--about 1 in 5 American workers--and registered 1999 
sales of $3.1 trillion. In its role as the retail industry's 
umbrella group, NRF also represents 32 national and 50 State 
associations in the U.S.
    While the Human Resources Subcommittee and Chairwoman Nancy 
Johnson (R-CT) should be commended for holding a hearing on the 
status of the Unemployment Compensation (UC) system and ways to 
improve and reform the current program, the joint proposal 
developed by the Conference of Employment Security Agencies, 
organized labor, the Department of Labor, and the Strategic 
Services on Unemployment & Workers' Compensation (UWC) could 
drain valuable UC resources and impose significant burdens on 
employers, and leaves many critical questions unanswered. 
Moreover, the retail industry believes that many of the issues 
addressed in this proposal, including eligibility and benefit 
level threshold determinations, are best left to the States to 
decide rather than being imposed by Washington D.C.
    Given the broad implications of this proposal, the retail 
industry encourages Members to consider all possible 
consequences, intended or not, before moving forward with 
legislation in this area. Several provisions in this 
``compromise'' proposal should be more thoroughly vetted among 
industry groups before additional Congressional action is 
taken. Areas of concern include, among others:

Changing the Eligibility of Part-Time Workers

    One aspect of this proposal that concerns not only 
retailers, but any industry that faces seasonal fluctuations in 
their part-time workforce, is substantial payroll cost 
increases due to unforeseen or unintended consequences. Under 
this proposal, part-time workers who decide to put in more 
hours during a ``peak season'' (e.g. the November-December 
holiday period) could actually become eligible for unemployment 
benefits once they return to their normal hourly workload in 
January, sapping UC system resources from those who truly need 
this assistance and placing a significant burden on employers. 
In many States, the determination for claims under UI for 
weekly benefit awards (WBA) are based on an individual's high 
quarter earnings. Increased hours during the peak season make 
this quarter's wages noticeably higher than wages for the other 
three quarters (the rest of year) and would result in an 
individual qualifying for an artificially inflated WBA. During 
such peak seasons part-time employees work additional hours 
thus increasing their wages in the 4th quarter. For example, if 
a person only worked 20-hour weeks in the first three quarters 
of a year, and then decided to work 30-hour weeks in the 4th 
quarter (holiday season), their WBA payout could be based on 
their 4th quarter earnings. Once this employee returned to 
their normal 20-hour workweek in January, they could actually 
become eligible to receive UC benefits, even though they are 
currently employed and as long as they remain available for 
part-time work. In addition to their hourly part-time pay, they 
could also receive UI benefits for the ``cut'' in hours they 
voluntarily undertook as they continue to work.
    There are many questions that must be answered before this 
proposal moves forward. For example, what is the requirement 
for part-time work? Is it 20 hours, 30 hours, or 22.5 (the 
average of the 12-month base period)? Will States look at the 
hours worked to determine benefits such as the high quarter of 
earnings that then means the claimant would have to be seeking 
a 30-hour part-time job to receive benefits? Many retailers 
determine their part-time jobs based on sales, averaging 
between 15 to 25 hours. If a claimant seeks a 20-hour workweek 
job, could they refuse such a position and still collect 
benefits? What defines part-time work and how will this 
proposal impact those employees who resume a 20-hour work week?

Alternative Base Period

    This proposal also provides a new alternative base period 
for unemployment insurance (UI) eligibility. This could 
significantly drain UC resources and could impose a substantial 
administrative burden on employers trying to respond to wage 
verification requests. There are a number of questions in this 
area that must also be answered before legislation moves 
forward. For example, what documentation would be used to 
provide wage and employment information? How would such 
information be verified? This proposal also includes language 
stating, ``nothing in this paragraph shall be construed to 
prohibit a State from using any additional wage or employment 
information considered by such State for monetary 
eligibility.'' It is unclear what this language means. It 
appears States can still utilize other information. Does it 
mean that if a claimant provides wage information that States 
can then use this information until the employers wage 
information is reviewed? If so, how would differences in base 
period wages be handled, especially if the claimant is already 
receiving benefits?

Economic Impact

    Under this proposal, it is estimated that an additional 
320,000 workers would receive $800 million in benefits due to 
the change in alternative base period eligibility. In addition 
260,000 additional part-time workers would qualify for $320 
million in benefits. These estimates are based on current 
economic assumptions. It is unlikely, unfortunately, that this 
period of economic growth will continue indefinitely. In order 
to understand the true ramifications of this proposal, it would 
be beneficial to know the projections for claims, benefits, 
administration costs, and the associated State tax rate 
increases during more traditional levels of unemployment as 
well as during levels of high unemployment. Utilizing 
unrealistic assumptions will only lead to further strain on the 
UC system and place additional burdens and costs on employers 
in the future.
    Retailers appreciate the time and effort the Subcommittee, 
Members of Congress, and the participants in today's hearing 
have spent on this important issue. There are several 
provisions in the proposal that would increase the efficiency 
of today's UC system. However, the retail industry submits that 
there are a number of critical issues that must be resolved 
before any legislative action is taken on this UC reform 
proposal.
      

                                

              Rhode Island Department of Labor and Training
                                    Cranston, RI 02920-4407
                                                 September 19, 2000

A.L. Singleton, Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Mr. Singleton:
    I wish to express my support for the comprehensive Employment 
Service and Unemployment Insurance (ES/UI) Reform Legislation that was 
heard in your committee on September 7, 2000. Please include this 
letter in the written record of the hearing.
    Enactment of the Unemployment Insurance/Employment Service reform 
package is especially critical to the funding base and service capacity 
of the Rhode Island Department of Labor and Training. The reform 
package was developed as a bipartisan effort that included business, 
labor and State workforce agency representatives, working closely with 
the United States Department of Labor. The core elements of the 
resultant comprehensive, bipartisan reform proposal are these:

     Reduce employer taxes by repealing the temporary 0.2 
percent Federal surtax
     Establish statutory formulas for aggregate Unemployment 
Insurance and Employment Service grants to States and make them 
mandatory instead of discretionary
     Improve the Extended Benefits program which activates 
during recessions
     Expand eligibility for workers who only have recent 
earnings or who work part time
     Reduce fraud and abuse and help States manage their trust 
funds more efficiently
     Reduce employer wage reporting and tax filing burden

    We fully endorse the compromise ES/UI reform package, knowing that 
it will benefit employers and our job-seeking customers, and will 
improve the administration of our core programs of Unemployment 
Insurance and the Employment Service. It is my hope that after 
reviewing all the available information and hearing testimony from 
expert witnesses, you will be convinced, as I am, that these items 
warrant your support.
    Thank you for the opportunity to comment on this very important 
legislative proposal.
            Sincerely,
                                         Lee H. Arnold, DPA
                                                           Director
      

                                

Statement of the Screen Actors Guild, Bethesda, MD

    The members of the Screen Actors Guild appreciate the 
opportunity to submit testimony before the Committee on Ways 
and Means, the Subcommittee on Human Resources regarding 
``Unemployment Compensation Reform.'' We submit these comments 
on behalf of colleagues in the entertainment industry, in 
particular the senior performers represented by the Screen 
Actors Guild, and the American Federation of Television and 
Radio Artists.
    The reforms which you will consider will affect 
unemployment insurance policy and will have a direct impact on 
the lives of many Americans, including members of the Screen 
Actors Guild. We submit this testimony to bring to your 
attention a problem which adversely affects senior members of 
the entertainment community. We believe that this problem is 
the result of certain unintended consequences of Section 3304 
of the Federal Unemployment Tax Act. We need your help in 
dealing with these consequences.
    Our senior members find themselves in a predicament which 
is the result of a combination of factors. These factors 
include the unique nature of entertainment work, the rules of 
our pension plan, and the current interpretation of Federal 
law.
    While some actors are financially well off, most are not. 
Entertainment professionals work many short-term jobs and face 
prolonged periods of unemployment. Like many other hard-working 
Americans, some senior members of the entertainment community 
have earned a modest pension after working twenty or more 
years. Still, these actors have years of productive work ahead 
of them and often continue to seek roles portraying senior 
citizens in a positive, active and vigorous light. There is a 
harsh penalty for those who continue to work.
    Performers are participants in various multi-employer 
pension plans which were established through collective 
bargaining. Under the terms of those plans, a worker who has 
met the minimum requirements to qualify for benefits can take 
normal retirement at age 65, or an early retirement option with 
reduced benefits at as early as age 55.
    However, it is very common for a performer once they have 
begun to receive a modest monthly pension, to continue to seek 
work in motion pictures or television. When such work is 
obtained, the performer's employer will, in compliance with the 
collective bargaining agreement, contribute to the pension 
plan. Under the plan's rules, such contributions will result in 
an increase in the performer's monthly pension check. 
Subsequently, while the performer has met the qualifications 
for unemployment benefits, Section 3304 of the Federal 
Unemployment Tax Act requires that an individual's unemployment 
insurance benefit be offset by the pension benefit when:
    1.The person works for any employer-member of a multi-
employer unit which contributed to the pension, and
    2.where that work results in an increase in benefits.
    Section 3304 of FUTA as currently interpreted reduces the 
total amount of the unemployment benefit not by the amount of 
the pension increase, but by the total amount of the pension. 
The penalty for accepting short-term work is indeed severe, and 
harsh.
    For example, assume that as a result of a short-term acting 
job, a worker's monthly pension benefit increases by $7, from 
$400 to $407 per month. Also assume that the determined 
unemployment insurance benefit is equal to $450 per month. 
Under current law, the monthly unemployment benefit of $450 
would be reduced by $407, leaving a net benefit of only $43 per 
month.
    We would respectfully suggest to the Committee that a 
reasonable approach would be to limit the unemployment benefit 
offset to the amount of the pension increase. Section 3304 of 
the Federal Unemployment Tax Act must be clarified. The statute 
refers to identical base-period employers, but does not mention 
multi-employer plans. Actors, writers and other workers in the 
television and motion picture industries are participants in 
various multi-employer pension plans. The pension offset rule 
was designed to discourage individuals from going back to work 
for the same company which employed them previously. The law 
did not contemplate an adverse effect on people such as 
performers who receive a pension increase for the same pension 
plan, not the same company. The current dilemma is unique to 
the entertainment industry because these individuals work well 
beyond normal retirement age and work for the same multi-
employer plan. Under current interpretation, these workers are 
returning to the same company, when in fact, they are merely 
seeking short-term work in a diverse industry with many 
employers. Our recommended change enjoys bipartisan support.
    We are also submitting for the record the results of our 
efforts to resolve this issue administratively through the 
Department of Labor. We thank the members of the Committee for 
the opportunity to bring this issue to your attention.
    [Attachments are being retained in the Committee files.]
      

                                

Statement of the Society for Human Resource Management

Madam Chair and Members of the Subcommittee:
    The Society for Human Resource Management (SHRM) is the 
leading voice of the human resource profession. SHRM provides 
education and information services, conferences and seminars, 
government and media representation, online services and 
publications to 140,000, professional and student members 
throughout the world. The Society, the world's largest human 
resource management association, is a founding member of the 
North American Human Resource Management Association (NAHRMA) 
and a founding member of the world federation of Personnel 
Management Associations (WFPMA). On behalf of NAHRMA, SHRM also 
serves as president of WFPMA.
    On February 29, 2000, SHRM filed testimony with this 
Subcommittee supporting the swift enactment of H.R. 3174, the 
bipartisan Employment Security Financing Reform Act. In the 
testimony, SHRM explained that ``H.R. 3174 is essential to 
strengthening the State unemployment insurance and employment 
services (UI/ES) system and the workers and employers whom it 
is designed to serve.'' The Society urged the members of this 
Subcommittee to ``actively work to enact H.R. 3174 on a 
bipartisan basis.'' SHRM also expressed opposition to the 
Administration's proposal as presented in the Unemployment 
Compensation Amendments of 1999, H.R. 1830.
    SHRM is a member of the Coalition for Employment Security 
Financing Reform, an informal coalition of business 
organizations and 32 States that has been working over the last 
year and a half with organized labor and Administration 
representatives to discuss the possibility of a consensus 
legislative proposal on overall unemployment insurance reform. 
SHRM also serves on the Board of Directors for UWC-Strategic 
Services on Unemployment & Workers' Compensation.
    While our preferred approach to unemployment insurance 
reform would be the swift enactment of H.R. 3174, SHRM also 
recognizes that due to the widespread interest in the 
unemployment insurance system and the need for support from all 
involved parties, a consensus proposal, such as the one 
developed by the coalition, is highly desirable. The compromise 
proposal developed by the Coalition for Employment Security 
Financing Reform, the Administration and organized labor 
currently contains the following provisions:

     repeal of the FUTA .2 percent surtax
     shifting the unemployment insurance administration 
and employment security (ES) funding from a discretionary 
spending item to the mandatory side of the Federal budget
     expanding unemployment insurance benefits to 
include part time workers
     guaranteed funding for extended benefit (EB) 
funding with lower EB triggers
     require States to pay UI benefits to otherwise 
eligible unemployed workers who have met monetary eligibility 
requirements on the basis of their part time work and are 
seeking and available for suitable and comparable part time 
work. The purpose of this provision is to eliminate the 
disqualification of a part time worker solely for being 
unavailable for full time work
     simplifying the FUTA tax form without requiring 
changes in State law or an additional tax
     FUTA funds in excess of caps would flow into State 
trust funds granting States access to the National Directory of 
New Hires for UI fraud investigations
     administrative financing reform with funding 
distributed to States according to a formula

    The full text of the Society's Board-approved position on 
the important issue of overall unemployment insurance reform is 
attached to this statement. (See attachment #1.) This position 
also includes a statement that addresses the Administration's 
Birth and Adoption Unemployment Compensation Rule (BAA-UC).
    SHRM found it unsettling and surprising that, during the 
September 7, 2000 hearing on overall unemployment reform 
hearing, a related and highly controversial issue--the 
Administration's Birth and Adoption Unemployment Compensation 
(BAA-UC) Rule--did not receive a single mention by any of the 
participants. This is troublesome since allowing the 
misdirection of unemployment benefits for family and medical 
leave or other non-employment benefit purposes has a direct 
bearing on the unemployment insurance system and could 
undermine progress achieved through any type of UI reform 
legislation. SHRM member Kimberly Hostetler eloquently 
described the negative implications of the Administration's 
BAA-UC rule during the March 9, 2000 hearing before this 
subcommittee.
    SHRM is extremely concerned about the impact of the BAA-UC 
or baby UI rule on the unemployment insurance system and has 
taken a leadership role in urging Congressional opposition to 
the measure. We have commended Subcommittee Chair Nancy Johnson 
for her leadership in opposing the Administration's proposal. A 
Letter to all SHRM members from the Chairman of the Society's 
Board of Directors was published in the May issue of HR News 
commending Subcommittee Chair Nancy Johnson for her courageous 
actions to protect Unemployment Insurance trust funds from the 
Administration's ``Baby-UI'' raid. (See attachment #2.)
    While SHRM strongly agrees that paid leave is a desirable 
benefit and encourages its members to provide a whole host of 
work-life benefits to employees, including leave for the birth 
or adoption of a child, we take strong exception to the 
approach taken in the BAA-UC rule. We strongly disagree with 
the President's May 23, 1999 statement that, through the BAA-
UC: ``We can do this in a way that preserves the soundness of 
the unemployment insurance system and continues to promote 
economic growth.'' May 23, 1999 Statement of President William 
J. Clinton at Grambling State University.
    Unfortunately, despite tremendous opposition and amid 
enormous controversy, the Administration has chosen to finalize 
the BAA-UC rule through the regulatory back door. The rule 
became effective on August 14, 2000. States may now move 
forward to raid their unemployment insurance trust funds to 
provide paid family leave. Accordingly, SHRM has joined with 
the U.S. Chamber of Commerce and the LPA, Inc. to file a 
lawsuit in Federal district court challenging the legality of 
the ill-conceived proposal. A press release announcing our 
lawsuit is attached. (See attachment #3). While we expect that 
the rule will soon be struck down in court, the 
Administration's actions in this area have had a direct bearing 
on ability of parties to address issues related to the overall 
unemployment reform system and should not be ignored.
    We agree with Subcommittee Chairman Nancy Johnson's 
characterization of the unemployment reform compromise as a 
``very interesting and significant'' proposal on reform of the 
nation's unemployment compensation program. Rarely do such 
diverse interests form agreement on issues of such magnitude. 
As characterized during the hearing, the agreement is clearly 
an impressive product of compromise and contains elements that 
the parties would not support separately or outside of this 
delicately crafted agreement.
    However, given statements made by Subcommittee members 
during the September 7, 2000 hearing, we understand that 
members of Congress are expected to make some changes to the 
delicately crafted coalition compromise agreement. Accordingly, 
SHRM would like to express the following specific comments on 
the various elements of the proposal for your consideration as 
you finalize legislation in this important area.
    1.SHRM finds the provision that repeals the FUTA .2 percent 
surtax as a particularly attractive element of the agreement. 
In 1976, Congress established the 0.2 percent ``temporary'' 
surtax to pay a debt arising from repeated supplemental 
extensions of unemployment benefits. This ``temporary'' tax has 
been extended numerous times and is now scheduled to continue 
until December 31, 2007. SHRM has historically supported the 
repeal of the FUTA 0.2 percent surtax and supports the 
provision in the coalition agreement and other pending 
legislation that would quickly accomplish this important goal.
    2.SHRM is pleased that the new coalition proposal will fix 
serious problems with the State UI and employment security (ES) 
system resulting from the Federal Government's failure to 
provide adequate funding. SHRM supports proposals to allow for 
faster and more efficient employment security services and to 
shift decision making closer to home where unemployment 
services/training can be customized to local conditions. SHRM 
supports the efficient collection of employment taxes and is 
pleased that the new proposal does not accelerate FUTA and 
State unemployment tax collections since they would impose 
unnecessary paperwork burdens.
    3.SHRM believes tax dollars that employers pay to finance 
America's employment security system should not be used to 
artificially offset the Federal deficit. Accordingly, SHRM is 
pleased with the provision in the agreement that shifts the 
unemployment insurance administration and ES funding from a 
discretionary spending item to the mandatory side of the 
Federal budget. Although the Federal budget is now described as 
balanced, some of that balance has been achieved over the years 
by offsetting balances in trust funds, including those within 
the employment security system. Consequently, employer payroll 
taxes are underwriting Federal general revenue and providing 
funds for domestic spending unrelated to employment security.
    During the September 7, 2000 hearing Administration 
spokesperson Ray Uhalde expressed support for moving program 
funding from the discretionary to the mandatory side of the 
budget for purposes of the Budget Enforcement Act. We are 
pleased with this development and are interested in the 
Administration's desire for ``proper budgetary review'' and how 
the details of that review will be worked out.
    4.SHRM has historically opposed mandated benefits as a 
policy issue and has some reservations with the agreement's 
provision expanding unemployment insurance benefits to include 
part time workers. Given our concerns in this area, SHRM would 
like to see the final legislative language on the full 
compromise and be afforded the opportunity to review the final 
proposal with our members in the context of the overall package 
prior to passage.

Conclusion

    SHRM commends all parties for their good faith efforts to 
forge a compromise proposal on unemployment insurance reform 
since such a proposal is certainly needed. We only wish that 
the Administration had exercised such good faith in the 
development of the BAA-UC proposal since it has a direct impact 
on the soundness of the overall unemployment insurance system 
and the reforms discussed in this hearing. Since the two issues 
are inherently related, ultimately, a better process with the 
latter would have resulted in more goodwill toward the former.
    Thank you for the opportunity to express our views on the 
important issue of unemployment insurance reform compromise 
legislation. We hope that you will contact Julia Bellinger at 
(703) 535-6061 if you have any questions regarding the 
Society's position on unemployment insurance reform as you work 
to finalize legislation in this area.
    Attachments: 1. SHRM Position Statement on Unemployment 
Expansion and Reform
    2.Letter to SHRM Members from the Chair, SHRM Board of 
Directors as Published in May 2000 HR News
    3.Press Release on the Lawsuit on the BAA-UC (Birth and 
Adoption-Unemployment Compensation) Rule

Attachment #1

                                                          July 2000

Society for Human Resource Management

   Position Statement on Unemployment Insurance Expansion and Reform

    Issue: Policymakers are considering landmark unemployment 
insurance (UI) proposals that would change the nature of the UI 
program.
    Background: For more than 60 years, employers have paid 
payroll taxes to fund programs collectively known as the 
Employment Security System. The program is a Federal-State 
partnership that provides four major programs:

     Employment Services,
     Unemployment Insurance,
     Veterans' Employment Services, and
     Labor Market Information

    The programs are operated by State Employment Security 
Agencies (SESAs) using Federal grants financed from a Federal 
payroll tax on employers. In addition, States collect a 
separate payroll tax for the State to finance unemployment 
insurance benefit payments. The Federal Government establishes 
the overall legal framework, provides technical assistance, 
collects and allocates funds for administration and provides 
oversight. States provide services to customers and establish 
laws for the collection of State unemployment taxes and payment 
of benefits.
    The Employment Security System is founded on a ``compact,'' 
by employers, workers and the State and Federal government 
through which employers provide financing through payroll 
taxes. Workers receive unemployment benefits along with re-
employment services to shorten their spells of unemployment. 
Employers also receive services to assist them in meeting their 
needs for skilled workers.
    Although the Federal budget is now described as balanced, 
some of that balance is believed to have been achieved over the 
years by offsetting balances in trust funds, including those 
within the employment security system. Consequently, employer 
payroll taxes are underwriting Federal general revenue and 
providing funds for domestic spending unrelated to employment 
security.
    In 1976, Congress established the 0.2 percent ``temporary'' 
surtax to pay a debt arising from repeated supplemental 
extensions of unemployment benefits. This ``temporary'' tax has 
been extended numerous times and is now scheduled to continue 
until December 31, 2007.

SHRM Position:

    Changes are needed to improve efficiencies in the 
Unemployment Insurance (UI) program. Unemployment Insurance 
reform can be accomplished without taking away any legal 
protections or benefits for workers under current law and 
without creating unnecessary burdens on employers. Legislation 
is crucial to reduce burdensome paperwork for employers, 
promote efficiencies in returning UI claimants to work, weed 
out fraud, and promote greater government accountability and 
efficiency in the use of FUTA funds. Many of the tax dollars 
that employers pay to finance the nation's Employment Security 
System are being used to artificially offset the Federal 
deficit. For example, in 1997 alone, employers paid over $6 
billion in FUTA taxes and only $3.5 billion came back to pay 
for programs. The remaining $2.5 billion is being used to 
artificially offset the Federal deficit.
    States should determine the circumstances under which 
unemployed workers collect benefits under State Employment 
Security programs and how much they receive. However, the 
fundamental nature and purpose of the UI system should not be 
changed to allow individuals who are not unemployed to collect 
funds from the Unemployment Insurance Trust Fund. The UI Trust 
Fund should be reserved for involuntarily unemployed 
individuals who are able and available to work, and should not 
be diverted for other purposes, regardless of the merits of 
that purpose. Allowing States to divert funds away from 
unemployed individuals is short sighted and would 
inappropriately change the fundamental nature and purpose of 
the UI system. Allowing the misdirection of unemployment 
benefits for family and medical leave or other non-employment 
benefit purposes will shred the safety net that the 
unemployment insurance system is designed to provide to 
workers.
    SHRM supports proposals to allow for faster and more 
efficient employment security services and to shift decision 
making closer to home where unemployment services/training can 
be customized to local conditions. SHRM supports the efficient 
collection of employment taxes and opposes proposals to 
accelerate FUTA and State unemployment tax collections due to 
the unnecessary paperwork burdens that would be imposed. 
Moreover, SHRM believes tax dollars that employers pay to 
finance America's employment security system should not be used 
to artificially offset the Federal deficit.
    SHRM opposes the extension of the 0.2 percent FUTA 
surcharge because it represents a breach in the 1976 
congressional commitments that the tax would be temporary.

Attachment #2

SHRM chair lauds representative for stand on issue of using UI funds on 
                              family leave

LETTER FROM THE CHAIR

To SHRM Members:

    Political honesty is an uncommon virtue in an election 
year. It is all too rare that we witness a courageous action 
from politicians on sensitive issues.
    Such action occurred in March in a House Ways and Means 
subcommittee hearing chaired by Rep. Nancy Johnson, R-Conn., on 
a key HR issue--Family and Medical Leave Act expansions. 
Throughout the hearing, Johnson, a moderate Republican and 
vocal supporter of the original Family and Medical Leave Act 
(FMLA), strongly criticized the U.S. Department of Labor for 
issuing a proposed rule that would allow States to raid their 
unemployment insurance (UI) trust funds for workers on family 
leave.
    Throughout the televised hearing, Congresswoman Johnson 
took the stand that ``the implementation of the Family and 
Medical Leave Act has revealed some serious problems'' that 
have been ignored by the Labor Department and said that it is 
irresponsible to expand the act without addressing the existing 
problems. She refused to allow the threat of election-charged 
rhetoric to disguise bad policy. She explained her strong 
record of commitment to family issues and that she would not 
allow the issue to be portrayed as ``I like children and you 
don't. I like women and you don't.'' She cut beyond the 
rhetoric and described the Labor Department's lack of FMLA 
oversight as ``shockingly irresponsible'' and ``unthoughtful.''
    By sheer coincidence, the evening after the hearing I was 
on my way to speak to a senior HR group in the congresswoman's 
State when I received a phone call from SHRM Executive Vice 
President and COO Susan Meisinger, SPHR. She told me of 
Johnson's courageous statements and the success of SHRM member 
Kimberley Hostetler's testimony and, within minutes, I was 
sharing the news with the HR executives who were Johnson's 
constituents.
    The human resource profession is scoring major victories in 
Congress. As a profession, we have demonstrated that we can act 
and react to shape the laws that affect our daily lives and 
those of the workers and employers we serve. The SHRM-founded 
FMLA Technical Corrections Coalition's work has borne 
tremendous fruit. We have now had five congressional hearings 
with numerous SHRM members providing expert testimony 
documenting the FMLA's unintended consequences.
    The SHRM staff, the SHRM-founded FMLA coalition and 
numerous SHRM members have demonstrated tremendous commitment 
to our profession with these legislative successes. However, it 
goes beyond this. At the heart of these actions is a driving 
desire to get beyond the rhetoric to improve the workplace for 
employees and employers alike. We thank Congresswoman Nancy 
Johnson for her courage to do the same.

                                    Michael J. Lotito, SPHR
                                                              Chair
                                            SHRM Board of Directors

Attachment #3

                   SHRM Denounces Clinton's New Paid

            Family Leave Rule by Announcing Historic Lawsuit

    Alexandria, VA, June 12, 2000--The Society for Human 
Resource Management (SHRM) today announced its intention to 
file a lawsuit in the D.C. District Court to stop the 
Administration's new rule that will allow States to dip into 
Unemployment Insurance Trust Funds for paid family leave. 
Joining in the lawsuit is LPA and the U.S. Chamber of Commerce.
    SHRM has coordinated business community opposition to the 
effort since May of 1999. Since that time, individual human 
resource professionals have sent thousands of comments to the 
Department of Labor and Congress warning that the rule was 
illegal and urging that the proposal be withdrawn.
    ``It is astounding that the Administration would finalize 
this rule after receiving strong warnings from Congress, and 
reportedly their own attorneys, that this back door attempt is 
likely to be struck down in court,'' said the SHRM Chair, 
Michael J. Lotito, SPHR. In several DOL internal documents 
discovered recently, the department's Solicitor's Office 
reportedly discusses the department's decision to circumvent 
legislative action saying that, ``the court is likely to 
invalidate such a DOL regulation as an arbitrary agency 
action.''
    The rule allows States to use their unemployment insurance 
(UI) trust funds to pay workers taking leave for the birth or 
adoption of a child. SHRM urges State legislators to freeze any 
State legislative actions until the issue is settled in court. 
``The Department has clearly exceeded its authority in 
attempting to push through this rule when it will most 
certainly be struck down. States acting abruptly could find 
themselves in a situation where they are out of conformity with 
unemployment insurance law, subjecting employers to significant 
payroll tax increase,'' Lotito.
    ``SHRM has made stopping this executive branch rule a top 
priority,'' said SHRM's Executive Vice President and COO, Susan 
R. Meisinger, SPHR. ``This action is necessary given the costly 
nature of the new rule.''
    In February, SHRM submitted extensive comments to the Labor 
Department warning that the ``back door Family and Medical 
Leave Act expansion'' is ``not only illegal, but it is 
inappropriate given the documented problems with the Act's 
existing implementing regulations and interpretations.''
    ``As it already stands, human resource professionals face 
significant challenges in complying with the FMLA, as 
demonstrated in five congressional hearings on the matter,'' 
said Lotito.
    In addition, States which may move forward to implement 
such a program face the possibility of insolvency, thereby 
jeopardizing the individuals whom the system was designed to 
protect--the unemployed. An indication that the DOL is not 
concerned with insolvency issues, it notes in its rule slated 
to be published this week, that ``we have never interpreted 
Federal law to require 'solvency'.''

               DOL ATTEMPTS TO DEFLECT PAID LEAVE LAWSUIT

    Groups Resolve to Continue the Fight to Preserve Jobless Program

    Washington, D.C., August 31, 2000--In a tacit 
acknowledgment of the weakness of its case, the U.S. Department 
of Labor is attempting to deflect the legal challenge brought 
by the Society for Human Resource Management (SHRM); LPA, Inc; 
and the U.S. Chamber of Commerce to its Birth and Adoption 
Unemployment Compensation (BAA-UC) program through procedural 
maneuvering.
    The lawsuit, filed in late June, is an effort to overturn 
the regulation that allows States to dip into their 
unemployment insurance (UI) trust funds to pay workers taking 
leave for the birth or adoption of a child. Instead of 
attempting to resolve the legality of a program in which it 
claims there is widespread interest, DOL has filed a motion to 
dismiss the case, claiming it is not ``ripe'' because no State 
has yet acted.
    ``We are extremely disappointed in the Department's 
position that an employer must be harmed before a court can 
decide that it acted illegally,'' said SHRM President and CEO, 
Michael R. Losey, SPHR. ``If the Department is so confident in 
the legality of its position, why is it engaging in delay 
tactics?''
    ``In promulgating BAA-UC, the Department claimed it was 
something the States were clamoring for,'' said Jeffrey C. 
McGuiness, President of LPA, Inc. ``If that is the case, why 
doesn't the Department want to address the question of legality 
as soon as possible? We feel confident we will inevitably 
prevail. Cluttering up the case with procedural hurdles only 
delays the inevitable.''
    ``No amount of legal motions or procedural delays can hide 
the facts in this case,'' said Randel Johnson, Chamber Vice 
President of Labor and Employee Benefits. ``The Clinton 
Administration is unlawfully jeopardizing a critical program 
for laid-off workers to subsidize people who already have jobs. 
If this Administration wants to provide paid leave to employees 
away from their work, it should finance it honestly--not rob a 
fund that has been paid for by employers and set aside for 
unemployed workers.''
    By dictating a fundamental change in the country's jobless 
assistance program, the challenged regulation circumvents 
Congress, and breaks a 65-year-old covenant between the 
government and the jobless, according to the plaintiffs. In 
addition, this move marks a departure from the original Family 
and Medical Leave Act (FMLA) as passed in 1993, which rejected 
proposals requiring employers to pay employees taking family 
leave. Reportedly, DOL's own lawyers have advised that this 
action is of questionable legality and would likely be struck 
down in court.
    LPA is a public policy advocacy organization representing 
human resource executives. Collectively, LPA members employ 
more than 12 percent of the U.S. private sector workforce.
    The U.S. Chamber of Commerce is the world's largest 
business federation representing more than three million 
businesses and organizations of every size, sector and region.
      

                                

Statement of the Hon. Bob Taft, Governor, State of Ohio

    Thank you for the opportunity to submit a statement 
expressing my strong support for repeal of the ``temporary'' 
Federal Unemployment Tax (FUTA) surcharge and reforms to the 
employment security financing system to provide full funding 
for the unemployment insurance and employment service programs.
    Reform of this system is an issue that is extremely 
important to employers, workers and States administering 
unemployment insurance and employment service programs. I was 
pleased to testify before the Ways and Means Committee in June 
of 1999 and to submit a statement to this subcommittee in 
February of this year in support of badly needed reforms to 
this system.
    The FUTA surcharge was enacted by Congress in 1976 to 
provide funds to reimburse depleted trust fund accounts that 
have long since been restored. The Tax Relief Act of 1997 
extended this surcharge much longer than necessary through the 
year 2007.
    The current system overtaxes employers and underfunds the 
unemployment insurance program and employment services which 
are critical to provide needed access to jobs and support for 
families in the workforce of the new century.
    In 1997, 49 of the 53 States and jurisdictions received 
less in administrative funding than their employers paid in 
FUTA taxes--many States significantly less. Since 1990, less 
than 58 cents of every employer FUTA tax dollar has been 
returned in administrative funding for States.
    An examination of the taxes paid by employers in comparison 
to administrative funds provided to the States paints a 
compelling picture. From 1993 to 1998, annual FUTA tax 
collections increased from $4.23 billion to $6.45 billion while 
administrative funding was cut from $3.81 billion to $3.47 
billion. Although the latest data is only available through 
1998, the trend line has continued in 1999 and 2000, further 
diminishing the percentage return of employer taxes to the 
States each year.
    This grossly inadequate return to the States is striking, 
as is the unjustified continuation of the ``temporary'' 
surcharge. In Ohio, where we receive 39 cents on the dollar, 
the lack of adequate funding has required the closing of local 
offices, reductions in staff, and the use of State general 
revenue to make up for cuts in Federal funds.
    Not only is there no justification for the continuation of 
the FUTA .2 percent surcharge to fund the system, but the funds 
appropriated are insufficient to meet the costs of supporting 
the State adequately in administering the unemployment 
insurance and employment service programs. Ohio employers are 
paying too much in FUTA taxes, and the differential between the 
amount of Federal administrative funds appropriated and actual 
costs of administration by the States continues to increase.
    We must do a better job of supporting State efforts to 
ensure the ability of American families to adjust to the 
demands of the workforce in the coming century by providing 
adequate funding for employment services for those who become 
unemployed. In Ohio, we have merged the Bureau of Employment 
Services and the Department of Human Services into the 
Department of Job and Family Services to develop the 
comprehensive system we need to address workforce development.
    We need a system which properly funds States for 
administration, minimizes the tax burden on employers, and 
provides States with the flexibility to design and effectively 
run workforce development systems.
    Since 1997, a coalition of 32 States and more than 100 
State and national employer organizations representing hundreds 
of thousands of employers have joined together to seek reform 
of employment security financing. The Western Governors 
Association and the Southern Governors Association have passed 
resolutions urging reform of the system, and the National 
Governors' Association has adopted a policy statement outlining 
specific areas where reform is needed.
    Congressman McCrery and Senator DeWine have been 
instrumental in bringing the need for reform to the attention 
of Congress by introducing legislation earlier this session. 
Their efforts and those of the reform coalition have now been 
joined with reform initiatives from representatives of 
organized labor and the United States Department of Labor to 
develop a bi-partisan reform proposal.
    The bi-partisan proposal now under consideration was 
crafted to address appropriate administrative funding levels 
and employer taxes. The proposal includes provisions to:

     Repeal the .2 percent FUTA surcharge;
     Provide adequate dedicated funds for 
administration of unemployment insurance, public employment 
services and veterans employment services; and
     Streamline employer tax reporting requirements to 
reduce employer reporting burdens and the costs of 
administration.

    I urge you to favorably consider this bi-partisan proposal 
for reform.

                                   - 
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