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

     UNEMPLOYMENT COMPENSATION AND THE FAMILY AND MEDICAL LEAVE ACT

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 9, 2000

                               __________

                             Serial 106-114

                               __________

         Printed for the use of the Committee on Ways and Means

                    U.S. GOVERNMENT PRINTING OFFICE
69-340 DTP                  WASHINGTON : 2001
_______________________________________________________________________
            For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 20402

                      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 March 2, 2000, announcing the hearing................     2

                               WITNESSES

U.S. Department of Labor, Raymond J. Uhalde, Deputy Assistant 
  Secretary, Employment and Training Administration..............    39

                                 ______

Connecticut Hospital Association, and Society for Human Resources 
  Management, Kimberley K. Hostetter.............................    61
Connecticut House of Representatives, Hon. Christopher G. Donovan    16
Gregg, Hon. Judd, a United States Senator from the State of New 
  Hampshire......................................................     7
Michigan Unemployment Agency, Jack F. Wheatley...................    89
National Employment Law Project, Maurice Emsellem................    70
U.S. Chamber of Commerce, and North Central Massachusetts Chamber 
  of Commerce, Todd L. Shinkus...................................    80
UWC-Strategic Services on Unemployment & Workers' Compensation, 
  Eric J. Oxfeld.................................................    49

                       SUBMISSIONS FOR THE RECORD

Associated General Contractors of America, Inc., Alexandria, VA, 
  statement......................................................   110
Employment Policy Foundation, Edward E. Potter, letter and 
  attachment.....................................................   114
LPA, statement...................................................   122
Maryland House of Delegates, Hon. Richard La Vay, and Hon. Van T. 
  Mitchell, letter...............................................   125
Mechanical Contractors Association of America, Inc., Rockville, 
  MD, John McNerney, letter......................................   126
National Partnership for Women & Families, Judith L. Lichtman, 
  statement and attachments......................................   127
National Restaurant Association, statement.......................   135
Wilson, Mark, Heritage Foundation, statement.....................   136
Woolsey, Hon. Lynn, a Representative in Congress from the State 
  of California, statement.......................................   138

 
     UNEMPLOYMENT COMPENSATION AND THE FAMILY AND MEDICAL LEAVE ACT

                              ----------                              

                        THURSDAY, MARCH 9, 2000

                  House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:01 a.m., in 
room B-318, Rayburn House Building, Hon. Nancy 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

March 2, 2000

No. HR-17

               Johnson Announces Hearing on Unemployment

           Compensation and the Family and Medical Leave Act

    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 Unemployment Compensation 
and the Family and Medical Leave Act. The hearing will take place on 
Thursday, March 9, 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 State legislators as well as representatives of 
business, labor, and State Unemployment Compensation administrators. 
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:

      
    On December 3, 1999, the U.S. Department of Labor issued a Notice 
of Proposed Rulemaking that outlined an Administration proposal to 
allow States to use Unemployment Compensation funds to provide partial 
wage replacement to parents on leave following the birth or adoption of 
a child.
      
    The nature of the American workforce has changed since the 
Unemployment Compensation program was founded in 1935. Today's 
workforce contains many more mothers, especially of young children, 
than at any time in the past. The Family and Medical Leave Act of 1993 
(P.L. 103-3), gave opportunities to working mothers and their families 
by requiring certain employers to provide up to 3 months of unpaid 
leave to parents of newborn babies and to parents who adopt. The 
Administration proposal to allow States to use Unemployment 
Compensation funds would pay a stipend to parents to take such a leave. 
The proposal does not require States to provide this benefit but leaves 
it to the States' option. Current rules allow Unemployment Compensation 
benefits to be paid during training, illness, jury duty, and temporary 
layoffs.
      
    A basic tenet of the Unemployment Compensation program is that only 
involuntarily employed workers are covered. Expanding these benefits to 
voluntarily unemployed workers would represent a major expansion of the 
program. Any increase in benefits would in the long run use more money 
than is in the trust accounts that support State programs. To replace 
these funds, a tax increase would be needed to provide the additional 
revenue to finance the new benefit. Families rely on unemployment 
compensation to help them during periods of involuntary unemployment. 
Any changes to this important system requires careful consideration by 
Congress in the appropriate legislative process.
      
    In announcing the hearing, Chairman Johnson stated: ``The Family 
and Medical Leave Act has served many families well by giving them 
opportunities to take time off from work during periods of urgent 
family or medical need. However, in order to expand this important 
program, we should not jeopardize another essential public program such 
as the Unemployment Compensation system. We do not want to pit out-of-
work Americans against their neighbors who have jobs and we do not want 
to open the nation's Unemployment Compensation system to uses for which 
it was never intended. Instead, we should have legislation brought 
before the Congress for open and honest discussion.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on whether using Unemployment Compensation 
funds to pay cash stipends to parents taking family leave is good 
policy and whether using the rulemaking process to impose these changes 
is appropriate.
      

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, 
March 23, 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://waysandmeanshouse.gov''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

    Chairperson Johnson. Senator, I know you do have a markup 
going on. Do we have time to start with our opening statements 
or do you really need to make your testimony?
    Mr. Gregg. Would it be possible for me to give my 
testimony?
    Chairperson Johnson. Yes. We will accommodate you.
    Mr. Gregg. If it's inconvenient.
    Chairperson Johnson. Well, it changes the flow, but it's 
not something that our minds can't grasp.
    Mr. Gregg. I don't want to usurp the committee, so, please, 
proceed however the Chairman wishes to proceed.
    Chairperson Johnson. I appreciate you coming over, 
especially when you're in the middle of a markup. Those are 
important meetings.
    So let me thank you for joining us this morning. I 
appreciate your experience in this area and I'm looking forward 
to your testimony.
    You may proceed. Your entire statement will be included in 
the record.
    Mr. Gregg. Thank you, Madam Chairman, and I appreciate your 
courtesy. It is very kind of you to allow me to proceed. I do 
apologize for upsetting the flow of the hearing.
    I would like to hear your opening statement, so if you 
don't mind. Would it be all right?
    Chairperson Johnson. It would be fine. If you have time, 
we'd prefer it that way. Thank you very much.
    I thank all of our guests for coming this morning to 
testify at this hearing. We greatly appreciate your willingness 
to prepare testimony, knowing that it takes a lot of time, and 
share your views with us.
    Let me state plainly that I do not support using the 
unemployment compensation system to pay cash benefits to 
parents taking parental leave.
    Chairman Archer and I wrote the President last June, when 
he first announced his decision to allow such payment, to 
oppose his backdoor raid on the unemployment compensation 
system. We also wrote to Secretary Herman, responding to the 
initial draft of the regulations implementing the President's 
decision.
    Although I am a firm supporter of parental leave and voted 
for Family Medical Leave at a time when it was very 
controversial in 1993, I cannot support using money intended 
for unemployed workers to pay benefits to families choosing to 
take parental leave, especially when no provision for funding 
those new benefits is being made.
    For 65 years, everyone assumed that the unemployment 
program was intended to help those involuntarily unemployed. 
All of our thinking about the trust funds, coverage, and the 
level of benefits was based on the assumption that only 
involuntarily unemployed workers were eligible for benefits.
    To suddenly change such a basic feature of this extremely 
valuable program, without hearings or providing a source of 
funding, is shockingly irresponsible. This decision has serious 
implications for the unemployment compensation trust fund and 
for taxes on American businesses and workers.
    Any state that adopts this action will spend more money 
than it currently does on unemployment benefits. If more money 
is spent from the state trust funds, taxes will be increased. 
It's a mathematical certainty that if more people get benefits, 
taxes must be increased. I must point out that I have been very 
perplexed by the contradictory message on trust fund balances 
that the Democratic proposal sends.
    For years, we have heard from the Department of Labor that 
trust funds are too low. Now the Department publishes a 
regulation that would substantially deplete the trust fund of 
any state that follows the regulation. Is the Department no 
longer concerned about the balance in state trust funds?
    Another consideration is that the implementation of the 
Family and Medical Leave Act has developed some serious 
problems, revealed some serious problems with the statute and 
its regulations. We will have clear and convincing testimony on 
these problems later in this hearing.
    Again, it is simply irresponsible to expand the program 
without addressing the problems that exist in the program and 
funding its benefits.
    The Family and Medical Leave Act is a vital strand in our 
domestic safety net. It is a major domestic program that has a 
long and distinguished history. It deserves thoughtful reform 
and a process that sincerely addresses the problems that have 
developed with its functioning, a full consideration of 
expansion possibilities, and honest attention to the funding 
required to support expansions.
    Administrative fiats, unthoughtful and unfunded, sound good 
in the political bumper stickers of this world, but they will 
undermine the unemployment compensation system, which I 
consider to be one of the most important components of that 
safety net.
    I am disappointed that the Clinton Administration and the 
Department of Labor has not seen fit to submit legislation that 
could be considered by this committee and would contain in it 
some of the solutions to the problems with the current law, as 
well as a proposal to pay for new benefits.
    I will listen carefully to all the testimony today, 
including testimony in support of the President's policy, 
because I, too, would like to be able to move in the direction 
of some paid leave. But bad procedure creates bad law and, 
frankly, I am, as a legislator and as a public policy person of 
23 years experience, outraged to see a political leader 
proposing expansions without the money to support them and 
expansions that fly in the face of the fundamental focus and 
concern and support system that our unemployment compensation 
system represents in our nation.
    So this is an important hearing. We're going to have 
excellent testimony across the range, and I hope that we will 
be able to get on the record some of the basic facts, like how 
many states are still in debt in their unemployment 
compensation, what is the level of the trust fund. We need some 
nuts and bolts and we think we have the people here who will be 
able to provide that information.
    Mr. Cardin.
    Mr. Cardin. Thank you, Madam Chair. Let me first thank you 
for holding these hearings and applaud your leadership on this 
committee to work in a bipartisan manner. We have produced, I 
think, some very constructive legislation, working together, 
Republicans and Democrats.
    We disagree on this issue, at least as I've heard you frame 
the issue for our subcommittee.
    Madam Chair, over the last few years, there has been 
considerable debate on Congress on two issues--helping families 
raise their children and increasing flexibility to our states 
in order to deal with these issues and these social programs.
    I am, therefore, puzzled by the opposition expressed to a 
policy that directly promotes both of these goals. After all, 
we are talking about a regulation that will give states the 
option--the option of providing unemployment compensation to 
workers on parental leave. That seems to me very consistent 
with the policy that we have taken to give our states more 
flexibility in dealing with the problems in their own 
community.
    Objecting to this policy seems tantamount to opposing the 
flexibility of states to promote family values.
    This is not to say that the unemployment insurance system 
is necessarily the best mechanism in every state to provide 
paid leave to workers. States may prefer a different approach 
to addressing the issue of paid leave, such as establishing 
temporary disability insurance system.
    But for some states, providing unemployment compensation to 
workers who need time away from work to care for an infant 
represents a sound investment in the future.
    I'm sure, as the Chair indicated, some will question the 
Department of Labor's authority to implement this change 
through a regulation rather than through a statutory approach. 
Let me point out that historically we have used the regulatory 
approach to make many of the changes in our unemployment 
insurance system.
    For example, the requirement that recipients be able and 
available for work was established by regulation. States have 
created numerous exceptions to these requirements over the 
years, including for individuals who are in training and who 
are subject to recall by a former employer, or those that are 
on jury duty.
    As our subcommittee considers the proposed regulation 
allowing states to provide unemployment insurance benefits to 
workers on leave for birth or adoption of a child, it may be 
instructive to remember that our nation's workforce has changed 
dramatically since the unemployment insurance system was 
created more than six decades ago.
    Just consider this one statistic. Ten years after the 
creation of the UI system, only 12 percent of mothers with 
young children were in the workforce. Today, that percentage 
has increase five-fold to 62 percent. It is time for us to look 
at our UI system to make sure it is meeting the needs of the 
people in our communities, and those needs are different around 
the nation and states should have the flexibility to be able to 
respond to that.
    Recognizing the changing nature of the workforce has placed 
severe strains on families. Congress passed the Family and 
Medical Leave Act, which guarantees employees in certain 
businesses three months of unpaid leave when they become 
parents. The fact remain that many middle and modest income 
families cannot afford to go without a paycheck, even for a few 
months, meaning that they are unable to take time away from 
work under the Family and Medical Leave Act because they will 
not have compensation.
    The proposed regulation from the Department of Labor allows 
states to experiment with one more method for helping these 
parents care for a newly born child or for an adopted child. In 
short, it allows the states to pay unemployment benefits to 
workers who are temporarily unemployed through no fault of 
their own.
    Madam Chair, I agree with you, I think these hearings can 
be extremely helpful to us as we look at our unemployment 
insurance system, but let me just underscore one point. There 
are many differences in the status of the funds around the 
nation. Some states do have problems with solvency, other 
states don't have problems with solvency.
    I don't see a danger in allowing the states to experiment 
to see whether they can't use the social programs that we have 
to meet the needs of their community, and I look forward to 
hearing from our witnesses, particularly our distinguished 
Senator.
    Chairperson Johnson. Senator Gregg. It's a pleasure to have 
you with us morning.

STATEMENT OF THE HON. JUDD GREGG, A UNITED STATES SENATOR FROM 
                   THE STATE OF NEW HAMPSHIRE

    Mr. Gregg. Thank you, Madam Chair. I appreciate the 
opportunity to appear before the committee. As I mentioned 
earlier, I think this is a very important issue. It is an issue 
which arises on a number of levels in its significance. First 
off, of course, is the issue of jurisdiction; the fact that the 
Department of Labor is pursuing an avenue which is clearly 
reserved for the Congress.
    We do have a separation of powers in this nation. We do 
have the authority to legislate residing in the Legislative 
Branch, not in the Executive Branch, and what the Department of 
Labor is attempting to do here is clearly to legislate and, in 
doing so, is trampling not only on the rights of the Congress, 
but more importantly, it's treading on the Constitutional 
rights of citizens who are protected by the separation of 
power, and that is a critical point which must be considered.
    The proposed rule also has a dramatic impact on two very 
significant pieces of legislation which this Congress spent a 
lot of time on and has spent a lot of time on and I know this 
committee has committed huge amounts of time to. One, of 
course, is the Family and Medical Leave Act and the other is 
the unemployment insurance laws.
    I chair the Senate Subcommittee on Children and Families. 
We have jurisdiction over the Family and Medical Leave Act, and 
have held a number of hearings on this bill and in the present 
way in which the Department of Labor is pursuing the 
institution of that legislation. We found that there are some 
significant problems with the Family and Medical Leave Act.
    We do feel that the Department of Labor is ignoring these 
problems and that it has an obligation to address these 
problems first, before it decides to expand the Family and 
Medical Leave Act dramatically. Some of the problems we've 
identified are a significant unintended administrative burden, 
costs to employers, resentment that has grown up in some 
workplaces by coworkers because the Act has been misapplied, 
the invasion of privacy by requiring employers to ask deeply 
personal questions about employees and family members in 
planning to take their family leave, unnecessary record-keeping 
and unworkable notice requirements, and conflicts with the 
existing policies.
    These are serious problems which the Family and Medical 
Leave Act already have and which the Department of Labor, 
regrettably, is not adequately addressing. Yet, they want to 
significantly expand the role of the Family and Medical Leave 
Act in this proposal which they have come forward with.
    Unlike the Family and Medical Leave Act, the unemployment 
laws have been on our books for over 65 years, and the 
structure of the unemployment accounts are very significant and 
have a history, a history which is critical to review and which 
is important in this decision-making process.
    The key to it is, I think, to recognize that unemployment 
insurance is for unemployed people and it is an insurance 
account which is set up based upon the concept that we would be 
able to help people out in hard times, as well as good times.
    The proposal which comes to us today reflects a good time 
proposal. The economy is doing well. Yes, the unemployment 
insurance accounts are, therefore, quite strong. But as a 
practical matter, this is not a time when the unemployment 
insurance accounts are at their most critical need. When they 
are at their most critical need are periods of recession and, 
unfortunately, as well as we have done for the last ten years, 
I seriously doubt that we have stepped out of the business 
cycle as an event in our nation's history, because it has been 
with us for the 200 years that we have been in existence.
    And in fact, the Department of Labor itself recognizes that 
if we go into another severe recession, say a recession of the 
nature that we had in 1980 or '82, we would see that over 25 to 
30 states would have to borrow 20 to 25 billion dollars from 
the Federal Government in order to maintain their unemployment 
insurance accounts.
    That means that these accounts are not as strong as you 
might think they are or as they might appear today, but they 
are really quite fragile and, in fact, as a governor, which is 
a job I also had in prior history, I had the regrettable 
experience of governing my state during the most severe 
recession, it was actually a depression, that the New England 
region has gone through in the last 15 years to 20 years, and 
that was a period when our own unemployment funds throughout 
New England went into bankruptcy.
    Luckily, New Hampshire was able to avoid that type of a 
bankruptcy, but the other funds did not and they had to come to 
the Federal Government and they had to borrow money, and as a 
result, the Federal Government had to bail out the states.
    So I think we must recognize that the unemployment 
insurance accounts play a very unique role in our society. They 
are there as the buffer during hard times. And to suddenly 
invade those accounts for the purposes of what may be a good 
polling initiative, which is the proposal which is being put 
forward here today, but for a purpose which has no relationship 
to the original intent or purpose of the unemployment insurance 
accounts, is a very serious public policy error.
    The unemployment accounts were structured for the purposes 
of benefiting people who are able and available for work. Now, 
if you're on family leave, you are not available for work. They 
were structured for the purposes of assisting people, the 
unemployment insurance accounts, for people who had been 
involuntary separated from their jobs, people who had lost 
their jobs, not because of any conscious decision that they had 
taken, but because they had unfortunately been put in an 
economic situation where their job had either been eliminated 
or where they themselves had simply become unemployed because 
of a decision that was made by their employer.
    A person who is obviously participating in the Family and 
Medical Leave Act has not involuntarily lost their job. They 
have, by definition, simply left their job for a period of 
time, at their own volition, in order to pursue a family 
decision, which is a very appropriate and good family decision, 
but which is not tied to unemployment. It is tied to a decision 
to take a period of leave.
    And most people who are on leave in our society today under 
the Family and Medical Leave Act do receive some sort of 
compensation from their employer because they are actually on 
leave.
    So those are two very significant legal and structural 
reasons why we should not cross-fertilize these two programs. 
The simple fact is that the unemployment insurance accounts are 
structured for the purposes of benefiting an individual who has 
lost their job as a result of a separation and who finds 
themselves still being available for work. The Family and 
Medical Leave Act, on the other hand, is structured for the 
purposes of a person who decides, as a matter of their own 
volition, to take a break from their job in order to raise a 
family, which is a very reasonable decision, but it is not tied 
to unemployment.
    And it all comes back to the issue of or the question of 
public policy. The public policy of this government is that we 
will have unemployment insurance accounts which are solvent, 
which are available for people during hard times. If we 
suddenly start using those accounts for other activities, no 
matter how well those activities may poll or no matter now much 
they may be a nice way of saying that this is a good purpose to 
pursue in your life, if we start using the unemployment 
insurance accounts for other activities than benefiting those 
people who are unemployed, we will find that we will soon drain 
those accounts and that we will not have a solvent system as we 
move into the next recession, which regrettably is inevitably 
going to occur.
    In fact, the Labor Department needs to only look at its own 
statistics to confirm this position. They can look at what 
happened in 1982, they can look at what happened in 1991 during 
the recession then, or they can look at their own projections 
as to what would happen if we had another recession of the 
nature either of the '82 recession or the '91 recession, when 
we know that the insolvencies occurred.
    Now, there are some that argue, well, this should be left 
up to the states and the states should be able to make this 
decision and there should be an opportunity for the states to 
experiment in this area. That argument might make sense and, of 
course, it's an attractive argument to a states' right person 
as myself, except for the fact that it is the Federal 
Government that is the insurer of last resort here. It is the 
Federal Government that has to come in and protect these 
unemployment insurance accounts if they are not fully solvent.
    So we, the Federal Government, end up paying the bill when 
these accounts have been drained, which is what will occur of 
this policy of the Department of Labor is pursued. My 
suggestion to the Department of Labor is that rather than 
opening up this brand new drain on the unemployment insurance 
accounts, that they might want to consider going back an taking 
a look at their mismanagement of the present Family and Medical 
Leave procedures and correcting the errors which they are not--
which we have now documented in this program, which have 
created a huge amount of bureaucracy and, unfortunately, some 
tensions in many working places, and that would be a more 
appropriate exercise for the Department of Labor.
    I thank the Chair.
    [The prepared statement follows:]

Statement of Hon. Judd Gregg, a United States Senator from the State of 
New Hampshire

    Madam Chairman, Members of the Committee, first, I want to 
thank you for extending the courtesy of allowing me to testify 
on this very important topic--the Department of Labor's 
proposed rule to expand unemployment insurance for unrelated 
purposes.
    As you know, I chair the Senate Subcommittee on Children 
and Families which has jurisdiction over the Family and Medical 
Leave Act (FMLA) and related legislation. I am here today to 
express my very strong opposition to the administration's 
proposal.
    In issuing the proposed rule the Administration has ignored 
Congress' actions in the Family and Medical Leave Act area. 
This thinly veiled back door FMLA expansion circumvents the 
legislative process and violates the constitutionally protected 
rights of citizens that we, as elected officials, represent. 
The proposed rule violates the clear and unambiguous intent of 
the letter and the spirit of two significant measures passed by 
Congress: the Family and Medical Leave Act and unemployment 
insurance laws. Additionally, the rule violates a number of 
good government regulatory reform laws that Congress has passed 
that have been specifically designed to stop back door efforts 
to legislate through the Executive branch.
    The Department of Labor is well aware of Congress' 
continued interest and jurisdiction over FMLA-related issues. 
In fact, the Department testified before the Subcommittee on 
Children and Families on July 14, 1999 at a hearing entitled 
``the Family and Medical Leave Act: Present Impact and Possible 
Next Steps".
    During that hearing we received testimony pointing to the 
fact that, as implemented by the department of Labor, the 
Family and Medical Leave Act has resulted insignificant 
unintended administrative burden and costs on employers; 
resentment by co-workers when the act is misapplied; invasions 
of privacy by requiring employers to ask deeply personal 
questions about employees and family members planning to take 
FMLA leave; disruptions in the workplace due to increased 
unscheduled and unplanned absences; unnecessary record keeping; 
unworkable notice requirements; and conflicts with existing 
policies.
    In addition, the proposed rule states that the proposal has 
been assessed in accordance with section 654 of pub. L. 105-
277, 112 stat. 2681, for its effect on family well being. The 
DOL concludes that the proposed rule will not adversely affect 
the well being of the nation's families.
    Given the ambiguous nature of the proposed rule and its 
inevitable misapplication and abuse, we can expect to see an 
extension of the FMLA's documented negative effect on coworkers 
and their families. Co-worker resentment and unnecessary 
litigation have resulted from the Department's confusing FMLA's 
regulations and interpretations and will be increased by the 
proposed expansion of unemployment insurance.
    Unlike the Department's attempt to manufacture authority to 
overturn a 65 year old policy requiring persons receiving 
unemployment compensation to actually be unemployed and not 
merely on leave, the Department clearly has a responsibility to 
ensure that the laws within its jurisdiction are being 
implemented as intended by Congress.
    Yet, rather than addressing a single one of these well 
documented problems, the Department of Labor is now proposing 
to create more burden by diverting resources away from the 
unemployment insurance system to pay for persons on FMLA leave. 
Though perhaps politically expedient, this policy is 
irresponsible and extremely short-sighted.
    The unemployment insurance program is designed to be self-
financing. Funds accumulated during periods of economic growth 
support benefit payments during economic downturns. Because 
unemployment rates have been low for the past few years, some 
states (approximately 30) are currently running large surpluses 
in their UI trust funds. This was the same situation in the 
1980s recessions when over half of all states did not have 
sufficient funds to pay legally mandated benefits. According to 
a report issued last summer by the Department of Labor, an 
economic downturn of the magnitude of the 1980-82 recession 
would force 25-30 states to borrow $20-$25 billion in order to 
pay UI benefits.
    Madam Chairman, as you know I served as Governor of the 
State of New Hampshire from 1989 to 1993. Though unemployment 
in New Hampshire was relatively low (6.6%) as compared to other 
states we still felt the impact of the 1990-91 recession. I had 
an opportunity to see first hand how important unemployment 
compensation is to jobless Americans as thousands of New 
Hampshire residents found themselves without jobs, without any 
income at all. All they had was unemployment compensation--and 
that for a limited duration.
    During the 1990-91 recession more than half the states 
depleted their UI reserves and had to borrow from the federal 
government. Many states had to cut back on their UI benefits 
and eligibility to keep their unemployment insurance accounts 
solvent. Congress was forced to pass a 13-week extension of 
unemployment benefits for people whose benefits had run out. 
Over 6,000 New Hampshire residents applied for and received 
benefits under this extension.
    In New Hampshire, we were the only northeastern state that 
avoided insolvency necessitating loans from the federal 
government to provide UI benefits to workers during the 1990 
recession.
    This track record was accomplished by asking the 
Legislature to adjust the tax system when necessary to avoid 
insolvency. Essentially, we increased the amount of funds that 
had to be maintained in the trust fund before employers could 
qualify for a payroll tax discount. This amount was raised 
twice while I was Governor, and resulted in our being able to 
maintain a solvent trust fund account without sacrificing 
benefits to families in need. However, had we been paying 
family leave benefits at the same time it is very doubtful we 
would have been able to maintain our benefit levels without 
borrowing from the Federal Government or significantly 
increasing employer payroll taxes.
    This is what we risk repeating if the Administration has 
its way. In fact, the Labor Department's own statistics show 
that if another similar recession occurs, and by most estimates 
the 1991 recession was relatively mild, states will need to 
borrow an additional $2-4 billion. If we experience a more 
severe recession like what we experienced in the 1980s those 
numbers would increase dramatically.
    Madam Chairman, the Administration does not, despite it's 
contentions to the contrary, have the authority claimed in the 
proposed rule to re-interpret 65 year old Federal unemployment 
compensation requirements that individuals be ``able and 
available'' for work, to permit providing wage replacement to 
employees who take approved leave or otherwise leave employment 
to be with their newborns or newly-adopted children. That 
decision must appropriately rest with Congress.
    The Department of Labor should rather, focus its attentions 
toward implementing FMLA as originally intended and re-visiting 
areas where it has created unnecessary confusion and 
administrative burden on those who are attempting to carry out 
the letter and spirit of the Act. I urge the Administration to 
rethink its position in this matter, to include Congress in a 
significant way in addressing the future of the FMLA and to 
withdraw the proposed rule.
      

                                

    Chairperson Johnson. Thank you very much, Senator. Senator, 
when were you governor, was there any impediment to you passing 
a law that would have provided paid family leave and funding 
it, if you had chosen to do so?
    Mr. Gregg. Of course not.
    Chairperson Johnson. So there is no impediment in Federal 
law for a state doing this, if they want to do it. The issue 
here is not whether states can do this. They can. The question 
is should they be funding family medical leaves, which is a 
voluntary kind of unemployment, with money that has been 
explicitly set aside under the law to guarantee benefits to 
people who are involuntarily unemployed. So there is no 
impediment right now.
    Mr. Gregg. That is absolutely correct, Madam Chairman. It's 
a succinct statement of it. The states have the rights to, if 
they want, set up another account which would be able to 
benefit those people who take a family leave, totally separate 
from the unemployment insurance accounts, and obviously it 
should be separate from the unemployment insurance accounts, 
because you're talking about two entirely different events.
    One is a person taking voluntary leave from their job, the 
other is a person who has involuntarily left their job and is 
still available for work. In the first instance, the person is 
not available for work, because they're on leave raising their 
child.
    Chairperson Johnson. Now, what did you do? Because you were 
one of the few, maybe the only New England governor, to avoid 
bankruptcy insolvency and heavy borrowing in your unemployment 
compensation system.
    You mention in your testimony that you asked the 
legislature to adjust the tax system in order to avoid 
insolvency.
    Mr. Gregg. We had traditionally in New Hampshire an 
extremely conservative unemployment insurance fund and we had a 
very solvent and strong fund going into the recession, which 
was probably our biggest advantage. It was extremely strong, 
which is an example of why you do not want to weaken it by 
throwing other programs into it, which would cause it to be 
weakened prior to a recession occurring.
    The governors can't predict recessions. I'm not sure who 
can predict recessions, but I can assure you governors can't, 
nor can state legislatures.
    That was our best advantage. We had a strong fund. Then we 
did have to, unfortunately, raise taxes twice during the period 
of our downturn in order to keep the funds solvent, but we 
decided to do that rather than come to the Federal Government.
    Chairperson Johnson. And once you got through the crisis, 
did you continue those tax increases or did the legislature 
then reduce taxes?
    Mr. Gregg. I believe the legislatures rolled those back. I 
left and I suspect somebody took credit for that.
    Chairperson Johnson. I really commend you on increasing the 
taxes to fund the benefits. In my estimation, the unemployment 
compensation system is simply one of the most important pieces 
of the safety net we have in America, because it supports hard-
working people who are, through no fault of their own, 
unemployed.
    So I commend you on your handling of that crisis. I yield 
to my colleague, Mr. Cardin.
    Mr. Cardin. Thank you, Madam Chairman. Let me compliment my 
colleague on his passion on this issue and on the management in 
his own State of New Hampshire.
    I also would like to acknowledge Lynn Woolsey, our 
colleague from California, who is here today, who has done so 
much work on this issues of family issues and parents having 
time with their children, particularly when they are very 
young, the children are very young.
    It's very interesting, Senator, I listened to your 
testimony and I think we at least need to point out this not 
new ground. This is not the first time that states have used 
the unemployment insurance system to deal with problems in our 
community. We are dealing with involuntary separation and we 
know that the unemployment insurance system traditionally pays.
    But there are many exceptions to involuntary separation 
that states have used in order to deal with social needs in 
their community. This is not the first time. In fact, all 
states have at least some exceptions to involuntary separation. 
Let me just mention some that are--that some states have 
recognized and allow that a worker be able to still get 
unemployment insurance.
    A worker who quits following a spouse who has transferred 
to a new job, in some states, is still considered to be in the 
labor market. A woman who quits work because of her abusive 
spouse can be entitled, in some states, to unemployment 
insurance. A worker who quits to care for an ill parent, who 
may be forced to relocate, in some states, is eligible for 
unemployment insurance. A worker who quits to care for an ill 
child may be considered still available for work because of a 
shift change that parent must make.
    So we have exceptions already in the unemployment insurance 
law to deal with these types of circumstances. I'm somewhat 
bewildered by the shock that all of a sudden we are 
jeopardizing the solvency of our unemployment insurance funds.
    Your testimony I hope we will make part of the record of 
our last hearing of this committee, where we talked about 
devolving some of the unemployment insurance systems to our 
states, a proposal that I have very, very serious reservations 
about, because of the exact reasons that you pointed out in 
your testimony.
    That is, it doesn't take much change in our economy to 
affect the solvencies of our unemployment insurance funds at 
the state level and we need to be able to have a strong Federal 
backstop, whether it's administrative costs or whether it's to 
be able to deal with extended benefits, to deal with changes in 
our economy.
    You are correct. New Hampshire has been one of the best 
managed states. Your solvency, I think, ranks number fourth in 
the nation as far as solvency. But I think you would 
acknowledge that there is something strange that the United 
States is the only industrial nation in the world that a parent 
is not able to get paid leave when they have a child or when 
they adopt a child.
    My daughter hopefully will have a child in the next couple 
days. She works for an employer that gives her paid leave. If 
that employer didn't give her paid leave, it would have had an 
impact on her staying at home, which I think is true with many 
parents around the nation.
    I don't know why we would want to restrict you, as 
governor, to decide when you were governor and your legislature 
to decide that you wanted to follow Mrs. Johnson's suggestion 
of enacting some form of paid leave requirements, but then you 
may have run into some problems with your chamber, with the 
employer saying, gee, maybe we'll move to Vermont rather than 
New Hampshire because of that mandate at the state level.
    Mr. Gregg. And they're not apt to do that.
    Mr. Cardin. Well, maybe it was Maryland rather than 
Vermont. But why you would want--why you wouldn't want, as a 
governor, to have the maximum flexibility to deal with the 
concerns of the people of your own state. There is nothing in 
this regulation that mandates that New Hampshire need to give 
unemployment insurance benefits to those that are out because 
they have adopted or had a child.
    But why wouldn't you want to have the full arsenal of 
opportunities available to you to deal with the problems of the 
people of New Hampshire? Sounds very Republican to me to allow 
the states to have full flexibility here.
    Mr. Gregg. You've raised a lot of good points, Congressman, 
from your perspective. Unfortunately, I have a markup and I'm 
going to have to head off, and I don't want to--but I would 
like to engage in a debate at some point.
    But let me just make a couple points. First, under our 
studies in our committee, 74 percent of the people who have 
family medical leave are presently receiving some compensation 
from their employer. I think that if you set up this new 
structure, you're going to find that employers pass the buck 
over to the public insurance and you're going to see an adverse 
selection process occurring, where basically you basically 
change the marketplace dynamics so that employers aren't 
creating--no longer have--
    Mr. Cardin. Experience rating rates, so some of that will 
be compensated for.
    Mr. Gregg. Well, but not really. As you know, you end up 
with the good employers paying an awful lot of the unemployment 
insurance and people who are not aggressively participating in 
the marketplace and may be in and out of the marketplace take 
advantage of it.
    Mr. Cardin. But they're the same employers that are 
providing the paid benefits.
    Mr. Gregg. So they get hit twice, and that's the problem. I 
do think you create an atmosphere which is probably going to 
undermine what has been a fairly significant movement towards 
employers compensating for family leave, which I think is a 
good movement, but I think it should be done between the 
employer and the employee and in the private sector marketplace 
rather than in the public sector marketplace.
    So the question which you asked, which I think is most 
appropriate to me in my role, is why, as a governor, shouldn't 
I have this flexibility. Because I, as a United States Senator, 
end up picking up the bill.
    Thank you.
    Chairperson Johnson. Thank you very much, Senator. I would 
like to point out, particularly since this hearing is being 
televised, that this committee has no jurisdiction over the 
Family and Medical Leave Act. That is under the jurisdiction of 
another committee.
    So we cannot rewrite that law. Our jurisdiction and the 
purpose for this hearing is to protect the unemployment 
compensation system. This committee has direct responsibility 
to assure that there is an unemployment compensation system in 
place in every state that can fund unemployment compensation 
benefits, to provide loans when those states run out of money, 
that then, of course, do have to be paid back, and to share 
with the states the cost of extended benefits during times of 
prolonged recession.
    So my job as chairman is to guarantee the strength and 
solvency of our unemployment compensation system. That's why I 
think it's very important to point out that members of this 
committee have very different opinions on the Family and 
Medical Leave Act. I was a very strong advocate of it in 1993 
and remain a strong advocate of it, and would like to see 
hearings that would look at expanding it, but would also deal 
with the problems.
    I dare say I have spent more time talking to employers on 
factory floors and employees about some of the problems that 
have developed in this, making it unfair, than most members of 
Congress, and I'm disappointed that neither the Administration, 
the Department of Labor, nor the Congressional committee has 
taken on the nuts and bolts.
    This committee has taken on lots of oversight. So far, we 
have held an in-depth oversight hearing on almost every aspect 
of the welfare reform bill and have passed major legislation to 
deal with the problems that developed in the welfare-to-work 
program that was specifically focused on the people who were 
hard to place. And as it got out there operating, we found 
there were problems with it that were preventing it from 
accomplishing the very goals we intended to achieve.
    So we have taken our oversight responsibilities very 
seriously, and so it is extremely disappointing to me, as 
chairman, that the Administration didn't have the courtesy to 
introduce legislation that addressed the problems and opened up 
the benefits. That's legislative opportunity.
    Also, I think it's very important to really note for the 
record clearly that states can do this. There is no impediment 
to states doing it.
    There is impediments to states doing it with funds that 
have been raised for the purposes of our unemployment 
compensation system, which has had a long history of a very 
focused responsibility.
    Mr. Cardin. Would the gentlelady just yield on that point? 
I appreciate it.
    Chairperson Johnson. Yes.
    Mr. Cardin. It is true, the states can pass laws requiring 
employers to provide paid leave, if they want to, or the state 
can develop their own program, if they want to, although I 
would suggest that's extremely difficult with states that 
border other states, which is true of almost every state in our 
nation, to develop this type of a policy.
    It's interesting that the regulation that was issued, as I 
understand, was in response to a request by one of our states 
to be able to move in this direction. They thought they had the 
authority to do it and it was questioned as to whether they had 
the authority.
    There's at least two states that were interested in 
implementing this policy and that the Department of Labor, in 
response to requests from the states, issued the regulation 
basically to clarify the authority of the states to be able to 
implement their unemployment insurance system.
    I don't think this was a power grab by the Department of 
Labor. It was in response to flexibility asked by our states in 
administering their unemployment insurance laws.
    Chairperson Johnson. Well, states that do this will 
certainly be different from adjoining states that don't, no 
matter what authority they do it under, and we are having this 
hearing here because there is disagreement with the 
Department's decision. Some of us feel that it does not reflect 
the content of the law.
    It certainly, without question, does not reflect the 
legislative background of the law or any of the statements that 
were made around the law.
    So we will proceed with the hearing. I'm very pleased to 
invite next to the table the Honorable Christopher Donovan, who 
is a member of the Connecticut House of Representatives. It's a 
pleasure to have you, Representative Donovan. He is also a co-
chair, as I understand it, of the Labor Committee of the 
Connecticut Legislature.

 STATEMENT OF THE HON. CHRISTOPHER G. DONOVAN, REPRESENTATIVE, 
              CONNECTICUT HOUSE OF REPRESENTATIVES

    Mr. Donovan. Thank you, Chairman Johnson, nice to see you 
again, and members of the committee.
    Chairman Johnson, I want to thank you again for inviting me 
here this morning. I want to say that I appreciate your candor 
on the issue and I also appreciate your willingness to listen 
to us on the issue, as well.
    I'm certainly excited that the states and Federal 
Government are taking a serious look at an issue dealing with 
one of our, I guess, most precious institutions, which is the 
family, and--a lot of noises here going on. I would certainly 
say that precious institution is--time's up already. That 
precious institution is going through a number of--is under a 
lot of strain recently.
    I guess that goes on forever.
    Chairperson Johnson. Just ignore it.
    Mr. Donovan. I'll try to ignore it, thank you.
    Chairperson Johnson. Sorry. We don't--after the first bell, 
it means we have 15 minutes to vote. So there will be another 
series of bells and we will have ten minutes to vote.
    Mr. Donovan. I'll talk as I can, ma'am.
    Chairperson Johnson. And when I think that we really have 
to go, we will suspend the hearing for a few minutes and leave 
and come back.
    Mr. Donovan. Thank you. As I said, the American family is 
under a lot of strain during these times. I hear from young 
couples who are trying to balance raising children, giving 
birth to children, tough enough under two incomes, when one of 
those individuals has to stay home, it's even tougher with a 
loss of income.
    I also hear from those families in so-called sandwich 
generation who are also dealing with raising their children and 
also dealing with aging parents.
    So what do we do about this strain on our families? Well, 
it's also an issue of time. Time has become a precious 
commodity and for a lot of families, they just don't have it.
    When I was a kid, Little League was where my family would 
say go to Little League, get out of the house, we don't want to 
see you. Now, Little League is I will make an appointment to 
see you at Little League, if that's what time I will be able to 
see you.
    I think that's a shame. I think it has done harm to that 
institution and we need to do something about it.
    Also, the whole issue of paid family leave and family leave 
is before us because there is a real need to have time to be 
with our family members in time of need. Certainly, with the 
birth or adoption of a new child, we all recognize that that's 
a time for families to be together, but in some cases, they do 
not have that ability.
    I know a young woman who, after giving birth, she asked her 
doctor when is she physically able to get back to work after 
giving birth. The doctor said two weeks. She had to go back to 
work after two weeks. She did not want to go back after two 
weeks, but economically that was the only choice she had, to go 
back to work.
    Now, that time with her child cannot be replaced. That's 
lost. But we can do something about it. Other countries have 
done something about it. I think the President's proposal has 
spurred the states to look at what we can do about it. It's not 
a question, to me, of whether we should do it, but when we can 
do it and how we can do it.
    So as House Chair Labor Committee, I worked with my Senate 
co-chair and this fall and winter, we held a series of 
meetings, hearings, a task force that looked at the issue of 
paid family leave. We heard from a number of groups, we heard 
from children advocates, women advocates, business communities. 
We heard from the sterling Professor Ed Zigler from Yale, award 
winner, considered the father of Head Start, and he told us 
about the need for families to be together at special times and 
also the inability of families to be together.
    We held hearings. We commissioned the UConn economists and 
said give us a preliminary estimate of the costs of providing 
paid family leave. And, finally, we voted out a bill just 
Tuesday, in our committee, that would provide 12 weeks of paid 
family leave for families for birth or adoption, as well as for 
family needs.
    As a part of that bill, for the parental needs, birth or 
adoption, we utilized the unemployment insurance fund as the 
funding mechanism, the funding stream, and we feel that is 
appropriate. One of the reasons is, as stated earlier, our 
state already allows individuals to receive unemployment funds 
while not looking for work.
    As stated earlier, our state allows workers who are 
temporarily unemployed through seasonal shutdowns to collect 
unemployment. According to the State Department of Labor, these 
seasonal shutdowns, which may last as long as eight weeks, the 
state does not pursue those workers to find out whether or not 
they're looking for work. The state assumes that they are not 
working and not looking for work and the company assumes that 
they're not looking for work, because the company needs those 
workers back once the down season is over.
    They don't want to lose those valuable workers that they 
trained to work for them.
    We also allow for apprenticeships and job training, workers 
involved in apprenticeships and job training, to stay on being 
trained and educated and not find work. We want those workers 
to be trained and to be able to make a living, a more decent 
living than they did previous to job training.
    Just last year, we passed a law that allows individuals who 
fear domestic violence to leave their job and collect 
unemployment. That law was signed by our Governor John Roland 
and is in place today.
    So individuals may temporarily leave the workforce, 
voluntarily leave the workforce, for non-work-related issues 
and we would still fund them through unemployment.
    Also, we allow for individuals to quit their job and 
receive unemployment to care for a seriously ill family member, 
as well as if there is changing in the workplace, that are 
serious enough to cause disruption in their own lives. For 
instance, if there is transportation, unrelated to work, ends 
to a certain area, that individual may be eligible for 
unemployment.
    Also, other industries in our state rely on unemployment as 
a regular mechanism to keep that industry humming. The 
construction industry relies on the building trades to be out 
of work and collect unemployment when the job is done and be 
available for the next job. Temporary agencies would be 
devastated without an unemployment fund which pays people while 
they're not working for the temporary agency.
    So we've seen that and our state exemptions reflect some 
state values that we have. One is we want the workforce to be 
tied to the business, so we allow for temporary layoffs and we 
want them to stay connected and just receive benefits for a 
short period.
    We also understand the need for training and how we should 
make sure that people get the training and not jeopardize that 
education or to get a better job, and we understand family 
responsibility and caring for the sick family member, and also 
family safety by providing for people to take domestic 
violence.
    People talked about our fund. Well, our fund had been in 
trouble in the years past, but we've set up a mechanism whereby 
we have instituted a solvency target for our unemployment fund, 
and I would like to say that we have certainly reached that 
target.
    That target this year is for 448 million dollars. Our fund 
has in it 838 million dollars. So we have 390 million dollars 
over the target amount. During the last few years, employers 
have received unemployment tax cuts of 275 million dollars, 
almost a little bit less in tax cuts than is in access of the 
solvency fund.
    Also, as unemployment is going down, the experience rates 
for employers is going down, as well. So employers have seen 
decreases in their unemployment tax that continue to go down.
    Why did we use unemployment insurance, beside the fact that 
we have the funds available? It's a familiar system to both 
employers and employees. We don't need to create a new 
bureaucracy. It's already in place. People are familiar with 
the procedures, the appeal rights, and it can be easily adapted 
to add one more exception to the rule in terms of a value that 
Connecticut holds, which is taking care of our families.
    The Unemployment Insurance Compensation Act was passed in 
1935, just 15 years after women received the vote, the ability 
to vote in our country. Congress may have not had family issues 
on its mind when it put together the unemployment insurance 
fund, but the Congress did, in its wisdom, create the fund, but 
left it to the states to administer.
    And since that time, the states have implemented different 
unemployment insurance policy. I think this is another. The 
pattern has been the Federal Government sets the minimum 
standards and states may expand on that, and I think the issue 
of job training is exactly one. States had exemptions for job 
training. The Federal Government had not. Then the Federal 
Government adopted it and said all states must have exceptions 
for job training.
    I certainly welcome Congress to address this issue and I 
will welcome--actually would love to see the Federal Government 
pass a universal paid family leave system. But as you consider 
that, don't hold back, I implore you, don't hold back the 
states that are trying to relieve the strain on our American 
families and working for proposals that would provide those 
families with the needed time to be with their children, to be 
with their family in time of need.
    You only ground around this life once and if you miss those 
opportunities, you'll miss them forever.
    Thank you.
    [The prepared statement follows:]

Statement of Hon. Christopher G. Donovan, Representative, Connecticut 
House of Representatives

    Good morning Chairwoman Johnson and members of the 
Committee on Ways and Means, Subcommittee on Human Resources. I 
want to thank you for inviting me here this morning to provide 
testimony on the use of Unemployment Compensation funds to pay 
for family leave benefits.
    I am excited that our states and our federal government are 
taking a serious look at proposals that would provide needed 
support for our most vital institution. . .the American family. 
The hardworking, productive American working family is feeling 
the strain. Young working couples are finding it hard to afford 
to stay home with their newborns. The sandwich generation is 
balancing work demands while caring for their children and 
assisting their aging parents. Time is a precious commodity for 
American families these days and many just don't have it. No 
time for the newborn, no time for the ill family member and no 
time for family life. If one unforeseen problem occurs, the 
balancing act collapses and misfortune falls on the American 
family. Loss of wages, loss of a job, loss of a home, loss of 
precious time with a loved one in their time of need-time that 
can't be replaced.
    We can bolster our American and Connecticut families with a 
paid family leave system. All of Europe and Canada support 
their working families and have been doing so for decades. We 
can too. It's not a matter of should, but it's only a matter of 
when and how.
    In terms of the when. . .it can be now. President Clinton 
has authorized the Department of Labor to draw up regulations 
concerning the use of states' unemployment funds for paid 
family leave. That action has spurred states like Connecticut 
to consider initiating paid family leave proposals that 
uniquely fit the needs and economic structures of that state. 
These states are holding hearings, getting input and looking at 
possible funding mechanisms and funding streams.
    I am honored to serve the State of Connecticut as House 
Chair of the Labor and Public Employees Committee and recently 
the committee had the opportunity to listen to Connecticut 
about the need for wage replacement for workers temporarily 
leaving the workforce in order to care for a newborn, an 
adopted child or a seriously ill family member.
    We heard from the grandmother worried about her 
granddaughter having the burden to care for her own children 
and her at the same time. We heard from the young man who is 
taking unpaid leave to care for his very ill mother. We heard 
from the young mother, holding her squirming daughter, about 
how difficult it was to make ends meet with one income in the 
family. We heard from experts such as a professor from the 
University of Connecticut who issued a report on the benefits 
of paid family leave, and from Dr. Edward Zigler, Sterling 
Professor of Psychology at Yale, noted child development 
scholar and nationally recognized as the father of Head Start, 
who elaborated on the societal benefits of family caring for 
newborns and the necessity of paid family leave.
    And we listened to business leaders who, though open to the 
idea, were concerned about costs. So we charged economists at 
the University of Connecticut to provide us with a preliminary 
estimate of the cost for paid family leave proposals in order 
to determine the expenses related to such a program. The cost 
estimate was within a reasonable range of $2.08 to $75 a year 
per employee. . .the cost of a cup of coffee a week or the cost 
of paper towels in the company bathrooms.
    I am here to report that on Tuesday of this week, having 
listened to the testimony and studied the reports, our 
committee submitted legislation and voted favorably to assist 
Connecticut families by providing compensation for wages lost 
when taking necessary parental and family leave.
    Connecticut House Bill 5619, An Act Concerning Paid Family 
and Medical Leave, provides up to 12 weeks of wage replacement 
per year for workers temporarily leaving the workplace after 
the birth or adoption of a child, for serious illness or to 
care for a family member with a serious illness. A key 
provision of this proposal is the use of Connecticut's 
Unemployment Compensation Fund to provide benefits for workers 
taking the leave to care for a child following birth or 
adoption. I have enclosed the legislation with my testimony.
    In Connecticut, using our democratic and legislative 
system, state elected officials voted out a proposal that 
includes the use of the unemployment fund for workers 
temporarily leaving the workplace. I believe use of the UI fund 
is appropriate and reflects both the original intent as well as 
the ongoing understanding of the purpose of the fund.
    Connecticut's unemployment fund already provides benefits 
for workers who temporarily leave the workforce. For example, 
companies that have seasonal shut downs must temporarily 
displace their workers and rely on the unemployment system to 
sustain those workers until work is resumed. Neither the 
company nor the administrators of the fund wish those workers 
to seek other jobs. The company needs those experienced workers 
and expects them to return. It is understood that the 
compensation is temporary and that the workers will return to 
work. According to the Connecticut Department of Labor any 
temporary layoff of 6 weeks or less is treated as a recall and 
workers may collect benefits without looking for work. 
Approximately 60,000 Connecticut workers receive benefits for 
temporary layoff each year. Compare that figure with the much 
smaller number of workers taking unpaid family leave in 
Connecticut -20,000.
    Here's another example: According to Connecticut law, a 
worker is not disqualified for unemployment benefits if the 
worker quits employment to care for a seriously ill family 
member. However, the workers in this case cannot collect 
benefits until they are ready, once again, to look for work. 
This old-fashioned rule leads to the ironic result that while 
the workers are considered justified in seeking unemployment, 
they cannot collect it when they need it the most. We make 
other important exceptions in determining eligibility: Just 
last year, the Connecticut General Assembly passed legislation, 
signed by Governor Rowland into law, that permits a worker to 
quit a job and collect unemployment in order to avoid domestic 
violence. In neither of these provisions is the employer 
charged for the claimant's benefit.
    Unemployed workers, engaged in approved training or 
apprenticeships are also permitted to collect benefits and not 
be required to look for work.
    Other industries utilize the unemployment fund as a way of 
business. The construction industry depends on workers in the 
building trades collecting unemployment during slow times so 
that they will be available to work. And the temporary 
businesses would be decimated without a flexible unemployment 
system.
    Our state recognizes the value of these exceptions. These 
provisions reflect our state's needs and values: keep good 
workers linked to their jobs during temporary layoffs, allow 
workers to obtain needed retraining skills, reflect family 
responsibilities and provide for family safety.
    Providing unemployment benefits so that a family member may 
temporarily leave the workplace to care for a new born or 
adopted child is consistent with other uses of the fund.
    But what about drawing on the fund for family leave? 
Connecticut's fund is solvent and can easily withstand the 
drawing of benefits for parental leave. According to the 
Connecticut Department of Labor, the Unemployment Insurance 
Fund balance as of December 31, 1999 was estimated to be $838 
million. The targeted fund reserve, the amount required by law 
to be maintained in the fund, for the same period was $448 
million, leaving $390 million over the target fund reserve 
amount.
    The preliminary estimate on the cost of parental leave is 
approximately $40 million per year. Given these estimates, 
Connecticut's UI fund could provide paid parental leave at no 
cost to Connecticut employers.
    In the past few years, Connecticut employers have received 
big UI tax cuts-approximately $275 million dollars. As the good 
economy rolls on, experience rates for companies drop as well.
    Using the unemployment fund for paid family leave works for 
Connecticut. It may not work for every state but it is an 
option we have in our legislation. The UI system is familiar to 
business and employee. We don't have to create a new 
bureaucracy. The benefits are clear, the payment system is in 
place and the overall system can easily be adapted for family 
leave.
    Unemployment Compensation was enacted in 1935, only 15 
years after women permitted by our government to vote. But 
although family issues may not have been on the minds of 
Congress, it is clear that states were given the authority to 
administer the fund. Since that time states have initiated many 
additions to the program. The pattern has been that the federal 
government sets minimum benefits and the states may expand on 
those benefits.
    Our country needs to support its working families. The 
choice is ours. Do we ignore our common family experiences and 
make no room for our newborns, no time for ailing parents or do 
we develop a system that balances the needs of the workplace 
with the responsibilities of being a family member?
    I welcome Congress to devise such a system. As you consider 
these ideas, please do not hold back those states, like 
Connecticut, that are ready to experiment and implement 
innovative strategies. We believe in and support our 
hardworking, responsible American families.
    Thank you.
                                       State of Connecticut
                                           General Assembly
                                             February Session, 2000

Proposed Substitute

Bill No. 5619

LCO No. 2598

An Act Concerning Paid Family And Medical Leave.
    Be it enacted by the Senate and House of Representatives in 
General Assembly convened:
    Section 1. Subdivision (4) of section 31-51kk of the 
general statutes is repealed and the following is substituted 
in lieu thereof:
    (4) ``Employer'' means a person engaged in any activity, 
enterprise or business who employs [seventy-five] fifteen or 
more employees, and includes any person who acts, directly or 
indirectly, in the interest of an employer to any of the 
employees of such employer and any successor in interest of an 
employer, but shall not include the state, a municipality, a 
local or regional board of education, or a private or parochial 
elementary or secondary school. The number of employees of an 
employer shall be determined on October first annually.
    Sec. 2. (NEW) (a) Effective July 1, 2001, any individual 
who (1) meets the monetary eligibility requirements set forth 
in chapter 567 of the general statutes, and (2) takes a leave 
of absence from employment (A) in order to care for the spouse, 
or a son, daughter or parent of the individual, if such spouse, 
son, daughter or parent has a serious health condition, or (B) 
because of a serious health condition of such individual, shall 
be entitled to receive family and medical leave benefits from 
the Family and Medical Leave Insurance Fund established under 
section 3 of this act for a maximum of twelve weeks during any 
twelve-month period, such twelve-month period to begin with the 
first day of leave taken. For purposes of this section: (i) 
``Parent'' has the same meaning as in subdivision (7) of 
section 31-51kk of the general statutes; (ii) ``serious health 
condition'' has the same meaning as in subdivision (10) of said 
section 31-51kk; (iii) ``son or daughter'' has the same meaning 
as in subdivision (11) of said section 31-51kk; and (iv) 
``spouse'' has the same meaning as in subdivision (12) of said 
section 31-51kk.
    (b) Except as provided in subsection (c) of this section, 
the weekly benefit amount of family and medical leave benefits 
payable to an individual under this section shall be equal to 
such individual's total unemployment benefit rate, calculated 
pursuant to section 31-231a of the general statutes, plus a 
dependency allowance in an amount equal to that provided under 
section 31-234 of the general statutes, as amended by public 
act 99-154 and public act 99-1 of the June special session.
    (c) Any individual whose weekly benefit payable under this 
section is less than forty-seven per cent, rounded to the next 
lower dollar, of the average weekly wage of production and 
related workers in the state, as determined by the Labor 
Commissioner pursuant to subsection (b) of section 31-231a of 
the general statutes shall be entitled to receive a weekly 
benefit equal to the lesser of (1) one hundred per cent, 
rounded to the next lower dollar, of such individual's total 
weekly earnings, or (2) forty-seven per cent, rounded to the 
next lower dollar, of the average weekly wage of production and 
related workers in the state, as determined by the Labor 
Commissioner pursuant to subsection (b) of section 31-231a of 
the general statutes.
    (d) (1) No individual may receive family and medical leave 
benefits under this section for a week in which the individual 
receives a wage replacement equal to or greater than the weekly 
benefit provided by this section under any of the following: 
(A) Any government program or law, including, but not limited 
to, the unemployment compensation program established under 
chapter 567 of the general statutes, the workers' compensation 
program established under chapter 568 of the general statutes, 
other than for permanent partial disability incurred prior to 
the claim for family and medical leave benefits, or under other 
state or federal temporary or permanent disability benefits 
law, (B) a permanent disability policy or program of an 
employer, (C) a temporary disability policy program of an 
employer, or (D) a paid sick, vacation, family or medical leave 
policy of an employer.
    (2) For a week in which an individual receives a wage 
replacement less than the weekly benefit amount provided by 
this section, the individual shall receive family and medical 
leave benefits equal to the difference between the weekly 
benefit amount provided by this section and the amount of wage 
replacement received by such individual.
    (e) On or before January 1, 2001, the Labor Commissioner 
shall adopt regulations, in accordance with the provisions of 
chapter 54 of the general statutes, to establish procedures and 
guidelines necessary to implement the provisions of this 
section, including, but not limited to, procedures for the 
filing of claims, procedures for hearings and redress and 
procedures for the periodic reporting by employers to the 
commissioner of their current experience with leaves of absence 
taken pursuant to this section.
    Sec. 3. (NEW) (a) There is created in the office of the 
State Treasurer a special segregated fund to be known as the 
Family and Medical Leave Insurance Fund. Said fund shall 
consist of all contributions and moneys paid into or received 
by it for the payment of family and medical leave benefits 
pursuant to section 2 of this act, of any property or 
securities acquired from the use of moneys belonging to the 
fund, all interest earned thereon and all money received for 
the fund from any other source. All moneys in said fund shall 
be expended solely for the payment of benefits and expenses 
provided for by section 2 of this act. The Labor Commissioner 
shall maintain a separate record of the deposit, obligation, 
expenditure and return of funds so deposited. The State 
Treasurer shall be liable on the Treasurer's official bond for 
the faithful performance of the Treasurer's duties in 
connection with the Family and Medical Leave Insurance Fund. 
All sums recovered on any surety bond for losses sustained by 
the Family and Medical Leave Insurance Fund shall be deposited 
in said fund.
    (b) Effective June 30, 2000, and annually thereafter, the 
Labor Commissioner shall determine the contribution rate for 
each employer, except employers that secure family and medical 
leave benefits for employees in any of the following ways:
    (1) By insuring and keeping insured the payment of 
employment leave benefits with a stock, mutual, reciprocal or 
other insurer authorized to transact the business of disability 
insurance in this state, provided the benefits under the policy 
are at least equivalent to the benefits provided by section 2 
of this act and such policy does not require contributions from 
any employee or class of employees;
    (2) By a private plan or agreement that the employer may, 
by the employer's sole act, terminate at any time, provided the 
benefits under the plan or agreement are at least as favorable 
as the benefits provided under section 2 of this act and the 
policy does not require contributions of any employee or class 
of employees; or
    (3) By any plan or agreement in existence by agreement or 
collective bargaining agreement between an employer and an 
employee organization, provided the benefits under the 
agreement are at least equivalent to the benefits provided 
under section 2 of this act and do not require contributions 
from any employee or class of employees.
    (c) All contributions made in accordance with subsection 
(b) of this section and all other moneys payable into this 
fund, upon receipt thereof by the Labor Commissioner, shall be 
paid to the State Treasurer, who shall deposit them in the 
Family and Medical Leave Insurance Fund.
    (d) The State Treasurer, as treasurer of the Family and 
Medical Leave Insurance Fund, shall, as directed by the Labor 
Commissioner, requisition from the Family and Medical Leave 
Insurance Fund such amounts, not exceeding the amount standing 
to this state's account therein, as the Labor Commissioner 
deems necessary for the payment of benefits in accordance with 
section 2 of this act. Upon receipt thereof, the Treasurer 
shall deposit such moneys in a depository designated by the 
Treasurer in an account to be known as the family and medical 
leave insurance account, from which account the Labor 
Commissioner shall pay the benefits provided by section 2 of 
this act. The Labor Commissioner shall be liable on the 
commissioner's official bond for the faithful performance of 
the commissioner's duties in connection with the family and 
medical leave insurance account. All sums recovered on any 
surety bond for losses sustained by the family and medical 
leave insurance account shall be deposited in the family and 
medical leave insurance account in the office of the State 
Treasurer.
    Sec. 4. (NEW) (a) In addition to the leave provided in 
sections 5-248a and 31-51ll of the general statutes, an 
employee shall be entitled to take unpaid leave not to exceed 
four hours in any thirty-day period and not to exceed twenty-
four hours in any twelve-month period. An employer may require 
that leave be taken in a minimum of two-hour segments and may 
be taken for any of the following purposes:
    (1) To participate in preschool or school activities 
directly related to the academic educational advancement of the 
employee's child, such as a parent-teacher conference;
    (2) To attend or accompany the employee's child or the 
employee's parent, spouse or parent-in-law to routine medical 
or dental appointments;
    (3) To accompany the employee's parent, spouse or parent-
in-law to other appointments for professional services related 
to their care and well-being;
    (4) To respond to a medical emergency involving the 
employee's child or the employee's parent, spouse or parent-in-
law; or
    (5) To respond to a medical emergency involving the 
employee's child or the employee's parent, spouse or parent-in-
law.
    (b) An employee taking leave under this section shall make 
a reasonable attempt to schedule appointments for which leave 
may be taken under this section outside of regular work hours. 
In order to take leave under this section, an employee shall 
provide the employer with the earliest possible notice, but in 
no case later than seven days, before leave is to be taken, 
except when the required seven-day notice could have a 
significant adverse impact on the family member of the 
employee.
    (c) At the employee's discretion, the employee may 
substitute accrued paid leave, including vacation, sick and 
personal leave, for leave taken under this section.
    Sec. 5. (NEW) (a) An individual who is on a leave of 
absence from employment or who has left employment to be with 
the individual's child during the first year of life, or during 
the first year following placement with the individual for 
adoption, shall not be denied unemployment compensation 
benefits under the provisions of section 31-236 of the general 
statutes, as amended by public act 99-123, for failing to 
either apply for or accept available, suitable employment or 
for voluntarily leaving suitable employment, provided such 
individual is otherwise eligible to receive unemployment 
compensation benefits under the provisions of chapter 567 of 
the general statutes.
    (b) Unemployment compensation benefits shall be payable 
under chapter 567 of the general statutes to an individual who 
is on a leave of absence from employment or who has left 
employment to be with the individual's child during the first 
year of life, or during the first year following placement with 
the individual for adoption for a maximum of twelve weeks per 
year. Such benefits shall be in addition to the maximum 
limitation on total benefits set forth in section 31-231b of 
the general statutes.
    (c) The amount of unemployment compensation payable to an 
individual who is on a leave of absence from employment or who 
has left employment to be with the individual's child during 
the first year of life, or during the first year following 
placement with the individual for adoption shall be reduced by 
the amount of the deductions specified in subsections (g), (h) 
and (j) of section 31-227 of the general statutes and 
subdivision (4) of subsection (a) of section 31-236 of the 
general statutes, as amended by public act 99-123.
    (d) Notwithstanding the provisions of section 31-231a of 
the general statutes, any individual entitled to receive 
unemployment compensation benefits under this section whose 
weekly benefit is less than forty-seven per cent, rounded to 
the next lower dollar, of the average weekly wage of production 
and related workers in the state, as determined by the Labor 
Commissioner pursuant to subsection (b) of section 31-231a of 
the general statutes shall be entitled to receive a weekly 
benefit equal to the lesser of (1) one hundred per cent, 
rounded to the next lower dollar, of such individual's total 
weekly earnings, or (2) forty-seven per cent, rounded to the 
next lower dollar, of the average weekly wage of production and 
related workers in the state, as determined by the Labor 
Commissioner pursuant to said subsection (b) of section 31-231a 
of the general statutes. Such individual shall not be entitled 
to receive a dependency allowance under section 31-234 of the 
general statutes, as amended by public act 99-154 and public 
act 99-1 of the June special session, if the dependency 
allowance plus the individual's total weekly benefit exceeds 
such individual's total weekly earnings.
    (e) No individual employer's experience account shall be 
charged with respect to unemployment compensation paid to an 
individual who took a leave of absence from employment or who 
voluntarily left employment to be with the individual's child 
during the first year of life, or during the first year 
following placement with the individual for adoption.
    (f) Each employer shall post at each site operated by the 
employer in a conspicuous place, accessible to all employees, 
information relating to the availability of unemployment 
compensation to any individual who takes a leave of absence 
from employment or who otherwise leaves employment to be with 
the individual's child during the first year of life, or during 
the first year following placement with the individual for 
adoption.
    (g) Not later than two years following the effective date 
of this act, the administrator shall issue a report to the 
Governor and the General Assembly evaluating the effectiveness 
of making unemployment compensation benefits available to any 
individual who takes a leave of absence from employment or who 
leaves employment to be with the individual's child during the 
first year of life, or during the first year following 
placement with the individual for adoption.
    Sec. 6. This act shall take effect from its passage.
      

                                

    Chairperson Johnson. Thank you very much, Representative 
Donovan. We do only have about five minutes left, so I will 
just ask one of two questions, and then we'll go. It will take 
us quite a while, because we have two votes. So it will be 
about a 20-minute break.
    First of all, you mentioned that the law you passed has two 
parts to it.
    Mr. Donovan. That's correct.
    Chairperson Johnson. And only the leave for the birth or 
adoption of a child would be funded out of the unemployment 
compensation system. And leave for other purposes would be 
funded through what mechanism?
    Mr. Donovan. We would set up a family leave insurance fund, 
which would be a temporary disability insurance program. We 
would like--I mean, we--
    Chairperson Johnson. Would that be funded also through a 
tax on employers?
    Mr. Donovan. That would be funded through a tax on 
employers.
    Chairperson Johnson. Not general revenues.
    Mr. Donovan. No. Tax for employers. Our understanding is 
that given--using the access in the unemployment fund, at this 
point, and the estimates from the University of Connecticut, 
that the parental part of the paid family leave would 
approximately be 40 million dollars.
    So we could implement the paid family leave for birth and 
adoption at no cost to employers for the next several years.
    Chairperson Johnson. It's my understanding, I was very 
pleased to hear that your unemployment compensation fund has 
reached and exceeded its target. It is, however, my 
understanding that you still owe the Federal Government 530 
million dollars in unemployment compensation loans that you 
borrowed during the early '90s recession. Is that not true?
    Mr. Donovan. I don't believe that's true. I believe the 
state actually took out bonds and paid the Federal Government. 
So we have a bond.
    Chairperson Johnson. Okay. I will restate that. You were 
still paying on the bonds that you took out to repay the loans. 
So you are still, in a sense, repaying the loan for the early 
'90s recession.
    When will you complete the bond repayments on that loan?
    Mr. Donovan. My understanding is August of this year.
    Chairperson Johnson. That's very good. It was originally a 
530 million dollar loan, as I understand it. I have really just 
two short questions. One you'll probably have to answer when 
you come back.
    Did the law you passed address any of the problems that 
we're seeing in the Family and Medical Leave Act?
    Mr. Donovan. The law--no, the problems that you brought to 
us today, we did not address that.
    Chairperson Johnson. Did you have any testimony on those?
    Mr. Donovan. We had no testimony on the problems of the 
current unemployment--the paid family medical leave.
    Chairperson Johnson. Well, I pride myself on really 
inclusive testimony, and you will see today that we are 
covering the waterfront, and I would urge you to hold some 
hearings and try to clean up the problems in the existing 
program, because they are really real out there on the floor.
    Mr. Donovan. Congresswoman, my answer to that is that our 
hearings, different from this, is that we open it up to 
everyone, everyone who signs may testify, and--
    Chairperson Johnson. I can't believe then you didn't hear 
any of the problems.
    Mr. Donovan. And I am surprised, as well, and I don't know 
why.
    Chairperson Johnson. I'm seeing from some of the witness 
that they feel they--
    Mr. Donovan. I just want to say, too, that some of the 
people who have spoken to me, actually some business people who 
have come out and--who have come out and opposed it, have 
pulled me aside and say personally they think it's a good idea.
    Chairperson Johnson. See, I think that this is not about 
the concept. This is about the functioning. That's why I'm 
surprised that you didn't deal with the functioning, because 
you can't have good policy without a workable system. I see 
heads nodding when I say did the committee hear about the 
problems. So I'm disappointed that you didn't actually address 
the problems as well as new benefits. I'm disappointed in that.
    Unfortunately, I now--
    Mr. Donovan. The policy seems to be working fairly well.
    Chairperson Johnson.--have one minute left to vote. Now, 
there's always a two minute grace period, so I know what I can 
do, but I do have to leave.
    Mr. Donovan. Thank you.
    Chairperson Johnson. Thank you.
    [Recess.]
    Chairperson Johnson. Thank you. I apologize for that 
interruption. My colleague, Mr. Cardin, will be back in a 
minute. But meanwhile, let me proceed with a couple of other 
questions. Mr. Donovan, what are the usage statistics in 
Connecticut?
    In other words, we've now had a family leave policy in 
place for a number of years. What percentage of that leave is 
being taken for post-delivery for newborns and adoption, how 
much of it is being taken for other purposes? Could you give us 
that information?
    Mr. Donovan. I don't have the actual figures, but I have 
some round ballpark figures for you. The total number of leaves 
in our state for family leaves is approximately 20,000 and 
about a third of those are for birth and adoption.
    I just want to add to that, too, is that when I mentioned 
earlier about people taking temporary or recall unemployment, 
that figure is 60,000. So three times as many people are on 
unemployment temporarily under recall than take unpaid family 
leave.
    Chairperson Johnson. And the separate fund that's going to 
fund the Family and Medical Leave Act, with the exception of 
the birth and adoption, is going to be funded by new tax.
    Mr. Donovan. Correct, by new tax, and we--
    Chairperson Johnson. See, I think both Senator Gregg and 
you are doing the right thing. If you have new benefits, you 
should provide a new resource for payment of those benefits.
    As to the state unemployment comp system, I've been 
thinking over, during the break, your solvency target of $448 
million. It is my understanding that the $530 million doesn't 
represent the total cost of the recession in the early '90s, 
but only that part that was eventually bonded by the 
government.
    Mr. Donovan. And, again, that will be--
    Chairperson Johnson. What was the total cost, Mr. Donavan?
    Mr. Donovan. The bonds that we had will be paid off this 
August and--
    Chairperson Johnson. Well, our information, what we were 
told by the state is that they won't be paid off until November 
of 2001.
    Mr. Donovan. I think the last assessment is August.
    Chairperson Johnson. The assessment, but the actual debt 
will not be--
    Mr. Donovan. The last cost to employers will be in August. 
The last cost to employers will be in August.
    Chairperson Johnson. I appreciate that, but the debt won't 
be retired until November. It's odd to me that the last 
assessment will be in August of 2000 and the debt will not be 
retired until November of 2001. So I don't know, we'll find out 
a little more about that.
    Mr. Donovan. Okay.
    Chairperson Johnson. But what was the total cost of that 
recession to--what was the Reserve's and Connecticut's 
unemployment comp system going into that recession and what was 
the total cost to the state of that recession?
    Mr. Donovan. Congresswoman, I don't have those figures. I 
could get those figures for you. It was previous to when I was 
at the General Assembly.
    Chairperson Johnson. I would like to have those. I 
appreciate that. I appreciate that, but as chairman of the 
committee, I thought you might know.
    The reason I ask that is because if 530 million is the 
remainder and that's not actually going to be retired to the 
Federal Government until 2001, it makes your solvency target of 
448 million look not as powerful as it sounded to begin with.
    I would note that in the President's own budget document, 
he assumes that the unemployment rate will go up from 4.1 
percent to 5.3 percent in the next three years. I don't know 
whether you have factored any kind of increase in unemployment 
into your estimates of fund solvency in the course of 
considering this new benefit. Have you done that?
    Mr. Donovan. Well, one of the things we have actually 
simultaneous--there's a couple things going on, Congresswoman, 
if I may. When we ran into the debt in the early '90s, we 
instituted a new system that bases our solvency fund, the 
solvency of the fund on a percentage of total wages. So if that 
dips below--the fund dips below that, then there is an 
assessment, and because of that, our fund is at a healthy--
    Chairperson Johnson. I see. So actually you are funding the 
extended benefit, the new benefit under the Family and Medical 
Leave Act through this mechanism of an automatic increase in 
assessment.
    Mr. Donovan. Well, actually, there's two things, and it 
actually relate back to an earlier conversation. Our committee 
also voted out of committee a legislation that would raise that 
percentage, understanding that percentage is not--
    Chairperson Johnson. I see. So you actually are increasing 
taxes on the unemployment comp fund as well as providing the 
new taxes to support the new fund.
    Mr. Donovan. It's a question of whether or not do we need 
to do the taxes, but we certainly are raising what we can--
we're raising the target fund and we want to make sure of their 
solvency.
    Chairperson Johnson. You're raising the assessment, right.
    Mr. Donovan. And I think I'd agree with you, we want this--
the unemployment fund to be solvent.
    Chairperson Johnson. See, that is this committee's concern.
    Mr. Donovan. Right.
    Chairperson Johnson. You know, I myself have been a very 
strong advocate of unpaid leave and I think we should be trying 
to find a way to do paid leave. But I don't want to erode the 
trust fund.
    And what I hear you now saying is that Connecticut has a 
mechanism that will automatically increase the assessment if 
the fund gets below its solvency goal.
    Mr. Donovan. That is correct.
    Chairperson Johnson. So even though there will be a greater 
drain now on the fund, the effect of that will simply be to 
increase taxes sooner.
    Mr. Donovan. It's possible. It's possible, absolutely.
    Chairperson Johnson. It's not possible. Let's be real about 
this.
    Mr. Donovan. Well, no, right. If the fund--if the--
    Chairperson Johnson. If you're going to pay more benefits--
    Mr. Donovan. If the fund dips below that--
    Chairperson Johnson.--you're going to need more--
    Mr. Donovan. Absolutely. If the fund dips below that--
    Chairperson Johnson. I just think you've got to be honest 
about this stuff. Okay. Thank you.
    Mr. Donovan. And if I may, too, the estimates on the costs 
to employers for this system, the estimates are somewhere 
around 50 to 75 dollars a year to cover both paid family leave 
for birth and adoption, as well as family leave. So that's not 
a whole lot of money in terms of--
    Chairperson Johnson. I understand there are some questions 
about those estimates, but I'm delighted to hear that it would 
be that reasonable.
    The other thing I just want to mention, some of us in 
Congress have been looking very, very hard, because this issue 
of parents and children is, in my estimation, as one who raised 
my children and I'm a very, very active and involved 
grandparent, an extremely important issue in our society.
    Mr. Donovan. Right.
    Chairperson Johnson. And my party has been very aggressive 
in looking at how we change labor law to provide more 
flexibility, so parents can be home with their kids and 
actually have time off.
    Mr. Donovan. I agree.
    Chairperson Johnson. And be able to schedule far more 
family hours. And I've been the chief sponsor of legislation 
that would provide the same subsidy, tax subsidy to families 
that stay home and take care of their children as we provide to 
families that pay for out-of-home care, because that portion of 
the tax law is all income-related.
    I want to be sure that the same family earning the same low 
income gets help to take care of their own children and that we 
recognize the woman's work at home taking care of those 
children in the same way we would recognize the cost of her 
paying someone else to do it. I feel very, very strongly about 
that.
    Now, in your debates about this, as you thought about 
giving people paid leave, did you think about giving people of 
the same income also a benefit the first few months they're 
home with their children? I mean, why should we be neutral 
when--I mean, I also am prejudiced in this, I have children who 
have decided to stay home to raise their children, and I can 
tell you, living on one income when you have four boys is a 
really, really hard, hard, hard, job, if your husband is in the 
military, because that's not big salaries.
    So did you at all think about giving--you have to do this 
according to income, because, of course, there's no sense in 
doing it without regard to ability to pay, but those young 
families that are making the sacrifice not to work in order to 
be with their children, are you giving any thought to how you 
could give them the same benefit, as well? Particularly under 
certain incomes.
    Mr. Donovan. Madam Chairwoman, we did consider that and I 
guess it's--I guess in the best of all worlds, we would really 
take a stand and say we want to help every child, but the point 
is the people who can't afford it right now are the people who 
are not staying home. The people that can afford it--
    Chairperson Johnson. See, that, I don't accept that, as a 
woman. That is not a true statement.
    Mr. Donovan. There are people--
    Chairperson Johnson. I do say that I'm glad you thought 
about it, but I think it's an extraordinary disservice to women 
and children that we are thinking about this in terms of a 
workplace issue. It isn't just a workplace issue, it's an 
income issue. And those young kids who are sacrificing to live 
on 25,000 a year with babies or 30,000 or 20,000 deserve just 
as much help and support for those three months as some people 
where they're working two jobs and between the two of them 
they're earning 35, 40, 45,000.
    Mr. Donovan. Our committee also voted out an increase in 
the minimum wage, too. We're already at 6.15 and--
    Chairperson Johnson. We're going to do that, too. 
Absolutely.
    Mr. Donovan. And we're looking to reach higher. So they can 
afford it, as well.
    Chairperson Johnson. But we are going to, and I wish you 
would follow our lead on this, my boy, we're going to 
compliment the minimum wage increase with tax breaks for small 
business, because we don't want them to lay people off, because 
you don't want to cost jobs for the very people you're trying 
to help through a higher wage.
    So I hope that more states will begin looking at combined 
packages that compliment these things.
    Mr. Cardin.
    Mr. Cardin. Thank you very much, Madam Chairman. Mr. 
Donovan, it's a pleasure to have you here and I applaud your 
efforts in the State of Connecticut to try to provide some 
response to these issues.
    It's interesting. There's a lot of good intentions around 
here and listening to the Chair, the reason we have a marriage 
penalty today is because we try to provide some relief for 
families where the non-income-spouse stayed at home. We thought 
it was only right to try to divide the income.
    We provided a bonus basically to encourage or to recognize 
the economic contributions of mainly the mother, who stayed at 
home and took care of the child.
    We provided a bonus under our tax structure. As a result, 
we now have a marriage penalty that's causing us all types of 
grief here in Congress to deal with the unfairness associated 
with getting married and paying more taxes, where both spouses 
work.
    So we have a lot of great ideas about promoting family 
values, to make it easier for a family to make the right 
decision concerning what's best for their family. It's driven, 
in large part, by economics. You need income in order to be 
able to raise your family today and the economic realities of 
our current economy is that in most families, both spouses are 
going to work.
    And how do you deal with that? You want to have a child. 
How do you deal with that time when that child is born? I'm 
very proud of the Family and Medical Leave Act that we passed 
in Congress, but it's unpaid. To the credit of the American 
employers, most employers provide some form of paid leave. 
That's good. But many employers do not.
    And that's what this is about. It's to try to give the 
State of Connecticut the ability to deal with the problems in 
your state. And I do think it's difficult here for us to 
develop a national policy as to how is the best way to deal 
with some of these issues. The whole idea of Federalism is to 
allow the states to try different ways to deal with a problem 
and then for us to develop national policy as a result of that.
    I think I might join Mrs. Johnson in criticizing the 
Department of Labor and that is, I come at it from a different 
point of view, Madam Chair, and I'm going to ask unanimous 
consent that Senator Leahy's letter to the Department of Labor 
be made part of our record and the Department of Labor's 
response, because as I pointed out in my comments to Senator 
Gregg, this came about as a result of states believing they had 
the authority to do this, they didn't need anything further, 
they were going to go enact.
    They asked the Department of Labor for advice and 
Department of Labor ruled against them and they had to come up 
with a regulation in order to give them the authority.
    I think I'm going to join with the Chair in criticizing the 
Department of Labor for that ruling. It seems to me the states 
had this authority. If a state could, for example, determine 
that a worker who quits her employment to care for an ill child 
may still be available for work during a different work shift, 
could be done without a new regulation or a change in Federal 
law, why couldn't the State of Vermont move forward and provide 
unemployment insurance benefits for someone who is out of work 
because of giving birth to a child.
    So we might not have had this controversy here or this 
hearing here today if the Department of Labor made a ruling 
that was a little bit more progressive in allowing our states 
to deal with these issues.
    But we are where we are and it's clear that the State of 
Connecticut wants to take advantage of this additional 
flexibility. You're moving forward with legislation to deal 
with that, and I really do applaud you for that.
    I know my own State of Maryland is interested in this 
authority, we know the State of Vermont is interested in this 
authority. There's clearly an interest out there to use these 
different tools.
    Mr. Donovan, I was very impressed by one statement you 
made, that this mechanism is already in place. You have an 
appeal process, you have a way in which the benefits can be 
given easily. You don't have to set a new bureaucracy. There's 
no problem with enforcement or making sure the benefits go to 
the people who are entitled to it.
    I mean, you have that structure in place and that has to 
save you a considerable amount of resources by using the 
current unemployment insurance system rather than developing a 
whole new structure to deal with compensating people who are 
out on maternity leave.
    Mr. Donovan. Thank you. And I think, again, that makes 
sense economically. I would refer to your earlier statement, 
too, should this--had this ruling not been put out first, we 
may have put our whole bill under the unemployment system, but 
this bill was tailored with the proposal before us.
    Mr. Cardin. And you have divided it. You're suggesting, 
under this authority, that part will go under the unemployment 
insurance system--
    Mr. Donovan. That's correct.
    Mr. Cardin.--and some will be using other resources.
    Mr. Donovan. That's right.
    Mr. Cardin. To deal with it.
    Mr. Donovan. Yes.
    Mr. Cardin. And that seems to make the most sense for the 
State of Connecticut. It may not for the State of Vermont or 
Maryland.
    Mr. Donovan. It may not, right.
    Mr. Cardin. Thank you very much, Madam Chair.
    Chairperson Johnson. Thank you. Mr. Foley.
    Mr. Foley. Thank you, Madam Chairman. How long was the last 
recession in Connecticut?
    Mr. Donovan. I don't--I don't know exactly the numbers. I 
was a participant in it, so I would say it was a number of 
years, started around 1990 and ended up probably 1996. But I 
can't--
    Mr. Foley. And the question posed by the Chair, you are 
just now getting out of arrearages from paying off that debt to 
the Federal Government.
    Mr. Donovan. Actually, just, again, a correction, the state 
paid that debt off in bonding and actually we're repaying 
bonds.
    Mr. Foley. You transferred liabilities. You still have a 
liability to the system and it took from '95, let's say, when 
the economy improved, to the year 2000-2001 to satisfy that 
obligation.
    Mr. Donovan. There were schedule payments and those 
payments are following the schedule that was set up, and in the 
meantime, the employers have seen a 275 million dollar decrease 
in their unemployment taxes simultaneously.
    Mr. Foley. Have you looked at projections of how long this 
economy will last or are you doing the kind of projections most 
of us in Congress do, it's going to go on forever, happy days 
are here again.
    Mr. Donovan. Well, happy days are here again, but also, at 
the same time, I think the issue here is is family leave 
important for us and if it--and I say it is. I think families 
do need to spend time, like every other country in the world 
pretty much has a system, and how do we then fund that system, 
and the unemployment fund seems to be an appropriate one, at a 
cost of--for the family, the parental and--the parental leave, 
at a cost of, again, somewhere around, I would say, 25 dollars 
a year per employee.
    So if that is funded with--works within the unemployment 
system, it seems that can be a minor cost that would provide a 
wonderful, wonderful benefit for the families of the United 
States.
    Mr. Foley. You, in your bill, indicate it has to be for 
employees of 15 or more. Are those under 15 not as important in 
the family aspect?
    Mr. Donovan. Actually, it--I mean, again, we tried to pass 
legislation--and actually there's two parts to that. The 15 or 
more--currently, as you know, the Federal Government allows--
requires employers that have 50 or more employees to provide 
job protection benefits under family leave legislation. So we 
go--we include more employees under that protection.
    So those employees of 15 or more--employees in a business 
with 15 or more employees would have job protection under 
family and medical leave, but we offer the benefits to every 
employee who is eligible for unemployment.
    So whether or not you were in a 15 or more, if you were in 
a business of less than 15, that individual may say I'm not--it 
is important for me to be home with my child, I know you can't, 
say, hold my job, but I need the benefits. So every individual 
who qualifies for unemployment will be eligible for the 
benefit, but may not be eligible for the job protection.
    Mr. Foley. How do you determine the composition of a 
family? Would a man and woman living unmarried qualify? Would 
two men living together qualify in domestic partnership?
    Mr. Donovan. The state has--it would be the definition 
under the Family and Medical Leave Act, as we determined it, 
and I'd have to review those statutes. But it's something 
that's been in place for a while.
    Mr. Foley. Because it talks about parenting laws, it talks 
about spouses, it talks about an employee's parent, an 
employee's child, and obviously today families are different, 
but they do have children, they may be natural birth children.
    Mr. Donovan. Right. In terms of family illness, it is 
someone who is--a family member who--I guess I don't--I don't 
have the actual statutes in--
    Mr. Foley. That's what I'm getting at. It's going to be so 
convoluted. We're trying to expand the benefits. Unemployment 
compensation, and I'm a former small business owner, was 
designed for the fact when you have a stalling economy or you 
lose your job, there is a safety net.
    As you expand the pool of those available in the resource, 
you diminish potentially, in a devastating economic period, the 
capability of the fund to provide the benefits.
    So my concern is when you redefine or add new beneficiaries 
to the pot of money available, you say 20,000 added to the 60, 
that's 80, that adds, if you will, a liability to the fund.
    Now, I, as the employer, am either going to have to raise 
rates and let's just say in two years, due to the new internet 
economy that everybody's praising, Connecticut suffers tragic 
job loss, because everybody's doing it on the internet, nobody 
is going to the mall, the retail stores, they're all Yahoo.com, 
excitedly buying products and not shopping in the malls.
    You have a huge layoff. You now have an added burden of 
additional categories added to the list and I'm not certain how 
you fund it. If it's taken five-plus years to get out of the 
last recession and pay the benefits, I guess I'm--what concerns 
me most about all of us in government, we forget the banking 
scandal of the late '80s and '90s and assume we'll never have 
one again, and we forget the recession in the northeast, where 
I come from, and assume now that we've got a few bucks extra, 
we can do all these wonderful things.
    Well, someday soon we are probably going to see the market 
drop well below 10,000, maybe 8,000, layoffs will be certain, 
and all of a sudden, the funds that had so much solvency will 
now be in arrearance, and you, as a member of the legislature 
in Connecticut, are going to have to rapidly raise rates, 
borrow more money, put your own debt rating in crisis based on 
those scenarios.
    I applaud an attempt to try and find a workable solution, 
because I agree, there's a problem at home, your family member 
has a catastrophic illness, you cannot make clear decisions. 
It's to be at that level which is your most important calling.
    But I just want to make certain we set up the right and 
appropriate mechanism and not put onto a, if you will, already 
burdened system. Yes, it's flush with cash, but I can remember 
being in the Florida legislature in '92 trying to figure out 
how do we make certain we are, in fact, solvent for the next 
potential recession, and I'm afraid this opens up Pandora's Box 
and you will have a hard time having your UC company describe 
for you what is a family today.
    Mr. Donovan. If I may, on those two issues, and I think 
that's the beauty of kind of the combination combining family 
medical leave with unemployment.
    Under unemployment, we allow individuals to take time off 
to care for a seriously ill family member. That is established, 
it's been working within our state for years. So we know what 
that is. I don't happen to know it, I'm not the unemployment 
comp administrator, but we've worked that and it seems to be 
working fine. I haven't heard any complaints from anybody.
    As well as we have the family medical leave, which also 
deals with family issues, people taking that leave. So that has 
been working well, too.
    So that's the beauty of combining the two in some respects, 
but thank you, I appreciate your comments.
    Mr. Foley. Thank you, Madam Chair.
    Chairperson Johnson. Thank you, Congressman Foley. Mr. 
McCrery.
    Mr. McCrery. Representative Donovan, who would administer 
the program in Connecticut?
    Mr. Donovan. Under our proposal, it would be administered 
through the Department of Labor.
    Mr. McCrery. So through the current unemployment comp 
offices.
    Mr. Donovan. That is our hope.
    Mr. McCrery. Employer services or employee services 
offices.
    Mr. Donovan. Correct.
    Mr. McCrery. Are you not concerned that that's going to add 
to the administrative burden of the offices that have already 
been shortchanged by the Federal Government for several years 
in terms of getting back tax dollars that you send?
    Mr. Donovan. Certainly, I understand that. As part of the 
proposal, there will be some administrative funds available to 
states that utilize the unemployment mechanism, and that would 
be helpful, but I guess it keeps--and actually, it was funny, 
flying down here, I met--I was with some representatives of the 
Department of Education from the State of Connecticut. They're 
down here looking to see if they can bring some funds back, as 
well.
    So that's always--whenever you see us down here, we're 
looking for money, and we're trying to bring some of our tax 
money back. And it is always a concern, but I guess what I just 
keep coming back to is if this is something that is valuable to 
our state and country, we need to figure out the best way to do 
it, and I think doing it through an already established system 
is better than creating a new one.
    Mr. McCrery. What percentage of employers in your state 
currently provide paid leave?
    Mr. Donovan. Actually, we have asked the industry to give 
us that. We don't know at this point. And we have, as part of 
our legislation, if you are an employer that provides paid 
family and medical leave for your employees that at least match 
the benefits, then you do not have to participate in the other 
program. We want to reward those good kind of companies that 
provide that for their employees.
    Mr. McCrery. What do you mean you don't have to 
participate?
    Mr. Donovan. You don't have to contribute to the other 
fund.
    Mr. McCrery. You set up a separate fund to fund this?
    Mr. Donovan. There's two--because of the regulations, we 
set up--if I may be clear. For birth and adoption, under 
unemployment, and other family, serious illness, to care for a 
serious illness, et cetera, that's done through a family leave 
insurance fund.
    Mr. McCrery. Well, if you have a high percentage of 
employers that provide paid leave, which I suspect you do in 
Connecticut, are your estimates of costs to the remaining 
universe of employers take into account that you might have a 
very small universe of employers that would have to pitch in 
for this?
    Mr. Donovan. I don't expect it to be a very small universe 
of employers. We have a number of large employers that provide 
benefits, but we also have a larger number of people who do not 
receive the benefit. So it depends on number of employers 
versus number of employees.
    Certainly, by pooling it, an individual would be able to--
that employer would be able to have--would have to pay less for 
their employees than if they did it on their own. And again, 
I've said to some smaller employers, if you have a valued 
employee that you want and you know needs to take a break to be 
with their family, and you agree with that, you cannot afford, 
as a small employer, to pay them for 12 weeks of paid leave, 
but you probably could afford 65 dollars for that employee, 
which would be the cost of paid family leave for that 
individual, 65 a year, and that's the cost to them.
    Mr. McCrery. If that's the cost to an employer and I'm an 
employer who currently provides paid leave, it seems to me that 
I'm going to quit providing paid leave and just go under the 
state program.
    Mr. Donovan. Certainly, if you--you could do that.
    Mr. McCrery. It would be a lot cheaper, wouldn't it?
    Mr. Donovan. It could be cheaper and we have it built in 
that you could then, as well, add additional benefits, if you 
desire, above the minimum.
    Mr. McCrery. So--
    Mr. Donovan. So it may be a savings to you.
    Mr. McCrery. Yes, probably. And if so, then you're probably 
going to have a lot of employers, in fact, most employers 
saying I'm getting out of the business of providing paid leave 
and getting under the state program. So essentially you're 
going to be replacing private dollars that are doing good right 
now with public dollars.
    Mr. Donovan. And I would say, I would agree that's true. If 
every--if private dollars took care of the problem, we wouldn't 
be here today.
    Mr. Cardin. Would the gentleman yield just on that point?
    Mr. McCrery. Sure.
    Mr. Cardin. Just so I understand it. The program you're 
talking about has little to do with the regulation that was 
issued by the Department of Labor. You're dealing with that 
part beyond maternity.
    Mr. Donovan. That is correct.
    Mr. McCrery. But what the regulation would do is give the 
option to the states to create a program using the UC system.
    Mr. Cardin. If the gentleman would yield. As relates to a 
parent for a child, delivering a child or adopting a child, if 
I understand the Connecticut proposal, it's providing 
additional paid leave under the Family and Medical Leave Act 
beyond just giving birth or adopting a child that is not really 
dealt with in the regulation of the Department of Labor.
    Chairperson Johnson. Just to clarify--
    Mr. McCrery. It's the same concept, though.
    Chairperson Johnson. Just to clarify, they do have a two-
tiered program, and so the benefits that are not related to 
birth or adoption are paid for now with a new program that has 
come out of the committee and funded by new tax. And what I 
hear you saying, Mr. Donovan, is that an employer who already 
pays those leaves would not have to pay that new tax.
    Mr. Donovan. That's correct.
    Chairperson Johnson. I think Mr. McCrery's point is he'd be 
dumb not to pay the tax, it's a lot cheaper than paying the 
benefits.
    Mr. Donovan. And that's--
    Chairperson Johnson. Right. But I think the other half that 
Mr. McCrery is getting at is the half that pays the 
unemployment--that makes the payments for the paid leave for 
birth. That's a third, according to you, of the people who use 
paid leave.
    For that, the employer cannot avoid the increase in 
unemployment tax that will come from the increased demand for 
benefits.
    And so he would really almost have to stop his own paid 
leave program because he's going to be paying through the state 
for the state paid leave program. So you're really forcing 
anyone, in their right mind, especially an employer of 16, 17, 
18, 19, 20 and 30 employees, to get out of any paid leave 
program they already have.
    Mr. Cardin. Again, just to complete that, if I might, just 
for one minute, I'd like to have you respond, if the gentleman 
would continue to yield.
    Mr. McCrery. Sure.
    Mr. Cardin. If the regulation were not issued and you did 
not have the authority to use the unemployment insurance 
system, following the Chair's initial comment, Connecticut 
could still move forward with this program under the separate 
tax proposal, including all the benefits.
    But then I would suggest the gentleman's comment from 
Louisiana is accurate, almost all employers may very well drop 
all of their paid maternity benefits and go into the new state 
program, and I question whether that's good or not, but it 
would be up to Connecticut to make that judgment, as is 
Connecticut now under the new authority offered by Department 
of Labor has decided to use some unemployment insurance and 
some separate program.
    Mr. Donovan. Right. Now, if I may generalize, those 
employers that pay a good wage to their employees also pay--
have good health insurance and also provide paid leave 
benefits. It's the businesses that maybe can't afford a decent 
wage or higher wage, cannot afford medical benefits and maybe 
cannot afford to provide paid leave, but understand that these 
are important issues for our country and our families, and 
maybe a universal system for those companies where they can 
afford it for those employees would be a good thing.
    Mr. McCrery. I just to conclude. That's the question.
    Mr. Donovan. Yes, sir.
    Mr. McCrery. And you make my point. I think that is exactly 
what Connecticut would end up with, is a universal system 
funded through the tax system, rather than employers providing 
benefits for their employees in order to make their place of 
work competitive and attractive to potential employees, and 
that is a fundamental question that I think you need to think 
about.
    Mr. Donovan. Thank you.
    Chairperson Johnson. Mr. Camp.
    Mr. Camp. Thank you, Madam Chairman. I just want to take a 
minute and associate myself with your remarks, particularly on 
the area of stay at home spouses, that I think we have a 
growing inequity there and I think we have to watch that very 
carefully.
    But my main point I'd like to make is I am concerned about 
the integrity of the unemployment compensation trust fund under 
this proposal, and the reason is I come from a state, I come 
from Michigan, we have a cyclical economy and my district is 
about the size of Connecticut.
    So we have a much larger state, a much more complex state, 
I think, in terms of its economy, and we have had a cyclical 
economy there in the '50s, in the '70s and the in the early 
'80s. And under Federal law, when unemployment rates go very 
high and the trust funds are depleted, you're required to 
borrow money. Our state had to borrow 2.6 billion dollars, 
mandated by Federal law.
    It took us years and a change of administrations to get out 
of it. We're finally out of it and we have a surplus in our 
fund.
    But I worry about the integrity of this fund, which was 
created to help those who were involuntary unemployed, and that 
eroding it, however positive and well meaning your intentions, 
could jeopardize not only the people who find themselves 
unemployed, but if we get into bad times, would require then 
states to borrow money and then higher taxes on employers and 
job creators, and, therefore, less jobs being created.
    I think it is a very--I mean, I think we have to have a 
real concern here and not just do the feel good stuff, which we 
all admire and I think it's great there is a debate going on 
here, but I am very concerned about the integrity of these very 
important funds.
    We've seen bad times in our country and in our states and 
Michigan is one that is very cyclical and I just want to make 
that comment, that I think we have to be very concerned about 
it.
    Chairperson Johnson. Well, I thank you for your testimony, 
Representative Donovan. I am pleased that you have funded both 
sets of benefits. It would be better if they were all funded 
under the same plan so people could see that.
    Mr. Camp's comments about the erosion of the fund are our 
concern. Since you have an automatic tax increase, it will be 
less of a problem in Connecticut, but not all states have that, 
and not all states raise taxes when their unemployment fund 
goes belly up.
    If we could guarantee that every state that was going to 
expand their fund would expand their taxes, that would be a 
different matter, but that has not been the history in this 
area and our concern is with the solvency of the fund.
    I know you have an Office of Fiscal Analysis, having been 
one of the legislators in the State Senate that helped create 
it many years ago. Have they done a fiscal note on your bill 
yet?
    Mr. Donovan. Madam Chairman, no, they have not. The bill, 
as you remember, the way that we do it here, the bill goes out 
of committee, the bill is now sent to the floor of the House 
and we'll get a fiscal note, and so everybody can see what 
we're looking at.
    Chairperson Johnson. If you would be so kind, I would like 
a copy of that fiscal note, and if you could provide my office 
with the name of the person in the Office of Fiscal Analysis, 
because I want to see whether their fiscal note--down here, the 
fiscal note would say this is the cost and then this is the 
expected behavioral response and, therefore, the additional 
cost of the employers who are now providing paid leave, that 
shift onto the public burden.
    So I am very interested in the cost analysis of the Fiscal 
Analysis Department.
    Mr. Donovan. I'll be happy to get that to you.
    Mr. Cardin. If I might, Madam Chair, just very briefly, 
particularly with Mr. Camp still here. I think we all share the 
same concern about the solvency of the unemployment insurance 
funds and the unpredictability of what could happen in the 
future.
    That's why we've had a hearing just last week on Mr. 
McCrery's legislation to devolve the administrative issues. I 
expressed concern at that hearing mainly because I think you 
need to have a stronger backstop at the Federal level to deal 
with extended benefits and to deal with the administrative 
costs when the states are not going to be able to deal with it 
during a recession.
    But Mr. Camp raised a very interesting point about the 
State of Michigan. Well, Michigan has cut its taxes on its 
employers because of the fund's balances. According to the 
information we have, the overall unemployment insurance cost 
for Michigan businesses has been cut by 750 million over the 
last five years. So it's one thing to say that you're 
interested in preserving the solvency of the trust fund.
    It's another thing to say that states are taking action to 
reduce the burdens on employers, properly so, properly so 
because we're going through a strong economic period, and the 
reserves are getting larger and larger. I don't disagree with 
that.
    We are getting close to repealing the .2 percent FUTA tax 
here for the same reasons. That's understandable. But to say 
that providing benefits for people who are taking care of a 
newborn child is all of a sudden going to create the 
insolvencies of our trust funds, I think, is just taking this a 
little bit too extreme, and I applaud the State of Connecticut 
and Mr. Donavan for your efforts, and I think it's very 
interesting.
    The part that's under the unemployment insurance is not a 
discretionary program for the employer. The employer can't opt 
out of that. So Mr. McCrery's point about employers dumping 
their benefits in order to get into a new state program, they 
can't do that on the unemployment side. They have to stay 
within the unemployment insurance side.
    I expect that's one of the reasons why Connecticut wants to 
use the unemployment insurance system for the benefits for a 
newborn child or an adopted child, because that is going to be 
uniform for all employers. It's also rate-sensitive to 
experience, so you are rewarding those employers that have paid 
maternity leave.
    So I guess it's difficult for us sitting in Washington to 
find a solution. I go back to the whole concept of Federalism. 
Way back when, when President Reagan--during President Reagan's 
years, I served on a national commission, as a state 
legislator, I might say, on the National Commission on 
Federalism. At that point, we pushed very heard to allow states 
to have the ability to try new programs, to try new ways to 
deal with problems that are in our community.
    We have a changing society. Why are we so afraid of giving 
the states the ability to experiment? That's the whole concept 
of our country.
    So, Mr. Donovan, I thank you for taking the time. I know 
you're in session, and so you gave up some votes in the 
Connecticut Legislature to be here, and I thank you very much, 
because I thought it was extremely helpful to our committee.
    Chairperson Johnson. Thank you.
    Mr. Donovan. Thank you.
    Chairperson Johnson. And I am pleased that actually this 
hearing demonstrates that Federalism works, that you can set up 
this independent family leave program and you could have easily 
put the other benefits into it. From a national perspective, 
there are grave dangers in how states might do this.
    It is my pleasure to call next our Deputy Assistant 
Secretary of Employment and Training, Raymond Uhalde, the U.S. 
Department of Labor. Thank you for being with us, Mr. 
Secretary. And you have with you Ms. Kilbane.
    Your testimony will be entered in the record in its 
entirety, and we look forward to your comments.

  STATEMENT OF RAYMOND J. UHALDE, DEPUTY ASSISTANT SECRETARY, 
  EMPLOYMENT AND TRAINING ADMINISTRATION, U.S. DEPARTMENT OF 
                             LABOR

    Mr. Uhalde. Madam Chair and members of the subcommittee, 
thank you very much for this opportunity to testify on the 
proposed birth and adoption unemployment compensation 
experiment, a proposed rule change designed to permit 
interested states to experiment with using the unemployment 
compensation program to provide partial wage replacement to 
parents on leave following the birth or adoption of a child.
    Within the Department, Madam Chair, we refer to this as 
Baby UI, so if I slip into that verbiage during the testimony, 
I apologize.
    The Department of Labor believes this proposed experiment 
is important to parents trying to balance work and family 
responsibilities. As you know, the Department published a 
notice of proposed rulemaking last December, seeking comments 
on this proposed experiment from all interested parties.
    In the interest of time, I will go directly to the 
discussion of the proposed rule and just point out to the 
committee that Grace Kilbane is accompanying me and she is the 
administrator of the office work for security.
    Because of the dramatic changes in the workforce and the 
economy and the interest among state legislators, worker 
advocates, members of Congress and the President, the 
Department has proposed allowing states, that choose to do so, 
to implement an experiment to use UC as a means for providing 
partial wage replacement to employees who desire to take 
approved leave or otherwise leave their employment following 
the birth or placement for adoption of a child.
    To accomplish this, the Department is exercising its 
authority to interpret Federal unemployment compensation law 
and specifically is extending its interpretation, that workers 
be able and available to work in order to collect benefits, to 
include new parents.
    The Department's birth and adoption proposal is designed to 
test whether expansion of this able and available 
interpretation to include new parents would promote a continued 
connection to the workforce for parents who receive such 
payments.
    The initial time period during which a new child is 
introduced into a home and how that child's care will be 
assimilated into the working lives of families is critical. It 
is during this period that secure emotional bonds are formed 
between children and their parents. It is also during this 
period that a system of child care, which will foster the 
parents' availability for work, can be firmly established.
    These requirements are universal when any working family 
has a new child. Addressing these needs is fundamental to 
helping families flourish and also connected to sustaining a 
stable workforce.
    For the above reasons, the Department believes these 
parents are an appropriate focus of an experimental extension 
of the able and available requirements. Due to this 
experimental nature, the proposed expanded interpretation of 
the Federal able and available requirements would apply only to 
birth and adoption UC. This experiment would build on past 
Department interpretations that said, under certain 
circumstances, workers need not meet the classic definition of 
being ``able and available for work'' to receive benefits.
    For example, all states now treat individuals in training 
approved by the state agency as meeting the able and available 
requirements. The rationale for this interpretation is that the 
best route to a strong labor market attachment for these 
workers is to acquire new skills through training.
    In 1961, the Department interpreted Federal law to permit 
states to allow workers to participate in training while 
receiving benefits. This strategy was so successful that the 
Congress subsequently amended the law in 1970 to accommodate 
worker training.
    Under our proposal, state participation in this experiment 
is wholly voluntary. A state choosing to implement birth and 
adoption UC will need to amend its UC law to provide for these 
benefits. For guidance purposes, the Department developed an 
optional model of state legislation and a commentary on the 
model legislation and policy issues. Both were appended to the 
notice of proposed rulemaking.
    The model state legislation is just that, a model, and in 
most cases, the proposed rule is structured to provide states 
with the same flexibility they have in other UC program areas.
    Some critics of the proposal have argued that Federal law 
requires UC recipients to be involuntarily unemployed to 
qualify for benefits and that this experiment violates this 
requirement by allowing states to provide benefits to 
individuals voluntarily leaving employment to be with their 
newborns or newly adopted children.
    The Department does not interpret Federal law to require 
states to disqualify individuals who voluntarily leave their 
jobs. For example, some states allow the payment of UC benefits 
to individuals who quit their jobs to accompany spouses who 
have been transferred to other locations.
    Another concern has been raised by some critics about the 
impact of the proposal on the solvency of the state 
unemployment trust funds. While the Department is concerned 
about trust fund solvency and the Department and the 
Administration have proposed legislation which includes an 
incentive for states to make progress in this area, we fully 
expect that a state would be prudent in its decisions and would 
not enact changes without first assessing the effect on the 
solvency of its unemployment fund. Each state has the 
responsibility to assess the cost to its unemployment fund 
whenever coverage, benefit expansions or tax changes are 
considered within the UC program.
    The NPRM for birth and adoption UC was published in the 
Federal Register December 3, 1999, with a 45-day comment 
period. We believe this period was ample because of the simple 
nature of the experiment, and the relatively short length of 
the proposed rule. Although, we did receive a number of 
requests for additional time. Because the proposal was a new 
one and to accommodate the holiday season, we decided to extend 
the comment period 15 days, which comports with the President's 
Executive Order encouraging agencies to allow a 60-day comment 
period, whenever possible.
    The Department received over 3,700 timely responses to the 
NPRM and we are in the process of reviewing and considering all 
the comments. Comments are roughly evenly divided for and 
against.
    We will then draft the final rule and obtain the necessary 
Administration clearances, a process which we anticipate will 
allow for publication in late spring.
    In closing, we note that state interest in birth and 
adoption UC proposals continues this year. In fact, bills have 
been introduced in over a dozen states to implement birth and 
adoption UC. While not all of these are likely to be enacted, 
we are very excited about this opportunity to explore new ways 
to support families, balancing responsibilities at home and at 
work.
    Madam Chair, this concludes my formal remarks and I'll be 
glad to respond to any questions you or the subcommittee may 
have.
    [The prepared statement follows:]

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

    Madam Chairwoman and Members of the Subcommittee:
    Thank you for the opportunity to testify on the proposed 
Birth and Adoption--Unemployment Compensation program--a 
proposed rule change designed to permit interested States to 
experiment with using the unemployment compensation (UC) 
program to provide partial wage replacement to parents on leave 
following the birth or adoption of a child. As you know, the 
Department of Labor published a Notice of Proposed Rulemaking 
(NPRM) last December seeking comments on this proposed program 
from all interested parties. The NPRM generated considerable 
response from the public.
    I will begin by providing some background information which 
may be helpful to the Subcommittee in understanding why the 
Department of Labor believes this proposed program is important 
to parents trying to balance work and family responsibilities.
    With me today is Grace Kilbane, Administrator of the Office 
of Workforce Security.

                               Background

    There have been dramatic changes in our society, the 
economy, and the workforce since the UC program was designed in 
1935. One of those changes is the tremendous increase in women 
who work outside the home. Today, almost 60 percent of mothers 
with children under the age of one are in the work force. 
Evidence suggests that children who have bonded strongly with 
their parents early in their lives tend to be healthier both 
emotionally and physically. Working parents who are able 
financially to take leave from their jobs can spend this 
critical time with their children. Yet, too many parents cannot 
afford to do so. According to the Commission on Family and 
Medical Leave's report ``A Workable Balance: Report to Congress 
on Family and Medical Leave Policies,'' nearly two-thirds of 
employees who did not take leave to be with their newborns 
cited lost wages as the primary reason.
    According to the International Labor Organization, more 
than 120 nations around the globe provide paid maternity leave 
by law. This includes most industrialized countries except for 
the United States, New Zealand, and Australia. The United 
States is the only country in the North American continent that 
does not provide paid maternity leave to its female workers. I 
do note that six States and territories provide for paid 
maternity benefits through State Temporary Disability Insurance 
(TDI) programs.
    Interest in expanding the UC program to these workers began 
to manifest itself in 1997 through bills introduced in several 
State legislatures on a wider issue of family and medical leave 
benefits within the UC program. Interest was also expressed by 
members of the Congress and worker advocates. Accordingly, the 
Department of Labor began to analyze whether we could expand 
our interpretations of UC laws to accommodate State interest in 
providing such benefits.
    On May 23, 1999, in a commencement address at Grambling 
University, the President announced that he would be asking the 
Secretary of Labor to propose regulations allowing States to 
use unemployment fund moneys to provide partial wage 
replacement to mothers and fathers on leave following the birth 
or adoption of a child, and an Executive Memorandum to this 
effect was issued on May 24, 1999.

                     Notice of Proposed Rulemaking

    The Department of Labor has proposed allowing States that 
choose to do so to implement an experimental program to use UC 
as a means for providing partial wage replacement to employees 
who desire to take approved leave or otherwise leave their 
employment following the birth or placement for adoption of a 
child. To accomplish this, the Department is exercising its 
authority to interpret Federal UC law, and specifically is 
extending its interpretation that workers be able and available 
to work in order to collect benefits to include new parents. 
The Department of Labor's proposed experimental Birth and 
Adoption-UC program is designed to test whether expansion of 
this able and available interpretation to include new parents 
would promote a continued connection to the workforce for 
parents who receive such payments.
    As the number of families with both parents working rises, 
the need to test this interpretation increases, and collecting 
data under the Birth and Adoption-UC program to test the 
existence and magnitude of this group's connection to the work 
force, is increasingly important. Indeed, much in the same way 
that providing training to laid-off workers enhances their 
connection to the workforce by making them more marketable, the 
Department of Labor wants to test whether providing parents 
with Birth and Adoption-UC at a point during the first year of 
a newborn's life, or after placement for adoption, will help 
employees maintain or even promote their connection to the 
workforce.
    The initial time period during which a new child is 
introduced into a home, and how that child's care will be 
assimilated into the working lives of the parents, is critical. 
It is during this period that secure emotional bonds are formed 
between children and their parents. It is also during this 
period that a system of child care, which will foster the 
parents' availability for work, can be firmly established. 
These requirements are universal when any working family has a 
new child. Addressing these needs is fundamental to helping 
families flourish and is also connected to sustaining a stable 
workforce.
    For the above reasons, the Department of Labor believes 
that these parents are an appropriate focus of an experimental 
extension of the able and available requirements. Due to the 
experimental nature of this program, this proposed expanded 
interpretation of the Federal able and available requirements 
would apply only to Birth and Adoption-UC.
    This experiment would build on past Department of Labor 
interpretations that said, under certain circumstances, workers 
need not meet the classic definition of being ``able to and 
available for work'' to receive benefits. For example, all 
States now treat individuals in training approved by the State 
agency as meeting the able and available requirements. The 
rationale for this interpretation is that the best route to a 
strong labor market attachment for these workers is to acquire 
new skills through training. In 1961, the Department of Labor 
interpreted Federal law to permit States to allow workers to 
participate in training while receiving benefits. This strategy 
was so successful that the Congress subsequently amended the 
law in 1970 to accommodate worker training.
    Other special circumstances under which States may permit 
unemployed workers to continue to receive UC benefits include 
jury duty and temporary illnesses during their spell of 
unemployment. The proposed rule would permit States to test 
whether these special circumstances should be expanded to 
individuals on leave following birth and adoption by 
determining whether payment of UC promotes their connection to 
the labor market.
    Under our proposal, State participation in this experiment 
is wholly voluntary. A State choosing to implement a Birth and 
Adoption program will need to amend its UC law to provide for 
these benefits. For guidance purposes, the Department of Labor 
developed an optional model of State legislation and a 
commentary on the model legislation and policy issues; both 
were appended to the NPRM. Among other things, the model 
legislation provides for 12 weeks of benefits for eligible 
parents of newborns and newly adopted children. The model 
legislation also provides that the costs associated with these 
benefits be spread among employers, i.e., benefits not be 
charged to individual employers. The model State legislation is 
just that--a model--and in most cases the proposed regulation 
is structured to provide States with the same flexibility they 
have in other UC program areas.
    Some critics of the proposal have argued that Federal law 
requires UC recipients to be involuntarily unemployed to 
qualify for benefits and that this experimental program 
violates this requirement by allowing States to provide 
benefits to individuals voluntarily leaving employment to be 
with their newborns or newly adopted children. The Department 
of Labor does not interpret Federal law to require States to 
disqualify individuals who voluntarily leave their jobs. For 
example, some States allow the payment of UC benefits to 
individuals who quit their jobs to accompany spouses who have 
been transferred to other locations.
    Another concern that has been raised by some critics is the 
impact of the proposal on the solvency of State unemployment 
funds. While the Department is concerned about trust fund 
solvency, and has proposed legislation which includes an 
incentive for States to make progress in this area, we fully 
expect that a State would be prudent in its decisions and would 
not enact changes without first assessing the effect on the 
solvency of its unemployment fund. Each State has the 
responsibility to assess the cost to its unemployment fund 
whenever coverage, benefit expansions, or tax changes are 
considered within its UC program.
    The NPRM on Birth and Adoption UC was published in the 
Federal Register on December 3, 1999, with a 45-day comment 
period. We believed this period was ample because of the simple 
nature of the experimental program and the relatively short 
length of the proposed rule, although we did receive a number 
of requests for additional time. In light of the fact that the 
proposal was a new one, and to accomodate the holiday season, 
we decided to extend the comment period 15 days, which comports 
with the President's Executive Order No. 12866 encouraging 
agencies to allow a 60-day comment wherever possible.
    The Department of Labor received over 3,700 timely 
responses to the NPRM and we are in the process of reviewing 
and considering all of the comments. We will then draft the 
final rule and obtain the necessary Administration clearances--
a process which we anticipate will allow for publication in 
late Spring.
    In closing, we note that State interest in the proposed 
Birth and Adoption UC program continues this year. In fact, 
bills have been introduced in over a dozen States to implement 
the program. While not all of these are likely to be enacted, 
we are very excited about this opportunity to explore new ways 
to support families in balancing responsibilities at home and 
at work.
    Madam Chairwoman, this concludes my formal remarks. I will 
be pleased to respond to any questions you or the Subcommittee 
may have.
      

                                

    Chairperson Johnson. Thank you very much, Mr. Secretary. 
It's a pleasure to have you.
    Do you have any national statistics on how many people use 
the Family and Medical Leave Act?
    Mr. Uhalde. My agency doesn't administer the FMLA and I 
don't have the statistics. We will be glad to supply them for 
the record.
    [The information was not available at the time of 
printing.]
    Chairperson Johnson. I think they're very relevant to the 
issue of what impact this will have on the unemployment 
compensation funds of the country.
    Mr. Uhalde. We have estimates on the cost of birth and 
adoption to the trust fund--
    Chairperson Johnson. I'm surprised that you don't know 
them, when you extended this policy.
    Mr. Uhalde. Well, Madam Chair, first of all, the policy is 
not tied directly to family and medical leave. The issues with 
regard to birth and adoption will cover populations that are 
not necessarily in accord with family and medical leave. And we 
do have estimates for the impact with regard to birth and 
adoption for this proposal.
    Chairperson Johnson. In your regulations, did you require 
states to reflect the additional cost by adjusting their 
unemployment compensation taxes?
    Mr. Uhalde. We don't require the states to adjust uc taxes. 
The model legislation and the NPRM spoke to the question of the 
states taking into account the solvency and the issues that 
they would have to address in order to accommodate this issue.
    Chairperson Johnson. But you did not specifically say if 
you're going to expand these benefits, you should raise your 
unemployment comp taxes to cover the cost.
    Mr. Uhalde. No, we did not.
    Chairperson Johnson. I think that's unfortunate. In the 
President's budget, he assumes that unemployment will rise from 
4.1 to 5.3 percent in the next three years, which suggests 
that, a cost of, at the minimum, 3.4 billion will have to be 
assumed by the states.
    What will be the additional cost of this new benefit?
    Mr. Uhalde. Well, first of all, it obviously depends on how 
many states are going to take this up.
    Chairperson Johnson. Yes, but you must have had some guess.
    Mr. Uhalde. There is no estimate of knowing how many states 
will enact legislation. If all states took this up, which is 
highly unlikely, our estimate is that it would cost less than 
five percent and closer to probably three percent in terms of 
benefits, compared to what is currently paid out of the trust 
fund.
    Chairperson Johnson. We have been called for a vote, so 
I'll just be very brief. In a July letter of 1997--
    Mr. Uhalde. Yes.
    Chairperson Johnson.--you noted that, quote, ``State laws 
must contain able and available for work requirements to 
conform with Federal law'' and that benefits will be paid, 
quote, ``only to individuals who are unemployed and who are 
able to work and available to work.'' That is certainly the 
traditional understanding of our unemployment compensation 
system.
    Did the Department change this legal interpretation of the 
law, which, of course, is your responsibility, after the 
President issues his Executive Order?
    Mr. Uhalde. Clearly, the position that we have now is 
different than the position--
    Chairperson Johnson. That's right.
    Mr. Uhalde.--the agency had in the 1997 letter. I'd be glad 
to explain how we got there.
    Chairperson Johnson. I think the important point is that 
through Executive Order, there has been a change in the law.
    Mr. Uhalde. No, that is not correct.
    Chairperson Johnson. And I would maintain that level of 
change--well, you, the Department of Labor is the Federal 
agency responsible for interpreting the law and in 1997--
    Mr. Uhalde. Absolutely, that's our authority.
    Chairperson Johnson.--you said very clearly that laws must 
contain--and you denied states the right to do this very thing.
    Mr. Uhalde. I didn't.
    Chairperson Johnson. Well, the Department of Labor did.
    Mr. Uhalde. Our interpretation in 1997, as has been termed 
here before, was the traditional and conservative 
interpretation of the able and available provisions.
    Chairperson Johnson. That had governed 65 years of the 
functioning of the plan.
    Mr. Uhalde. That's correct, but it's not without precedent 
that we have interpreted able and available and involuntary 
unemployment to operate in other instances. As you've heard 
from the State of Connecticut and others, for example, the most 
telling example is the example with regard to training.
    In 1961, the Department, not even by regulation, with the 
benefit of comment and publication, but, in fact, by a program 
letter, told states that people in training approved by the 
state would be considered able and available.
    The Congress and the states, over a period of a decade, 
thought that operated so well that the Congress and the 
Administration, at that time, enacted law requiring that for 
all states.
    Now, clearly, those workers aren't able and available to go 
get a job while they're in training. So that doesn't meet the 
classic definition of able and available.
    The important thing was that the interpretation by the 
Department, subsequently ratified by the Congress, was that 
these workers would have a better labor force attachment, more 
likely to work and continue work and have more stable workforce 
attachment. That is what we are determining here and are 
testing with this.
    We believe and there is some evidence to suggest that 
parents will have a stronger labor force attachment if they are 
provided this opportunity.
    Chairperson Johnson. I certainly do agree with that and 
that's why some employers who can afford it are providing paid 
leave. But it is very clear from the course of events that the 
Department of Labor changed its interpretation of the law as a 
result of the President's initiative.
    Mr. Uhalde. Yes, we did change our interpretation. We were 
actually party to the discussions in the White House with the 
President in that change.
    Chairperson Johnson. It was the President's initiative that 
changed the law and in the future, I would prefer the 
Department of Labor, if they believe something is necessary to 
improve the workplace or unemployment compensation system, that 
they propose the change in the law, so that we could have been 
part of directing states, if they adopt this, to clearly make 
provision for its funding.
    Now, because Connecticut has this automatic trigger, it 
will be clearly funding its benefits.
    Mr. Uhalde. That's correct.
    Chairperson Johnson. It is also unfortunate that 
Connecticut is a very high cost place to do business, and so I 
hope they will follow the Congress' lead in offsetting these 
costs through some other reduction in the cost of doing 
business.
    Mr. Uhalde. But this is not a change in the law. This is a 
change in our interpretation. It's a different issue.
    Chairperson Johnson. That's right, but that is--it is a 
change of one of the fundamental principles that have governed 
unemployment compensation for 65 years.
    Mr. Uhalde. Of which we have done several times.
    Chairperson Johnson. And you have written this committee, 
the Department of Labor has written this committee repeatedly 
about your concern about state solvency.
    Mr. Uhalde. Absolutely.
    Chairperson Johnson. And yet in issuing this regulation, 
you reserved to yourself no right to review a state's plan 
before they did that to be sure that they were not going to 
make their own position in regard to solvency weaker. You did 
not reserve that right, and I think that was irresponsible, 
when we're talking about one of the most fundamental and one of 
the most important programs to support working Americans.
    And to have just issued this regulation, not having the 
guts to bring a law up here and talk about it with us, to me, 
was a bad process, results in bad policy, and you've got a bad 
policy here because you have no power to work with the states 
to see that they fund a new and additional benefit.
    Mr. Cardin.
    Mr. Cardin. Thank you, Madam Chair.
    Mr. Uhalde. I'd like to respond.
    Mr. Cardin. Mr. Secretary, I'd be glad to have your 
response.
    Mr. Uhalde. First of all, every state does have an 
automatic tax trigger. Secondly, states are all the time 
reducing taxes or expanding benefits by state law and they 
don't necessarily come and ask the Department's permission 
first on whether they have to compensate for an expansion on 
eligibility by enacting taxes.
    This is a Federal-state system, where the states have 
enormous responsibility and authority. We were asked whether or 
not this met with an interpretation of law and whether states 
had this authority, and our analysis subsequent to obviously 
the 1997 letter was yes, we could do that and we could give the 
states that authority, and they have the taxing authority to 
compensate for this.
    Mr. Cardin. I obviously agree with your position, but it 
might have been easier if you just did it by letter than 
issuing a regulation. It might teach you in the future to act a 
little faster on these issues and maybe Congress wouldn't have 
noticed. I don't know. Anyway.
    Let me just, if I could, I want to give Mr. McCrery an 
opportunity before we go vote.
    Some of the information I have, I just want to make sure 
it's correct. I believe it's from the Department of Labor on 
solvency, which we think is a very important point. The 
information I have received indicates that you've done a study 
in four states about how much of the reserves would be needed 
in order to fund this program.
    In Maryland, it was 2.79 percent of the trust fund 
reserves; Massachusetts, 1.89 percent; Washington, .74 percent; 
Vermont, .39 percent.
    Is that accurate?
    Mr. Uhalde. Yes. Those are very, very close to the numbers 
I have. Yes, sir.
    Mr. Cardin. And it seems to me that you would have annual 
fluctuations in these trust funds that would exceed that 
amount. This seems to be a relatively modest amount of the 
trust fund balances that would be involved in funding the UI 
program that they chose to expand to include the birth issues.
    Mr. Uhalde. Yes, absolutely. These are relatively small 
amounts of the balances. They are also, when measured against 
the benefit payouts, are relatively small amounts, and they are 
amounts the states are very well equipped to deal with in 
deciding the solvency of the system.
    Mr. Cardin. And the last point I just want to put in the 
record, it's my understanding that 84 percent of the workers 
who go on maternity leave will return to their jobs. So this is 
a situation where a person really wants to return to work.
    Mr. Uhalde. Yes.
    Mr. Cardin. With that, Madam Chair, I would yield back the 
balance of my time, and let Mr. McCrery have a chance.
    Chairperson Johnson. I do recognize Mr. McCrery.
    Mr. McCrery. Thank you. We do have to go vote, but quickly, 
I just want to point out that last week, we had a hearing on 
devolving the UC system to the states and the Department of 
Labor was here expressing grave concerns about the status of 
our trust fund, and this week you have a different view.
    Mr. Uhalde. No, I have the same view. It differs by the 
states.
    Mr. McCrery. But it is curious. I just want to point out, 
Madam Chairman, that I think we will have witnesses later today 
that will give us different estimates as to the cost of this 
program and that will be interesting to hear.
    I think some are estimating that the cost will be far 
higher than the Department of Labor is predicting, so that will 
be interesting to hear.
    Chairperson Johnson. Mr. Secretary, do those estimates take 
into account the cost shift that's going to occur from the 
private to the public sector?
    Mr. Uhalde. I'm not sure that they do.
    Chairperson Johnson. They don't.
    Mr. Uhalde. I'm not sure. I don't know.
    Chairperson Johnson. I've forgotten the other--that will 
have to do for now. I had another question, but we all have to 
vote.
    Mr. McCrery. That was such a good point, Madam Chairman. 
You can quit on that one. Excellent point.
    Chairperson Johnson. I know what the other question was. 
Has the Department done any research into some of the problems 
that are felt in the private sector in implementing this 
program?
    Mr. Uhalde. Implementing?
    Chairperson Johnson. The Family and Medical Leave Act.
    Mr. Uhalde. The Family and Medical Leave Act. My agency 
doesn't administer that, but I believe we have testified to 
that--my colleague, John Frazier, before Senator Gregg--and 
we've been working out the issues.
    However, as I understand it, I have not been issued any 
information central to the birth and adoption segment of family 
and medical leave.
    Chairperson Johnson. It is disappointing to me that the 
Department of Labor of the United States of American didn't 
have the courage to bring up a bill that funded family and 
medical leave and corrected some of the problems in the 
program, which are very, very serious.
    If you're there on the floor with small businesses, which I 
know you never are, because that's one of the problems of 
bureaucrats in Washington, they don't get it; if you were out 
there, you would have brought us a piece of legislation. You 
would have said this is a perfectly normal expansion because of 
these things and that rationale could have been public, and 
these are the problems that have to be addressed.
    It is very disappointing to me that my Connecticut people 
ignored the problems out there and especially when I spent--I 
meant to mention that when Mr. Donovan was here. I don't know 
whether he's still here.
    But the first person who brought to my attention the 
seriousness of the problems was the former Democrat mayor of 
Bristol, Connecticut, now head of the Chamber of Commerce, and 
he brought it to my attention about eight years ago and it's 
his state senator who is co-chairman of the labor committee.
    Now, why can't you guys listen to the problems, as well as 
think through the potential? So if you had brought a bill, we 
could have worked through something that would have actually 
helped business and given them better resources to comply with, 
to address the problems that are really important to their 
people.
    Just one last issue. Where do you stand on comp time, the 
Department of Labor? Do you support the comp time initiative?
    Mr. Uhalde. I'll get back to you on that.
    [The information was not available at the time of 
printing.]
    Chairperson Johnson. My impression is you don't. And with 
all your rhetoric in this statement about families and helping 
them to resolve the tension between work and family leave, I'll 
tell you, I want to know from the Department, in writing, why 
you do not support a comp time law that only benignly, it's 
very benign, it just makes it very clear that employers who 
want to offer comp time, so people can go be with their 
families or take a day off, that they can do that, and we have 
not been able to get that through the floor because of the 
opposition of this Administration.
    So I loved all your rhetoric, but let's get it together. 
Let's be honest about these things. Don't do it by executive 
act. Bring the bill to the floor and fix the problems in the 
system, as well as meeting the needs of the people, and meet 
the needs not just by imposing new money, but by imposing the 
flexibility that people in their lives need.
    Sorry. End of diatribe. I've got to go. But I had to get on 
the record that I cannot believe that the Department of Labor 
has been utterly obstinate in looking, but would do this 
without requiring in the directives that states recognize that 
new obligations require new funding and you've got to do it.
    So thank you for your testimony.
    Mr. Uhalde. Madam Chair, I take it you don't want an answer 
to your statement.
    Chairperson Johnson. I heard your answer. You're going to 
tell me the states have the automatic trigger. That's not 
enough. States need to really think through what the trigger--
    Mr. Uhalde. You complimented Connecticut on their automatic 
trigger.
    Chairperson Johnson. Right. Because at least most if they 
had taken out because your directive didn't cover it all and 
funded it themselves. They could have done the whole thing 
themselves and had a clearly related new tax for new benefits 
and government has got to be honest that way. New benefits need 
a new resource of money and that's what should have happened.
    Mr. Uhalde. And the states are not confused about their 
responsibility to fund benefits.
    Chairperson Johnson. I hope so. We have to go, I'm sorry. 
Bye.
    Mr. Uhalde. Thank you.
    [Recess.]
    Chairperson Johnson. The committee will reconvene. Mr. 
Cardin will be with us any moment. If we could have come to the 
table now our panel. Eric Oxfeld, of UWC-Strategic Services on 
Workers' Compensation and Unemployment; Kimberley Hostetler, 
Director of Human Resources Services, Connecticut Hospital 
Association, on behalf of the Society for Human Resource 
Management; Maurice Emsellem, Policy Director for the National 
Employment Law Project; Todd Shimkus, the Vice President of 
North Central Massachusetts Chamber of Commerce; Jack Wheatley, 
Director of the Michigan Unemployment Agency.
    Also, my colleague Mr. Camp will be back. Unfortunately, we 
have several hearings going on the Ways and Means Committee, so 
members have to be several places at once.
    We do, with panels, have the lights that show you where you 
are in your five minutes. Your entire testimony will be entered 
in the record and after the five minutes, there will be a time 
during questions for you to enlarge on points that you felt you 
didn't have time to make.
    So if we could start with Mr. Oxfeld.

STATEMENT OF ERIC J. OXFELD, PRESIDENT, UWC-STRATEGIC SERVICES 
            ON UNEMPLOYMENT & WORKERS' COMPENSATION

    Mr. Oxfeld. Madam Chairman, I'm Eric Oxfeld, the President 
of UWC. We very much appreciate the opportunity to be here this 
afternoon and commend you for your leadership in holding these 
hearings, as well as the hearings about a week ago.
    I would like to make just a few points. First, compensating 
workers who choose to take leave while they are unavailable for 
work because they are on leave is not, as you have pointed out, 
unemployment insurance. Labeling paid leave unemployment 
compensation does not change this fact.
    If paid leave is unemployment compensation, what isn't; 
sick leave, workers' compensation, disability, pensions, 
vacation? I would like to make one observation, because some of 
the earlier testimony may have blurred the distinction between 
someone who quits their job and then can collect unemployment 
and someone who is unavailable for work.
    Although employers don't think it's good policy to pay 
unemployment benefits to people who quit their jobs for 
personal reasons, they can collect, it is legal for them to 
collect unemployment benefits, provided they are actively 
seeking work and are available for work, unlike people who take 
leave, who choose to take leave and who, by definition, are not 
available for work and cannot work, who hold themselves out of 
the workforce. Important distinction.
    Changing the fundamental purpose of unemployment insurance 
to include paid leave is a decision that should only be made by 
Congress, not by Department of Labor through rulemaking while 
Congress is out of session and in direct contravention of both 
the Family and Medical Leave Act and the clear understandings 
behind it, as well as the Federal Unemployment Tax Act.
    Using unemployment insurance benefits trust funds to 
provide paid leave is contrary to both the letter and spirit of 
the FMLA, as well as the Federal Unemployment Tax Act. As 
former Representative Pat Schroeder, one of the architects of 
the FMLA, said during the debate on FMLA, there is no 
unemployment compensation for people who go out on leave. It 
was clearly understood.
    The Federal Unemployment Tax Act is also clear and 
unambiguous. It prohibits withdrawals from state unemployment 
trust funds, except for purposes of paying unemployment 
benefits. You can only make withdrawals to pay unemployment 
compensation.
    There are a few statutory exceptions to the FUTA, but paid 
leave is not one of them.
    When times are good, the temptation to raid unemployment 
benefits trust funds in order to provide funding for other 
valuable and desirable goals unrelated to unemployment 
insurance is a very powerful temptation. That's why the Federal 
prohibition in the FUTA against use of unemployment benefit 
trust funds for other purposes is just as important and 
necessary today as it was when the system was first 
established.
    I would likeN this situation and I'm a parent myself--the 
good practice of telling our children to refrain from 
intoxicating beverages while they are under age 18. We tell 
them to be responsible and not to do drink alcohol, but we know 
that the temptation is powerful and that is why we have laws 
that prohibit the sale of alcohol to minors.
    This is an analogous situation. The temptation during good 
times to use up benefits trust funds for another purpose is 
extremely powerful.
    The Department of Labor's position of trust us to be 
responsible has been proven to be a mistake as demonstrated by 
the history of borrowing, which you yourself referred to, and 
the fact that Connecticut is still paying for its last loan.
    Expanding the permissible use of UI to provide paid leave 
will unquestionably add to the payroll tax burden. Our 
estimate, if all states do it, will be up to 18 billion dollars 
a year. That's in addition to the 30 billion we already pay for 
unemployment insurance, even though we have no unemployment. If 
we expand it to include all FMLA leave, by our estimate, the 
total cost will be up to 84 billion dollars, and that's just 
for the 12 weeks the Department of Labor suggests be provided 
for parental leave.
    Most states, as you know, provide 26 weeks of unemployment 
insurance benefits, not 12 weeks, and if they provided all 26 
weeks, as they would if this was really truly unemployment 
compensation, it would be much more costly.
    By the way, all of these new benefits will be scored in the 
Federal budget as increased Federal outlays, and I can 
elaborate on that later, if I have time.
    When if UI is expanded to include paid leave when the 
economic cycle turns, UI trust fund balances will be quickly 
depleted.
    As you will recall from the hearings, and I know I'm out of 
time, there are many problems in the unemployment insurance 
system, many of them created by the Federal Government's 
failure to properly fund the state administrative agencies. 
It's why unemployment claims last two weeks longer than they 
should, why we don't have the resources for reemployment and 
detection and prevention of fraud.
    We believe, as employers, that we need to fix those 
problems rather than expand the unemployment insurance system 
to a new and different purpose. We respectfully ask the 
Congress to use all of the powers available to you to prevent 
the Department of Labor from pursuing this unwise and 
unworkable proposal.
    I'm here not only for UWC but also wearing another hat, 
which is the co-chair of the Unemployment Insurance Working 
Group, set up by SHERM and includes the chamber and the NAM, 
the NIFB, and many other business organizations, all of whom 
are opposed to this proposal.
    We thank you for the opportunity to be here.
    [The prepared statement follows:]

Statement of Eric J. Oxfeld, President, UWC-Strategic Services on 
Unemployment & Workers' Compensation

    Good morning, Madam Chairman and members of the committee. 
My name is Eric Oxfeld, and I am President of UWC, the only 
business organization specializing exclusively in public policy 
advocacy on national unemployment insurance (UI) and workers' 
compensation issues. UWC members are employers of all sizes and 
industry, national and state business associations, and third 
party administrators and accounting firms, all of whom are 
concerned about maintaining a sound UI system.
    UWC is intimately acquainted with UI laws and public 
policy. 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.
    UWC supports the UI program, through which employers 
provide benefits for a temporary period of time to insured 
workers with a strong attachment to work who become temporarily 
and involuntarily jobless when their employer no longer has 
suitable work available. UWC believes that a sound UI program 
is best embodied through the state UI system, with a limited 
federal role where uniformity of state law is considered 
essential.
    UWC, jointly with the FMLA Technical Corrections Coalition, 
leads the UI Working Group. The UI Working Group, which was 
established in cooperation with the Society for Human Resource 
Management, is a coalition of organizations, businesses, and 
associations committed to advancing sound UI policy. The UI 
Working Group opposes the Birth and Adoption Unemployment 
Compensation (BAA-UC) regulations proposed by the U.S. 
Department of Labor (DOL) because this proposal allows the 
misuse of state UI benefits trust funds to finance a new and 
disparate program providing paid parental leave. More 
information on the UI Working Group and its mission can be 
found on its homepage, www.SAVEUI.org.

The BAA-UC Proposal

    The proposed BAA-UC regulation authorizes states to enact 
laws enabling workers to collect UI benefits while on leave 
following childbirth or adoption of a child up to three years 
of age. The proposal is described as an ``experiment'' designed 
to ``test the proposition that providing [UI benefits] to the 
parents of newborns and newly adopted children who wish to take 
approved leave or otherwise leave their employment will 
increase their attachment to the workforce.''
    UWC and the UI Working Group believe that DOL's BAA-UC 
proposal is fundamentally and fatally flawed.
     DOL lacks the authority to promulgate the BAA-UC 
regulations, which are contrary to the clear and unambiguous 
intent of the Federal Unemployment Tax Act (FUTA) and the 
Family Medical Leave Act (FMLA).
     The proposed BAA-UC regulations are an attempt to 
``end run'' Congress and amount to DOL legislating through the 
rulemaking process.
     The BAA-UC proposal will jeopardize the UI safety 
net for jobless workers by eliminating the federal protection 
against misuse of UI benefits trust funds for other purposes.
     The BAA-UC program violates the clear requirements 
of the Federal Unemployment Tax Act (FUTA) and will put 
employers in a state with such a program at risk of a 700% FUTA 
tax increase.
     BAA-UC and UI are different and incompatible 
programs.

DOL has exceeded its authority by proposing BAA-UC, which is 
contrary to the clear and unambiguous intent of the federal UI 
laws and the FMLA.

    Allowing payments of UI benefits to workers on parental 
leave as proposed in the BAA-UC regulations is contrary to 
federal UI laws and the FMLA.
    Indeed, former Representative Pat Schroeder, one of the 
original sponsors of FMLA, made it clear during congressional 
debate on the FMLA that workers taking family and medical leave 
would not be eligible for unemployment benefits: ``The leave is 
unpaid, so your paycheck will stop. There is not federal 
compensation such as unemployment.'' 139 Cong. Rec. E2010 
(daily ed. Aug 5, 1993, emphasis added).
    The Federal Unemployment Tax Act (FUTA) and related laws 
\1\ effectively prohibit expenditures out of state unemployment 
benefits trust accounts for any purpose other than payment of 
``unemployment compensation.'' \2\ As former Representative 
Schroeder clearly understood, BAA-UC payments constitute ``paid 
parental leave'' and are not ``unemployment compensation.''
---------------------------------------------------------------------------
    \1\ E.g., Federal Unemployment Tax Act [26 U.S.C.A. 3301 et seq] 
3304(a)(4). The penalty when a state is out of conformity with the FUTA 
is loss of the FUTA ``offset credit'' for all employers in the state--a 
more than 700% tax increase from $56/worker to $434/worker.
    \2\ Where Congress has decided that it is appropriate to deviate 
from this basic UI principle it has done so by a limited number of 
express exceptions. For example, under FUTA Section 3304(a)(4) employee 
contributions may be used for payment of temporary disability benefits. 
FUTA 3304(a)(4) also contains provisions expressly permitting payments 
out of state unemployment trust accounts for health insurance premium 
payments by UI recipients; repayment of UI over-payments; payment of UI 
benefits to workers in approved work-sharing (``;short-time 
compensation'') plans; self-employment assistance; and use of Reed Act 
funds for UI administrative costs. Parental leave is not covered by any 
of these exceptions.
---------------------------------------------------------------------------
    The plain meaning of the term ``unemployment'' as used in 
the FUTA requires all unemployment compensation claimants to 
meet a 3-pronged test. Under this test, UI claimants must be:
    (1) Without a job;
    (2) Involuntarily unemployed; and
    (3) Able and available for work.
    These federal requirements are a cornerstone of UI policy, 
confirmed by consistent administrative interpretation, FUTA 
legislative history, and subsequent action by Congress. These 3 
requirements were recognized in the legislative history of 
federal UI laws, and they are consistently identified and 
applied in administrative interpretations of those laws from 
1935 until the current notice of proposed rulemaking.
    Payments out of state UI benefits trust funds for workers 
who take parental leave are inconsistent with all 3 of these 
statutory requirements. A worker on parental leave cannot be 
considered to be ``without a job'' because the worker has a 
job, either by law or through arrangement with the employer. 
When a worker is on parental leave, the worker's absence from 
work is not ``involuntary'' because the absence (from start to 
finish) is by the worker's choice, not the employer's. Finally, 
when a worker is on parental leave, the worker is not 
``available for work'' because the worker cannot return to work 
until after the leave period expires, which may be 3 months, 6 
months, or even 1 year later.
    Federal UI law includes the ``able and available'' 
requirement even though there is no specific reference to this 
requirement in the FUTA. Until now, DOL has consistently 
recognized and applied the able and available requirement. As 
recently as 1997 DOL clearly understood that use of UI trust 
funds to compensate workers on family and medical leave would 
violate federal UI law. In separate letters from the DOL 
regional office to the Vermont Department of Employment & 
Training, and from DOL Employment & Training Administration 
Assistant Secretary (Acting) Ray Uhalde to Senator Patrick 
Leahy, DOL stated that UI payments to workers on family leave 
are contrary to the federal requirement that UI beneficiaries 
be ``able and available'' to work.
    To cite another example, in 1955 DOL described UI as ``a 
program--established under Federal and State law--for income 
maintenance during periods of involuntary unemployment due to 
lack of work'' (emphasis added). When a worker takes leave in 
accordance with the FMLA, the employer must hold the worker's 
job open. During the leave period, the worker is not 
``unemployed'' or ``available for work.''
    Commentator Ralph Altman, of DOL's then named Bureau of 
Employment Security, noted: ``The availability requirement in 
unemployment compensation is universal as an inevitable result 
of a program which compensates wage loss'' (Altman, 
Availability for Work, Harvard University Press 1950, at 2).
    The able and available requirement has also been repeatedly 
recognized by Congress. For example, in the 1998 Green Book, 
the House Committee on Ways and Means stated: ``All state laws 
provide that a claimant must be both able to work and available 
for work. A claimant must meet these conditions continually to 
receive benefits. 'Available for work is translated to mean 
being ready, willing, and able to work'' (1998 Green Book at 
336, emphasis added). The BAA-UC proposal makes the 
extraordinary assertion that ``able and available'' somehow can 
be interpreted to mean ``unavailable now but perhaps available 
later.'' This interpretation of the federal ``able and 
available'' requirement contradicts the plain meaning of the 
word ``available'' by covering employed workers who take leave 
from employment when the employer has work available but the 
worker cannot, or does not wish to, work.
    DOL recommends that a state pay BAA-UC benefits for 3 
months. The proposal allows states to use different maximum 
durations. Under the BAA-UC proposal, states could provide BAA-
UC benefits for 6 months (standard duration of UI benefits) or 
even 1 year. Thus, the BAA-UC proposal requires the conclusion 
that a worker who is away from, and unable to, work for a 
significant amount of time--up to an entire year--may be 
considered ``available'' during the entire leave period because 
at the end of this period he or she may decide to return to the 
prior job or job market.
    It is impossible to understand how a worker who made a 
decision to take leave dedicated to the up bringing of a child 
can in any way be considered ``able'' or ``available'' for work 
during the leave period consistent with sound UI policy. If the 
worker were in fact, ``able and available'' there would be no 
leave taken.
    Even if one accepts the illogical and invalid assertion 
that a worker can be considered ``available'' under the federal 
``able and available'' test during parental leave because of 
the intention to return to work following this leave, we note 
that the proposal lacks any provision for demonstrating the 
parent's intention to return to the previous employer or other 
meaningful attachment to the workforce prior to the conclusion 
of the leave period. The only recognition of eventual work 
force attachment is that states would be allowed to recover 
BAA-UC payments if the worker fails to go back to work. It is 
completely ineffective to rely on repayment of BAA-UC benefits 
if the worker fails to return to work because the likelihood of 
ever fully collecting these funds is remote, and there is no 
requirement that states attempt to collect them.
    The requirement that a claimant be ``able and available'' 
for work is critically important in determining attachment to 
the workforce. Meeting this requirement demonstrates a clear 
and ability and willingness to rejoin the workforce 
immediately. Indeed, DOL's Employment and Training 
Administration (ETA) web site states: ``Unemployment insurance 
pays benefits to qualified workers who are unemployed and 
looking for work (emphasis added). In its 1998 UI Dialogue, DOL 
stated that the ``basic Federal requirement for eligibility is 
that the worker be able to work and available to accept an 
offer of work.'' A Dialogue: Unemployment Insurance and 
Employment Security Programs, Dialogue Technical Supplement at 
11 (1998).
    It is noteworthy that during DOL's two year dialogue, which 
involved 65 meetings attended by nearly 4,000 individuals 
representing business, labor, and government, DOL did not 
report any recommendations to extend UI benefit payments to 
workers while they are on parental leave or are otherwise 
unavailable for work.\3\
---------------------------------------------------------------------------
    \3\ See e.g., DOL's February 1999 summary of Unemployment Insurance 
and Employment Service Program: A Dialogue, and UI Occasional Paper 99-
5 at 170.

Exceptions to the FUTA ``availability'' test cited in the BAA-
UC proposal do not support misuse of UI trust funds to 
---------------------------------------------------------------------------
compensate workers who take parental leave

    The proposed rule states: ``Under its authority to 
interpret Federal unemployment compensation law, the DOL 
interprets the Federal 'able and available' requirements to 
include experimental Birth and Adoption Unemployment 
Compensation.'' The BAA-UC proposed rule then lists several 
examples of interpretations of the federal ``able and 
available'' requirement. Contrary to the conclusions drawn in 
the proposed rule, however, these examples do not support the 
contention that BAA-UC is consistent with the ``able and 
available'' test. The examples are materially and legally 
distinguishable from BAA-UC.
    First and foremost, Congress has specifically recognized 
exceptions from the ``able and available'' requirements but has 
not chosen to include parental leave.
     Unlike the BAA-UC proposal, the exception under UI 
for state approved training is the product of congressional 
action expressly waiving the ``able and available'' test. In 
fact, a worker in approved training is engaged in an activity 
that is directly designed to enhance the worker's 
employability, and a worker's failure to be available for the 
training is disqualifying.
     The illness and layoff examples in fact require 
denial of benefits to any claimant who demonstrates that he or 
she is not available by refusing an offer of suitable work. 
Note that Congress has expressly recognized that states can 
legally suspend the availability test for EB if a worker is 
hospitalized. Federal State Extended Benefit Act of 1970, 
section 202(a)(3)(A)(ii)(II).
     The final DOL example, jury duty, can also be 
reconciled with the able and available test and distinguished 
from parental leave. Unlike parental leave, when a worker is 
called for jury duty the government itself has compelled the 
worker's removal from employment, thus the separation is 
involuntary. Most states do not provide UI benefits to 
compensate workers while on jury duty because they recognize 
that such payments are inconsistent with the basic purposes of 
unemployment insurance. However, unlike parental leave, 
Congress has expressly recognized that states can legally pay 
UI benefit to a worker on jury duty. Federal-State Extended 
Benefit Unemployment Compensation Act of 1970, section 
202(a)(3)(A)(ii)(I).

BAA-UC is an attempt to legislate through rulemaking

    The BAA-UC proposal is a change in the fundamental purpose 
of unemployment insurance. Only Congress has the power to make 
this change in the basic mission of the UI program. Proposing 
BAA-UC through rulemaking amounts to legislating through the 
Department of Labor--at the expense of Congress, the states, 
and employers. In effect, the BAA-UC proposal is a regulatory 
``permission slip'' for states to misuse UI by going through 
the ``back door''--the rulemaking process--to achieve what 
Congress did not and would not agree to do. DOL delayed 
publishing the Notice of Proposed rulemaking until after 
Congress adjourned (and most members of Congress left town), 
with the public comment period closing before Congress 
returned. The timing of the proposed rule appears to be a 
conscious decision to avoid an adverse congressional response 
to the use of rulemaking to circumvent the federal ``able and 
available'' test and the clear intent that the FMLA does not 
require paid leave.

BAA-UC is a new and disparate benefit unrelated to legitimate 
UI

    The proposed regulations and the model state law included 
with the proposed rule consistently demonstrate that BAA-UC is 
a disparate benefit for a disparate class of recipients which 
is functionally and legally different from legitimate 
``unemployment compensation.'' As noted above, federal law 
requires that a worker be involuntarily jobless and both ``able 
and available'' in order to collect UI benefits. This legal 
test cannot be met by a worker taking parental leave. Thus, the 
proposed rule proposes to create a new parental leave 
compensation benefit financed by the misapplication of UI trust 
funds. The proposed rule does not demonstrate any nexus between 
``regular'' UI benefits and BAA-UC, yet it seeks to finance 
these benefits out of UI payroll taxes. BAA-UC is entirely 
different from legitimate UI. As state in DOL's Fact Sheet on 
Unemployment Insurance, published by the Employment and 
Training Administration: ``unemployment compensation is 
designed to provide benefits to most workers out of work due to 
no fault of their own for periods between jobs.'' BAA-UC 
benefits are for employees who have jobs and take leave to be 
with a newborn or newly adopted child (see Section 604.2.) BAA-
UC is compensation for voluntary parental leave from work, thus 
it cannot be unemployment compensation.
    The differences between BAA-UC and UI benefits are 
strikingly clear. Unemployment compensation and parental leave 
compensation have different and incompatible purposes, and the 
UI system is not equipped to handle payment for parental leave. 
The UI program is intended to be a re-employment system. The 
purpose of UI is to compensate a worker who becomes temporarily 
unemployed when the employer no longer has suitable work 
available, while continuing to search for suitable work. Family 
leave, on the other hand, is in part to ``to balance the 
demands of the workplace with the needs of families, to promote 
the stability and economic security of families, and to promote 
national interests in preserving family integrity'' (see e.g., 
Section 2(b)(1) Family and Medical Leave Act, P. Law 103-3.).
    The differences between parental leave and UI are starkly 
demonstrated by the number of standard UI elements that should 
or could be varied in attempting to fit the ``square peg'' of 
parental leave into the ``round hole'' of UI, including the 
following:
    (1) Voluntary quit disqualification is eliminated
    (2) Availability for work eligibility requirement is 
eliminated
    (3) Ability to work eligibility requirement is eliminated
    (4) Refusal of suitable work eligibility requirement is 
eliminated
    (5) Work search test is waived
    (6) BAA-UC benefit duration is recommended for 12 weeks and 
may be up to 1 year, unlike the 26 weeks of regular UI benefits
    (7) No extended benefits are payable for BAA-UC (although 
BAA-UC claimants apparently would be counted as unemployed for 
triggering benefit extensions)
    (8) BAA-UC benefits can be concurrent with legitimate UI 
benefits
    (9) BAA-UC costs would be socialized under DOL's 
recommendations, not experienced rated
    (10) Means testing may be appropriate for compensating 
parental leave but are not permissible under BAA-UC because 
benefits are delivered and financed through the UI system
    (11) An exemption for small business may be appropriate for 
compensating parental leave but is not permissible under BAA-UC 
because benefits are delivered and financed through the UI 
system
    (12) Worker contributions, rather than employer 
contributions, may be appropriate for BAA-UC but not UI
    The fact that all of these basic characteristics of 
legitimate UI must be changed to accommodate BAA-UC 
compensation makes crystal clear that these are two entirely 
separate systems and that BAA-UC is outside the scope of the UI 
program.
    Section 604.3(b) of the proposed regulations provides 
another clear example of the new and disparate class of 
beneficiaries which BAA-UC will create. ``Approved leave'' 
means temporary separation ``after which the employee will 
return to work for that employer.'' The assumption that workers 
who take leave will return to employment is invalid. Many 
workers who take leave choose not to return to work.
    Section 604.20 states that ``All persons covered by a 
state's UI law must also be covered for Birth and Adoption 
unemployment compensation.'' This section demonstrates why UI 
and compensation for family leave are and should be separate. 
As DOL correctly points out, UI programs have near universal 
coverage and cannot be limited by type of industry or other 
factors unrelated to a claimant's unemployment. On the other 
hand, a state may determine, quite within the bounds of the 
law, that certain industries or employers should be exempt from 
family leave compensation requirements or that means testing is 
appropriate. The policies and mechanics underlying UI and BAA-
UC are disparate and ought not be forced to fit together.

Workers who receive BAA-UC should not be counted as 
``unemployed'' for purposes of extended UI benefits

    The proposed rule is correct in providing that BAA-UC 
benefits cannot be the basis for extended benefits (EB) under 
the Federal-State Extended Unemployment Compensation Act 
(EUCA). EB is expressly provided to provide additional weeks of 
UI benefits for otherwise eligible workers who may need more 
time to find suitable work when jobs are scarce during periods 
of high and rising unemployment. However, should the BAA-UC 
program be allowed to take effect, BAA-UC payments will inflate 
the ``insured unemployment rate'' and the ``total unemployment 
rate'' which are used to ``trigger'' EB benefit periods. 
Workers who are on leave are not unemployed and should not be 
counted as unemployed for EB purposes. However, nothing in the 
proposed rule provides for such a protection. This is another 
example of why BAA-UC is an entirely different benefit from 
legitimate UI.

BAA-UC threatens the UI safety net

    For more than 65 years, federal law has protected jobless 
workers, employers, and the public by assuring that state 
unemployment trust funds are used for the sole purpose of 
paying unemployment compensation. This protection is so deeply 
embedded in the federal-state UI ``partnership'' that federal 
law prohibits the use of state trust funds even for the related 
purpose of financing the administrative cost of processing 
claims for unemployment benefits. By allowing the expenditure 
of state unemployment trust funds for the entirely different 
and incompatible purpose of compensating employed workers who 
take parental leave, DOL's proposed rulemaking will change the 
fundamental purpose and nature of the UI program, the safety 
net for jobless workers. Elimination of this essential federal 
protection for the jobless will abandon the principle that 
serves as a cornerstone of the nation's unemployment insurance 
system.
    Allowing the misuse of UI benefits trust funds to finance 
paid leave under the FMLA will eliminate the protection federal 
law has always provided against misuse of state UI reserves for 
purposes other than payment of unemployment compensation. This 
new use for UI benefits trust funds for paid leave will in due 
course deplete trust fund balances and lead to increased 
payroll taxes on employers and/or cutbacks in protections for 
workers who lose their jobs.
    DOL Secretary Alexis Herman and other DOL officials have 
repeatedly--as recently as February 29, 2000, in hearings 
before this subcommittee--expressed concern that the existing 
UI program is now under-funded. For example, DOL recognized 
that states have not rebuilt their trust fund solvency to pre-
1990-91 recession levels. See, A Dialogue: Unemployment 
Insurance and Employment Security Programs, Dialogue Technical 
Supplement at 24 (1998). In their fiscal year (FY) 1998 and 
1999 budget requests, DOL called for legislation that 
encourages states to improve the solvency of their UI trust 
funds. At DOL's request, H.R. 3167 was introduced in Congress 
last year to give states incentives to raise or maintain high 
payroll taxes with the express purpose of enhancing state trust 
fund solvency.
    In the 1980's and again in the 1990-91 recession, many 
states used up their UI reserves and had to borrow from the 
federal government. In the 1990-91 recession, more than half 
the states were forced to borrow. DOL's own statistics show 
that if another similar recession takes place, states will need 
to borrow an additional $2-4 billion. That figure increases to 
$20-25 billion if the recession is like the one in 1980-82. Id. 
The interest on federal loans to state UI trust funds cannot be 
paid from state trust funds and is an obligation of state 
general revenues at market interest rates--a painful and costly 
charge--taking money away from schools, roads, and other state 
priorities. As of 1997, states have paid more than $1.7 billion 
in interest on UI loans. Id. The State of Connecticut floated a 
bond to repay its most recent loan--and has yet to fully pay 
off that debt. Employers finance the bond fund through a 
special tax (sometimes referred to as a bond assessment) 
scheduled to end in 2001.
    During the recessions discussed above, many states were 
forced to cut back on their UI benefits and eligibility to keep 
their UI accounts solvent.
    Prior to and following the issuance of the BAA-UC proposed 
rule, and as recently as February 29 in hearings before this 
subcommittee, DOL has advocated that states expand access to UI 
by lowering monetary eligibility, adopting alternative base 
periods, and taking other steps that will increase UI benefit 
outlays for low-wage workers without any waiver of the 
joblessness, involuntariness, and availability requirements of 
federal law. UWC does not agree that these DOL expansion 
proposals are sound public policy, but we readily agree that--
unlike the BAA-UC proposal--states have the legal authority to 
adopt them.\4\ However, we must point out that by expanding UI 
to cover workers on parental leave and opening the door to 
other new uses of the UI program,\5\ the BAA-UC proposal will 
put further pressure on state UI trust funds and work at cross 
purposes to DOL's solvency objective as well as its goal of 
expanded UI access for low-wage workers.
---------------------------------------------------------------------------
    \4\ We believe that the decision whether to lower monetary 
eligibility tests or by adopt alternative base periods, as advocated by 
DOL, should be a matter for the states and not mandated or 
``incentivized'' by the federal government through financial rewards or 
penalties.
    \5\ At 64 Fed. Reg. 67974, the proposal unabashedly states that the 
information from BAA-UC could serve as ``a basis for further expanding 
[UI] coverage.''
---------------------------------------------------------------------------
    Ironically, the BAA-UC proposal sends a strong signal to 
the states not to build up their UI reserves--because any state 
that is risk-averse and wants to take a conservative approach 
in building up its benefits trust account risks irresistible 
political pressure to ``spend it'' now on an unrelated program.

Problems with UI should be fixed before considering changes in 
its fundamental purpose such as compensating workers who take 
parental leave.

    The UI system is experiencing many severe problems, as 
outlined in UWC's testimony on UI reform at the hearings before 
this committee on February 29. Because of these problems, 
employers now pay $30 billion a year in UI taxes when there's 
practically no unemployment, and that figure could double or 
triple in the future, when the economy goes into recession. We 
believe these problems should be fixed, to protect workers and 
employers, before considering changes in the fundamental 
purposes of UI.
     BAA-UC will exacerbate UI problems caused by 
inadequate administrative financing. As detailed at length in 
our February 29 testimony, the federal government is not 
providing adequate financial resources for effective and 
efficient program administration by state UI agencies. DOL 
statistics show that the average UI claim now lasts 2 weeks 
longer than during previous periods when unemployment was low 
and there was a severe labor shortage. The extended claim 
duration is directly inflating state UI tax costs to finance 
additional, unnecessary weeks of benefits. A flood of new BAA-
UC claims for workers on parental leave will further strain 
resources need to assist workers who have legitimate UI 
claims--and likewise further inflate the cost of legitimate UI 
benefits. This problem will grow in severity when the economic 
cycle turns.
     BAA-UC will exacerbate problems with UI benefit 
fraud and abuse. Improper payments under UI are already a 
serious problem, but the BAA-UC proposal contains provisions 
that will lead to increased fraud and abuse. The BAA-UC 
proposal does not condition receipt of benefit payments on any 
demonstrable effort to ``bond'' or actually spend any time with 
a child. How will UI agencies or employers possibly determine 
who is a ``parent'' (per the expansive definition in Section 
604.3(f)) and whether he or she is bonding with a child 
consistent with the intent of the regulation? \6\ The absence 
of any requirement to show contact and interaction with the 
child while collecting BAA-UC benefits will lead to large scale 
abuses. This defect will result in BAA-UC being little more 
than a paid vacation plan during hunting and fishing season, 
etc.
---------------------------------------------------------------------------
    \6\ This definition create situations ripe for abuse where 
``parents'' with little if any actual contact or interaction with the 
child would be able to collect BAA-UC benefits contrary to the intent 
of the proposed rule.
---------------------------------------------------------------------------
     BAA-UC will undermine UI return to work 
incentives. Under the proposal, payment of BAA-UC benefits can 
be concurrent with receipt of legitimate UI benefits if the 
worker on parental leave no longer has a job (e.g., because the 
FMLA leave has expired or the employer does not provide leave). 
This ``double-dipping'' improperly increases the amount of wage 
replacement to levels that will frustrate UI return to work 
incentives, thus further inflating legitimate UI costs.
     BAA-UC will expand over-reliance on socialized 
costs. Under DOL's model state BAA-UC law, BAA-UC benefits 
would be ``socialized.'' Socialized costs are claim costs are 
financed through higher taxes on all employers rather than a 
charge to the employer at the time of separation of 
unemployment. Over-use of socialized costs for legitimate UI 
benefits is already a serious problem for state UI programs. It 
is inequitable to socialize costs because all employers are 
forced to subsidize benefits paid for claims by another 
employer's workers. Socialized costs also reduces the 
employer's interest in (1) maintaining a stable workforce, (2) 
making sure UI claims are paid properly, and (3) promptly re-
employing laid off workers.
    If states adopt DOL's model BAA-UC proposal, the problem of 
socialized costs will grow. Employers who already pay the 
maximum UI tax will not have to pay any additional taxes. Small 
businesses who are unable to hold jobs open for their own 
employees will subsidize paid leave by employees of their 
larger competitors.

BAA-UC raises a conformity question

    The disparate nature of BAA-UC compared to legitimate UI is 
highlighted by the fact that it raises a UI conformity 
question. If a state passes a law or even promulgates an 
administrative provision based on a law allowing BAA-UC 
benefits to be paid to this new class of claimants, and DOL's 
proposed rule is then struck down in court as violative of FUTA 
conformity requirements, that state will be--de facto and de 
jure--out of conformity. The BAA-UC proposal puts employers in 
such a state at risk of the 700% FUTA tax increase which is the 
penalty for being out of conformity.\7\
---------------------------------------------------------------------------
    \7\ The state will also lose its FUTA grant which finances the 
state UI/ES administrative agency.

BAA-UC is not UI, thus studies and the administrative costs of 
---------------------------------------------------------------------------
BAA-UC benefits cannot be financed from FUTA dollars

    Of particular concern is the fact that even though states 
are not receiving enough administrative funding, they would be 
expected to use FUTA administrative funds to finance the 
administration of BAA-UC. By law Congress may appropriate FUTA 
funds only for ``UI'' administration and state employment 
services. Because BAA-UC is not UI, the direct cost of 
administering BAA-UC benefits may not be funded out of FUTA 
revenue. In the current context of UI administrative financing, 
it is extremely unwise for the federal government to add a new 
benefit to the UI system. The proposal cites no authority for 
using FUTA revenue to study and evaluate a parental leave 
compensation program.
    Even if it were a valid use of FUTA to finance the 
administration of BAA-UC benefits, an additional appropriation 
would be required to cover the increased administrative costs. 
If the federal government to provide the additional 
appropriation, states will have to cut services. The 
administrative costs of state temporary disability insurance 
(TDI) programs, which are similar to BAA-UC, are not funded out 
of FUTA for the same reason.
DOL's cost estimates and assumptions regarding fiscal impacts 
substantially understate the true cost of BAA-UC benefits

    The proposal states that the BAA-UC rule could cost between 
zero and $68 million, depending on the number of states that 
implement BAA-UC (64 Fed. Reg. at 67975). This estimate is 
invalid because it understates the cost impact.
     An estimate of zero suggests no state will enact a 
BAA-UC law. The figure of zero cannot be accepted or valid 
because DOL cannot encourage states to adopt BAA-UC laws and 
then argue it will cost nothing because no state will take such 
action. In addition, how could the proposal be justified as a 
response to ``expressed interest by a small number of states'' 
if no state is expected to act? See 64 Fed. Reg. 67975. In fact 
if only one medium size state such as Massachusetts were to 
enact any conservative BAA-UC proposal, the cost impact will 
easily exceed $68 million.
     We believe it is fairer to take into account the 
possible impact if all states enact BAA-UC programs as DOL 
advocates. In that case, the direct additional state UI payroll 
tax burden on employers for compensating parental leave will be 
at least $18 billion per year, using conservative estimates. 
The calculation is straightforward. The current weekly UI 
benefit amount is approximately $200. If a claimant were to 
collect 12 weeks of benefits (as recommended in DOL's model 
state legislation) the direct price is $2,400 per claim. 
Because of the effect of experience rating, the ultimate 
additional tax will be $3,000 per claim. DOL has stated that 
there are 6 million potential claimants each year, thus the 
aggregate impact would be $18 billion. The annual effect of $18 
billion is ``economically significant.''
     If it is permissible under federal law to pay 
compensation to workers on parental leave using I trust funds, 
then federal law also permits states to use UI trust funds to 
compensate workers who take leave for other reasons. We are 
aware of no basis in federal law for making distinctions among 
the various possible personal reasons for not being available 
for work. The ``door'' is either open or shut--it cannot be 
``ajar.''
    If states compensate all workers who take family or medical 
leave, using DOL's published estimates of the number of workers 
who would like to take leave, the additional payroll tax cost 
to employers for BAA-UC escalates to $84 billion a year.
     The proposed rule requires states to provide BAA-
UC benefits to workers who quit their jobs because they do not 
have approved leave. Separation from employment ostensibly for 
parental or other types of leave will be considered compensable 
even though the worker has completely severed the employment 
relationship.
     The $18 billion (parental leave) and $84 billion 
(all FMLA leave) figures include only the higher payroll tax 
resulting from paying compensation to workers who take parental 
leave. The calculation doesn't take into account the cost of 
lost productivity or the fact states may decide to provide paid 
leave for 26 weeks like legitimate UI claims (or longer). Nor 
does it consider the impact on employers who will have even 
more vacant positions to fill or the impact on remaining 
workers who must work longer hours. Ironically, employers may 
have greater UI liability if replacement workers hired to 
substitute for workers on leave become unemployed and collect 
benefits.
     The proposed rule incorrectly states there will 
not be an impact to ``small entities.'' Given that BAA-UC will 
have to be financed through higher taxes on employers, it 
stands to reason that there will be a direct impact to ``small 
business[es]'' and ``small organization[s].'' Apart from the 
statutory definition of ``small entities'' under the Regulatory 
Flexibility Act there is a practical concern that small 
employers will bear a disproportionate share of the cost of 
this proposal. The FMLA and some state leave laws exempt small 
employers. On the other hand, BAA-UC will have universal 
application because it is paid through the UI system. This 
means that small employers must incur the cost of compensating 
workers who take leave (in many cases, leave taken by employees 
of other employers) in the form of increased payroll taxes.
     The proposal makes an incorrect assumption that 
this proposal will not impact states in a material way. This 
assertion is wrong for several reasons. States themselves are 
large employers who must pay the cost of BAA-UC benefits their 
workers collect (an added cost to taxpayers, as well). 
Furthermore, BAA-UC is a new benefit, calculated on a different 
basis than regular UI, which will introduce a new and different 
class of beneficiaries into the UI system. State UI agencies 
will have to re-program their UI administration systems to 
handle this benefit, which will undoubtedly be a ``material'' 
dollar cost to states. These burdens will divert resources and 
attention away from serving workers who lose their jobs and 
workers and employers who use state employment services.
     All BAA-UC benefits will be ``scored'' for federal 
budget purposes as increased outlays. There will also be 
increased federal outlays for UI and BAA-UC administration and 
decreased federal revenue because more workers will forego 
wages subject to federal income tax, FUTA, FICA and state 
unemployment tax.

BAA-UC conflicts with FUTA pregnancy provisions (section 
3304(a)(12))

    The BAA-UC proposal states that weeks preceding the week in 
which birth or placement takes place are not compensable. The 
FUTA at 3304(a)(12) already specifically addresses UI benefits 
during pregnancy. It states that ``no person shall be denied 
compensation under ... State [UI] law solely on the basis of 
pregnancy or termination of pregnancy.'' [emphasis added] This 
provision of FUTA means that states cannot disqualify a 
pregnant worker who is able and available to work, and it 
clearly preserves the right and necessity to disqualify a 
pregnant worker who is unable to work and is unavailable for 
work because of pregnancy or any other reason. Nothing in the 
BAA-UC proposal provides any legal authority or rational 
explanation for qualifying a worker to receive BAA-UC benefits 
after giving birth when the same worker cannot receive UI 
benefits because she is unable to work and unavailable for work 
during the pregnancy itself. Either federal law prohibits 
payment of BAA-UC benefits to a worker who is not able and 
available to work--the only correct conclusion--or else it 
appears that federal law also permits payment of UI benefits to 
workers who in fact are unable and unavailable before the birth 
occurs--contrary to section 604.21 of the proposal.

BAA-UC is not truly an experimental program

    DOL defines BAA-UC as an ``experimental program,'' but 
nothing in the proposal distinguishes it from any other 
permanent program. There is no termination date, dollar 
threshold, data limitation or other factor that would suggest 
that this program is truly experimental. On its face, the 
proposal discusses the need for data to determine:
    (1) whether individuals who are compensated for birth and 
adoption leave are more likely to return to employment,
    (2) the effects on employers whose employees take 
compensated leave,
    (3) the effects on all employers in a state who bear BAA-UC 
costs, and
    (4) the effect on a state's unemployment fund.
    There is precedent for developing a Notice of Proposed 
rulemaking (NPRM) for a study whereby interested parties could 
comment on the form and substance of the study. However, the 
proposal skips that step and attempts to collect data at the 
same time it expands UI benefits. Nothing in the proposal 
demonstrates an emergency situation in which skipping this step 
is justified.
    Moreover the proposal provides that a comprehensive 
evaluation will be performed only when ``at least four [s]tates 
have implemented legislation and operated a BAA-UC for a 
minimum of three years'' (emphasis added). If only one state 
were to enact implementing legislation the impact could be 
significant yet no study would be conducted. The proposal 
states that, ``the [f]ederal evaluation methodology has not yet 
been completed.'' We are greatly concerned that for a proposal 
of this magnitude with a ``study'' as its cornerstone, the 
proposed rule does not provide even a preliminary burden 
estimate. These points demonstrate that there is nothing 
``experimental'' about this proposal.
    Finally, DOL asserts that state participation is optional. 
In practice, however, we foresee significant political and 
economic pressure exerted states to enact BAA-UC programs.
    The Model's recommendations regarding eligibility for and 
financing of BAA-UC are also troublesome. Employers are taxed 
to pay for legitimate UI benefits. We believe this is 
appropriate because employers are responsible for the 
circumstances connected with the unemployment, rather than the 
employee. BAA-UC is distinguishable from legitimate UI in that 
employers are not responsible for the circumstances connected 
with parental leave. To pay for parental leave benefits, states 
or employers should be able to impose an employee contribution. 
Consequently it is inappropriate to recommend financing of BAA-
UC benefits out of employer contributions.
    Paid parental leave is more like temporary disability 
insurance (TDI) than UI. Under TDI, state and private programs 
require worker contributions for a major part or the entire 
amount of the program, including administrative costs. While 
employee financing is appropriate for BAA-UC, the UI system is 
not equipped to handle collection of employee contributions. 
Only two states now have any employee contributions for UI. It 
would be a major change in UI administration to now collect 
employee contributions for parental leave compensation, and it 
would lead to greater use of employee taxes for legitimate UI. 
Finally, the Model lacks any effective protection against 
abuse. It would allow a state to recover an overpayment for 
BAA-UC benefits paid to workers to do not return to work, but 
it is important to note that improperly paid benefits are 
rarely recovered once they are paid.

Conclusion

    Although DOL describes BAA-UC as a form of ``unemployment 
compensation,'' in fact BAA-UC will create a new and different 
type of benefit program compensating workers who take parental 
leave. BAA-UC is contrary to federal UI laws and the FMLA. To 
sum up, there are many reasons why the BAA-UC proposal is 
contrary to sound public policy and should be withdrawn:
    1. ``Unemployment compensation'' is designed to provide 
benefits to workers out of work due to no fault of their own. 
BAA-UC benefits are for employees who have jobs and take leave 
to be with a newborn or newly adopted child. BAA-UC provides 
compensation for voluntary parental leave from work, thus it 
cannot be unemployment compensation.
    2. Allowing states to use UI trust funds for parental leave 
compensation abandons the joblessness/involuntarily unemployed/
able and available principles which serve as the cornerstone of 
the UI program, nation's social insurance system for jobless 
workers.
    3. A worker who made a decision to take leave dedicated to 
the up bringing of a child cannot in any way be ``able'' or 
``available'' for work consistent with sound UI policy 
statements. If the worker were ``able and available'' there 
would be no leave.
    4. If all states adopt BAA-UC, there will be a direct 
additional state UI payroll tax burden on employers totalling 
at least $18 billion per year using conservative estimates--$84 
billion if all FMLA leave is included.
    5. DOL says the UI system is now underfunded. Expanding it 
for parental leave will put at risk the solvency of the safety 
net for workers who lose their jobs.
    6. During DOL's two year dialogue which had 65 meetings 
attended by nearly 4,000 individuals representing business, 
labor, and government, DOL did not report any recommendations 
to change the fundamental nature of UI by using it to also 
compensate workers while they are on parental leave.
    7. Congress has not amended the UI laws or the FMLA to 
permit use of UI trust funds for BAA-UC. This puts any state 
with a BAA-UC program at risk of being out of conformity with 
FUTA--and their employers at risk of a 700% FUTA tax increase.
    8. The proposal lacks any provision for demonstrating the 
parent's intention to return to the previous employer or other 
meaningful attachment to the workforce prior to the conclusion 
of the leave period.
    9. The proposal does not cite any legal authority why if 
BAA-UC payments are permissible under FUTA for leave to be with 
a newborn they would not be permissible for older children for 
other family or medical purposes.
    10. DOL asserts that state participation is voluntary. To 
the contrary, significant political and economic pressure will 
be exerted on state UI administrators and legislators to enact 
BAA-UC programs.
    11. BAA-UC will be rife with fraud and there is no 
effective manner to recover improper payments.
    12. BAA-UC costs will not be distributed equitably among 
employers and should not be an employer obligation.
    As detailed at the February 29, 2000, hearing on UI reform 
before this Subcommittee, the UI system is experiencing 
significant problems handling its existing obligations. 
Employers now pay nearly $30 billion a year in UI taxes when 
there is practically no unemployment. That figure will double 
or triple in future recessions. The current method of financing 
UI administration exacerbates these problems by providing 
inadequate funding for state UI and employment services 
agencies. Workers and employers are not receiving adequate 
service, and UI claims last longer than they should during this 
tight labor market. The UI system is not equipped to take on 
another new and entirely different purpose such as BAA-UC.
    The cost of BAA-UC benefits plus higher UI costs resulting 
from prolonged claims for legitimate UI caused by diversion of 
administrative resources for BAA-UC claims, as well as the cost 
of lost productivity and new record keeping, will be borne by 
employers. Rather than adding new costs to the UI system, DOL 
should focus on reducing the inflated FUTA tax burden on 
employers and making adequate funds available for UI 
administration without putting greater strain on the adequacy 
of state UI benefit reserves needed for times of economic 
hardship.
    By trying to force a new parental leave compensation 
benefit into the existing UI system, the BAA-UC proposal would 
in effect abolish the federal ``able and available'' 
requirement, which is a bedrock principle of UI. The BAA-UC 
proposal is contrary to the plain and unambiguous intent of UI 
law and policy and the FMLA. It will put the UI safety net at 
risk and dramatically increase employer cost. Thus, we strongly 
urge that these unwise and unworkable regulations be withdrawn.
      

                                

    Chairperson Johnson. Thank you very much. Appreciate that. 
Ms. Hostetler.

STATEMENT OF KIMBERLEY K. HOSTETLER, DIRECTOR, HUMAN RESOURCES 
SERVICES, CONNECTICUT HOSPITAL ASSOCIATION, AND MEMBER, SOCIETY 
                 FOR HUMAN RESOURCE MANAGEMENT

    Ms. Hostetler. Madam Chairman. My name is Kim Hostetler. 
I'm Director of Human Resources Services for the Connecticut 
Hospital Association, and I also own a sole practitioner human 
resources consulting business in Bristol, Connecticut, where 
I'm an active member of the chamber.
    I'm also a member of the Society for Human Resource 
Management, and I very much also appreciate the opportunity to 
speak today on behalf of those organizations and their members 
and a whole lot of other concerned citizens in Connecticut who 
are opposed to the Department of Labor's proposed rule.
    This past July, I had the opportunity to speak at Senator 
Gregg's subcommittee hearing on issues with family leave 
regulations and as I said at that hearing, I am a firm 
supporter of FMLA and I think that probably it's one of the 
most significant pieces of employment legislation that Congress 
has passed.
    I am one of those sandwich people that Representative 
Donovan referred to before. I'm a working mother with two 
daughters. I also have a husband who, in the past 14 months, 
has had two heart attacks. So I have some very personal and 
compelling reasons for understanding the value and appreciating 
the value of the Family and Medical Leave Act.
    But I'd ask that if you take just one thing from my 
testimony today, what I hope that is the message that there are 
some very serious problems with the implementation the 
implementing regulations of the Department of Labor for FMLA, 
and they've caused serious problems with employers and they've 
also hurt employees.
    My written testimony has a number of examples. So does my 
Senate testimony, real life stories, but the two primary issues 
are the very broad definition of serious health condition and 
the wide open, uncontrolled use of intermittent leave.
    First serious health condition. Congressional intent on 
serious health condition was very clear. Minor ailments are not 
serious health conditions and the Department of Labor issued 
regulations that actually state that, but they have since flip-
flopped on that issue, saying basically sorry for the 
confusion, but now if you've got a minor ailment, as minor as a 
cold if it lasts more than three days and you see a doctor, you 
get a prescription, it's a serious health condition and it 
qualifies for a family medical leave protection.
    It is wide open now. Connecticut employers and employers 
across the country are running into examples of situations 
where employees are facing disciplinary action, generally for 
chronic attendance abuse, and promptly bring in a doctor's note 
for some often vague condition, or they see spikes in FMLA 
usage during peak vacation times, for instance.
    So like I said, it's wide open at the moment and it invites 
abuse as a result.
    With regard to the uncontrolled use of intermittent leave, 
the Department of Labor's regulations require employers to 
track and to provide leave in increments as small as their 
payroll system can track. So rather than in periods of half 
days, which might be a reasonable approach, these increments 
are literally minutes, if that's what your payroll system works 
on.
    So here, again, the opportunity for abuse is rampant. 
There's literally no system for checks or controls. Once an 
employee brings in an open-ended certification from a medical 
provider that says that time off should be taken as required, 
they can come and go as they please. Literally, they could take 
a day off a week forever and not exhaust their time.
    So once again, there is no incentive to minimize absences 
and there is certainly no incentive to avoid abuse.
    Another great example is perfect attendance awards. The 
time that employees take away from work under FMLA can't be 
counted for purposes of determining perfect attendance. This is 
impossible for employees to understand.
    The fact that employees with perfect attendance are 
recognized side-by-side with an employee that nobody has seen 
for three months is confusing and frustrating, at best.
    So there are real world problems and the problems make 
employers understandably nervous about offering paid time or 
certainly about expanding paid time, because they've seen 
what's happened in the last few years.
    And what we're asking really is that the best course of 
action at this point would be to address those issues, remove 
those obstacles, remove those disincentives and fix the FMLA to 
make it as effective as it was designed to be.
    If I could take just a minute, and I've just got a minute, 
to talk about the Department of Labor's proposed rule and the 
use of unemployment insurance. I'd like to say that it's not 
just the business community that doesn't think this is a good 
idea.
    I work closely as a board member with two social service 
agencies in the Bristol community, both of whom work closely 
with populations that are frequently unemployed. Both are 
opposed to this concept and both for the same reason. It's a 
bad idea to raid funds from a safety net program for a group of 
needy employees or people and use it for a brand new benefit 
for another group of people.
    Don't jeopardize a safety net for the out of work 
population is the message. And, of course, people that are 
unemployed don't support the proposal, as well. They don't 
support using unemployment funds this way. They're very worried 
about the potential of unemployment fund shortages or cutbacks 
in benefits, especially if the economy turns bad.
    So I think that the idea that just because we're flush with 
funds right now and this is an opportunity for using UI funds 
is wrong and it's irresponsible.
    Local Bristol chamber employers are also opposed. There are 
examples in my testimony. Our hospitals and our health care 
providers, as you personally well know, are facing severe 
fiscal crises at the moment and they are very worried. They 
have experienced layoffs, they're continuing to experience 
layoffs, and what they are concerned about is that unemployment 
resources be available to displaced workers.
    And the bottom line of all of this is we think there is a 
better way. You've talked about an example earlier in your 
statements about the use of tax credits. It's a wonderful idea. 
I think first and foremost, we should address the issues with 
the FMLA, remove the disincentives from using a program and a 
law that's already available. There's current legislation, in 
fact, that was proposed on that would be wonderful if we could 
see that pass quickly on a bipartisan basis.
    And supporting the win-win proposition that you mentioned 
before of compensatory time just seems like such a wonderful 
idea to increase employee flexibility, to increase employee 
choice. What an opportunity. Why haven't we moved forward with 
that on a bipartisan basis? Exploring the use of employee pre-
tax accounts, the concept of using a program like a 401(k) 
savings account or a dependent care flexible spending account 
would be another alternative.
    Encouraging flexible work arrangements, things like job 
sharing, things like flex time, things like telecommuting, 
those are all other options and other good options that are 
being explored and could be encouraged.
    I think this concept of bonding is such an important 
concept, but bonding doesn't just happen in the first 12 weeks. 
It's a lifetime commitment and we need to look at long-term 
solutions, fixing the laws that we already have in place that 
are supportive and providing policies and an environment that 
encourages employers to expand policies that are already 
available.
    So I applaud your holding this hearing and I very much 
appreciate having the opportunity to speak. Thank you.
    [The prepared statement follows:]

Statement of Kimberly K. Hostetler, Director, Human Resources Services, 
Connecticut Hospital Association, and Member, Society for Human 
Resource Management

                              Introduction

    Congressman Johnson and Members of the Subcommittee:
    Good morning. My name is Kim Hostetler. I am Director, 
Human Resources Services, for the Connecticut Hospital 
Association (CHA), and in that capacity provide services and 
information to our member hospitals and other healthcare 
organizations on topics and issues relating to human resources. 
Founded in 1919, the Connecticut Hospital Association has been 
representing hospitals and health-related member organizations 
for over 80 years. CHA's diverse membership includes the 31 
Connecticut acute-care hospitals and their related healthcare 
organizations, short-term specialty hospitals, long-term care 
facilities, nursing homes, hospices, home health agencies, 
ambulatory care centers, clinics, physician group practices and 
many other organizations. CHA provides legislative and 
regulatory advocacy on behalf of our members by supporting 
initiatives that are in the interests of our members and their 
patients. I also own a sole practitioner human resources 
consulting business, Human Resources Management Services, in 
Bristol CT, where I am an active member of the Greater Bristol 
Chamber of Commerce. The Greater Bristol Chamber has over 1,200 
individual and business members from the city of Bristol and 
surrounding towns of Plymouth and Wolcott whose common goal is 
to advance the commercial, financial, industrial and civic 
interests of the community.
    In my capacity as a Human Resources professional, I am an 
active member of several professional organizations, including 
the Society for Human Resource Management (SHRM) and its local 
chapter, the Human Resources Association of Central Connecticut 
(HRACC). SHRM is the leading voice of the human resource 
profession, providing education and information services, 
conferences and seminars, government and media representation, 
online services and publications to more than 130,000 
professional and student members throughout the world. I very 
much appreciate having the opportunity to voice the objections 
that these organizations and their members have to the 
Department of Labor's Proposed Rule on Birth and Adoption 
Unemployment Compensation.
    This past July, I had the privilege of representing CHA and 
the Greater Bristol Chamber at one of the four Congressional 
hearings that have been held to examine the impact and 
unintended problems with the Family and Medical Leave Act's 
implementing regulations and interpretations. Both these 
organizations, and their respective members, are firm 
supporters of the FMLA as it was conceived and passed. However 
the implementation of the law--through the Department of 
Labor's complex regulations and contradictory opinion letters--
has moved it far from its original intent, resulting in 
substantial unintended consequences for employers and employees 
alike. As a result, I testified in July that we would like to 
see relatively modest, but very important revisions made to 
current FMLA provisions, especially before any further 
expansion is discussed.
    Now that the Department of Labor's Proposed Rule on Birth 
and Adoption Unemployment Compensation (BAA-UC) has been 
published, our concern has deepened. Four separate 
congressional hearings have documented the substantial issues 
that exist with the Department of Labor's current FMLA 
regulations and interpretations. We feel strongly that no 
expansion of any sort, including this proposal to provide paid 
family leave, should be considered before these regulatory and 
administrative issues are addressed. We also feel strongly that 
tapping into the safety net for jobless workers to provide pay 
for an entirely different program--employees on family leave--
will endanger the solvency of unemployment insurance trust 
funds, represents an inappropriate attempt to circumvent 
legislative authority, and violates both the original spirit of 
the Family and Medical Leave Act as well as current 
Unemployment Insurance law.

                  Issues With Current FMLA Regulations

    In my work with CHA, with the Bristol Chamber, and with the 
Human Resources Association of Central Connecticut, I have 
found remarkable uniformity in reactions to FMLA 
administration. People repeatedly confirm that while they and 
their organizations have a deep and abiding commitment to 
meeting the concepts, the purpose and the provisions of the 
Act, they face substantial, burdensome administrative 
requirements as a result of the Act's regulations. While the 
intent of the FMLA seems simple and clear and is fully embraced 
by these professionals and their employers, the administration 
of the Act is far from simple and clear and has resulted in 
confusion, employer and coworker frustration, enormous time 
investment and lack of control over attendance policies.
    [Note: The differences in eligibility parameters and leave 
amounts between the FMLA and our state Family and Medical Leave 
Act, passed in 1990, make administering FMLA programs 
particularly complex in Connecticut. However, given the state's 
tendency to follow federal guidelines in many key areas, we 
welcome positive and constructive modifications at the federal 
level.]
    The purpose of the Family and Medical Leave Act, as defined 
by Congress in the text of the Act, is to balance the demands 
of the workplace with the needs of families in a manner that 
accommodates the legitimate business interests of employers 
[emphasis added]. The Department of Labor's implementing 
regulations and opinion letters have moved far from that 
instruction. There seems to be little accommodation for the 
truly legitimate business interests of employers, and there 
have clearly been unintended negative consequences for 
employers and employees alike.
    When the FMLA passed Congress, it seemed straightforward 
and simple: employees are provided protected, secure time off 
from work to deal with serious medical or family issues. But, 
as I noted in my Senate Subcommittee testimony, the devil is in 
the details--or, more specifically, the devil is in the Labor 
Department's regulations! The primary issues in our experience, 
for organizations trying to administer leaves under the FMLA 
correctly, are:
     the very broad definition of ``serious health 
condition''
     the uncontrolled use of intermittent leave
     the 2-day notice requirement, and
     the interference of FMLA with attendance control 
policies in questionable cases.
    In addition, the inability of employers to count FMLA 
designated time for purposes of determining perfect attendance 
award eligibility is counterintuitive and perceived by 
employers and employees alike as unfair.

Definition of ``Serious Health Condition''

    The FMLA was intended to cover ``serious health 
conditions'' which implied that hospitalization, extended 
lengths of treatment or serious chronic conditions would be 
covered by the law, and that employees would be allowed time 
away from work to attend to their family's needs, a laudable 
goal. However, our experience demonstrates that some employees 
seek to use this time for conditions well beyond what a 
reasonable person would define as a serious health problem. 
Extremely broad Department of Labor regulations and guidance on 
the definition result in employers being required to certify 
all kinds of mild or minor conditions as FMLA-protected, 
including such things as bad colds, simple outpatient 
procedures not contemplated by the Congress which do not 
require extensive recovery times, and vague diagnoses of 
``depression,'' ``stress,'' or ``back pain.'' Despite an 
original opinion letter from the Department of Labor indicating 
that the cold, flu and non-migraine headaches were not serious 
health conditions, the Department issued a contradictory 
opinion letter the following year saying they could be. (These 
opinion letters are attached to my statement.) The conclusion 
of many employers is that the loose definition currently in use 
makes the Act a target for abuse. Many Connecticut employers 
have experienced the situation where an employee facing 
disciplinary action promptly brings in a doctor's form 
verifying an often-vague condition requiring immediate time 
off. This is extremely frustrating to employers, but it is 
equally disturbing to coworkers who are left with the work. One 
of the biggest frustrations I hear from supervisors is their 
inability to effectively address employee concerns about a 
coworker whose manipulation of well-intentioned leave 
provisions leaves them with extra work and additional stress.

Intermittent Leave

    The FMLA legislation envisioned allowing employees to 
attend periodic, intermittent appointments for medical 
problems, physical therapy, or family member medical 
appointments, or take necessary time off intermittently for 
serious chronic conditions, and have this time protected as 
FMLA leave time. Unfortunately, instead of keeping records of 
this leave in one-half day increments--a reasonable approach--
the Department of Labor has required employers to allow leave 
time (and account for it) in the shortest increments of time 
tracked by their payroll systems, which can be as little as 
single minutes. This has created a world of administrative 
problems which can be rectified by simply changing the law to 
specify that FMLA leave time can be taken in increments of as 
little as one-half days.
    Here again, the opportunity for abuse is rampant. Many 
organizations can point to chronic attendance abusers being 
able to virtually always produce a doctor's statement to cover 
periodic absences. The lesson here is that there seems to 
always be a small group of employees who will attempt (and 
generally succeed) in taking advantage of the loose and vague 
provisions of FMLA as it is currently defined. While there will 
always be people who look for all the angles, misuse benefits 
and abuse privileges, we need not make it as inviting for them 
as we have.

Two Day Notice Requirement

    The law provides employers two days to designate employee 
absences as FMLA time off once the employer knows the leave is 
needed for an FMLA required reason. However, in many 
organizations, determining if absence is FMLA time most 
frequently occurs when time records are submitted for payroll 
processing--generally once a week or once every other week; the 
result is that the employer representative responsible for 
providing FMLA notice doesn't learn of the situation until well 
after the two day notice period has expired, and the employer 
cannot correct these entries retroactively.

Perfect Attendance Awards

    The time an employee takes away from work under the Family 
and Medical Leave Act may not be counted for the purpose of 
perfect attendance awards. An employee who has taken three 
months off under FMLA--or missed 38 days intermittently due to 
a chronic condition--may still be eligible for a perfect 
attendance award. Coworkers find this impossible to understand. 
Morale is affected when those rewarded for perfect attendance 
are recognized together with colleagues who no one has seen in 
months. The law states ``the taking of leave shall not result 
in the loss of any employment benefit accrued prior to the date 
of the leave.'' Employment benefits are defined as ``all 
benefits provided or made available to an employee by an 
employer,'' and the Department of Labor has interpreted that to 
mean attendance awards. But the benefits contemplated in the 
law are ``group life insurance, health insurance, disability 
insurance, sick leave, annual leave, educational benefits, and 
pensions''--clearly Congress was concerned about the loss or 
reduction of significant health and welfare benefits. To 
include perfect attendance programs--when attendance is the 
essence of the program--seems to go beyond congressional 
intent. Not only is such an interpretation unfair to employees 
who do have perfect attendance, but it is also unfair to 
employees who may need to miss time for equally compelling 
reasons that may not qualify for FMLA (such as having to take 
time for the funeral of a family member). We are not suggesting 
that absences covered by FMLA be counted for attendance control 
purposes or for performance evaluation, but only in the single 
instance of attendance award programs where it would make so 
much sense to employees and employers alike.

                Employer Comments on FMLA Administration

    While additional examples and first-hand stories of FMLA 
administration issues were included and are available in my 
Senate testimony, I also asked for current feedback from a 
group of human resources executives who attended a CHA meeting 
with me last week to prepare for today's testimony. They 
reiterated their concerns and universally expressed opposition 
to the Department of Labor's Proposed Rule on Birth and 
Adoption Unemployment Compensation. Following that meeting, one 
participant sent me the following email message:
    This past year was our first year of tracking FMLA leaves 
in a credible way. Prior to that it was happenstance. As a firm 
supporter of FMLA, I was astounded by the year end report. In 
1999, as an organization of 2000 employees with about 1800 who 
would meet the hour requirements, we had 194 employees 
participate in FMLA. 56% were on medical leave, 25% maternity, 
14% intermittent, and 5% family. That represents 1,234 weeks 
taken for FMLA and, is equivalent to 24 FTE's. At one point in 
the midst of high census where we were reaching to grab anyone 
who could come in, we had 54 employees out on FMLA. Staffing 
was a nightmare for our nurse managers. We had one specialty 
area which has 7 FTE's and it had 3 out on FMLA. So, while I 
remain an ardent supporter of FMLA, I also think it needs to be 
reviewed in a significant way prior to expansion.
    The most prevalent comment and story ``themes'' that 
colleagues have shared include the following:
     The regulations, which go beyond Congressional 
intention, are complicated and difficult to understand, 
frequently resulting in costly consultation with an attorney to 
determine eligibility, etc.
     Intermittent leave is the hardest thing for 
managers (and coworkers!) to deal with.
     The two-day notice requirement for FMLA 
designation is very difficult for employers to meet.
     The opportunities for--and examples of--abuse are 
rampant.
     FMLA makes absence control virtually impossible; 
it has become essentially impossible to address many chronic 
attendance abuse situations. This is extremely upsetting to 
other employees.
     There is frequently a correlation between 
employees facing disciplinary action and the use of FMLA. FMLA 
documentation is often presented at the point when disciplinary 
action has been initiated with an employee.
     Employers have found a pattern of attendance 
abusers taking intermittent FMLA leave on Mondays and Fridays.
     Employers report seeing employees using FMLA as a 
way of getting time off to which they would not otherwise be 
entitled (time off at peak vacation times, for example).
     Employees have become increasingly savvy about the 
opportunities for abuse available under FMLA (for example, 
coming in late and making up the time at the end of the shift 
when shift differential is provided).
     The common difficult diagnoses include headaches, 
back pain, asthma, depression, anxiety, bronchitis, stress, and 
stomach problems.
     Employers--and coworkers--are hurt by employees 
with controllable conditions--like ulcers, for example--when 
the employees chose not to follow the treatment regimen and 
experience periods of incapacity as a result.
     Some employers have reduced benefits as a result 
of FMLA (previously open-ended or 6-months leaves are now 
limited to 12 or 16 weeks, for example). Some employers have 
eliminated perfect attendance awards.
     Many employers are finding that the highest usage 
of FMLA time used to be for maternity leaves, but it is now 
serious medical conditions.
     Planned and scheduled leaves, even intermittent or 
reduced hours leaves, can be accommodated; it's the surprises 
for vague or questionable reasons that are so problematic for 
employers and coworkers alike.
     The amount of time employers spend on FMLA 
administration is growing, and in many cases is consuming large 
percentages of staff time.
    These experiences and difficulties with FMLA administration 
are not unique to Connecticut organizations; similar 
experiences have been shared and documented in previous 
hearings.

Issues With The Labor Department's Proposed Rule on Birth and Adoption 
                       Unemployment Compensation

    Our concerns with the Department of Labor's proposed rule 
are two-fold:
     We are opposed to tapping into the resources of a 
critical safety net program to provide funding for family 
leave, leaving the Unemployment Compensation system vulnerable 
to insolvency due to its application to situations for which it 
was never intended.
     We are opposed to the process--the issuing of 
Department of Labor regulations rather than an open, thorough 
legislative review.
    It is not just the business community that has grave 
concerns about this proposed bill. I have been an active member 
of the Board of Directors of Family Services of Central 
Connecticut (FSCC) for many years, serving as Board Chair for 
the past four years. Family Services is a 104-year old agency 
providing social and behavioral health services throughout 
thirteen (13) communities in central Connecticut by providing 
services and advocacy on behalf of families and their members. 
One of our most significant projects during the past two years 
has been the Employment Success Program, a welfare-to-work 
initiative operated collaboratively throughout the state under 
the auspices of the Connecticut Council of Family Service 
Agencies. Its purpose is to assist people who are leaving the 
welfare rolls to achieve economic independence by identifying 
barriers to employment, developing family plans and budgets, 
and providing referrals to specific services. This successful 
``safety net'' program is now in its third year. This is third 
year that I have also served on the board of the Bristol 
Preschool Child Care Center (BPCCC), an organization that has 
provided quality, age-appropriate child care services to 
economically disadvantaged families in Bristol for almost 
thirty years. Currently the program serves one hundred twenty-
three (123) three to five year olds. Both of these 
organizations provide services to a population that often faces 
unemployment. Both of these agencies oppose using unemployment 
insurance trust funds to pay for paid family leave. Their 
reasons are similar: let's not drain resources from one needy 
population to provide a new support service for another 
population. Both favor the concept of financial support for 
those who need it to take family leave, but not at the expense 
of jeopardizing the safety net for the out-of-work population.
    My work with those two organizations has intersected in one 
other way. The Connecticut Council of Family Service Agencies 
(CCFSA) recently published Families Work: The 2000 Report on 
the State of the Family in Connecticut. CCSFA has worked with 
the Connecticut population transitioning off welfare through 
its Employment Success Program (ESP). In the report they have 
identified trends during 1998-99, all of which complicate 
attaining employment success. Almost half (44%) of the 
referrals into ESP's Safety Net program were families who were 
unable to comply with program rules: they were most commonly 
sanctioned for loss of jobs, often through lack of daycare. And 
hospital HR leaders have commented that one of the most common 
reasons employees ask to extend their planned leave period is 
not a desire to stay home rather than work, but a lack of 
adequate child care. Perhaps the goal of providing support for 
working families would be better served by first focusing on 
closing the harmful gap between the availability and the need 
for quality childcare.
    People who are unemployed are also concerned about and 
opposed to the Department of Labor's proposal. The Human 
Resources Association of Central Connecticut sponsors a ``HR 
Lead Group''--a networking and information-sharing group for HR 
professionals who have lost their jobs. During a meeting of 
this group on March 1st, the Department of Labor's proposed 
rule was discussed. The meeting was attended by 15 HR 
management level individuals, all in transition and seeking 
employment, and all seasoned professionals. The group was 
generally well informed on this issue, and all reacted very 
negatively to President Clinton's proposal. No one present 
supported using unemployment funds this way. Participants were 
particularly concerned about potential unemployment funds 
shortages or benefit cutbacks, especially if we head into a 
period of economic downturn. They also expressed concerns about 
increased record-keeping and cost burdens for employers, and 
the potential for paid leave to discourage attachment to the 
labor force.
    In Connecticut, our unemployment insurance system was so 
overburdened in the early 1990's that we had to float a bond 
worth nearly a billion dollars to cover the deficit. 
Connecticut employers have been paying an annual special 
employer assessment every year since then, which is just now 
expected to end in August 2000. So Connecticut employers and 
unemployed individuals are understandably nervous about any 
changes that would jeopardize the solvency of the trust fund. 
Even the Connecticut Department of Labor is not supportive of 
the federal proposal. During a presentation to Bristol Chamber 
members in January, a department director said that the general 
sense of the Department is that after just coming off the 
problems with our program, this isn't the right direction. . . 
He said that most state administrators have not warmed to the 
idea and that whether paid leave is a good idea or not, state 
unemployment funds weren't set up to deal with this.
    Local employers who belong to the Bristol Chamber have also 
voiced strong opposition:
     We're a small business. As part of our benefit 
package, we provide short-term disability income insurance for 
our employees, which pays up to 13 weeks. Our employees have 
taken advantage of this benefit on four separate occasions--
four new babies in our ``family.'' If employees are allowed to 
collect unemployment benefits for maternity leave, should I 
then consider eliminating short-term disability income from our 
benefit package? The working environment in most small 
businesses is family-oriented. Flextime, part-time, work-at-
home options are being implemented in small businesses more and 
more, particularly during this tight labor market. Small 
businesses want to accommodate dependable, loyal employees. 
Allowing employees to collect unemployment during family leave 
will erode the family-like relationship that exists in many 
small businesses. This is not just about an increase in the 
FUTA tax rate. It's as much about government forcing small 
employers to do things that they might well be doing on their 
own--because they want to!
     I own a small job shop. We fluctuate between 24 
-30 employees and are looking for good people now. Only once in 
our history have we had to have a lay off due to slow down in 
work and at that time I was proud to know we had unemployment 
benefits to offer our laid off workers as they looked for other 
employment. The burden of that benefit in this state has become 
an enormous weight especially on small business trying to 
control the cost but must pay for the interest assessment on 
the bond. Times are good now with unemployment low but history 
has proved that will change. If employees are allowed to 
collect unemployment benefits for FMLA and my small shop must 
pay for that with increased taxes and must also pay someone to 
replace the employee who is not here how will we survive? 
Insurance companies offer insurance to employees for long and 
short term disability and my employees gladly of their own free 
will offer to pay the premiums in full to make sure they are 
covered if they must be out of work. If we must pay to replace 
an employee with skilled labor to get the work out the door to 
please our customers and we must pay the increased unemployment 
insurance and then conceivably pay an assessment because we 
didn't pay enough and must borrow again, what incentive is 
there to employ people? We as owners take all the risk, borrow 
all the money to run a company, invest in new machinery, spend 
money on training, etc. just to be taxed out of business. Many 
of us have put up our homes, our savings, all that we consider 
investing in our future and our children's future and the 
future of our employees and their families. Family Leave is a 
wonderful idea. . .I would love to see us all be able to take 
more time off to spend with our families. . .and not just when 
they are sick. But until we find a way to do that that doesn't 
put the burden on employers. . . or until we have a society 
that is not concerned with OUTPUT and production to make our 
economy grow, employers cannot be stuck with this mandate.
     I have read that the Department of Labor's 
Proposed Rule to alter the existing Family and Medical Leave 
Act (FMLA) is under consideration. This change to allow funds 
from the existing unemployment funds to be allocated to the 
FMLA would be devastating to businesses throughout the United 
States. If enacted, it would increase our cost of doing 
business, a cost that cannot and should not be passed on to our 
customers. As Plant Manager of four facilities in four 
different states, I believe the current FMLA has served as a 
useful tool for employees to address personal or family 
situations. The current practice promotes the proper usage to 
the intention of the law. We have finally started to manage our 
current unemployment insurance system and have eliminated much 
of the abuse. By allowing unemployment funds to those who 
qualify for the FMLA, we would be opening the doors to 
potential abuse. In addition to the abuse, the cost of hiring 
back-up personnel to fill in would jeopardize our ability to 
effectively manage the business. THIS WOULD BE DISASTROUS TO 
THE BUSINESS CLIMATE!
     Using unemployment funds to subsidize FMLA is 
wrong. Furthermore the unemployment system is just now starting 
to regain its health. The FMLA gives employees a vehicle to use 
when they need to deal with specific family related issues. 
Let's not turn it into a vehicle that can be used to avoid 
work. The only way our economy grows and takes care of the 
people of Connecticut is when money is paid for a service. We 
do quite poorly when we pay money for nothing.
    Our hospitals and other healthcare providers, especially 
home health agencies, are facing severe funding shortages, as 
Chairman Johnson well knows. In many cases these financial 
shortfalls have resulted in staff downsizing. Healthcare HR 
leaders and administrators are very concerned that unemployment 
compensation resources be available to displaced workers. If 
unemployment compensation funds are tapped to provide paid 
leave to employees who take family leave, there is no doubt 
that the increased costs will be substantial. This will be one 
more significant financial burden placed on employers who, in 
the case of the healthcare industry, are already struggling to 
maintain jobs, minimize layoffs, and in some cases, simply keep 
their doors open.
    Our recent remarkable economic prosperity may be providing 
for some a false sense of security that our communities and 
employers can afford to allow current unemployment insurance 
funds to be used to pay for an entirely new entitlement 
benefit. But we cannot afford to lose focus on what this 
important program was established to provide. The decision to 
create a new entitlement benefit, as well as the decision on 
how to fund it, belongs with Congress.

                                Summary

    We feel strongly that no expansion of FMLA, including the 
provision of paid family leave, should be considered before 
these regulatory and administrative issues are addressed. The 
first step in increasing the provision of paid leave in this 
country should be to address the Labor Department's FMLA 
regulations and interpretations which are discouraging 
employers from implementing or expanding paid leave. Correcting 
the FMLA's administrative problems can result in employment 
policies which are more fair to all employees and which still 
achieve the intent of the original FMLA legislation. And 
exploring alternative or incentive approaches to increase paid 
family leave would achieve the Administration's objective, but 
without causing crisis to our unemployment system in the 
process.
    We would like to request your consideration of the 
following points and suggestions.

A. To address the FMLA's unintended consequences, we urge 
Congress to consider the following suggestions on a bipartisan 
basis:

    1. Restore the FMLA to original Congressional intent by 
clarifying and tightening the definition of ``serious health 
condition''. Perhaps for all conditions other than chronic 
health conditions, the current definition of serious health 
condition which includes a minimal period of incapacity (time 
away from work) of ``more than three consecutive calendar 
days,'' could be changed to 14 days, or minimally, seven days. 
This would still protect any serious conditions, but would 
eliminate the need to designate and track questionable 
situations that may be addressed by a company's sick leave like 
minor injuries, earaches, headaches or flu.
    2. Given the difficulty in meeting the two-day notice 
requirement, change the law to allow employers three weeks, 
rather than two days, to retroactively designate absences as 
FMLA leave time and provide written notice. This change alone 
would simplify the administration of this program immensely.
    3. Require that intermittent leave be offered and tracked 
in increments of not less than one-half day as Congress 
originally intended.
    4. Because of the inherent unfairness of exempting FMLA 
time from attendance program consideration, clarify that 
employers may record FMLA leaves as absences for purposes of 
perfect attendance awards only (the only ``employee benefit'' 
that could be so affected by FMLA use).
    5. Address the intermittent leave certification process. 
The employee taking intermittent leave now has no 
responsibility in the process (e.g., to request FMLA)--the onus 
is completely on the employer to deal with the absence. There 
is virtually no system of checks or controls. Once an employee 
has an open-ended certification from a medical provider 
indicating that time off should be taken as required, the 
employee can come an go without providing notice and there is 
no incentive to minimize absences and avoid abuse.
    6. Clarify the eligibility parameters to say 12 continuous 
months of employment. Given the unusual and varied staffing 
arrangements used by healthcare providers (and now employers in 
other industries as well), including sporadic on-call work and 
summer/after-school jobs, it is difficult to determine whether 
an employee with a history of these kinds of short-term 
assignments has met the eligibility requirement.
    7. Remove the FMLA restriction that prohibits the use of 
certain providers for second opinions. In any case where 
employer has reason to doubt the validity of the medical 
certification, the employer may require a second opinion. But 
the health care provider used for that second opinion cannot be 
employed on a regular basis by the employer. That provision is 
in conflict with ADA, disability, and workers' compensation 
provisions. Use of regular company doctors for second opinions 
would be easier, quicker, more practical and reasonable.

B. To address the need for some employees for paid family 
leave:

    1. First and foremost, address current problems with the 
FMLA's regulations and interpretations that are actually 
serving as a disincentive for companies to offer or expand paid 
leave policies. We urge the speedy enactment of technical 
corrections, S. 1530--The Family and Medical Leave 
Clarification Act, on a bipartisan basis to remove current 
disincentives that actually discourage employers from providing 
paid leave.
    2. Support the win-win proposition of compensatory time. 
Proposals such as H.R. 1, the Working Families Flexibility Act 
of 1997, or S. 4, the Family Friendly Workplace Act, would 
allow employers to offer and employees to receive overtime 
payment in the form of time-and-one-half paid compensatory time 
off in lieu of cash payment, enabling employees to bank paid 
time off for times when it is needed.
    3. Explore the use of employee pretax savings accounts 
(such as an IRA or dependent care flexible spending account) 
for funding leaves.
    4. Encourage flexible work arrangements such as job 
sharing, flextime, and telecommuting, perhaps with tax 
incentives and certainly by removing current obstacles or 
disincentives.
    5. For employers that do not provide paid family leave 
already, encourage the inclusion of such a benefit as an option 
in cafeteria-style benefit plans.
    6. Promote utilization of existing tax credits for adoption 
assistance which are available for employers to help adoptive 
parents.
    7. Thoroughly explore all alternative funding options.
    Tapping into the security program for jobless workers to 
provide pay for employees on family leave will endanger the 
solvency of unemployment insurance trust funds and represents 
an inappropriate attempt to circumvent Congressional 
legislative intent and authority.
    Thank you again for the opportunity to participate in this 
morning's hearing.
    [The attachments are being retained in the Committee 
files.]
      

                                

    Chairperson Johnson. Thank you. I appreciate your comments. 
Mr. Emsellem.

   STATEMENT OF MAURICE EMSELLEM, DIRECTOR OF PUBLIC POLICY, 
      NATIONAL EMPLOYMENT LAW PROJECT, NEW YORK, NEW YORK

    Mr. Emsellem. Good afternoon, Madam Chair, Congressman 
Cardin. My name is Maurice Emsellem. I'm Public Policy Director 
with the National Employment Law Project. Thank you for this 
opportunity to testify in support of the Administration's 
proposed regulations and the initiatives in the states to 
provide unemployment benefits to workers caring for newborn or 
newly adopted children.
    In the time I have, I'd like to make a few key points that 
are covered in detail in our written testimony.
    First, it's important to stress that the program announced 
by the Department of Labor serves the purposes of the 
unemployment comp system by maintaining and increasing 
attachment to the labor market for all workers, but especially 
low income working families.
    Years of research on family leave policy clearly shows that 
paid family leave is strongly associated with increased labor 
force attachment. The studies show that those workers with 
access to paid family leave work later into pregnancies and 
they return to work much sooner.
    Second, the initiative has provided an unprecedented 
opportunity to educate the public about the unemployment comp 
program, which has happened a lot in today's hearing already.
    The fact is that the states already cover workers who are 
temporarily separated from work for family reasons and many 
other circumstances that are not strictly limited to coverage 
of the, quote-unquote, involuntarily unemployed, as we discuss 
in detail in our testimony.
    Therefore, whatever one's view of the merits of the 
program, it is not true, in our view, that the states that have 
proposed such legislation are acting outside their rights to 
expand benefits beyond a narrowly defined group of the 
involuntarily unemployed.
    Finally, I'd like to spend the last couple minutes I have 
to talk about the UC funding situation. Since, as we have heard 
today, one of the main arguments often made against the 
proposal is that the trust funds can't handle this benefit 
expansion.
    Let's take a look at what's been going on with the UC 
funding situation since the last recession ended in 1992. 
First, because of the sustained low unemployment rate, trust 
funds have been building fast. In fact, since 1992, trust fund 
reserves have literally doubled from 26 billion dollars to over 
50 billion dollars in 1999. As a result, most states, 33 at 
least count, are now operating at levels above the generally 
accepted solvency standard, which says that states should be 
able to pay for at least one year benefits at peak recessionary 
levels without taking in additional revenues.
    Since 1991, the U.S. average high cost multiple, as the 
solvency standard is known, increased by almost 50 percent. 
Thus, it's clear that most states, but not all, are well 
equipped to handle an expansion of UC benefits, including the 
Administration's initiative. But the solvency of the state 
trust funds is, of course, not just about how much money is 
being spent on benefit expansions, like the family leave 
program or any other form of reforms now being promoted in the 
states.
    It's also about what's going on the revenue side, where the 
real action has been happening with the UI program.
    Just in the past few years, business groups have 
successfully lobbied for dramatic cuts in UI taxes in the 
states. At least 25, according to our latest count, states, 
according to our latest count, that have cost the UI system 
literally billions of dollars, far more than what we're talking 
about for this program.
    For example, Georgia enacted tax cuts of one billion 
dollars over four years. Michigan cut taxes by 750 million. New 
Jersey cut taxes by 450 million. Washington State cut taxes by 
590 million over three years.
    As described in the table provided in our testimony at the 
end of the table, the average rate of employer contributions to 
the UI system has dropped by one-third since 1994, when the 
rate started going down. Thus, the average contribution as a 
percent of total wages is just 0.57 percent, versus .92 percent 
in 1994.
    Finally, the real question is how much does the reduced tax 
contribution of employers cost the UI trust fund system. 
According to our estimates, which are reflected in the bar 
graph attached to our testimony, the decrease in the 
contribution rate has cost the UC system 34 billion dollars 
over the rates as the rate that existed if you calculate the 
rate--the contributions at the rate that existed in 1994.
    That is, if employers had contributed at the 1994 rate of 
.92 percent for the years 1995 to 1999, the trust funds would 
have an additional 34 billion dollars available to pay for 
benefits expansions or to save for a rainy day.
    You will note, as well, the contributions by employers have 
also been steadily going down to the point where they are now 
less than 20 billion dollars, not counting FUTA taxes.
    Thus, since the cost of the program that we're talking 
about is nowhere near the cost of those tax cuts and other 
reductions in the rates, it's really about choices that states 
have to make, whether to continue to provide tax cuts while 
businesses are already experiencing record profits or to take 
advantage of this opportunity to expand benefits and update the 
unemployment system to meet the needs of today's workers.
    Thank you again for this opportunity to testify.
    [The prepared statement follows:]

Statement of Maurice Emsellem, Director of Public Policy, National 
Employment Law Project, New York, New York

    Good morning, Madam Chairman and members of the Committee. 
My name is Maurice Emsellem, and I am Director of Public Policy 
with the National Employment Law Project. Thank you for this 
opportunity to testify in support of the Administration's 
action, proposing regulations that authorize the states to 
provide eligible workers with unemployment benefits while 
caring for a newborn or newly-adopted child. For the reasons 
described below, we believe that the proposed regulations 
represent sound public policy and a critical step forward in 
the evolution of the unemployment compensation (UC) system.
    The National Employment Law Project (NELP) is a non-profit 
organization that specializes in the unemployment compensation 
system, the Family & Medical Leave Act of 1993 (FMLA), and 
other employment laws that are of particular concern to the 
working poor . We provide technical assistance to state 
lawmakers and advocates in support of reforms of the UC system. 
We have published extensively on the unemployment system, 
including several scholarly articles, a popular resource guide 
entitled Women, Low-Wage Workers and the Unemployment 
Compensation System: State Legislative Models for Change 
(Revised 1997), and a recent state report co-authored with the 
Institute for Women's Policy Research (IWPR) entitled, The 
Texas Unemployment Insurance System: Barriers to Access for 
Low-Wage, Part-Time & Women Workers (February 1999). We are 
also working with policy-makers in the states as they develop 
legislation to establish Birth and Adoption, Unemployment 
Compensation (BAA-UC) programs.
    In today's testimony, I will address the following key 
issues related to the BAA-UC initiative.
    1. The BAA-UC initiative is part of a growing movement in 
the states to expand access to the unemployment system to meet 
the needs of the changing workforce.
    2. BAA-UC advances the goals of the unemployment program to 
increase attachment to the labor market, especially for low-
wage working families.
    3. State unemployment laws cover workers who are 
temporarily separated from their jobs for family reasons and 
many other circumstances not strictly limited to coverage of 
the ``involuntarily unemployed".
    4. As set forth in the proposed regulations, the federal 
unemployment laws do not preempt the states from enacting BAA-
UC programs.
    5. With the sustained low unemployment rate, state trust 
funds are well-equipped to support UC eligibility expansions, 
including the BAA-UC program.
    6. State trust funds are building despite dramatic cuts in 
UC taxes.
     The BAA-UC initiative is part of a growing 
movement in the states to expand access to the unemployment 
system to meet the needs of the changing workforce
    Over the past several decades, access to the unemployment 
system has declined to unacceptably low levels due largely to 
the failure of the program to keep pace with the changing needs 
of today's workforce. Nationally, the proportion of the 
unemployed receiving unemployment benefits has dropped from an 
average of 49% in the 1950s, and over 75% during the 1974-75 
recession, to just 35% in the 1990s. As documented by the 
Advisory Council on Unemployment Compensation and the National 
Commission on Employment Policy, low-wage, part-time and women 
workers are the hardest hit by this lack of access to the UC 
system. The Texas study authored by NELP and IWPR illustrates 
how these negative trends impact individual groups of workers 
at the state level. In Texas, only 21% of unemployed women 
workers received UC. The rate for part-time workers was 8.5% 
and only 18.4% for low-wage workers, despite the significant 
labor force attachment of both these groups.
    As a result of these conditions and the vast growth in 
state trust funds caused by the low unemployment rate, a 
movement has taken hold to expand access to the unemployment 
program. Just in the past few years, states as politically 
diverse as Wisconsin, California, New Hampshire, Florida, 
Massachusetts, Georgia, Washington, North Carolina, New Jersey 
and Connecticut, have enacted or are now actively debating 
broad reforms specifically intended to reach more lowwage and 
women workers.'' \1\ For example, Governor Thompson of 
Wisconsin recently signed a comprehensive package of UC reforms 
that included the ``movable base period,'' broader coverage for 
workers who leave their jobs due to a wide range of family 
circumstances, and the creation of a study commission to 
consider options to expand UC for part-time workers.
---------------------------------------------------------------------------
    \1\ See, e.g., ``Jobless Insurance Ready to Take Friendly Turn,'' 
Milwaukee Journal Sentinel, October 24, 1999; ``Labor Seeks to Broaden 
Unemployment Eligibility,'' The Wall Street Journal (Florida Edition), 
June 3, 1998; ``Texas Ranks Low in Benefits for the Unemployed,'' 
Dallas Morning News, April 14, 1999; ``Safety Net Repair: Hole in 
Jobless Benefits Needs Mending,'' The Sacramento Bee, September 25, 
1997; ``Revamping Jobless Benefits Could Ease Welfare Burden,'' The 
Sacramento Bee, September 7, 1998.
---------------------------------------------------------------------------
    The BAA-UC initiative, now being considered in eight states 
(Connecticut, Illinois, Indiana, Maryland, Massachusetts, New 
Jersey, Vermont, Washington), is part of this growing movement 
to make the unemployment system more accessible to low-wage and 
women workers. Although not without its critics, the BAA-UC 
initiative has successfully generated an unprecedented public 
debate that has begun to address the many misperceptions about 
the limits of the unemployment program and spark discussion 
about the need for reform.''  \2\ Today's hearing provides 
another critical opportunity to publicize the need to reform 
the UC system to keep pace with today's workers, and the 
opportunities to enact BAA-UC programs consistent with the 
purposes of the federal unemployment laws.
---------------------------------------------------------------------------
    \2\ For example, a New York Times editorial (``;Paid Leave for 
Parents,'' dated December 1, 1999) supported the proposed BAA-UC 
regulations stating that, ``Although unemployment insurance is 
traditionally seen as helping only those who have been involuntarily 
laid off and immediately available for work, many states have granted 
benefits to workers who are not in that narrow category.''
---------------------------------------------------------------------------
     BAA-UC advances the goals of the unemployment 
program to increase attachment to the labor market, especially 
for low-wage working families
    As stated in the proposed regulations, the goal of the BAA-
UC program is to ``help employees maintain or even promote 
their connection to the workforce by allowing them time to bond 
with their children and to develop stable child care systems 
while adjusting to the accompanying changes in lifestyle before 
returning to work.'' 64 Fed. Reg. at 67974. The Labor 
Department's position is supported by the legislative history 
of the Social Security Act of 1935, reflected in the statement 
in the Senate Report emphasizing that unemployment benefits 
``should encourage the regularization of employment.'' S. Rep. 
No. 628, 74th Cong., 1st Sess. 16 (1935) (emphasis added).'' 
\3\
---------------------------------------------------------------------------
    \3\ Saul Blaustein, in his treatise on the history of the UI 
system, also emphasizes the key role that unemployment benefits play in 
maintaining a skilled and productive workforce. According to Blaustein, 
``The compensation tends to preserve the workforce intact, with its 
particular skills, training, and experience, until it can be recalled. 
. .. While this support of workforce retention may somewhat restrict 
the mobility of labor, it is of value to the employer, as well as to 
the worker and the community.'' Saul Blaustein, Unemployment Insurance 
in the United States: The First Half Century (W.E. Upjohn Institute: 
1993), at 63.
---------------------------------------------------------------------------
    As described in President Clinton's speech on May 23, 1999 
announcing the BAA-UC initiative, large numbers of working 
families cannot take advantage of the 12 weeks of jobprotected 
leave provided by FMLA because they do not have the financial 
means to support their families while on unpaid leave. As the 
report of the Commission on Family and Medical Leave found, 64% 
of those who wanted to take advantage of FMLA could not because 
the leave was unpaid. The absence of paid family leave has had 
a devastating impact on lowincome families in particular. For 
example, 21% of those families with incomes of less than 
$20,000 a year reported having to resort to public assistance 
given the absence of paid leave. The benefits provided by BAAUC 
will thus help keep these low-income families who sought to 
take family and medical leave from losing their attachment to 
the labor market and falling into poverty. See California Dept. 
of Human Develop. v. Java, 402 U.S. 121, 132 (1974) 
(unemployment benefits are necessary to ``maintain the 
recipient at subsistence levels, without the necessity of his 
turning to welfare or private charity.'').
    In fact, years of research in the United States and abroad 
demonstrates empirically the value of family leave policies to 
workers and their employers. According to Professor Janet C. 
Gornick, an expert in family leave policies in Europe and the 
United States, ``paid family leave benefits for new parents 
strengthen women's labor market attachment, in both the 
shortand longterm.'' \4\ Specifically, the studies show that 
access to maternity benefits is strongly associated with new 
mothers' probability of returning to work within six months of 
giving birth. Women with access to paid leave were also found 
to work later into pregnancy and to start working sooner once 
the infant was at least two months old. In addition, Canada has 
successfully offered family leave benefits through its 
unemployment system for many years, covering qualified 
employees unable to work ``due to maternity'' (since 1971) and 
``due to parental caring'' (since 1990).
---------------------------------------------------------------------------
    \4\ Letter of Professor Gornick submitted in support of the BAA-UC 
regulations, dated January 14, 2000.
---------------------------------------------------------------------------
    The BAA-UC program thus represents a logical next step in 
the evolution of the UC system to accommodate the changing 
circumstances of today's working families. As documented by the 
successful Canadian experience and the empirical research on 
paid family leave policies, the BAAUC program will reap 
significant benefits for workers, their families and employers 
thereby serving the essential goals of the unemployment system.
     State unemployment laws cover workers who are 
temporarily separated from their jobs for family reasons and 
many other circumstances not strictly limited to coverage of 
the ``involuntarily unemployed''

    The ``involuntarily unemployed'' is a phrase that has been 
relied upon often in this debate in an effort to distinguish 
BAA-UC recipients from all other claimants who collect 
unemployment benefits. For the purpose of this hearing, 
therefore, it is appropriate to explore whether it is true that 
only the ``involuntarily unemployed'' are entitled to 
unemployment benefits. Thus, is it accurate to portray BAA-UC 
recipients as somehow ``pitted'' against all other UC 
claimants? In our view, the phrase ``involuntarily unemployed'' 
does not accurately characterize all workers who are covered by 
today's state unemployment laws. Nor should it, as this narrow 
statement of the purposes of the unemployment program 
represents a substantial step backward in the evolution of 
state UC programs as they develop the flexibility to serve the 
changing needs of today's workforce.
    While the phrase ``involuntarily unemployed'' is not found 
anywhere in the federal unemployment laws, it is mentioned in 
the Senate Report accompanying the Social Security Act of 1935. 
Putting aside the legal arguments for the moment, we'll explore 
how this phrase has been applied in actual state practice. This 
is an important exercise to clarify that the unemployment laws 
are open to interpretation by the states and that narrow terms 
do not capture the broad range of state unemployment policies 
that have been established to respond to the everyday needs of 
workers, employers, and the labor market more generally. It is 
also important to correct any public misperceptions about the 
scope of the unemployment program. Otherwise, fewer workers who 
now qualify for unemployment benefits will actually apply for 
benefits, thus contributing to the low ``take up'' rate for the 
unemployment program. Already, less than half (45%) of the 
jobless who have significant labor force attachment apply for 
unemployment benefits with many believing, incorrectly, that 
they do not qualify.
    Accordingly, we begin by examining how the general rule has 
been applied to the process of qualifying for unemployment 
benefits. First, if workers have to be ``involuntarily 
unemployed,'' are they also entitled under federal law to leave 
work for compelling family reasons or other reasons not limited 
to an employer-initiated layoff? Yes they are, according to the 
states. In fact, going back to the early days of the 
unemployment program, there are numerous examples of state laws 
that consider an employee's initiation of his or her separation 
from work involuntary under a broad range of circumstances. 
About one-third of the states cover compelling personal 
circumstances requiring an individual to leave his or her job, 
including many situations that qualify for coverage under 
FMLA.\5\ A number of states also provide benefits to striking 
workers, which was upheld by the U.S. Supreme Court in the case 
New York Tel. Co. v. New York State Department of Labor, 99 
S.Ct. 1328 (1979), despite the argument that these workers were 
``voluntarily'' unemployed.
---------------------------------------------------------------------------
    \5\ Thus, under many state laws, an individual who is unemployed as 
a result of compelling family or medical reasons is considered to be 
involuntarily unemployed. For example, the Massachusetts unemployment 
statute provides that, ``[a]n individual shall not be disqualified from 
receiving benefits under the provisions of this subsection, if such 
individual establishes to the satisfaction of the director that his 
reasons for leaving were for such an urgent, compelling and necessitous 
nature as to make his separation involuntary.'' Mass. Gen. Laws Ann., 
c. 151A, Section 25(e), para. 2 (emphasis added).
---------------------------------------------------------------------------
    Second, is it always the case that unemployment recipients 
have to be ``able and available'' for work to be considered 
``involuntarily unemployed'' and therefore qualify for UC? 
Again, the states have seen fit to create appropriate 
exceptions from this rule especially where, as in the case of 
the BAA-UC program, the goal is to increase attachment to the 
labor market. For example, as described in the proposed 
regulations, at least eight states now provide unemployment 
benefits to workers on temporary layoff. Not unlike the 
situation of those taking a family leave, the states in this 
situation have made the decision that it is not always good 
public policy to require workers to accept new work--even a 
superior job, with better pay and benefits--when the worker, in 
fact, still retains a connection, a commitment of employment, 
with his or her current employer. This rationale applies as 
well to the 22 states that exempted workers in training 
programs from having to meet the work-search rules before this 
policy was adopted as the law of the land in 1976.
    Finally, by generally limiting unemployment benefits to 
those who are ``involuntarily unemployed,'' are states 
prevented from providing benefits to workers who are not 
necessarily ``unemployed''? Again, states have acted within 
their discretion to define these terms broadly. Indeed, there 
are many circumstances where workers are entitled to 
unemployment benefits while maintaining an on-going 
relationship with their employers, as in the case of BAA-UC. 
For example, nearly all states operate a ``partial'' 
unemployment program, meaning that benefits are paid to workers 
who are still employed but whose hours have been reduced below 
full-time. The same is true of ``short-time compensation'' or 
``work-sharing'' programs that have been adopted by at least 17 
states, where unemployment benefits are paid to current workers 
whose hours were reduced in order to avoid layoffs. The state 
courts have also decided several cases in which unemployment 
benefits were provided to ``unemployed'' workers who were only 
temporarily separated from their jobs yet still received job-
related benefits, as in the case of the BAA-UC program.'' \6\
---------------------------------------------------------------------------
    \6\ See, e.g., Donahue v. Dept. of Employment Security, 142 Vt. 
351, 355 (1982) (awarding benefits to an ``unemployed'' group of hourly 
paid, nonprofessional school employees during the three weeks of 
Christmas, mid-winter and spring vacations observed by the Vermont 
public schools); Pennsylvania Electric Company v. Board of Review, 450 
A.2d 779 (Pa. Cwmwlth. 1982) (awarding benefits to an ``unemployed'' 
woman who was granted an unpaid leave when she became pregnant and 
presented medical certification that her job threatened the safety of 
the fetus, during which time she continued to receive holiday pay, life 
insurance and hospitalization coverage).
---------------------------------------------------------------------------
    While everyone may not agree with all the policy decisions 
described above, the point is that many states have expanded 
the scope of their unemployment programs to serve not just 
those workers who are narrowly defined as the ``involuntarily 
unemployed.'' The states have put in place unemployment 
programs that expand the flexibility to serve a wide variety of 
employment needs, including family and workforce development 
needs. By expanding the scope of the program, the states have 
not ``pitted'' one group of workers against another. To the 
contrary, they have created a situation where the program 
benefits a greater proportion of those in need. Similarly, in 
the case of the BAA-UC program, the states are taking advantage 
of their flexibility to expand the program to serve newly-
defined needs. Thus, while everyone may not agree with the 
merits of the BAA-UC program, it is not accurate to conclude 
that those states that have proposed such legislation are 
acting outside their rights to expand benefits beyond a 
narrowly defined group of the ``involuntarily unemployed.''
     As set forth in the proposed regulations, the 
federal unemployment laws do not preempt the states from 
enacting BAA-UC programs
    The states have exercised vast discretion in developing 
unemployment laws to meet the needs of today's workers, 
including unemployment policies designed to reach beyond a 
narrowly-defined group of ``involuntarily unemployed'' workers. 
Thus, as set forth in the proposed regulations, the federal 
unemployment laws also allow for the adoption of BAA-UC 
programs. Rather than restate the legal analysis of the U.S. 
Department of Labor in support of this position, we take this 
opportunity to underscore certain key legal issues.
    First, the U.S. Supreme Court has consistently held that 
the states are provided with the discretion under the Social 
Security Act of 1935 to decide basic issues of eligibility 
unless specifically prohibited by federal law. This rule was 
upheld most recently in the case of New York Tel. Co. v. New 
York State Department of Labor, 99 S.Ct. 1328 (1979), the 
decision upholding the right of states to provide unemployment 
benefits to striking workers. The Court cited several prior 
decisions and concluded that, ``These cases demonstrate that 
Congress has been sensitive to the importance of the State's 
interest in fashioning their own unemployment compensation 
programs, especially their own eligibility criteria.'' Id. at 
1340 (emphasis added). Thus, ``when Congress wishes to impose 
or forbid a condition for compensation, it did so explicitly; 
the absence of such an explicit condition was therefore 
accepted as a strong indication that Congress did not intend to 
restrict the State's freedom to legislate in this area.''
    Accordingly, DOL's interpretation of the federal 
unemployment laws as set forth in the BAA-UC regulations is 
clearly supported by a consistent line of U.S. Supreme Court 
decisions directly addressing the right of the states to 
determine the scope of their eligibility rules . The case in 
support of the agency's action is even more compelling given 
the absence of any explicit reference in the federal statutes 
to the terms ``involuntary unemployment'' or ``able and 
available'' for work. Finally, the law is clear that the 
interpretation of the federal unemployment statutes by the U.S. 
Labor Department is entitled to great deference. Certainly, the 
agency's action is not ``arbitrary and capricious,'' which is 
the standard that applies to overrule a regulation properly 
promulgated pursuant to the federal Administrative Procedures 
Act (APA).
     With the sustained low unemployment rate, state 
trust funds are well-equipped to support UC eligibility 
expansions, including the BAA-UC program
    The decision to expand UC is made by each state legislature 
based on a balancing of many factors, including the solvency of 
their UC trust funds, the projected funding coming in and 
benefits being paid out, the UC tax structure, the size of the 
new program, and its projected cost. Based on this analysis, 
most states--but not all--are well prepared to support UC 
eligibility expansions, including the BAA-UC program.
    The cost considerations of the BAA-UC program will vary 
significantly from state to state, depending on the scope of 
coverage, the number of weeks of benefits provided, birth 
rates, UC ``take up'' rates, and each state's benefit levels. 
For example, some states have proposed benefits lasting just 
six weeks, while others have proposed providing benefits for a 
maximum of 12 weeks. DOL, in the proposed regulations, 
estimates that the BAA-UC program would cost in the range of 
zero to $68 million. The higher estimate optimistically assumes 
that all the states which introduced legislation last year will 
actually enact the program. In individual states, the cost of 
the program ranges from $1 million in Vermont to $34 million in 
Massachusetts.
    Since the end of the last recession in 1992, state trust 
fund reserves have increased significantly as the unemployment 
rate has remained consistently low (now at just 4.1%). This 
makes it possible to advance a range of UC expansions to bring 
the rates of access back up to more acceptable levels, 
especially for women, parttime and lowwage workers. State trust 
fund reserves have almost doubled since the end of the last 
recession, growing from $26 billion in 1992 to over $50 billion 
in 1999. And since the economy show no signs of slowing down 
significantly, the trust fund reserves are expected to continue 
to build as long as the unemployment rate remains low.
    As measured by the generally-accepted solvency standard, 
most state trust funds are thus well-positioned to handle UC 
expansions including the BAA-UC program. The standard, known as 
the ``average high cost multiple'' (AHCM), measures the number 
of years that a state can pay UC benefits at peak recessionary 
levels. The recommended AHCM is 1.0, meaning that a state trust 
fund can afford to pay at least one year of benefits during a 
severe recession without collecting any additional revenues. 
The AHCM for the states has increased by 48% since 1992, now 
averaging .93. As of the end of 1999, 33 states were above the 
trust fund solvency standard.
     State trust funds are building despite dramatic 
cuts in UC taxes
    The state trust funds would be even more solvent, and even 
better equipped to handle long-overdue UC expansions, were it 
not for the record level of UC tax cuts that have been enacted 
in recent years.
    At the same time that U.S. businesses are experiencing 
optimal profits, they have also been lobbying aggressively, and 
successfully, for dramatic cuts in state UC taxes. According to 
a recent tally prepared by NELP, at least 25 states have cut UC 
taxes dramatically over the last few years. Not surprisingly, 
therefore, the average rate of employer contributions has 
dropped by one-third, from .92% of total wages in 1994 to just 
.57% in 1999. (See the attached table for more detail on the 
yearly drop in the rate and the state figures). According to 
our estimates, employers would have contributed almost $34 
billion more into the state UC trust funds for the years 1995-
1999 if they had continued to be taxed at the 1994 contribution 
rate.
    The following examples illustrate the dramatic impact that 
UC tax cuts have had on the state trust funds:
     In 1998, Georgia enacted a tax cut costing the 
trust fund $122 million over the next two years. In 1999, the 
Governor signed legislation to further cut UC taxes by $1 
billion over the next four years.
     In 1998, Idaho enacted legislation that cut UC 
taxes by $31 million in 1998 and by a projected $112 million 
over the next fours years, reducing the rate of the UC tax by 
30%.
     In Illinois, the UC tax rate was cut by 16% in 
1996, costing the trust fund $128 million. Legislation has been 
proposed to reduce the rate this year by another 12%, with an 
impact of $150 million.
     In 1995, a tax cut was enacted in Maryland that 
the Governor estimates will save employers $410 million over 
five years.
     At the end of last year, the Massachusetts 
Governor sought a UC tax cut of $203 million, while the 
Legislature agreed instead to freeze a scheduled tax increase 
thereby costing the trust fund $120 million.
     In 1996, Michigan enacted a 10% cut in its UC tax 
rate, costing the trust fund about $500 million over three 
years. The 1996 legislation included a provision for future 
cuts in the event that the fund balance continued to rise, 
causing a second round of cuts costing the trust fund $750 
million since 1996.
     In 1996, UC taxes were reduced in New Jersey 
costing the trust fund $200 million a year, which was followed 
by a second round of cuts in 1997 resulting in a total tax cut 
of $450 million a year.
     In 1998, New York employers received a $420 
million tax break, reducing the average UC tax rate by 27%.
     In 1998, South Carolina cut its UC taxes by 50%, 
costing the trust fund an estimated $50 million.
     In 1999, Washington froze its tax base at 1999 
levels, stopped an automatic shift to a higher tax schedule, 
and provided additional tax reductions for employers in some 
rate classes. These tax cuts will cost the trust fund $590 
million over six years.
    For today's hearing, we have also prepared an estimate that 
documents the impact of the reduced tax rates of the past 
several years on the state trust funds. We found that, if taxed 
at the 1994 U.S. average rate of .92% on total wages, employers 
would have contributed almost $34 billion more into the state 
UC trust funds for the period from 1994-1999 (i.e., $159 
billion as opposed to $126 billion). (7 As reflected in the 
attached graph, it is significant that the amount of actual 
employer contributions has in fact been going down over these 
years, and the gap between actual contributions and estimated 
contributions at the 1994 tax rate is growing substantially. 
Despite these reduced employer contributions, the state trust 
funds are still building as a result of the low unemployment 
rate.
---------------------------------------------------------------------------
    \7\ These estimates were prepared with data provided by the U.S. 
Department of Labor, the only national data documenting UC tax rates 
and contributions. We calculated the dollar amount of employer 
contributions that would have been deposited in state trust funds had 
employers been taxed at the 1994 U.S. average rate of .92% of total 
wages, which is the year when the average tax rate started declining 
(see attached table). This calculation was then made for each of the 
years from 1995 to 1999, and the results were added together to arrive 
at the $34-billion figure. The contributions included in the 
calculation are only for experience-rated employers, and they do not 
include FUTA taxes. graphic*
---------------------------------------------------------------------------
    Unfortunately, the data does not exist to document 
precisely the impact of tax cuts alone on the trust funds. 
Thus, given the data limitations, our estimate also takes into 
account the impact of experience rating on the tax rates (which 
generally brings down the tax rate for those employers who are 
laying off fewer workers), and the automatic triggers that 
exist in some states that decrease or increase the tax rates 
depending on the solvency of the trust fund. Therefore, while 
not an estimate of the impact of tax cuts alone, the 
calculation accurately reflects the significant impact on the 
trust funds of the reduced tax burden on employers over the 
years 1994 to 1999.
    Ironically, many business groups have been highly critical 
of the BAA-UC initiative, claiming that it will result in a 
``raid'' of state UC trust funds. For example, in 
Massachusetts, business interests are opposed to the expansion 
of UC to cover workers on family and medical leave, yet they 
have actively lobbied for a UC tax cut that would have cost the 
UI trust fund $203 million. According to state labor department 
officials writing in support of the tax cut proposal, ``the 
current status of the Massachusetts UI Trust Fund is extremely 
positive, and a better time for taking additional action to 
keep UI costs down could hardly be found.'' These business and 
state officials are, of course, hard pressed to demonstrate how 
the trust fund can handle these massive tax cuts if they cannot 
afford reforms expanding access to the UC system, including UC 
to cover workers on family leave.
    Madam Chairman and members of the Committee, thank you 
again for this opportunity to testify in support of the BAA-UC 
initiatives in the states and the Labor Department's proposed 
regulations.
[GRAPHIC] [TIFF OMITTED] T9340.001

                                   UI Tax Rates as a Percentage of Total Wages
                                    by State for the Years 1994 through 1999
----------------------------------------------------------------------------------------------------------------
                                                                                                        Change
                                CY1999      CY1995      CY1996      CY1997      CY1998      CY1999*  -----------
                                                                                                       ('94-'99)
----------------------------------------------------------------------------------------------------------------
US..........................      0.92%       0.86%       0.78%       0.70%       0.62%       0.57%     -38.48%
AL..........................       0.36        0.37        0.34        0.34        0.44        0.39       8.42%
AK..........................       1.66        1.71        1.77        1.88        1.63        1.65      -0.35%
AZ..........................       0.61        0.61        0.52        0.47        0.38        0.32     -47.06%
AR..........................       0.95        0.88        0.83        0.83        0.81        0.78     -17.56%
CA..........................       0.98        0.96        0.94        0.76        0.66        0.62     -36.36%
CO..........................       0.53        0.47        0.40        0.38        0.33        0.32     -38.91%
CT..........................       1.21        1.26        1.23        1.18        1.10        0.66     -45.41%
DE..........................       0.83        0.86        0.72        0.68        0.56        0.55     -33.75%
DC..........................       1.03        0.92        0.79        0.50        0.54        0.56     -45.22%
FL..........................       0.65        0.58        0.50        0.45        0.32        0.34     -47.12%
GA..........................       0.56        0.48        0.45        0.37        0.30        0.15     -73.36%
HI..........................       0.76        1.60        1.46        1.33        1.25        1.23      61.65%
ID..........................       0.95        0.92        1.21        0.92        0.77        0.73     -22.78%
IL..........................       1.10        1.01        0.78        0.73        0.68        0.64     -41.43%
IN..........................       0.42        0.41        0.38        0.39        0.32        0.37     -11.62%
IA..........................       0.69        0.51        0.51        0.50        0.50        0.50     -26.88%
KS..........................       0.76        0.16        0.12        0.13        0.13        0.13     -82.64%
KY..........................       0.78        0.75        0.72        0.72        0.68        0.63     -19.41%
LA..........................       0.70        0.64        0.57        0.54        0.48        0.42     -39.40%
ME..........................       1.45        1.27        1.23        1.03        1.13        1.12     -22.45%
MD..........................       1.18        1.08        0.77        0.54        0.48        0.48     -59.17%
MA..........................       1.53        1.43        1.31        1.30        0.94        0.76     -50.59%
MI..........................       1.46        1.34        1.09        0.98        0.80        0.77     -46.95%
MN..........................       0.94        0.79        0.66        0.60        0.55        0.51     -45.94%
MS..........................       0.85        0.77        0.48        0.43        0.50        0.56     -33.72%
MO..........................       0.94        0.70        0.66        0.61        0.55        0.43     -54.74%
MT..........................       0.95        0.95        0.87        0.86        0.86        0.87      -8.05%
NE..........................       0.31        0.27        0.30        0.34        0.14        0.18     -41.74%
NV..........................       0.91        0.89        0.89        0.84        0.81        0.81     -10.98%
NH..........................       0.72        0.48        0.31        0.20        0.20        0.18     -74.82%
NJ..........................       0.83        0.87        1.16        1.14        0.96        0.82      -0.65%
NM..........................       0.86        0.72        0.72        0.74        0.75        0.63     -26.56%
NY..........................       1.10        1.02        0.94        0.84        0.61        0.56     -48.97%
NC..........................       0.34        0.28        0.10        0.31        0.35        0.36       5.89%
ND..........................       0.65        0.61        0.45        0.46        0.59        0.62      -5.17%
OH..........................       0.95        0.91        0.76        0.54        0.51        0.46     -51.56%
OK..........................       0.53        0.49        0.40        0.32        0.17        0.18     -66.06%
OR..........................       0.96        0.85        1.28        1.23        1.24        1.26      31.32%
PA..........................       1.72        1.57        1.27        1.13        1.07        1.01     -41.01%
PR..........................       1.51        1.52        1.56        1.53        1.44        1.36      -9.80%
RI..........................       2.09        2.07        2.05        2.00        1.85        1.55     -26.01%
SC..........................       0.64        0.63        0.62        0.60        0.42        0.41     -35.57%
SD..........................       0.21        0.21        0.20        0.21        0.21        0.20      -4.77%
TN..........................       0.59        0.55        0.50        0.46        0.46        0.43     -27.76%
TX..........................       0.62        0.60        0.52        0.47        0.43        0.38     -38.63%
UT..........................       0.59        0.55        0.50        0.42        0.36        0.27     -53.82%
VT..........................       1.10        0.95        0.91        0.89        0.85        0.84     -23.54%
VA..........................       0.48        0.45        0.36        0.26        0.17        0.16     -66.74%
VI..........................       1.09        1.44        1.67        1.69        0.94        0.62     -43.01%
WA..........................       1.22        1.16        1.10        1.19        1.19        1.17      -3.86%
WV..........................       1.12        1.08        1.06        1.03        1.01        1.00     -10.63%
WI..........................       0.90        0.84        0.79        0.74        0.68        0.68     -24.58%
WY..........................       0.74        0.73        0.72        0.75        0.74        0.55     -25.38%
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Employment and Training Adminustration.
Based on calculations prepared by the National Employment Law Project.
*The 1999 average contribution rates as a percentage of total wages were estimated by the U.S. Department of
  Labor.

      

                                

    Chairperson Johnson. Thank you. Mr. Shimkus.

  STATEMENT OF TODD L. SHIMKUS, VICE PRESIDENT, NORTH CENTRAL 
 MASSACHUSETTS CHAMBER OF COMMERCE AND U.S. CHAMBER OF COMMERCE

    Mr. Shimkus. Thank you, Madam Chair. I am here representing 
the U.S. Chamber and the North Central Massachusetts Chamber of 
Commerce, where I am the Vice President. That organization 
includes 1,500 members in 14 communities about 40 miles west of 
the big dig, which I'm sure you're all familiar with.
    My mission in being here today is really to protect the 
solvency of our state's UI trust fund, for if we fail this 
test, it is our working families, whether they are small 
employers or employees, who will pay the price in lost jobs and 
lost opportunity.
    This initiative or this experiment, as the Department calls 
it, if it's implemented, will cost Massachusetts employers or 
will divert 200 million dollars per year from our UI trust 
fund. That's 200 million dollars, according to the Division of 
Employment and Training in Massachusetts, testimony given last 
year by Jack King, the Director. That is unsound and unwise.
    Now, why am I here from Leominster, Massachusetts, the 
birthplace of Johnny Appleseed? What added value can I bring to 
this discussion?
    I think there's three things. First of all, Massachusetts 
is clearly one of the most likely test tubes in which this 
experiment will be conducted. Second, our region of 
Massachusetts is very unique. We make things. Look at the clock 
back here, Simplex, it's a Westminster company.
    Chances are the countertop is a laminated paper made at 
Montro Paper Decor in Fitchburg. Plastics is a huge part of our 
local industry. Thirty percent of our folks that live in north 
central Massachusetts make things and are employed in the 
manufacturing sector.
    As a result, when there are bad times, when there are hard 
times in our state and our nation, those times are even harder 
in north central Massachusetts and we simply can't afford to 
make them any harder on those working families who are relying 
on the security that's provided by the unemployment insurance 
trust fund.
    Lastly, our chamber has been a leader in efforts on 
unemployment insurance reform. We were the only business 
organization in the State of Massachusetts a number of years 
ago to support the bifurcation of the unemployment insurance 
trust fund in order to provide worker training for existing 
employees, those folks who are already on the shop floor.
    How can our regional chamber support that initiative, but 
not this experiment? Let me give you a couple of reasons. First 
of all, the workforce training fund that was established by 
bifurcating the system cost employers about 18 million dollars 
a year. Remember, the cost, according to the Division of 
Employment and Training in Massachusetts, for this experiment 
is 200 million. That's a big, big difference.
    But more important, the goal of bifurcating and the 
workforce training fund is to protect and enhance the solvency 
of the UI trust fund. How does it do this? It does it in two 
ways. First of all, you have better trained and skilled 
employees. You improve the innovation capacity of local firms 
so that they can succeed, grow and thrive. Second, the improved 
skills of those workers helps them should they ever be 
involuntarily laid off.
    The hope is that they have marketable skills so that they 
have to be less reliant on the unemployment insurance trust 
fund. So by helping firms to compete and by helping employees 
to compete, we are making a difference, protecting the solvency 
of our UI trust fund.
    Now, some researchers have claimed that this experiment 
would strengthen worker attachment, improve loyalty and morale. 
That may be all well and good, but that doesn't protect the 
solvency of the UI trust fund in Massachusetts, a trust fund 
that's going to see 200 million dollars drained from it if this 
experiment goes forward.
    Don't misunderstand. Our employers do a great deal to be 
good corporate citizens in north central Massachusetts and 
across this country. In Massachusetts, to bring it back to our 
state's example, we have had rates frozen for the last two 
years. They've been frozen, we have been told, by legislative 
leaders because there aren't sufficient funds to allow for a 
rate decrease.
    Well, if there aren't sufficient funds to allow for a rate 
decrease, chances are there's not sufficient funds to allow for 
a 200 million dollar drain, either.
    If you look at how much it costs to be an employer in 
Massachusetts, you get a real sense of how dedicated these 
folks are. Just a couple of comparisons. In our state, an 
employer pays, on average, about 308 dollars per year for 
unemployment insurance. In Connecticut, 251; in California, 
245; Michigan, 281; Florida is 55 dollars; and New Hampshire, 
which we border, 63.
    Why are our costs so much higher than others? Because we 
provide significant benefits. The most generous benefits in the 
country. In fact, we're the first state to offer family health 
care to those folks who are unemployed and are collecting 
benefits through the unemployment insurance trust fund.
    So we're proof. If you provide more benefits, it equals 
higher rates and then there's less investment in the economy. 
There's no better case to show that and to prove that than 
Massachusetts.
    If I could, I just want to conclude with one final comment. 
In order to establish both the workforce training fund and the 
health care program, family health care program that I talked 
about, employers in both instances in Massachusetts were 
required to pay separate new taxes. They pay a separate fee, a 
flat rate contribution in addition to their UI taxes in order 
to fund the worker training program and there is another 
separate employer contribution in addition to those in order to 
provide health care benefits.
    That tells me that we need to have Congressional action if 
we're going to move forward and that the rulemaking process is 
simply a means of expediting something that is going to be very 
detrimental to our members, their employees, and our 
communities.
    So with that said, this initiative, this experiment is not 
a test we should fail, it's not a test we should take, and, in 
fact, it's inappropriate, too costly, and potentially divisive, 
as it may pit neighbor against neighbor looking for benefits in 
north central Massachusetts.
    So I urge you to do whatever you can and, Madam 
Chairperson, if I could, I would absolutely love to adopt you 
and bring you to Massachusetts as one of our Congressmen, from 
your comments today.
    [The prepared statement follows:]

Statement of Todd L. Shimkus, Vice President, North Central 
Massachusetts Chamber of Commerce and U.S. Chamber of Commerce

                            I. Introduction

    Chairperson Johnson and Members of the Subcommittee, thank 
you for your kind invitation. I am pleased and honored to be 
here to testify on behalf of the U.S. Chamber of Commerce and 
the North Central Massachusetts Chamber of Commerce, where I am 
the Vice President. The U.S. Chamber of Commerce is a business 
federation representing more than three million businesses and 
organizations of every size, sector and region. In fact, our 
regional chamber of commerce, which has 1,500 businesses who 
employ in excess of 25,000 people in 14 local communities, is 
one of those regional organizations.
    As a representative of employers in the Commonwealth of 
Massachusetts, a State considered by proponents and opponents 
alike as one of the most likely testing centers for this 
``experiment,'' I am here today to emphatically state our 
opposition to the BAA-UC initiative to divert unemployment 
compensation funds to employees on parental leave because it is 
unsound public policy. At the same time, we are convinced that 
the rulemaking process being used to enact this ``experiment,'' 
as the Department of Labor has called this initiative (64 Fed. 
Reg. 67974), is entirely inappropriate and unlawful. In 
particular, we find this ``experiment'' to be too costly, 
potentially divisive within communities, and a threat to 
jobless workers and employers who have been protected by law 
and the actions of the Congress for the past 65 years.

             II. BAA-UC: An Unwise Social Policy Experiment

    In 1998, our regional Chamber was the only business 
organization in Massachusetts to support an initiative calling 
for the bifurcation of our state's unemployment insurance trust 
fund in order to provide a limited amount of dollars, $18 
million annually, for incumbent worker training. In fact, it 
was our Chamber's Plastics Council that first suggested to 
State Senate President Birmingham, the bill's sponsor at a 
breakfast one year earlier, that such an initiative be 
launched.
    While some may suggest that this initiative itself 
demonstrates that states deserve wide latitude with respect to 
the use of their trust funds, I want you to understand that our 
regional chamber views the BAA-UC initiative in a far different 
light. Our support for the Massachusetts Workforce Training 
Fund was predicated on our belief that the best way to expand 
economic opportunity is through improving the skills of 
existing employees and their employer's aggregate innovation 
capacity. With 98 percent of all state training funds directed 
towards those on welfare or unemployed prior to 1999, we remain 
confident that our ability to expand economic opportunity in 
Massachusetts is being enhanced by this infusion of new public 
funds to encourage new private investment for incumbent worker 
training.
    The North Central Massachusetts Chamber's support for the 
Workforce Training Fund initiative was further predicated on 
our belief that these new private and public investments will 
protect the long-term solvency of the UI trust fund. In other 
words, improving the skills of existing employees will 
initially help their companies to succeed, grow and thrive, 
thereby, decreasing the potential that these companies will 
fail and need to involuntarily lay-off their employees. Should 
such innovation fail to prevent employees from being 
involuntarily laid-off, it is our expectation that the skills 
these employees acquired through this investment in training 
will provide them with a new set of marketable employment 
qualifications so as to further reduce the amount of time they 
will need UI benefits.
    The BAA-UC experiment is not a reasonable or prudent 
corollary to this already successful initiative. While some 
proponents of BAA-UC may argue that paid FMLA benefits using UI 
trust funds is similar because it might improve employee morale 
or help a company to retain skilled employees, it fails to meet 
the second key component that gave our regional members the 
confidence to support the bifurcation of Massachusetts' UI 
trust funds. Specifically, the diversion of UI trust funds to 
provide paid family leave will not improve either the 
employment skills of those employees or the aggregate 
innovation capacity of their employers. Furthermore, this 
diversion of funds does not result in employee promotions or 
wage and benefit increases, as the successful completion of 
training programs often does. Nor will such a diversion of 
funds reduce the amount of time UI benefits will need to be 
paid to an employee facing an involuntary lay-off.
    To make matters much worse, this experiment will cost a 
great deal more than its proponents have calculated. According 
to the Massachusetts Division of Employment and Training, 
implementing the BAA-UC experiment in our state will divert at 
least $200 million, about seven times as much as the DOL 
estimates, in unemployment benefits from those who are 
involuntarily laid-off to provide employees (regardless of 
income) with partial wage replacement while they take leave 
following the birth or adoption of a child.
    With respect to the real cost of BAA-UC, I want to 
emphasize that this experiment is too expensive even in these 
``good'' times. As those of us on the front lines of community 
economic development understand, while the technology sector 
may be booming and the Internet is creating new opportunities 
never before dreamed possible, our more mature industries 
continue to face significant challenges. From traditional 
manufacturers to downtown retail stores, our local business 
environment and community in general is at a crossroads. While 
the stock market may continue to soar, it is these small 
employers, the ones who are an integral part of our region's 
quality of life, who are in harms way as the economy ``as we 
know it'' transforms.
    In this environment, it is clearly rational for employers 
and business organizations, such as the U. S. Chamber and our 
regional Chamber, to both oppose the BAA-UC experiment and to 
support UI tax rate reductions. On the one hand, the $1.8 
billion balance in our state's trust fund is sufficient to 
provide some support to these traditional employers by allowing 
for a $90 million tax reduction effective January 1, 2001. At 
the same time, the $200 million annual cost of diverting UI 
funds for a new social experiment far outweighs the benefits to 
these small to mid-size employers and their employees.
    What troubles us even more is that the BAA-UC experiment, 
if it does dramatically reduce UI trust funds in states like 
Massachusetts, will end up placing out-of-work Americans in 
direct competition for UI benefits with their more economically 
secure neighbors who have jobs and want the benefit of partial 
wage replacement while they take voluntary leave. There is an 
old saying: ``If it ain't broke, don't fix it.'' Well, we have 
65 years of proof that, while not perfect, the Unemployment 
Compensation system works. The BAA-UC experiment is entirely 
inconsistent with this 65 years of experience. The BAA-UC 
experiment is too costly, has great potential to be divisive 
and is a real threat to the economic well being of employees 
and employers. Therefore, the diversion of UI trust funds to 
pay employees on parental leave is unsound public policy.

   III. BAA-UC: The Rulemaking Process is Unlawful and Inappropriate

    Before I cite the numerous legal principles circumvented by 
the BAA-UC experiment, I feel compelled to offer my sincere 
gratitude to Chairperson Johnson and the Subcommittee for the 
opportunity to voice our members' concerns in a public forum. 
It is important to note that the use of the rulemaking process 
has precluded Congressional deliberation on this important 
issue. Furthermore, the repeated calls from numerous 
organizations both inside and outside of the Beltway for field 
hearings has been ignored by the Department of Labor. Noting 
the potential cost and divisive consequences of this 
experiment, the use of the rulemaking process is inappropriate 
because of the lack of public deliberation and debate in those 
regions of the country, like North Central Massachusetts, where 
because of unique community economic circumstances, this 
experiment may do far more harm than good!
    The Federal Unemployment Tax Act, 26 U.S.C. Sec. 3301 et 
seq.(FUTA), requires state programs to satisfy certain minimum 
criteria. One of the fundamental requirements imposed by 
federal law is that money made available through this system be 
used solely for the payment of ``unemployment compensation.'' 
FUTA, 26 U.S.C. Sec. 3304(a). Under these circumstances, the 
term ``unemployment'' has acquired a well-established and 
understood meaning which requires that all unemployment 
compensation claimants be (1) without a job; (2) able and 
available to work; and (3) unemployed involuntarily, (which 
normally includes the requirement that claimants be actively 
seeking work).
    The proposed regulations cannot be reconciled with these 
requirements. BAA-UC explicitly proposes to provide payments of 
unemployment compensation to employees who have jobs but are 
simply taking temporary parental leave, who are not available 
for work and who left their jobs voluntarily but are not 
seeking work. This regulation effectively strips 
``unemployment'' from unemployment compensation. The 
legislative intent here is clear--Congress has not delegated 
the authority to the Department of Labor to carve out 
exceptions to the fundamental requirements of joblessness, 
availability, and involuntariness imposed on state UC programs, 
where those exceptions are directly contrary to Federal 
unemployment compensation law.
    The proposed regulations boldly acknowledge that BAA-UC is 
designed to ``provide partial wage replacement to mothers and 
fathers on leave following the birth or adoption of a child'' 
(64 Fed. Reg. 67972). As the U.S. Chamber of Commerce 
established in its written comments opposing BAA-UC, submitted 
to the Department of Labor on February 2, 2000,* this objective 
is wholly incompatible with the purpose of unemployment 
compensation, and the requirements of joblessness, 
availability, and involuntariness which are intended to prevent 
the diversion of UC funds for other governmental experiments 
and purposes. Moreover, this frank admission of intent 
demonstrates that the BAA-UC stands as a direct challenge to 
Congressional judgment and intent.
    Thus, in enacting the Family and Medical Leave Act of 1993, 
Congress considered whether family leave should be paid or 
unpaid and expressly provided that, as regulated by the Federal 
government, the right to leave ``because of the birth of a son 
or daughter'' (29 U.S.C.Sec. 2612 (a)(1)(A)) should be unpaid 
(29 U.S.C. Sec. 2612(c)(d)). Accordingly, the BAA-UC, which 
authorizes states to pay parents on parental leave out of 
unemployment compensation funds, is an impermissible attempt to 
make an end-run around the considered judgment and authority of 
Congress.
    Lastly, our regional Chamber understands from experience 
just how limiting the existing Federal law can be with respect 
to Unemployment Compensation. As I mentioned earlier, we 
supported the use of a limited amount of the UI trust fund 
balance for worker training. Yet, Federal law did NOT allow 
Massachusetts to simply divert funds for even this directly 
work-related purpose. In order to establish the Massachusetts' 
Workforce Training Fund, the legislation we supported 
established a new surcharge on employer UI taxes. This 
surcharge, in fact, provided the $18 million that is annually 
placed into a separate fund for the training purposes set forth 
in the state legislation.
    With this in mind, we are confident that, based on law and 
our own experience, the Department of Labor's use of the 
rulemaking process in this case is both inappropriate and 
unlawful. By using the rulemaking process to implement the BAA-
UC experiment, the Department of Labor is seeking to circumvent 
both Congressional intent and a full public debate on the 
merits and costs of this experiment. Moreover, the BAA-UC 
experiment ignores a volume of evidence which suggests that 
such a diversion of funds may jeopardize the ``security 
blanket'' for the unemployed and pit the unemployed against 
their more fortunate neighbors who have a job but voluntarily 
choose to take parental leave.

                             IV. Conclusion

    For the foregoing reasons, the U.S. Chamber of Commerce and 
the North Central Massachusetts Chamber of Commerce strongly 
oppose the BAA-UC initiative and urge the Congress to take all 
appropriate action to protect employees and employers from the 
implementation of this costly, divisive and inappropriately 
implemented ``experiment.''
    *Excerpts from the Comments of the U.S. Chamber of Commerce 
are attached hereto as Exhibit #1 (Exhibit 1)

U.S. Chamber of Commerce

[Excerpts from letter to Grace Kilbane, Director of 
Unemployment Insurance Service, U.S. Department of Labor, from 
U.S. Chamber of Commerce, February 2, 2000]

Re: Proposed Regulations on Birth and Adoption Unemployment 
Compensation

    The U.S. Chamber of Commerce (the Chamber) submits the 
following comments in opposition to the Department of Labor's 
(DOL) proposed regulation on Birth and Adoption Unemployment 
Compensation (BAA-UC) published in the Federal Register at 64 
Fed. Reg. 67972 et seq. on December 3, 1999.

                         Statement of Interest

    The Chamber is the world's largest business federation, 
representing more than three million businesses and 
organizations of every size, sector, and region, with 
substantial membership in all 50 states. The BAA-UC rule 
authorizes states to divert unemployment compensation funds to 
parents, for up to 12 to 26 weeks or more, who voluntarily take 
leave from work or quit their jobs in order to be with a 
newborn or newly adopted child. This proposal will have a 
substantial, detrimental impact on our members, who will be 
forced to pay for BAA-UC benefits through higher payroll taxes.

                         Reasons Why the BAA-UC

                   Proposed Rule Should be Withdrawn

    It is both unlawful and bad public policy to divert 
unemployment compensation (UC) funds to employees on parental 
leave. Federal law has protected jobless workers and employers 
for over 65 years by assuring that state unemployment trust 
funds are used for the sole purpose of paying unemployment 
compensation. DOL's proposed regulation will change the 
fundamental purpose and nature of the UC program, the safety 
net for jobless workers, by allowing the expenditure of state 
unemployment trust funds for the entirely unrelated purpose of 
compensating employed workers who take parental leave. Their 
proposal to convert parental leave to paid status using UC 
funds also contravenes Congressional judgement, expressed in 
the Family and Medical Leave Act, that such leave be unpaid. In 
addition, BAA-UC undermines the stability of the unemployment 
compensation system by imposing staggering new liabilities of 
up to $36 billion or more per year on a fragile, under-funded 
unemployment compensation system.

 I. Federal Unemployment Compensation Law Precludes DOL's Adoption of 
                  the Proposed BAA-UC Regulations \1\

    Unemployment insurance in each of the 50 states is provided 
through a cooperative federal-state arrangement in which a 
federally-collected tax is used to finance state UC programs 
that meet federal requirements. Although federal law allows 
states wide latitude in the administration of the unemployment 
compensation system, it does prohibit states from ``depart[ing] 
from those standards which, in the judgement of Congress, are 
to be ranked as fundamental.'' Steward Machine Co. v. Davis, 
301 U.S. 548, 594 (1937). Thus, the Federal Unemployment Tax 
Act, 26 U.S.C. Sec. Sec.  3301 et seq. (FUTA), requires state 
programs to satisfy certain minimum criteria ``designed to give 
assurance that the state unemployment compensation law shall be 
one in substance as well as name.'' 301 U.S. at 575.
---------------------------------------------------------------------------
    \1\ A fuller development of this position is found in the comments 
filed by LPA, Inc., which the Chamber hereby adopts and incorporates 
herein.
---------------------------------------------------------------------------
    One of the fundamental requirements imposed by federal law 
is that money made available through this system be used solely 
for the payment of ``unemployment compensation.'' FUTA, 26 
U.S.C. Sec.  3304 (a). This principle is so deeply embedded in 
the federal-state relationship that Federal law prohibits the 
use of state trust funds even for the directly related purpose 
of financing the administrative cost of providing unemployment 
benefits. Under these circumstances, the term ``unemployment'' 
has acquired a well-established and understood meaning: namely, 
that all unemployment compensation claimants be (1) without a 
job; (2) able and available to work; and (3) unemployed 
involuntarily, which normally includes the requirement that 
claimants be actively seeking work.
    The proposed regulations cannot be reconciled with these 
requirements. BAA-UC explicitly proposes to provide payments of 
unemployment compensation to employees who have jobs but are 
simply taking temporary parental leave, who are not available 
for work and who left their jobs voluntarily but are not 
seeking work. Indeed, the Model State Legislation included in 
the Notice of Proposed Rulemaking would preclude the 
application of the joblessness, availability, and 
involuntariness requirements to BAA-UC claimants, thereby 
stripping ``unemployment'' from unemployment compensation. 
Moreover, DOL's prior treatment of areas such as temporary 
layoffs, illness, jury duty, and training do not provide any 
justification for its attempt in the proposed regulation to 
turn the unemployment requirement upside down. An agency's 
authority to interpret the statute it administers is not 
unlimited. It does not permit any agency to ``disregard 
legislative direction in the statutory scheme(s) that the 
agency administers.'' Heckler v. Chaney, 470 U.S. 821 833 
(1985). Moreover, where ``Congress has directly spoken to the 
precise question at issue. . ., that is the end of the matter; 
for the court, as well as the agency, must give effect to the 
unambiguously expressed intent of Congress.'' Chevron v. 
Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984) 
(fn. omitted). The legislative intent here is clear--Congress 
has not delegated the authority to the DOL to carve out 
exceptions to the fundamental requirements of joblessness, 
availability, and involuntariness imposed on state UC programs, 
where those exceptions are antithetical to Federal unemployment 
compensation law.
    Far from attempting the impossible--reconciling the 
regulation with the joblessness, availability, and 
involuntariness requirements--the proposed rule effectively 
acknowledges that the BAA-UC does not satisfy these 
requirements. Thus, the Model State Legislation accompanying 
the BAA-UC provides that individuals on birth or adoption leave 
shall not be denied unemployment compensation based upon the 
``availability of work,'' the ``inability to work,'' or the 
``failure to actively seek work.'' 64 Fed. Reg. 67977. Such 
state legislation is necessary because the proposed payment of 
unemployment compensation to individuals on birth and adoption 
leave conflicts with all three aspects of unemployment.

       A. The BAA-UC is Incompatible with the Jobless Requirement

    In construing a statute, a Federal agency normally 
``'look(s) first to its language,'. . . 'giving the words used 
their ordinary meaning.''' Moskal v. U .S., 498 U.S. 103, 108 
(1990), quoting U.S. v. Turkette, 452 U.S. 576, 580 (1981); 
Richards v. U.S., 369 U.S. 1, 9 (1962). In ordinary, everyday 
usage, the term ``unemployment'' indicates a state in which one 
is without a job. Thus, it is clear that, when FUTA refers to 
``unemployment compensation,'' it is referring to persons who 
are without a job.
    A parent on BAA-UC leave has a job at the outset of the 
leave and is guaranteed to have a job at its conclusion. The 
proposed regulations authorize states to pay unemployment 
compensation to ``parents on approved leave.'' Approved leave 
is defined as a ``specific period of time, agreed to by both 
the employee and the employer, during which an employee is 
temporarily separated from employment after which the employee 
will return to work for that employer.'' 64 Fed. Reg. 67976-77. 
Thus, the proposed regulations contemplate payment of 
unemployment compensation to persons who ``will return to the 
last employer after a designated period.'' 64 Fed. Reg. 67975.
    Such a payment cannot be reconciled with the requirement 
that the unemployment funds be ``used solely in the payment of 
unemployment compensation.'' FUTA 26 U.S.C. Sec.  3304 (a)(4). 
Persons who are temporarily absent from their employment are 
not jobless and, hence, are not ``unemployed.'' Employees 
routinely take time off from their employment for vacations, 
jury duty, illness, and family matters. These individuals are 
not without a job and, therefore, are not eligible to receive 
unemployment compensation. The proposed regulations cite no 
authority for the proposition that parents or other persons who 
take approved leave are ``unemployed.'' Indeed, to characterize 
such persons as unemployed would mean that all individuals who 
are absent from work for any reason are unemployed as well.
    The DOL notes that unemployment compensation has been paid 
to persons who are ``temporarily laid off'' because of lack of 
work and who have an expectation that they will be rehired. See 
64 Fed. Reg. 67973. However, those on temporary layoff, do not 
have a job. At best, such persons have an expectation, and in 
some cases, a contractual right, to a job if work becomes 
available in the future. Teachers during the months between 
school years, and athletes in the off-season are in a position 
more analogous to individuals taking birth or adoption leave. 
They have a job but are simply not working for a period. FUTA, 
however, specifically bars teachers and athletes in such 
circumstances from claiming unemployment. See 26 U.S.C. 
Sec. Sec. 3304(a)(6)(A), 3304(a)(13). Thus, these situations 
offer no indication that Congress wished to provide 
unemployment compensation to persons who have jobs but take 
temporary leave from them for personal reasons.

     B. The BAA-UC is Incompatible with the ``Able and Available'' 
                              Requirement

    Joblessness alone does not capture all aspects of the 
status of ``unemployment'' under FUTA. As the proposed 
regulations acknowledge, one well-recognized aspect of the 
status of unemployment under FUTA is the requirement that a 
person be ``able and available'' for employment. See 64 Fed. 
Reg. 67972. Thus, the status of ``unemployment'' implies not 
only that a person is out of work but also that the individual 
is available for work (except for temporary illness). It is 
also implicit in the requirement that persons who are 
``unemployed'' actively seek work.
    The able-and-available requirement is reflected in other 
FUTA provisions as well. For example, FUTA Section 3304(a)(8) 
prohibits states from denying compensation to otherwise 
eligible individuals who are participating in a state-approved 
training program. See 26 U.S.C. Sec.  3304(a)(8). This 
provision states that compensation shall not be denied 
``because of the application, to any such week in training, of 
state law provisions relating to availability for work. . .or 
refusal to accept work.'' Id. Obviously, this exemption assumes 
the existence of an availability requirement because, without 
such a requirement, there would be no need for an exemption.
    FUTA also requires that unemployment compensation be ``paid 
through public employment offices.'' FUTA, 26 U.S.C. Sec.  
3304(a)(1). As the purpose of such offices is to find people 
jobs, this provision ties the payment of unemployment 
compensation to that individual's availability for work. See 64 
Fed. Reg. 67972. Thus, the statutory context confirms that, for 
purposes of FUTA, the availability of an individual for work is 
an integral part of the status of unemployment.
    The cornerstone to ensuring that UC trust funds will only 
be paid to those involuntarily unemployed, but seeking new 
employment, is the well-established requirement that recipients 
be available for work. Clearly, employees voluntarily taking 
parental leave are not available, fail to satisfy the second 
requirement for unemployment, and, therefore, should be barred 
from receiving UC benefits. Given the decision of a parent to 
leave work and devote time to a newborn or newly adopted child, 
the parent is clearly not available for work during the leave 
period. The parental leave proposal acknowledges as much by 
noting that BAA-UC claimants are parents who ``wish to take 
approved leave'' and by including in the definition of 
``approved leave'' the fact that claimants are ``temporarily 
separated from employment.'' 64 Fed. Reg. 67972, 67974 
(emphasis added). It is also telling that the proposed 
regulations do not require BAA-UC claimants to register with 
the public employment offices. Thus, the proposed regulations 
clearly conflict with the requirement that unemployment 
compensation claimants be ``available'' for work and remain 
attached to the labor force in accordance with the fundamental 
purposes of the UC statutes.

   C.The BAA-UC is Incompatible with the Involuntariness Requirement

    The final requirement of the tripartite rule governing the 
status of ``unemployment'' is involuntariness, which is the 
requirement that an individual be seeking work. Most 
unemployment compensation laws also disqualify individuals from 
receiving unemployment benefits when they leave their 
employment voluntarily without good cause attributable to their 
work. See, e.g., Wimberly v. Lab. and Indus. Rel. Comm'n of 
Missouri, 479 U.S. 511, 515 (1987) (Employee who left her job 
due to pregnancy properly denied UC benefits). This aspect of 
the status of unemployment reflects common usage. The context 
in which the term unemployment appears in FUTA makes it clear 
that the term is being used in this involuntary sense. For 
example, as noted above, FUTA requires unemployment 
compensation to be paid through public employment offices. As 
the proposed rule recognizes, because the purpose of such 
offices is to find people jobs, this requirement ``ties the 
payment of UC to an individual's search for employment.'' The 
provision prohibiting states from denying compensation to 
otherwise eligible individuals involved in job training 
programs because of state law provisions ``relating to. . 
.active search for work'' further illustrates the linkage 
between the UC payments and the pursuit of employment. FUTA, 26 
U.S.C. Sec.  3304(a)(8). Just as the exemption for provisions 
relating to availability for work indicated that 
``availability'' is an aspect of unemployment under FUTA, the 
exemption for provisions relating to the active search for work 
confirms that involuntariness is an aspect as well.
    Individuals who exercise the option to elect a temporary 
parental leave from their existing jobs are not 
``involuntarily'' out of work. Hence, employees on parental 
leave fail to meet the third eligibility criteria as well. The 
proposed regulations establish that, since the employee will 
return to employment at the end of the leave, the employee will 
not actively be seeking new or other work during the leave 
period. See 64 Fed. Reg. 67975 (``The term `leave' implies that 
the individual will return to the last employer after a 
designated period.''). Finally, the comments to the proposed 
Model State Legislation underscore this fact by providing that 
BAA-UC recipients ``cannot meet the systemic and sustained work 
search requirement'' relating to the 1970 amendments to FUTA. 
64 Fed. Reg. 67979.

  II. The Proposed Regulations Impermissibly Undermine Congressional 
          Intent Embodied in the Family and Medical Leave Act

    The proposed regulations boldly acknowledge that BAA-UC is 
designed to ``provide partial wage replacement to mothers and 
fathers on leave following the birth or adoption of a child.'' 
64 Fed. Reg. 67972; see also, commentary on Model State 
Legislation, 64 Fed. Reg. 67978. As the Chamber established 
above, this objective is wholly incompatible with the purpose 
of unemployment compensation and the requirements of 
joblessness, availability, and involuntariness which are 
intended to prevent the diversion of UC funds to other 
governmental purposes. Moreover, this frank admission of intent 
to use UC funds to pay for parental leave demonstrates that the 
proposed regulation is a direct challenge to Congressional 
judgement and intent. Thus, in enacting the Family and Medical 
Leave Act of 1993, 29 U.S.C. Sec.  2601 et. seq. (FMLA), 
Congress considered whether family leave should be paid or 
unpaid and expressly provided that, as regulated by the Federal 
government, the right to leave ``because of the birth of a son 
or daughter'' (29 U.S.C. Sec.  2612(a)(1)(A)), should be 
unpaid. 29 U.S.C. Sec.  2612(c)(d). Accordingly, the BAA-UC, 
which authorizes states to pay parents on parental leave out of 
unemployment compensation funds, is an impermissible attempt to 
make an end-run around the considered judgement and authority 
of Congress.

III. The Proposed Regulations Undermine the Stability of the UC System 
  and Jeopardize the Security of the Unemployed who Rely Upon the UC 
                               Safety Net

    The BAA-UC proposal also jeopardizes the stability of the 
UC system. In the last recession, more than 25 states depleted 
their UC reserves and had to borrow from the federal 
government. DOL's own statistics show that if another similar 
recession hits, states will need to borrow an additional $25 
billion. In spite of this, DOL now advocates (through the 
proposed regulations) that states expand access to UC, a policy 
which is at cross-purposes with DOL's solvency objective and 
its goal of expanded access to legitimate UC claims.
    By DOL standards, the trust funds of some 20 states are 
currently under-funded, and the combined funds of all states 
fail to satisfy DOL's solvency rating. UI Data Summary, 
Unemployment Insurance Service, U.S. Department of Labor, June 
1999 (Data Summary). The proposed rule would exacerbate this 
serious problem by piggy-backing parental leave benefits on a 
financially precarious UC system.
    The potential costs of parental leave benefits are not 
inconsequential. Contrary to DOL's maximum estimated cost of 
$68 million for BAA-UC implementation, it cannot be assumed 
that only a few states will adopt the proposed regulation. All 
50 states are invited to embrace these regulations providing 
paid parental leave from UC funds, and the possibility that all 
50 states will adopt the proposed regulation must be considered 
in determining the potential negative financial impact on the 
UC system. On this premise, and given the average benefit per 
claimant of $200 per week (Data Summary, September 1999), a 12-
week benefit pay out as contemplated by the Model State 
Legislation (64 Fed. Reg. 67977), experience rating and other 
factors costing 25 percent or some $600 per claim, and DOL's 
projection of 6 million potential new claimants each year, the 
drain on the nation-wide UC system could be $18 billion per 
year. This amounts to about 60% of the regular benefits paid to 
truly unemployed workers in 1999. Moreover, since states are 
free to establish the length of the benefit period under the 
proposed regulation, it seems likely that all or many would 
treat unemployed claimants and BAA-UC claimants the same and 
provide payments to both for 26 weeks. This could increase the 
cost of BAA-UC claims to $36 billion and consume 80% of current 
UC reserves. Moreover, this $36 billion is nearly twice the 
annual revenue flowing into the state UC trust funds. Under 
these circumstances, UC trust funds would be quickly drained 
unless substantial new taxes were imposed on business.
    Without question, the magnitude of increased taxes required 
to satisfy both unemployment and parental leave claims, 
particularly in the context of a future recession with an 
increase of 200-300 percent in unemployed claimants, would 
place an unconscionable burden on all employers and, 
particularly, small businesses. Rather than further burdening 
employers with new payroll taxes, Federal and state governments 
should be easing taxes on business and encouraging the building 
of reserves for periods of economic hardship. Alternatively, in 
the absence of overbearing tax increases, payments to BAA-UC 
claimants are likely to dissipate UC funds beyond the minimum 
necessary to pay the claims of those unemployed but available 
for work--those for whom these benefits were created and 
intended. Both alternatives are unsatisfactory.
    Finally, small business is likely to be disproportionately 
impacted by diversion of UC funds to those on parental leave, 
regardless of whether or to what extent new taxes are imposed. 
Since the proposed regulation deals only with the payment of UC 
funds to employees on BAA-UC leave, and not with the right to 
take leave in the first place, most employees are expected to 
establish their right to leave under the FMLA. The DOL clearly 
contemplated this as well in fashioning Model State Legislation 
based upon a leave period of 12 weeks. Compare 29 U.S.C. Sec.  
2612(a)(1) with 64 Fed. Reg. 67977. However, the FMLA only 
covers employees of businesses with 50 or more workers. 29 
U.S.C. Sec.  2611(4)(A)(i). For this reason, employees of small 
businesses are far less likely to secure parental leave; hence, 
the UC contributions of small employers applied to BAA-UC will 
be disproportionately diverted to employees of larger companies 
rather than evenly distributed without regard for employer 
size. This disparate impact in the application of UC funds 
under the BAA-UC is blatantly unfair to small business and 
constitutes equitable grounds for withdrawing the proposed 
regulation.

                               Conclusion

    It is hardly coincidental that in the 65 years since the 
unemployment compensation system was adopted, stringent 
requirements have developed to govern qualification for UC 
benefits. Strict limitations on the use of unemployment trust 
funds is necessary to counter political pressure to use these 
funds for other governmental purposes. Those limitations 
embodied in FUTA require claimants to satisfy the following 
criteria: (1)be without a job; (2) be able to and available for 
work; and (3) be involuntarily unemployed.
    The BAA-UC satisfies none of these FUTA-required criteria. 
Thus, a claimant on parental leave (1) has a job guaranteed by 
law, contract, or through arrangement with the employer; (2) is 
on leave from the job, not out of a job and searching for other 
employment; and (3) is temporarily away from the job by choice, 
rather than by direction of the employer. Hence, it should be 
beyond dispute that paid parental leave does not qualify as 
unemployment within the meaning of FUTA and related laws and 
decisions.
    Moreover, the BAA-UC oversteps permissible bounds by 
attempting to create paid leave for parents of newborns and 
newly adopted children in the face of Congress' determination 
under the Family and Medical Leave Act to limit parental leave 
to unpaid leave.
    In addition, the BAA-UC proposal undermines the stability 
of the unemployment compensation system and jeopardizes the UC 
safety net for jobless workers by imposing potentially 
staggering new liabilities upon a fragile, under-funded 
unemployment compensation system.
    Finally, the timing of the BAA-UC, and time frame for 
comments thereon, necessarily discouraged public responses at 
the state, local, and Congressional levels. The initial 45-day 
comment period from December 3, 1999 to January 18, 2000 fell 
within a Congressional adjournment, and the period was too 
short--particularly in view of the intervening holidays--to 
permit meaningful grassroots comment. The subsequent 15-day 
extension did not cure these defects. Hence, a further 
extension should be granted to allow hearings at several 
locations throughout the country in order to ensure that state 
and local officials, individual employees, and employers have 
an adequate opportunity to comment on the proposed regulation.

                           Request for Relief

    For all of the reasons discussed above, the proposed BAA-UC 
regulation is contrary to law, represents unsound public 
policy, and should be withdrawn. Due to the abbreviated comment 
period, the Chamber requests that hearings in several diverse 
locations be held to permit greater participation in the BAA-UC 
process at state and local levels, and the Chamber reserves the 
right to supplement these comments at a later date if 
additional relevant information comes to our attention.
    Respectfully submitted,
    U.S. CHAMBER OF COMMERCE

      

                                

    Chairperson Johnson. Thank you. Mr. Wheatley.

STATEMENT OF JACK F. WHEATLEY, DIRECTOR, MICHIGAN UNEMPLOYMENT 
                             AGENCY

    Mr. Wheatley. Thank you, Madam Chairman and members of the 
committee. I'm Jack Wheatley. I'm Director of the Michigan 
Unemployment Agency.
    We are the unemployment insurance people in Michigan. That 
is our one and only function. We administer the Michigan 
unemployment insurance system.
    Let me say right up front that we oppose this rule. This is 
contrary to the fundamental concept of unemployment insurance 
as established by our legislature and the Congress in the 
Social Security Act. That is, to receive benefits, one must be 
connected to the labor market, must be out of work through no 
fault of the employee's own, and able and available to work.
    I should not be interpreted as opposing the idea of helping 
families. I think we're all for that. It's just it should not 
be funded from the unemployment insurance act. If it's 
something that should be adopted, it should be debated fully by 
the Congress and by state legislatures, but first by the 
Congress.
    As mentioned before, Michigan has an interesting economy. 
Although we have diversified a great deal in Michigan, I'd like 
to brag that we have been, for three years straight, the number 
one recipient of the new business development award from Site 
Selection Magazine. We still have a large manufacturing 
component to our economy and still largely dependent, to some 
degree, on the automobile industry.
    So turn-downs hit us harder in Michigan. That's been a fact 
of the past and we're not passed that yet. More about that 
later on.
    Again, Michigan lawmakers and Congress designed and 
intended the unemployment insurance program to be funded by 
employers to protect men and women who are out of work through 
no fault of their own. By the very nature, as stated here 
before, participants in the Family Leave Act are choosing not 
to work. They are not involuntarily laid off.
    The integrity of the trust fund must be protected and must 
be available when needed to pay benefits to men and women who 
are involuntarily laid off and already suffering the stress of 
being out of work.
    This proposal, again, as good as they are, as laudable as 
this proposal and there's a lot of good ideas out there, I can 
enumerate others if you want, they are not worth putting our 
trust fund at risk when it's needed to serve men and women who 
are out of work.
    Again, we've made excellent progress in diversifying our 
economy in Michigan, but during the '80s and '90s, we had to 
borrow, as noted before, over 2.6 billion from the Federal 
Government to pay benefits to men and women who were laid off 
and out of work because they chose--involuntarily.
    Chairperson Johnson. Is that 2.6 million?
    Mr. Wheatley. Billion. We had to pay that back--that is, 
our employers had to pay it back when we assessed a surcharge 
on them. As indicated before, fortunately, we've had good 
economic times, we've paid off that debt. Our trust fund now is 
2.7 billion dollars, very healthy, and we want to keep it that 
way so that we can serve men and women who are laid off.
    It's hard to really estimate what the cost of this program, 
if adopted, and we have no intention of adopting it, would cost 
Michigan. Of the 130,000 new births in Michigan last year, 
1999, if 25 percent of those new parents took advantage of the 
rule, it would cost Michigan employers an additional 190 
million dollars, at least our trust fund, 190 million dollars. 
If 75 percent of those people, if they took advantage, that 
would be up to 570 million dollars.
    This is considerably contrasted, the original estimates of 
DOL was two to 68 million for the whole country. I don't know 
what their new estimates are.
    Speaking of our Federal partner, Department of Labor seems 
to be moving in a different direction, at least they're sending 
us in a different direction. They have initiatives right now 
that urges states to increase the solvency of their trust fund, 
despite the fact that we're at an all time high, 2.7, they want 
us to increase it up to over four billion dollars.
    They also want us to increase eligibility to cover part-
time workers, they want to mandate that. They want to mandate 
that the trigger be lowered to trigger the benefits in excess 
of 26 weeks that are currently there.
    These alone, without any Family Leave Act proposal, would 
seem to lead us to only one conclusion--we might have to 
increase taxes for our employers, and I don't think that's a 
good idea. I think they need the money to expand jobs, to pay 
higher wages and their benefits, and make their own decisions.
    Again, the integrity of our trust fund is important. Under 
Michigan law, our employers, for the most part, are experience 
rated. That is, they can control the cost of their UI taxes, to 
an extent, by minimizing their layoffs. A proposal like this 
would impact and decrease their ability to handle their own 
taxes.
    Let me close on a personal note. My family experience or 
history in Michigan is probably similar to many. My father was 
a UAW worker for 30 years at General Motors Corporation. My 
brother and I were attorneys for GM for a number of years.
    But we do remember how important UI benefits were to our 
family during these economic turn-downs in the auto industry in 
the '50s and '60s. Again, this trust fund and the integrity of 
this trust fund to pay benefits to people who are out of work 
through no fault of their own and not because they choose not 
to work is too important an issue to be decided by this rule 
without being debated by this Congress.
    I see it as a serious breach of faith between our employers 
or the commitment we have made to our employers and the working 
men in the State of Michigan.
    Thank you.
    [The prepared statement follows:]

Statement of Jack F. Wheatley, Director, Michigan Unemployment Agency

    Madame Chair and Members of the Subcommittee on Human 
Resources, I am Jack F. Wheatley, Director of the Michigan 
Unemployment Agency and a member of the Board of Directors for 
the Interstate Conference on Employment Security Agencies. 
Thank you for inviting me to testify today on behalf of the 
Michigan Unemployment Agency concerning the proposed 
regulations involving the Birth and Adoption Unemployment 
Compensation. I would like to commend the Chair for both the 
important hearing that occurred last week on the proposals to 
improve the administration of the national Employment Security 
system as well as the hearing today on the proposed regulatory 
action initiated by the U.S. Department of Labor.
    The Unemployment Insurance program has been a critical 
program for the State of Michigan and we have a keen interest 
in assuring that it continues to provide adequate wage 
replacement whenever individuals become unemployed through no 
fault of their own. Michigan has relied on the Unemployment 
Insurance system to stabilize our economy through the horrific 
recessions in the late 50's and during the back-to-back 
recessions of the mid-70's and early 80's. As some of you may 
remember, between the years 1980 and 1983, Michigan's 
unemployment trust fund was required to borrow $2.6 billion 
when unemployment rates hit 17%. During that time, hundreds of 
thousands of Michigan residents collected benefits that carried 
them through the difficult times that Michigan experienced.
    The good news is that because of diversification and 
sustained economic recovery, the economy is thriving, workers 
are reemployed, Michigan employers have fully repaid all 
outstanding loans and have accumulated a $2.7 billion positive 
reserve to guard against future recessions. Unfortunately, now 
comes some bad news, which in some ways could threaten the 
reserves that we've been able to build. Worse, the proposal 
that you're holding hearings on today, in my opinion, 
potentially will totally undermine the integrity of the program 
that has served Michigan so well during periods of prolonged 
economic downturn.
    It is important to indicate at the onset, that my comments 
should not be perceived as opposition to the concept, or the 
policy debate, of providing a means for individuals to address 
the needs of their families. No doubt we have all experienced 
situations in which, for the good of the family, it is 
necessary to put work aside and take some time off. I'm not 
questioning the importance of doing that. Rather, as the 
administrator of Michigan's Unemployment Insurance system, I 
have significant concerns about the impact of the proposed 
reinterpretation of federal eligibility criteria on the 
integrity of the federal/state Unemployment Insurance program.
    My first concern is that the proposed program, while 
voluntary in nature, is a serious departure from the intended 
purpose of the Unemployment Insurance program. Over the history 
of the Unemployment Insurance program, employers have been 
consistently told that the taxes that are collected both from 
the federal unemployment taxes and the state unemployment taxes 
will be used solely for purposes associated with paying 
benefits to individuals who are unemployed through no fault of 
their own. Since the late 1970's, however, this employer-funded 
program, has not lived up to the promises made.
    For example, a temporary 0.2% federal tax used to repay the 
costs of a federal benefit program has remained in effect even 
though the loan-which, was the reason for the tax-has been 
fully repaid. In spite of the surpluses that were being 
generated from the Federal Unemployment Tax Act (FUTA) 
revenues, states are not receiving the administrative grants 
that are needed to support the administrative costs of the UI 
program. Obviously, because there are sufficient tax revenues 
available, the problem is not a lack of resources. Rather, the 
problem is that the Administration does not request sufficient 
administrative funds to operate the system. This contributes to 
both the perception, and reality, that FUTA taxes are being 
used for other purposes.
    Speaking of our federal partner, the U.S. Department of 
Labor, it seems that they are pulling states in opposite 
directions on this issue. On one hand, they want states to 
increase the size of our Trust Funds even though the reserves 
are at record levels. On the other hand, the Department want 
states to increase eligibility levels, not only for good deeds 
such as this, but to mandate that states pay benefits to part-
time workers who are not available for full-time work, again 
something that is illegal under Michigan law. The U.S. 
Department of Labor also wants to lower the trigger levels for 
Extended Benefits. These proposals alone, not including the 
Family Leave proposal, would have only one result. That is, 
increased taxes for Michigan employers who would, I am sure, 
rather have the money to expand their businesses, hire more 
workers, pay higher wages, than paying taxes into a Trust Fund 
that is already at record levels.
    Employers are encouraged to maintain solvent state trust 
funds to guard against future downturns. Now comes a proposed 
use of state trust funds for purposes unrelated to the original 
intent of the program.
    You and I are stewards for the federal/state program. How 
do we face employers and suggest that an experimental program 
will be initiated to address family leave situations and that 
individuals will not have to be able and available to qualify 
for these special benefits? How does that change really relate 
to the insurance protection of a program whose sole purpose is 
to provide an income bridge for someone who involuntarily 
becomes unemployed? While many people may feel that it is a 
laudable goal to provide for parental leave, how does providing 
Birth and Adoption benefits become a responsibility of the 
Unemployment Insurance system? If the goal is to provide a 
social benefit to parents and their children, where will it 
end? Isn't it just as appropriate to provide benefits during 
leave time to care for a sick child, spouse or parent? That 
certainly strengthens the family. What about providing parental 
leave during the summer months, when children might be alone 
while they are on summer break? Isn't that also an important 
time to be with children and to strengthen family ties? These 
are all great ideas and the existence of the proposed wage 
replacement would certainly make it possible for more parents 
to be with their children and relatives. Even though this 
experimental program is voluntary, I believe the proposed 
changes seriously undermine the integrity of the Unemployment 
Insurance program.
    As you know, the rationale for the federal/state 
Unemployment Insurance program as enacted by the Social 
Security Act of 1935 was to alleviate the financial hardships 
of unemployment by providing temporary wage replacement of lost 
wages. Benefit entitlement was established only for those who 
were involuntarily unemployed and genuinely attached to the 
labor market.
    As proposed, this experimental program ignores the existing 
``able and available'' requirements of the system and weakens 
its ability to effectively determine a claimant's attachment to 
the labor force while benefits are being paid. Although the 
Department acknowledges that there have been some situations in 
the past when it interpreted exceptions to the ``able and 
available'' requirement, this is the first instance where the 
Department proposes to ignore (reinterpret) this requirement 
and allow a person who chooses to be unemployed to receive 
unemployment benefits.
    Consequently, the suggestion that the existing state 
balances be used in family leave situations abandons the 
fundamental concept that an individual must be attached to the 
labor market as a condition of receiving benefits. Such a 
proposal also brings into question why states should accumulate 
additional reserves if those balances are simply seen as a 
``cash cow'' to be used for unrelated purposes.
    This voluntary program would also present a unique problem 
for Michigan employers who strongly support our system of 
experience rating. In the unlikely event that the Michigan 
legislature was to endorse the proposed program, employers 
would lose the ability to control their costs (either through 
direct or socialized benefit charges). However, the potential 
costs on the state unemployment trust funds could be dramatic. 
For example, in 1998, 133,649 babies were born in Michigan. If 
25% of the parents avail themselves of these benefits, the 
costs would exceed $190 million per year (22% of our benefit 
expenditures last year). Those costs would skyrocket to $572 
million per year if 75% used these benefits (68% of Michigan's 
1999 payouts) and, $763 million per year (or, over 90% of our 
total payouts) if all parents used these benefits. (SEE 
ATTACHED CHART BELOW)
    The concepts inherent in the Unemployment Insurance system 
have survived for over sixty years--throughout periods of 
prolonged economic downturns, through periods of insolvency, 
and recently through periods of prolonged economic recovery and 
expansion. The proposal if fairly analyzed is patently unfair 
to employers and the working men and women of this nation. I 
believe that these proposed regulations will serve only to 
vitiate the system.
    Clearly, the Unemployment Insurance system has one of the 
best, proven infrastructures to deliver benefits. However, I 
would suggest that the service delivery system is a completely 
different issue from the revenue source and I want to take this 
opportunity to reiterate that Michigan and I oppose using 
Unemployment Insurance funds to finance these benefits.
    As this committee moves forward in your analysis and 
discussion of the issues relating to the Unemployment Insurance 
program, I would ask you to keep several points in mind. First, 
relating to your meeting last week, Michigan supports reform 
efforts as long as the changes will sustain the system 
throughout the full economic cycle. Second, as it relates to 
the Birth and Adoption benefits, please do not expand the scope 
of entitlement to include individuals who are not available and 
able to work. We must ensure that the integrity of this 
important self-financed program continues and is available to 
the involuntarily unemployed during the good times and the bad. 
Since the Birth and Adoption benefits would rely on existing 
state trust fund resources needed for future downturns, if the 
reserves are used now to expand the scope of the benefits, the 
basic concept of forward funding for the Unemployment Insurance 
program is compromised.
    If you choose to assist the parents of newborns and those 
who choose to adopt, then I would strongly ask this committee 
to identify an alternate source of funding.
    I would be happy to answer any questions that you might 
have. Again, I thank you for the opportunity to share my views 
with you on this important matter.
[GRAPHIC] [TIFF OMITTED] T9340.002

      

                                

    Chairperson Johnson. I thank the panel for your testimony 
and we'll have a little chance now for questions. Mr. Wheatley, 
did I understand you to say that the Department of Labor is 
telling you that your trust fund balance isn't high enough?
    Have they sent out a letter to the states in general urging 
them to increase their trust fund balances?
    Mr. Wheatley. These are a number of initiatives that they 
have discussed with us. I don't recall if I saw it in writing, 
but we have discussed it on a number of occasions.
    Chairperson Johnson. But in the last few months?
    Mr. Wheatley. Yes.
    Chairperson Johnson. So in the last few months, they're 
expressing concern that the 2.3 billion in your trust fund--
    Mr. Wheatley. It's 2.7 billion.
    Chairperson Johnson. The 2.7 billion in your trust fund now 
is not enough and they want it up over four billion.
    Mr. Wheatley. Yes.
    Chairperson Johnson. That is our information, too, that 
they have been pressing the states to improve their positions. 
Now, it is right, you should improve your position when the 
economy is good, because when the economy is not, the money is 
going to stream out and you're not going to have it coming in.
    But that's very interesting to me, because it goes to the 
heart of the sort of contradictory policy initiatives that are 
coming out of the Department of Labor.
    Also, I thought the ease with which you laid out the basis 
of your estimates was really remarkable. I mean, it's a no-
brainer. Anybody can find out how many births there are and 
they can accommodate those numbers for the number of working 
women and so on and so forth.
    And as you say, if only 25 percent, is just to me very 
unlikely that of the 130,000 births, 25 percent aren't working 
women. I mean, that would be out of sync with all of the other 
things we know about women in the workforce.
    Mr. Wheatley. Madam Chairman, as Congressman McCrery said, 
he doesn't know either what the estimate would do, but if you 
subsidize something, you're sure going to get more of it.
    Chairperson Johnson. I will get the backup information from 
the Department of Labor as to their estimates. I forgot to ask 
the Deputy Secretary for that, but I will definitely do that, 
because I think the fact that you can so easily, off the back 
of an envelope, say here is almost 200 million.
    Mr. Shimkus, where does--when you talk to your state 
department about this, now, Massachusetts is a totally Democrat 
state, I could never get elected there.
    Mr. Shimkus. Except for our governor.
    Chairperson Johnson. There is no reason why your department 
of labor wouldn't be enthusiastic about this proposal and 
there's no reason why they wouldn't want to give you an honest 
estimate, sine they're going to be able to get whatever they 
want through the legislature.
    So how much did you talk to them about their estimate of 
200 million? Which is way over. Remember, our national 
department says 68 million for five or six states.
    Mr. Shimkus. It came out of testimony that Jack King, the 
Director of the Division of Employment and Training, gave last 
spring relative to Senate Bill 61, which is the legislative 
vehicle in Massachusetts that would move this experiment 
forward.
    And as I understand from the testimony, and I did talk with 
Jack, as well, they took the numbers that were created for 
Vermont and adjusted for differences in the size of the labor 
force and the weekly UI checks, Vermont versus Massachusetts, 
between those legislative proposals and came up with a figure 
of actually 224 million annually.
    They took the National Employment Law Project's estimate 
for Massachusetts, which is expressed by that organization in a 
cost per employee per week figure, they annualized that and 
it's 197 million. The DET's own estimate is 208.
    So you're looking at between 197 and 224, DET says 200.
    Chairperson Johnson. Thank you. If you would send a copy of 
that estimate to us, that is certainly quite detailed and we'll 
see if the Department of Labor's estimates were as detailed.
    On this subject, Mr. Oxfeld.
    Ms. Oxfeld. Yes. Madam Chairman, I would like to introduce, 
for the record, a letter from two members of the Maryland House 
of Delegates, a bipartisan letter, and I'll just read you a 
line from it. ``The Maryland unemployment insurance office is 
opposing the legislation as incompatible with the unemployment 
insurance system and estimates the financial impact on the 
unemployment insurance trust fund to be 68 million dollars 
annually.''
    Another state, as you pointed out, with a Democrat 
administration. Thank you.
    [The information follows:]
                                                      March 3, 2000
The Honorable Nancy L. Johnson, Chairman
Subcommittee on Human Resources
Committee on Ways & Means
Room B-317, Rayburn Building
U.S. House of Representatives
Washington, D.C. 20515

Re: Birth and Adoption Unemployment Compensation Regulations (64 Fed. 
Reg. 59918, Dec. 3, 1999)

    Dear Chairman Johnson:

    As members of the Maryland House Economic Matters Committee and 
having jurisdiction for unemployment insurance issues, we are aware 
from national media reports that the State of Maryland has been cited 
as one of four states (Maryland, Massachusetts, Vermont and Washington) 
that has expressed interest in the BAA-UC experimental program. We 
write to set the record straight regarding Maryland's interest in the 
proposal being promulgated by the U.S. Department of Labor.
    House Bill 1124, Unemployment Insurance-Eligibility for Benefits-
Birth or Adoption of Child, was introduced during the 1999 Session of 
the Maryland General Assembly. House Bill 1124 provided 12 weeks of 
unemployment compensation for individuals who leave work immediately 
following the birth or adoption of their child, if they are the primary 
care giver and are not otherwise entitled to wages or salary from their 
employer. Maryland's Unemployment Insurance Office opposed the 
legislation because: (1) it would place Maryland out of conformity with 
federal law under the ``able and available for work'' requirement; and 
(2) it would negatively impact the Unemployment Insurance Trust fund 
balance. Allowing an entirely new category of individuals to file for 
and receive unemployment insurance benefits would deplete Unemployment 
Insurance Trust Fund revenues and trigger an increase in the surtax. 
The legislation was promptly defeated in the House Economic Matters 
Committee. This was the extent of Maryland's involvement in the issue 
at the time DOL issued the BAA-UI proposal.
    Identical legislation has been reintroduced during the 2000 Session 
of the Maryland General Assembly (HB 1198 and SB 167). HB 1198 is 
scheduled for public hearing in the House Economic Matters Committee on 
March 9, 2000. Interestingly, neither bill reflects the content of the 
model legislation proposed by DOL. Again, the Maryland Unemployment 
Insurance Office is opposing the legislation as incompatible with the 
unemployment insurance system, and estimates the financial impact on 
the Unemployment Insurance Trust Fund to be $68 million annually. If 
enacted, this legislation would trigger a .4% increase in the 
unemployment insurance surtax in Maryland, costing all Maryland 
employers an increased unemployment insurance tax liability of $34 per 
employee.
    Contrary to national media reports, there is little sentiment in 
Maryland to enact legislation that increases the tax liability of 
businesses by allowing birth and adoption leave to be financed through 
the unemployment insurance system. We hope this clarifies for the 
record Maryland's limited interest in this issue.
            Sincerely,
                                   Delegate Van T. Mitchell
                                                    [D-Charles Co.]

                                    Delegate Richard La Vay
                                                 [R-Montgomery Co.]
      

                                

    Chairperson Johnson. Thank you. Mr. Emsellem, do you have 
any concerns about the fact that this is going to require--you 
know, the Family and Medical Leave Act explicitly excluded 
employers under a certain size because the feeling was that 
they simply couldn't bear the economic burden.
    This is actually going to require them to subsidize the 
costs of large employers, because it spreads it through the 
unemployment tax equally among all employers. So you're going 
to have big employers who are doing this as an incentive to 
attract people and hold people, dumping their programs, and the 
cost being spread over all employers.
    So the little guy with one employee or some employees, I 
guess they don't pay unemployment tax, but certainly with one 
employee, is going to carry sort of roughly the same burden as 
the big employer.
    Mr. Emsellem. No, that's our concern, for a couple reasons. 
Number one, as I mentioned, if you take a look at the rates 
currently, you see that employers are paying on .57 percent of 
taxable wages at this point in time.
    So what we're really talking about is the potential 
incremental increase above that rate. They're paying on those 
workers. And it is true, unfortunately, that because the 
unemployment system is now the only tax on the first X amount 
of wages, 7,000 dollars taxable wage base, small employers do 
pay proportionately more than large employers into the system.
    Chairperson Johnson. Proportionately a lot more, because 
they've got--
    Mr. Emsellem. I agree with that.
    Chairperson Johnson.--a lot of 15 and 20,000 employees.
    Mr. Emsellem. Proportionately more. But the point is what 
is the incremental increase over their current rate, and, 
again, their current rate, as of '99, is .57 percent, almost a 
half of one percent.
    So the question is how much more over that are they going 
to pay as a direct result of this. There are lots of other 
factors that go into whether or not employers, what their rates 
are, what their tax rates are.
    As I mentioned, there are a lot of tax cuts happening out 
there. So we have to say--we have to look at relative to when 
are we talking about a tax increase.
    Chairperson Johnson. Certainly all of those things do 
count.
    Mr. Emsellem. Right.
    Chairperson Johnson. It is also true that in times of 
prosperity, you better be building up your balance. And I was 
interested that Michigan's balance, while it sounds terrific, 
isn't so terrific when you look at what it cost them during a 
recession. And one of the things that's very interesting, Mr. 
Emsellem, is that the Department of Labor isn't seeing these 
balances as terrific because they're out there talking to 
states to do better.
    Mr. Emsellem. I agree that trust funds should be solvent. 
We advocate for increase in benefits and you have to have 
solvency.
    Chairperson Johnson. But what do you make of the Department 
of Labor's getting out there and saying do better and then 
saying but also do this?
    Mr. Emsellem. I think the Department of Labor has been very 
consistent. What they're saying is state by state and what this 
program allows is for state by state to make the determination 
whether you can afford this program. That's all they're saying. 
Some states are in a better position to do it than others. If I 
can just respond, because NELP was mentioned in an estimate and 
I would just like to correct that. We have not prepared any 
estimates for Massachusetts. We have not been in the business 
of preparing these estimates.
    What we did use was we quoted a figure based on the 34 
million estimate prepared by the Department of Labor of what 
that translated into per worker. My understanding of it in 
Massachusetts, what recently happened, which was not mentioned, 
was Massachusetts just froze its rate schedule, saving 200 
billion dollars for employers, just this year, and the 
Administration asked for a 240 billion dollar tax cut, and that 
is the Administration supported by the Secretary King.
    So again, it comes back to this issue of choices. What 
choices are we making during good economic times? Do we want to 
increase benefits or do we want to continue to cut taxes?
    Chairperson Johnson. I do think this issue of choices is 
very important and I am pleased that Connecticut recognized 
that it had the choice of setting up a whole separate program 
and funding it.
    Mr. Emsellem. That's another issue. That's--
    Chairperson Johnson. And that's another choice. You see, 
you didn't need this initiative to be able to do that and we 
are going to ask for a CBO estimate, which is our estimator.
    It is my belief, and you can shake your head if I'm wrong, 
people from the Labor Department, but it's my belief that the 
Labor Department estimate is their estimate and not OMB's 
estimate, is that correct? Yes, it is not an OMB estimate.
    That makes a very big difference. But we will get the data 
behind their estimate. We will have our estimators estimate it, 
because you see, if we had done this legislatively, we would 
have had to know the cost and we would have had to pay for it. 
And one of the things that--one of the reasons I'm holding this 
hearing is because it is wrong, wrong, wrong in a free society 
not to be honest about benefit and cost.
    And behind this screen you can say each state can choose. 
Well, this is a very--there is some truth in that, but it's 
also not responsible of the Federal Government in such a 
critical program not to say, which they could have said, in 
line with their old policy, you can do this, just do it with 
its own tax base, don't hook it onto the tax base of 
unemployment, because taxes are going to pay for it anyway.
    I wanted to ask you that about small businesses and I see 
that isn't a problem for you.
    Then the other thing that I think we have to be very 
concerned about is do you have any thoughts about what this 
does to the increasing inequities faced by stay at home moms? 
The increasingly bad way we treat them.
    A stay at home mom, where they have made the sacrifice to 
live on one salary, and this person is earning, say, 25,000 
dollars, that family gets nothing from the government for those 
three months when they are home with their child and it just 
seems to me wrong to continue to pursue policies that say 
because two of you work, you get to stay home with your child 
and we'll pay you for it, even though together you may earn 50, 
60, 70, 80,000 dollars.
    A teacher and a policeman in Connecticut earn more than 
60,000 probably. So we're doing this without regard to income 
and we're doing it without regard to other mothers who are 
struggling to stay home with their children and need that money 
in order to be able to make good on that option.
    So I think policy-makers, this is not your responsibility, 
but policy-makers who care about families and keeping families 
together do have to think about public policy not driving the 
wrong decisions.
    Now, that much said, I think we really do have a job to do 
here to look at how workplace policy supports families being 
together, but I'm very concerned about both solvency and equity 
here.
    Ms. Hostetler, this will be my last question and I'll yield 
to Mr. Cardin, but you're the only one that really went through 
some of the significant problems that this bill has created for 
employers and employees.
    I thought your example of the law prohibiting counting time 
off on family leave in looking at attendance records and the 
idea of having to give out perfect attendance awards to someone 
who has been there every day and someone who hasn't is really--
it's those kinds of little things that if the Department of 
Labor had brought a law, we could have talked about. If 
Connecticut had listened, they would have amended their law as 
well as the benefit program.
    The intermittent issue is the one that I run into the most 
on the factory floors and employees don't like it and employers 
don't like it. But you mentioned that and you also mentioned 
the more than three days, the serious disease issue. Certainly 
Congress did intend that this be serious disease.
    Are there other issues or would you care to give further 
examples of those?
    Ms. Hostetler. I can tell you there are lots of examples 
and I can refer you to the testimony that has a number of 
examples and my Senate testimony has very real life examples, 
but the issue with the Department of Labor and what has made it 
so confusing for employers is that, as I said, the 
Congressional testimony, the Congressional intent, the 
statements on the Congressional record indicate that serious 
health conditions don't include minor ailments, and that's what 
the regulations initially said in 1995.
    Chairperson Johnson. And did they change the regulations?
    Ms. Hostetler. No. They issued opinion letters. So they 
issued a opinion letter following the regulations that not only 
said yes, minor ailments are not serious health conditions, 
but, in fact, it reinforced that to say they're not even 
serious health conditions if they last more than three days and 
if you see a doctor and if you get a prescription.
    And then the very next year they issued an opinion letter 
saying sorry, that now it's exactly the opposite. That if it's 
a minor ailment--no matter how minor it is, in fact, if it 
meets the three-day plus requirement and you get a doctor's 
note and you get a prescription, even if you don't fill the 
prescription, it's a serious health condition--
    Chairperson Johnson. Even if you don't fill the 
prescription, there is no differential diagnosis.
    Ms. Hostetler. No.
    Chairperson Johnson. And then you gave one example that I 
didn't quite understand. That somebody could take one day off a 
week forever. They would be limited by the three months.
    Ms. Hostetler. That's my point. You can take a day a week 
and not accumulate 12 weeks in a year. So you can literally 
take--that's how much time--
    Chairperson Johnson. If a doctor says that your serious 
illness needs a lower level of stress.
    Ms. Hostetler. That's a major concern, but it doesn't 
matter what the diagnosis is. If the medical certification says 
they need to take time off as required, they may. There is no 
notice requirement, there is no further certification 
requirement, there is no further discussion about what the--
    Chairperson Johnson. Is there any form--you know, workman's 
comp, you have a form. You can have a doctor evaluate.
    Ms. Hostetler. No, there is not. You can't talk to the 
doctor. The employer is not even able to discuss with the 
physician, not ask any questions. That is prohibited by the 
regulations. The employer is also prohibited from using their 
own physician--if they've got a company doctor, so to speak, 
that they've used for worker's comp or some of these other 
statutory requirements, they're not allowed to use that 
provider in the case of family medical leave. That seems 
another odd twist that makes it more difficult for employers.
    Chairperson Johnson. This is really quite a different 
system in every way than either our unemployment comp or our 
workman's comp system.
    Ms. Hostetler. Completely.
    Chairperson Johnson. This really makes my point. I know I 
was pretty tough on the guy from the Department of Labor, but 
to do this without looking at what has been happening and how 
we might need to refine or amend former law to provide paid 
leave when you don't even have the tools to determine whether 
the person was really sick, this is unheard of, unprecedented, 
and I am--I'm a moderate Republican.
    I'm out there voting on everything that you can possibly 
vote on that I think we can possibly afford, so this is not a 
question. I've been a leader on children's and families issues. 
So I won't accept testimony that turns this into I like 
children and you don't or I care about women and you don't.
    I'm not going to deal that game. What I am here about is we 
have to legislate honestly and deal with a challenge of the 
tensions between family and work, realistically and honestly, 
and I'll tell you, we're going to look into those opinion 
letters, too, and see why, when you started out with pretty 
decent regulations for a difficult law, we sunk into the mire 
of opinion letters that have now made this law almost 
functionally impossible to administer.
    And you get out on the floor and you talk to the little 
guy--the big guys, they've got departments of human resources 
who tear their hair out about this, but these are big problems 
and, by gum, we have a national Department of Labor who ought 
to have had the guts to come up and say we want you to oversee 
this, we want you to work with us on it, because we see there 
are problems out there.
    Now, Mr. Cardin.
    Mr. Cardin. Thank you, Madam Chair. Why don't you relax for 
a little bit, catch your breath.
    Chairperson Johnson. He's my cooling off break.
    Mr. Cardin. Thank you. I appreciated a statement that you 
made earlier that this committee, the Human Resources 
Subcommittee of the Ways and Means Committee, does not have 
jurisdiction over the Family and Medical Leave Act. Perhaps if 
we had jurisdiction over it, we might want to talk about the 
issue you just raised, and that is what type of medical support 
should there be for the use of the Family and Medical Leave.
    I believe you were responding, Ms. Hostetler, to the Family 
and Medical Leave Act and not to the use of unemployment 
insurance to deal with the birth of a child or the adoption of 
a child. That's what I thought this hearing would be focused 
on, and that is whether we should allow states the option to 
use their unemployment insurance system to deal with paying and 
providing some income for parents who take time off after the 
birth or adoption of a child, not for family and medical leave, 
which is a much broader matter.
    Ms. Hostetler. May I respond?
    Mr. Cardin. Sure.
    Ms. Hostetler. My concern is--you are absolutely right, but 
it is truly a backdoor attempt at expansion of the FMLA, at 
least that's how it comes across, and what we would like to 
make sure happens is an open dialogue about issues of the 
Family and Medical Leave Act.
    Mr. Cardin. And you oppose the expansion of the Family and 
Medical Leave Act?
    Ms. Hostetler. Prior to any corrections of the current 
regulations--
    Mr. Cardin. So you oppose that. So you don't want to see 
that.
    Ms. Hostetler. Prior to any--
    Mr. Cardin. Did you support the Family and Medical Leave 
Act?
    Ms. Hostetler. I did.
    Mr. Cardin. Well, good. We're very glad to have that.
    Ms. Hostetler. And there are lots of people who did support 
it that are now on the record as having problems with the 
current situation--
    Mr. Cardin. We're taking some of the testimony today and 
we're going to send it over to your state legislatures, 
particularly as they're considering changes in their tax codes 
as it relates to the solvency of their unemployment insurance 
funds.
    Mr. Shimkus, I very much appreciate the chamber's strong 
commitment to a very solvent unemployment insurance fund within 
the various states of the nation. I hope that I'm hearing you 
correctly that you will support efforts to establish national 
standards on solvency that would prevent states from reducing 
their unemployment insurance taxes if they don't meet this 
federally mandated solvency test in order to ensure that states 
are not irresponsible. Because you don't trust the states, do 
you?
    Mr. Shimkus. We are very interested in making sure that our 
state's unemployment insurance trust fund is solvent. And to be 
quite honest, I have been involved in this debate at the state 
level for years.
    Mr. Cardin. Are you going to answer my question?
    Mr. Shimkus. I am. Bear with me for a moment.
    Mr. Cardin. All right.
    Mr. Shimkus. We have been working on this for a number of 
years and I think part of the problem is how do you define what 
is truly solvent.
    Mr. Cardin. You don't trust the state to do it or you don't 
trust the Federal Government to do it?
    Mr. Shimkus. The fact is we hear every year at the 
legislative hearings that it should be this amount or that 
amount and to be quite honest, it's only used, the numbers are 
only used when they benefit the advocates for trying to tap 
into these funds.
    Mr. Cardin. So the answer to my question is you would 
support a Federal standard in solvency that the states would 
have to meet before they could reduce their revenues going into 
their unemployment insurance fund.
    Mr. Shimkus. I didn't say that. I said we're looking at 
it--
    Mr. Cardin. What are you saying?
    Mr. Shimkus. I'm saying we're looking at it in 
Massachusetts and we're going to continue to look at it in 
Massachusetts.
    Mr. Cardin. I'm asking you a specific question. Would you 
support, would the chamber support a Federal standard in 
solvency on the unemployment insurance funds that the states 
would have to meet before they could reduce the revenues going 
into their unemployment insurance funds in order to maintain 
solvency?
    Mr. Shimkus. Let me be clear. I do not know what the U.S. 
chamber's policy is on that particular issue. The North Central 
Massachusetts Chamber of Commerce, we're confined to looking at 
local issues that affect local employers. This is one of them.
    Mr. Cardin. So would you support it as a local chamber?
    Mr. Shimkus. I would have to take a harder look at it. I 
haven't seen all of the evidence that would support one way or 
the other.
    Mr. Cardin. Well, you come from a state that you don't have 
a great deal of confidence in, it seems like, in doing the 
right thing, as the chamber sees it, in regards to unemployment 
insurance. Is it that you only--I don't understand the 
consistency of your position. You either support Federal 
requirements here or you don't, or are you just picking and 
choosing which ones happen to benefit you financially?
    Mr. Shimkus. We are suggesting that our state ought to look 
at whether it has a solvent system and that you shouldn't 
create--
    Mr. Cardin. Should they be allowed to reduce the taxes 
before they meet a Federally mandated solvency standard?
    Mr. Shimkus. You should not create a system in which the 
Federal Government sets forth some benefits that could have 
dramatically--
    Mr. Cardin. That's not the question I asked. The question I 
asked is should Massachusetts be able to reduce their taxes if 
they haven't met a Federally mandated--should we Federally 
mandate a solvency test that the state legislature could not 
reduce the taxes in Massachusetts on the employers until that 
test is met?
    Mr. Shimkus. I personally do not believe so.
    Mr. Cardin. Because why? You don't trust the Federal 
Government or you don't trust the state government here?
    Mr. Shimkus. It's not a matter of whether I trust the 
Federal or the state. It's that--
    Mr. Cardin. If the regulation allows the legislature, 
allows the legislature and the governor in Massachusetts to 
make the decision on these benefits, the Federal law currently 
allows great discretion with the General Assembly and the 
Governor of Massachusetts on imposing the taxes necessary for 
solvency.
    On one hand, you do not want to let the people of 
Massachusetts make a decision on this benefit, but you want 
them to be able to reduce solvency, and your point is you want 
to protect the solvency of the trust fund.
    I'm somewhat--
    Mr. Shimkus. I think as Senator Gregg said earlier, the 
Federal Government is ultimately the insurer of last resort. So 
clearly the Federal Government ought to be concerned and what 
I'm concerned about here is that we can't get to what the exact 
number is and if we had gone through a regular course with 
Congressional hearings and--
    Mr. Cardin. Regular course for what, for the costs of it? I 
admit there's no--
    Mr. Shimkus. No, no. I'm saying if we hadn't gone through 
the rule-making process, if we were going through, as Madam 
Chairperson had suggested, a normal operating procedure to 
identify funds to do the types of things that folks are looking 
to do through Congressional authorization, that would have made 
much more sense, and perhaps then we could talk about--
    Mr. Cardin. Were you present when we went through the 
process in which training was made acceptable for someone 
receiving unemployment insurance? That was the most dramatic 
change on eligibility to receive unemployment insurance.
    The Congress didn't pass any laws to allow for training.
    Mr. Shimkus. But in this case, in--
    Mr. Cardin. It did after the fact, but not before. It used 
the national experiment first through the Department's findings 
and when it was so successful, then we mandated it for every 
state. But we started first by giving the ability of the states 
to move in this direction.
    That's the whole concept of Federalism, which I happened to 
have thought the chamber supported the concept of Federalism, 
but it seems like you have selective Federalism. You support 
Federalism when it helps you, but not when it provides help to 
the workers, and that's what really troubles me about your 
testimony today.
    I don't mind you being inconsistent, but at least 
acknowledge that you're inconsistent on this issue.
    Mr. Shimkus. We don't believe that the implementation of 
this experiment will help working families.
    Mr. Cardin. I appreciate your candor on that. Let me move 
on to a couple other areas, if I might here.
    I know, Mr. Oxfeld, you wanted to get in here. I just want 
to point out that there is a lot of confusion on the dollars 
here and we're going to try to get as much objective 
information as we possibly can.
    But I'm not so sure you're helping the process by using, in 
your testimony, 18 billion dollars as the estimated cost of the 
expenditures of the adoption of this regulation. If I 
understand it, that would assume that every state would enact 
this new program, which is not going to happen.
    All employed workers would be eligible and that's not going 
to happen, because some don't have sufficient earnings. All 
potential eligibles will take leave. That's very unlikely. All 
leave takers would file. That's not the experience under the 
current program, where 70 to 80 percent of the eligibles file. 
Each claimant will collect a full 12 weeks. That ignores the 
fact that the unemployment benefits are less than the salary 
and many people are going to go back to work within the 12 
weeks.
    So I guess my point is I'm not sure we're moving this 
process forward by trying to exaggerate the impact that this 
has on the system. We all acknowledge there is a problem out 
there and yes, this will have an impact on the unemployment 
insurance funds for those states who enact state law to deal 
with it.
    But then we'll have some real experience when those states 
do that and then we can really see the experience of whether 
Mr. McCrery's concerns about employers all of a sudden dropping 
their paid leave.
    My experience among employer-employee groups is that 
doesn't happen. There is such a thing as collective bargaining 
in many communities and that's just not going to readily happen 
overnight.
    So I don't think that's particularly useful to our trying 
to put together a testimony on how we should respond to this 
issue. I personally believe it is very helpful to have some 
experiences at the state level to see what is happening and I 
look forward to working with some of you to try to deal with 
solvency statutes.
    I hadn't thought about it really before today's hearing, 
but I think listening to this panel, you really have whet my 
appetite to the need for Federal solvency standards.
    I didn't realize there was such a concern out there that 
the states were going to do irresponsible actions.
    Mr. Emsellem's point about the tax cuts that have occurred 
throughout this nation for employers because our economy seems 
to be doing so well really beckons the point that many of you 
mentioned, and that is that the economy is going to turn and 
we're going to go through recessions and these trust funds are 
going to be very strapped at different times, and maybe the 
states are doing the wrong thing right now as it relates to the 
reduction of revenues going into the unemployment insurance 
trust funds.
    So let's at least work in a somewhat more consistent basis. 
I always felt that giving the states more flexibility in 
managing their system was a good thing. It's strange, I came to 
Congress after 20 years in the state legislature, I came here 
biased towards allowing states more flexibility, and I have 
found some friends on the other side of the aisle that helped 
in dealing with some of these issues.
    I am somewhat amazed now, it's tough to find friends on the 
other side of the aisle who want to give the states more 
flexibility. They only want to do it, it seems like, when it is 
in the interest of some self interest, more so than in the 
general benefit of using the states to develop a more realistic 
way to deal with the problems that we have in our community.
    I thank you, Madam Chair, for your patience.
    Chairperson Johnson. Mr. Oxfeld, did you want to get in 
there?
    Mr. Oxfeld. Well, Mr. Cardin made some very eloquent 
points, but I don't want the record for the hearing to close 
without being able to make the observation that the issue is 
not whether it's desirable to have the national government 
design a one-size-fits-all solvency standard that has to work 
the same for Maryland as for Michigan as for Alaska as for 
Delaware, which is my home state, as for Nevada or Connecticut. 
That's not the issue.
    The issue is that this will indeed result in additional 
spending. This is wholly outside the scope of what the 
unemployment insurance system is designed to do and it's not 
doing such a hot job of doing what it's designed to do and it's 
really incumbent on this committee to be responsive. Let's make 
UI work and do what it's supposed to do before we think about 
trying to give it a function that it is not equipped to handle.
    The analogy we always draw is you can use a screwdriver as 
a hammer, but it makes a really lousy hammer and it's likely to 
ruin it as a screwdriver. And if we try to make the UI system, 
which is finely attuned to trying to help people who lose their 
jobs, while they're looking for new work, get back into work, 
and if we try to make it into a system that it isn't to help 
people who are unavailable for work, who have taken themselves 
out of the workforce, and who will undoubtedly be counted as 
unemployed for triggering benefit extensions later on, that is 
a mistake and it's going to be harmful to the interest of the 
workers and the employers for the whom the UI system is 
designed.
    Thank you.
    Chairperson Johnson. I find the solvency issue a little 
different here, since the benefits are mandated, states have to 
pay them. If they don't have enough money in their trust fund, 
they are compelled to borrow.
    So a solvency standard, a state having a realistic solvency 
standard, serves them because they don't have to borrow, and I 
thought it was real interesting that Judd Gregg, a good 
conservative Republican, raised taxes rather than borrowing.
    Mr. Oxfeld. He didn't sign it, though.
    Chairperson Johnson. Oh, is that right? That's interesting. 
Well, it goes to show how painful these decisions are.
    I do want to just clarify one point that has been going on 
and off during the hearing and I should have clarified it very 
much earlier.
    Correct me, Mr. Emsellem, if you don't agree with this. But 
earlier on, the Commission and others have given examples of 
voluntary unemployment that the unemployment system now covers 
and actually the only exception is really training.
    If you're taking care--if you have to leave because of 
illness or taking care of an ill person, you still have to be 
available for a different shift job. In the instance of someone 
whose spouse moves, that you are unable to work, because you 
are physically removed from your job, I think that is a little 
different than just not wanting to go to work.
    The other instance that comes to mind is jury duty, where 
the government is compelling you to take another responsibility 
on. If my recollection serves me--my recollection does not 
serve.
    So training is the key instance in which we provide 
unemployment compensation.
    Mr. Emsellem. Could I respond to that?
    Chairperson Johnson. Yes, you can.
    Mr. Emsellem. There are three levels that you have, there 
are three issues that have to be looked at. One, did you leave 
work--this is what people go through to qualify for 
unemployment--did you leave work for the right reasons, we've 
covered that. States, about a third of them cover family leave 
under various domestic circumstances for leaving work. That's 
allowed, no debate about it, no legal issue about it, they've 
been doing that since the creation of the unemployment program.
    The second question is once you qualify for--
    Chairperson Johnson. For what causes?
    Mr. Emsellem. For a whole range of domestic circumstances, 
whether you left work because you couldn't deal with an 
emergency child care problem, whether you left work because 
you're taking care of a sick family member, all those things--
    Chairperson Johnson. I am not aware of unemployment comp 
covering that.
    Mr. Emsellem. Ma'am, that's allowed in one-third of the 
states. I can provide you a chart of that. That's the question 
of whether you left work for the right reason. Like I said in 
my testimony, what I find great about this, we're an 
unemployment advocate, it's great to be debating what the 
unemployment program is all about, because a lot of people walk 
around thinking that they don't qualify for benefits and don't 
come in and apply.
    In fact, we know that almost about 45 percent of people who 
are significantly attached to the labor market never walk in 
and apply for benefits, and part of the reason is because they 
walk around with misperceptions about whether they qualify.
    Chairperson Johnson. That is definitely a problem.
    Mr. Emsellem. So that's a big issue.
    So the next level is are you available for work once you--
well, the next question is are you unemployed, quote-unquote. 
States have a ton of flexibility to decide what's unemployed. 
In fact, lots of workers get unemployment benefits who are 
still employed. In a lot of states, there's something called--
in almost every state, there is something called partial 
unemployment benefits. You reduce your hours, receive benefits, 
and stay in your job. Or short-time compensation. You adjust 
your hours to avoid layoffs, but you are still employed.
    The last question, which is what this legal issue is all 
about, is whether once you qualified and met those other tests, 
are you willing and able to accept another job.
    Chairperson Johnson. Availability.
    Mr. Emsellem. Availability. That's the only legal issue 
we're talking about since the beginning of time. So the 
question is can the states decide that. I'm sorry, I just want 
to--
    Chairperson Johnson. Go ahead.
    Mr. Emsellem. And you put your finger on it. Training. 
Training. States--workers are taking themselves out of the 
labor market to do something good to improve their labor force 
attachment. States did that, 22 of them did it before Congress 
said everybody had to do it in 1996. Okay.
    And they can turn down a job that's offered to them, even a 
better job, a more suitable job, a job that pays more than what 
they earned before, but if provided they're in training.
    The other situation I think there is very comparable, it's 
not exactly the same thing, but what we're talking about is 
whether states have the authority to decide these things, not 
exactly do we fit the peg, is the recall situation. Eight 
states say if you are in recall status, you are expected to be 
called back to your job, you don't have to take a job that's 
offered to you. It makes sense.
    Why send somebody out looking for work if there is a job 
there for them, and that's good for employers. And so that's 
the concept, not that we have found the exact situation that 
looks like family leave, what we're talking about. What we're 
saying is the states have the flexibility to decide this and 
they've been doing it for years.
    Chairperson Johnson. I'd like to let Mr. Oxfeld get into 
this, because this concept of being available for work is so 
very fundamental for the issue of eligibility for benefits, and 
in general, I think, across the states, it is sort of a kingpin 
concept of the unemployment compensation system.
    Mr. Oxfeld.
    Mr. Oxfeld. Madam Chairman, you are so correct. The 
availability is the key issue here. In the case of layoffs, if 
the employer calls the worker back to work and they don't come, 
they don't collect benefits. If the employer has full-time work 
available and they're collecting part-time unemployment 
benefits because they had to take a part-time job, they don't 
collect unemployment benefits.
    When work is available, the worker has to be available for 
the work. Even for training, and I disagree with Mr. Cardin's 
assessment, because I don't believe that the state training 
laws--that the authority for that to be consistent with Federal 
UI law was necessarily recognized until Congress amended the 
FUTA to expressly recognize training as an allowable exception 
to availability.
    But even in the case of training, you have to be available 
for the training. If you don't show up for the training, 
because you're not--because you have personal reasons for not 
being there or any other reason, you don't continue to collect.
    Chairperson Johnson. And you don't necessarily get 
unemployment comp during the training.
    Mr. Emsellem. Yes, you do.
    Mr. Oxfeld. There are--if you're in approved training--
    Chairperson Johnson. If a state chooses, adjustment 
assistance.
    Mr. Oxfeld. In very narrow instances where that training is 
the only way this individual can get back into the workforce by 
statute, the states have to approve the training and it is a 
very, very, very narrow exception, and to argue that parental 
leave and all kinds of family medical leave are likened to 
people who are in training, people who are unavailable work, 
home for personal reasons, argue that's not--
    Chairperson Johnson. In other words, it doesn't cover all 
training and--
    Mr. Oxfeld. No. It has to be approved training.
    Mr. Emsellem. There is no special limitation on it. I 
disagree. You've got the Labor Department people here who can 
tell you for sure, they wrote the program letter.
    It is state approved training, that's it. I am from New 
York, we do this all the time in New York. We even have an 
extra fund that provides income support when you go past the 26 
weeks. It's just got to be state approved training. There are 
no extra limits on it, and that's incorrect. That's the sort of 
misinformation that doesn't help in this debate.
    The debate is about what the states can do. They've done a 
whole lot, they can do this program.
    Chairperson Johnson. I think one of the problems in this 
hearing has been this very narrow group of people in the larger 
unemployment comp system who are getting unemployment 
compensation, but fall into this category that varies from to 
state to state about the degree to which they must be available 
for work, but that is a very small sliver of the people on 
unemployment. Most of the people on unemployment get it and 
have to be available for work.
    Mr. Emsellem. But that's the state's option. There are--and 
I'd like to know the sliver. In different places, the sliver is 
very different. In Massachusetts, there are lots of folks who 
are not, quote-unquote, involuntarily unemployed getting 
unemployment benefits.
    Mr. Oxfeld. In the case of BAAUC, you have to sliver away 
every single aspect of unemployment insurance in order to try 
to fit this square peg into the round hole of UI. You have to 
get rid of voluntary quit, you have to get rid of availability 
for work, you have to get rid of ability to work, you have to 
get rid of refusal of suitable work, you have to waive the work 
search test.
    You're going to have a different duration of benefits for 
people on legitimate UI and virtually every aspect of the 
system that you can think of, you have to change it in order to 
try to accommodate people who are going to be home on leave. 
It's simply not unemployment insurance. It's paid leave.
    Chairperson Johnson. Thank you.
    Mr. Cardin. Madam Chair, just for the record, let me just 
again point out, on training, 1961, the Department of Labor 
interpreted the Federal law to permit states to include 
training as being not disqualifying you from receiving 
unemployment, which counters the availability issue that Mr. 
Emsellem talked about.
    It was nine years later when Congress acted in 1970. So 
taking Mr. Oxfeld's point, I assume that you believe that all 
the benefits paid over that nine years by the states was not 
allowed. It was. They received the benefits and it was exactly 
the same type of circumstance that Department of Labor is 
trying to use today on the birth of a child or adoption of a 
child, to allow states to move in this direction.
    The Congress always has the right to act. We can act to 
either say no or to say yes or to mandate or to permit. What we 
did on training was to mandate to require states to allow 
training, approved training to be equal to availability to 
work.
    And the last point I would mention is there is no pure 
system around here. We all try to say how pure the integrity--
there is no pure system. We always try to make these programs 
work to the real world, what's happening, and it's not--the 
world is changing. The workforce is changing.
    We need to make sure that these programs that were adopted 
65 years ago still are contemporary to today's workforce and 
that's why we want the Department of Labor to be able to have 
regulatory authority and interpretative authority.
    Congress is a little bit cumbersome in order to change 
policy. It takes us a long time and there are people out there 
who need some relief.
    So I just really wanted to point out that I think the 
process that's been used here is not unusual, it's been used in 
the past, and that it's not inconsistent with the way that 
we've used the unemployment insurance system in the past and 
that what we are suggestion by that regulation issued by the 
Department of Labor is to give discretion.
    I think that point has been lost over and over again. It 
doesn't mandate one person get additional unemployment 
insurance benefit. There is no requirement in the regulation 
that would cost one dollar in the trust fund. It solely allows 
the states to make decisions as to availability to work as part 
of their unemployment system, those that are out because they 
had the birth of a child or adopted a child.
    Thank you, Madam Chair.
    Chairperson Johnson. Thank you, Mr. Cardin. I do clearly 
disagree with you very significantly on this issue and I think, 
in a sense, the proof is in the pudding. Look at the different 
opinions we've had on what this is going to cost. If this had 
gone through the legislative process, you would have had the 
Administration's OMB estimate of what it's going to cost and 
you would have had the Congressional estimate from our own 
Congressional Budget Office of what it's going to cost.
    And cost does matter, because you need to think about 
whether allocating this money in one way or allocating it 
another way best suits the needs of families and of our 
society.
    Consequently, not only do I think that the Administration 
far over-reached the tradition of administrative authority and 
of Presidential directives, but had they done this the right 
way, there is clearly enough experience on the books for us to 
have been able to improve this law and until you improve this 
law, you are never really going to be able to improve the 
benefits that we provide to families who are struggling with 
the tension between work and family.
    When you have a law that works as badly as this one does, 
it's dead on arrival when you want to expand it. So I really 
regret the fact that the United States Department of Labor does 
not do oversight, does not come to the Congress.
    Now, we work closely with the Department of Health and 
Human Services. They come to us all the time saying this isn't 
working quite the way we expected, this isn't happening, that 
isn't happening, help us fix it, and we come to the table with 
different opinions and we fix the law, because we look at the 
problem.
    And what the Administration has done here has denied us 
that opportunity, opened up a problem for states that becomes 
primarily driven by elections and not by policy considerations.
    It has come out with scandalously inaccurate estimates. I 
mean, there is just no way that your estimates have any bearing 
on the reality when you look at the birth rate and the number 
of working women in the workforce.
    So I am very--I think the Labor Department deserves every 
bit of criticism a lot of us have been laying on them, publicly 
and privately, and I hope next time they will have the courage 
to bring ideas to the Congress and work with us to improve 
public policy and I would hope that they would, again, look 
more closely at issues like comp time and loosening up the law 
so that people can be able to go to the school play and not 
have to fake an illness so they can be covered under family 
medical leave.
    We have a long way to go in letting mom and dad be there at 
critical time for their kids and helping stay at home moms bear 
the economic responsibility of not working when their kids are 
young, and that latter issue is every bit as important as 
anything we've talked about under the family medical leave, and 
it is being completely disregarded by public policy-makers.
    It is only a matter of equity and we have to begin looking 
much more carefully at the equities involved not only through 
what we do, but their impact and the impact on a workforce 
where inequity is like special ed, where a special ed kid can 
hit the teacher and not be disciplined, and the other kids 
can't. What kind of classroom does that create? What kind of 
workplace does it create to have a law that says that you're 
out all the time, but you can get an honor for perfect 
attendance?
    There is something amiss here. We should be talking about 
it, we should be looking at it. That particular part isn't 
under our jurisdiction, but the solvency of the unemployment 
compensation system is and we're going to go further on these 
estimates.
    We're going to compare the work of the Department of Labor 
with some of the state departments that have really looked into 
it, because if they are as far as off as they appear to be or 
as they might be, then this is a matter of solvency and action 
would be necessary to protect the unemployment compensation 
system so it's there when people lose their jobs.
    Thank you.
    [Whereupon, at 1:57 p.m., the hearing was recessed, to 
reconvene at the call of the Chair.]
    [Submissions for the record follow:]

Statement of the Associated General Contractors of America, Inc., 
Alexandria, VA

    The Associated General Contractors of America, Inc. (AGC) 
is a national trade association of more than 33,000 firms, 
including over 7,300 of America's leading general contracting 
firms. They are engaged in the construction of the nation's 
commercial buildings, shopping centers, factories and 
industrial facilities, warehouses, highways, bridges, tunnels, 
airports, water works facilities, waste treatment facilities, 
dams, water conservation projects, defense facilities, multi-
family housing projects and site preparation and utilities 
installation for housing development.
    AGC members employ millions of hourly craft workers, and 
professional, administrative and management personnel in every 
state and Puerto Rico. Likewise, they pay millions of dollars 
in taxes to fund state unemployment insurance trust funds.
    AGC welcomes the opportunity to provide this statement on 
unemployment compensation and the Family and Medical Leave Act 
to the Subcommittee on Human Resources of the Committee on Ways 
and Means. AGC respectfully requests that this statement be 
made a part of the record of the Subcommittee's proceedings.
    Following are AGC's comments on the details of the 
Department of Labor (DOL) Birth and Adoption Unemployment 
Compensation (BAA-UC) proposal to permit the use of 
unemployment insurance program funds to pay parents for time 
they take off from employment after the birth or adoption of a 
child.

Summary

    AGC does not support the Department of Labor proposal to 
permit the states to use unemployment insurance benefit funds 
to provide partial wage replacement to parents on leave 
following the birth or adoption of a child. AGC maintains that:
     The proposal jeopardizes the financial solvency of 
the unemployment compensation insurance system and could lead 
to substantial increases in employer unemployment insurance 
taxes;
     Abandoning the ``able and available'' for work 
standard undermines the historic purpose of the unemployment 
compensation system;
     The unemployment compensation system is not the 
appropriate vehicle to fund paid family leave and the proposal 
to do so represents a fundamental philosophical change with no 
statutory or administrative support;
     The purposes and objectives of the unemployment 
insurance system should not be changed without congressional 
hearings and thorough cost analysis; and
     The Department's estimate of the costs of the 
proposal is not realistic and does not consider its impact on 
economically sensitive industries like construction.

Proposed Rule

    The proposed rule would permit states to use unemployment 
insurance (UI) funds to provide partial wage replacement to 
parents on leave following the birth or adoption of a child. 
The rule does not impose any solvency requirements on states as 
a condition of adopting such a program, or even require that a 
financial analysis be performed. The proposal permits eligible 
employees to voluntarily terminate their employment with no 
intention of returning to work and still collect unemployment 
benefits. The model legislation included with the proposal 
imposes a twelve-week limit to these benefits but at the same 
time the Department notes that ``States are free to determine 
this.''
    AGC urges the Subcommittee to prohibit the states from 
using UI funds to provide partial wage replacement to parents 
on leave following the birth or adoption of a child. AGC 
believes that the proposal jeopardizes the financial solvency 
of the unemployment compensation insurance system, could lead 
to substantial increases in employer UI taxes and is 
inconsistent with the historical objectives and application of 
the unemployment compensation program.
    The primary basis for the proposal is apparently a 1996 
study by the Commission on Family and Medical Leave contending 
that ``lost pay was the most significant barrier to parents 
taking advantage of unpaid leave after the birth or adoption of 
a child.'' The objective of the proposal is to ``promote a 
continued connection to the workforce in parents who receive 
such payments.''
    To address this situation and achieve this objective, the 
Department of Labor proposes to eliminate the ``able and 
available'' for work standard that would otherwise apply to new 
parents, permitting them to voluntarily quit their jobs and 
still be eligible for UI benefits. The ``able and available'' 
standard was derived from the Federal Unemployment Tax Act 
(FUTA) and the Social Security Act (SSA), and has been the 
threshold criteria for eligibility for UI benefits for 65 
years.
    AGC does not believe that existing data support such a 
fundamental change in the UI system, or that the UI system is 
the proper financial or administrative vehicle for providing 
paid family leave. In fact, the proposal undermines both the 
objective the Department seeks to achieve and the historic 
purpose of the system--to provide temporary financial support 
in an economic downturn to those who have not caused their own 
unemployment. Such a change should not be initiated with such a 
vague justification and objective.
    AGC is also concerned that abandoning the availability 
test--to cover workers who, by their own admission, are not 
actually available--cannot be done for one class of workers but 
not for others. AGC is not aware of any basis in federal law 
for making an exception solely to benefit workers who take 
parental leave. The BAA-UC proposal therefore portends the 
extension of UI program benefits to a host of heretofore-
ineligible individuals (e.g., those who are unavailable for 
reasons other than parental leave). Indeed, the proposal itself 
admits that it ``may also serve as a basis for further 
expanding coverage to assist a broader group of employees to 
better balance work and family needs.''
    The proposal is an apparently indirect attempt to create a 
compensated component of the Family and Medical leave Act 
(FMLA). A virtually identical proposal was considered and 
rejected by both the House and Senate during legislative 
consideration of the FMLA. The UI system and the FMLA serve 
different and incompatible purposes. UI protects workers who 
lose their jobs when their employer no longer has work for 
them. UI benefits are payable only to individuals who do not 
have a job and only while they seek new work. Benefits cease 
upon an offer of suitable employment. As the Department itself 
recognizes, the exceptions to this principle apply only to 
those involuntarily unemployed and experiencing short-term 
exigencies. The current exceptions preserve the requirement 
that individuals be ``able and available'' for work. The FMLA, 
on the other hand, provides said leave for workers who have a 
job but take time off for personal reasons. By definition, 
workers on leave are not unemployed and are not entitled to 
unemployment compensation.
    The philosophical change represented by the Department of 
Labor proposal is contrary to the principles of the UI system 
and conflicts with the longstanding interpretation of the 
Department itself. As the Congressional Research Service (CRS) 
pointed out in its June 14, 1999, Memorandum on this subject, 
the Department has historically directed states to deny UI 
benefits to workers who are voluntarily unemployed or who are 
unwilling and unavailable for work. AGC does not believe that 
such a fundamental change, for a completely different 
objective, is justified. Likewise, AGC does not believe that 
either governmental interests or those of individuals who rely 
on the UI system are well served by a proposal based on vague 
statutory language described as not prohibiting an 
``experimental program.'' Again, as the CRS has pointed out, 
the legislative and administrative history of the FUTA and SSA 
directly contradict the Department's proffered authority for 
this proposal.
    For more than 65 years, federal law has protected jobless 
workers, employers and the public by assuring that state 
unemployment trust funds can lawfully be used for the sole 
purpose of paying unemployment compensation. This principle is 
so deeply embedded in the federal-state unemployment insurance 
``partnership'' that federal law prohibits the use of state 
trust funds even for the related purpose of financing the 
administrative cost of processing claims for unemployment 
benefits. The Department's proposed rulemaking will change the 
fundamental objective and nature of the UI program, the safety 
net for jobless workers, by allowing the expenditure of state 
unemployment trust funds for the entirely different and 
incompatible purpose of compensating employed workers who take 
parental leave. Elimination of this essential federal 
protection for the jobless is a stunning and irresponsible 
abandonment of a principle that serves as a cornerstone of the 
nation's social insurance system. It is both ill advised and 
contrary to the clear and unambiguous statutory language of the 
federal UI laws and the Family and Medical Leave Act (FMLA).
    The change in the objectives and administration of the UI 
program proposed by the Department should not be initiated or 
implemented without specific legislative authorization. The 
unemployment system is neither intended nor financially or 
administratively equipped to deliver paid family leave to 
employed workers. Congressional hearings and cost analysis by 
the Congressional Budget Office and others are necessary before 
the UI program is jeopardized. The Department's proposal to 
perform a ``comprehensive evaluation'' only after four states 
have operated a BAA-UC program for three years puts the cart 
before the horse and is a totally inadequate response to the 
need for a thorough assessment of the financial, administrative 
and productivity costs of this proposal.
    Poorly researched government initiatives can cause 
widespread confusion and unintended consequences. Secretary 
Herman's recent comments on OSHA's policy on telecommuting are 
equally appropriate with respect to the BAA-UC proposal. A 
``national dialogue'' between labor, industry and other 
impacted groups is necessary to ``examine the broad social and 
economic effects'' before it goes forward. An important social 
decision should not be imposed or authorized by a regulatory 
agency simply on the basis of noble sentiments or objectives.

Costs of the Proposal

    AGC does not believe that the class of employees included 
in the proposal is ``small,'' or that the Department's 
estimated cost of zero to $68 million is realistic. In fact, 
the Department's proposal contains no real data either 
supporting the need for this policy change or documenting its 
impact.
    According to the Department itself, at least 20 states lack 
adequate reserves to meet future UI benefit claims. In the last 
recession, more than 25 states depleted their UI reserves and 
had to borrow from the federal government. The Department's own 
statistics show that if another similar recession occurred, 
states would need to borrow an additional $25 billion. In spite 
of this, the Department now advocates that states expand access 
to UI, working at cross-purposes to the Department's solvency 
objective and its goal of expanded access to legitimate UI 
claims. BAA-UC and UI expansion proposals send a strong signal 
to states not to build up reserves, because any state that is 
risk averse and seeks to take a conservative approach to 
building up its benefits trust account risks political pressure 
to ``spend it'' now.
    Of particular concern is the fact that states are not 
receiving enough administrative funding to handle the present 
UI claims volume. Because of this chronic situation, states 
will need to direct their FUTA administrative funds to finance 
the administrative costs of new BAA-UC benefits. In this 
environment, AGC believes it is extremely unwise for the 
federal government to propose adding a new benefit to the UI 
system.
    AGC believes that a fair and objective analysis is 
necessary to determine what it will cost if every state, or 
even a significant number of states, adopts a BAA-UC program. 
The cost of BAA-UC will be borne by employers through higher 
payroll taxes. If every state were to adopt the program 
proposed by the Department, the direct additional state UI 
payroll tax burden on employers would be at least $18 billion 
per year using conservative estimates. The calculation of 
direct cost is straightforward. The current weekly UI benefit 
amount is approximately $200. If a claimant were to collect 12 
weeks of benefits (as recommended in the Department's model 
state legislation) the direct price is $2,400 per claim. 
Because of the effects of experience rating and other factors, 
the ultimate tax cost to an employer will be $3,000 per claim. 
The Department has stated that there are 6 million new parents 
(and therefore potential claimants) each year. If each one 
claims 12 weeks of benefits the tax cost will be $18 billion.
    It is important to note that the figure of $18 billion is 
only for parental leave. This calculation doesn't take into 
account the additional costs of delivering paid leave to BAA-UC 
claimants through UI for 26 weeks like true UI claimants. Nor 
does it consider the costs of lost productivity or other 
impacts on employers who will have even more vacant positions 
and the same amount of work to perform.
    In the model state legislation, the Department recommends 
that BAA-UC not be charged against an individual employer's UI 
account. In other words, the Department suggests that BAA-UC 
should be socialized across all employers, regardless of 
whether their employees are receiving BAA-UC. Given that some 
employers are currently paying the maximum amount of tax while 
others are not paying enough, the high occurrence of socialized 
costs in many states, and that many employers do not offer 
leave, AGC is very concerned that the Department's proposal 
exacerbates this problem by adding another non-chargeable 
benefit. Non-charging BAA leave would create serious inequities 
for the most vulnerable of employers, such as small business, 
which would be forced to subsidize this benefit for employers 
who do offer leave.
    The Department's proposal will create a new type of benefit 
program for compensating parental leave. The UI system is 
experiencing significant problems handling its' existing 
obligations. Employers now pay nearly $30 billion a year in UI 
taxes when there is practically no unemployment. This figure 
will double or triple in future recessions. The current method 
of financing UI administration is a direct cause of these 
problems by providing inadequate funding for state UI and 
employment services agencies.
    These impacts are especially important to AGC members. The 
unemployment rate in the construction industry has always run 
consistently higher than the rate in the economy as a whole. 
Likewise, construction is seasonal in many parts of the country 
and periods of unemployment are more frequent. The Bureau of 
Labor Statistics (BLS) reported that the construction 
unemployment rate in February 2000 was 7.5 percent, compared to 
a rate of 4.1 percent for the general economy. In addition, the 
BLS advises that the rate of job growth in construction 
experienced a significant slowdown in 1999 from 1998. Similar 
patterns may exist in other industries and demonstrate that 
considerably more data and information is needed before UI 
funds are compromised to achieve unrelated objectives. There is 
no reason to assume that the economy will continue to expand 
and remain stable in perpetuity. At a minimum, the Department 
should perform the analyses required by the Unfunded Mandates 
Reform Act of 1995 and Executive Order 12875, the Regulatory 
Flexibility Act and the Small Business Regulatory Enforcement 
Act.
    Simply asserting that the proposal is permissive and that 
states are free not to adopt it does not ameliorate the costs, 
risks and negative impacts of the Department's BAA-UC proposal. 
The fact is the Department of Labor is proposing a fundamental 
change in national policy with respect to employers' financial 
responsibility for the family lifestyle choices of employees 
through a regulatory amendment to an unrelated program. The 
Department has deliberately attempted to bypass the legislative 
process that has addressed these issues in detail, as evidenced 
by the current statutes on this subject and their legislative 
history.
Conclusion

    AGC appreciates the opportunity to present its views on the 
Department's BAA-UC proposal. AGC does not believe that working 
people who voluntarily leave their jobs are entitled to 
unemployment insurance benefits or that the unemployment 
compensation insurance system is an appropriate vehicle to 
provide such individuals with paid family leave.

    By trying to force this new benefit into the existing UI 
system, the Department would abandon the federal ``able and 
available'' requirement--the bedrock principle of UI. The BAA-
UC proposal is contrary to the plain and unambiguous intent of 
UI law and policy. It will put the UI safety net at risk and 
dramatically increase employer costs. AGC strongly urges the 
Subcommittee to prohibit implementation of this unwise and 
unworkable proposal.
      

                                

                               Employment Policy Foundation
                                       Washington, DC 20005
                                                     March 16, 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:

    The Employment Policy Foundation (EPF) is submitting this letter 
and written statement for the record of the March 9 hearing before the 
U.S. House of Representatives Subcommittee on Human Resources on 
Unemployment Compensation and the FMLA.
    EPF is a unique non-partisan research and education foundation 
whose purpose is to shape the direction and development of sound 
employment policy through timely, accurate, high quality economic 
analysis and commentary on U.S. employment policies affecting the 
competitive goals of American industry and the people it employs.
    As the accompanying statement makes clear, policy makers and the 
public have not fully considered the ramifications of the UI funded 
family leave proposal. EPF finds its implementation would severely 
compromise the U.S. Unemployment Insurance (UI) system, costing up to 
$28.4 billion annually and pushing as many as 49 states and the 
District of Columbia below recommended solvency levels within three 
years.
    Tax rates would have to rise by as much as eightfold in order to 
stem the depletion rate of states' UI trust funds. The direct tax 
burden falls on employers, but employees and consumers pay in the long 
run through lower wages, higher prices, or lower employment levels.
    The UI system has already faced financial peril in the past. To 
subject this system to further costs would hamper the fund's ability to 
provide financial support during an economic downturn to its intended 
beneficiaries-- the unemployed.
            Sincerely yours,
                                           Edward E. Potter
                                                          President

    Madame Chairman and Distinguished Members of the Committee:

    Thank you for the opportunity to submit this written 
statement for the record on the critical issue of funding 
family leaves through the Unemployment Insurance (UI) system. 
The Employment Policy Foundation (EPF) is a unique non-partisan 
research and education foundation whose purpose is to shape the 
direction and development of sound employment policy through 
timely, accurate, high quality economic analysis and commentary 
on U.S. employment policies affecting the competitive goals of 
American industry and the people it employs.

Background and Summary

    EPF's analysis of the proposal to fund family leaves for 
parents of newborn or newly-adopted children through the UI 
system shows that its implementation would severely compromise 
the solvency of the U.S. UI system. EPF estimates that, if 
implemented in all states and the District of Columbia (DC), 
such programs could cost up to $28.4 billion annually--
exceeding the $26 billion that employers paid into the system 
in 1998. Furthermore, the programs could push the UI trust 
funds of as many as 49 states and DC below recommended solvency 
levels within three years. Even under more modest assumptions 
based on European paid parental leave usage rates, costs could 
exceed $13 billion annually and could push 46 states and DC 
below solvency thresholds after three years.
    Tax rates would have to rise by as much as 894 percent in 
order to stem the steady rate of depletion of the states' UI 
trust funds. Although the direct burden of payroll tax 
increases falls on employers, research shows that long-run 
costs are shifted to employees and consumers through lower 
wages, higher prices, or lower employment levels. As such, 
funding parental leaves through the UI system could ultimately 
undermine the remarkable current performance of the U.S. 
economy.
    The UI system has already faced financial peril in the 
past. The 1980-82 recession forced 33 states to borrow over $20 
billion from the federal government and over half the states 
borrowed funds during the 1990-91 recession. The federal 
account went bankrupt in 1977--resulting in a 0.2 percent 
surcharge to the federal unemployment tax that is still in 
effect today. Just last year, the Labor Department estimated 
that a recession similar to the one in the early 1980s would 
force 25 to 30 states to borrow $20-25 billion. To subject this 
system to further costs would hamper the fund's ability to 
provide financial support during an economic downturn to its 
intended beneficiaries--the unemployed.

Introduction

    Since taking office in 1993, President Clinton has pushed 
to expand employment leave mandates. The first major bill 
signed by the President was the Family and Medical Leave Act 
(FMLA)--an initiative requiring that employers provide up to 12 
weeks of unpaid leave rights, job protection, and continued 
health insurance benefits to workers for specified family and 
medical needs.
    Now, the President has proposed extension of this mandate 
by making new parents eligible for compensation during leaves 
funded through the unemployment insurance (UI) system. On 
November 30, 1999, the President announced the release of new 
proposed federal regulations and model state legislation by the 
Department of Labor (DOL) that will allow and encourage States 
to extend UI eligibility to workers who take leave during the 
first year after the birth or adoption of a child.\1\ These 
proposed regulations were in response to a Presidential 
directive issued in a May 24, 1999 executive memorandum.
---------------------------------------------------------------------------
    \1\ U.S. Department of Labor, ``Birth and Adoption Unemployment 
Compensation; Proposed Rule, Federal Register, Vol. 64, No. 232, 
December 3, 1999.

---------------------------------------------------------------------------
Overview of the Unemployment Insurance System

    Created by the Social Security Act of 1935 and implemented 
through the Federal Unemployment Tax Act, the UI system is a 
joint federal-state program administered by each state with 
federal oversight. It is funded entirely through employers' 
federal and state unemployment taxes. The system's objective is 
to alleviate financial hardship for the unemployed by providing 
them with partial wage replacement.
    The system is self-financing: funds accumulated during 
expansions are spent during recessions. In the past, recessions 
have quickly depleted the fund. The 1980-82 recession forced 33 
states to borrow over $20 billion from the federal government 
and over half the states borrowed funds during the 1990-91 
recession. The federal account went bankrupt in 1977--resulting 
in a 0.2 percent surcharge to the federal unemployment tax, 
which is still in effect today. The DOL predicted in 1998 that 
a recession like the one of the early 1980s would force 25 to 
30 states to borrow $20-25 billion.\2\
---------------------------------------------------------------------------
    \2\ U.S. Department of Labor, A Dialogue: Unemployment Insurance 
and Employment Service Programs, 1998. Internet link: http://
www.doleta.gov/dialogue/master.htm.
---------------------------------------------------------------------------
    The proposed regulations would allow states to make UI 
payments to parents of newborn or newly adopted children 
without making them subject to current work tests. Efforts to 
fund family leaves through the UI system already have been 
initiated in several states including Connecticut, Maryland, 
Massachusetts, Vermont, and Washington. Although the proposed 
regulations specifically refer to leave for care of a newborn 
or newly adopted child, they also state that information 
collected on the parental leave programs ``may also serve as a 
basis for further expanding coverage to assist a broader group 
of employees to better balance work and family needs.'' \3\ 
This qualification leaves open the possibility of eventual 
extension of UI payments to all leave takers.
---------------------------------------------------------------------------
    \3\ Federal Register (1999), p. 67974.

---------------------------------------------------------------------------
Cost Consequences of the Proposal

    To assess the costs associated with providing UI payments 
to individuals taking leave for care of a newborn or newly-
adopted child, EPF developed a model examining the cost 
consequences of the enactment of funded parental leave 
legislation in all 50 states and DC.\4\ Data used in the 
analysis were from the U.S. Department of Labor, the Census 
Bureau, the Bureau of Labor Statistics, and the State 
Department.
---------------------------------------------------------------------------
    \4\ This is a refinement of a cost estimate first reported in 
``Paid Parental Leave: A $14 Billion to $128 Billion Entitlement,'' 
Economic Bytes, Employment Policy Foundation, September 10, 1999.
---------------------------------------------------------------------------
    EPF assessed costs to the UI system under two scenarios:
    Scenario One: All eligible mothers and fathers take leave.
    Scenario Two: Parents take leave under European paid 
parental leave use rates.
    Costs were estimated for each scenario under 12 and 26-week 
leave duration assumptions.\5\ As Figure 1 shows, estimated 
annual cost under Scenario One (100% take-up) would be $13.1 
billion for leaves of 12 weeks and $28.4 billion for leaves of 
26 weeks. Scenario One reflects an upper bound for estimated 
costs to the UI system. At up to almost $30 billion annually, 
these paid leave costs would be one and one-half times the 
amount currently spent on UI nationwide.
---------------------------------------------------------------------------
    \5\ The 12-week assumption is used because the DOL's model 
legislation refers to leaves of that length. Because unemployed 
individuals in most states are currently eligible for up to 26 weeks of 
UI payments, it can be assumed that paid leave could be provided on 
that basis. The actual length of leaves is not predetermined, as 
Appendix B of the DOL's proposed rule lets states determine leave 
duration. Federal Register (1999), p. 67978.
[GRAPHIC] [TIFF OMITTED] T9340.003

    Scenario Two may reflect more likely costs to the system. 
To approximate likely leave use rates, we calculated average 
take-up rates for men and women in five European countries with 
generous paid family leave policies.\6\ As also shown in Figure 
1, the likely costs of funded parental leave to the UI system 
under Scenario Two (European take-up), would be $6.2 billion 
annually for leaves of 12 weeks and $13.4 billion annually for 
leaves of 26 weeks. These costs would represent an increase 
over current UI expenditures of about 30 percent and 67 
percent, respectively.
---------------------------------------------------------------------------
    \6\ The countries and their associated take-up rates were Austria 
(90% women, 1% men), Denmark (93%, 3%), Finland (99%, 2%), Germany 
(95%, 1%), and Sweden (90%, 78%). Take-up rates are as reported in 
Helen Wilkinson et al, Time out: the costs and benefits of paid 
parental leave, DEMOS, 1997, and are weighted by 1998 labor force 
figures from The World Factbook 1999, Central Intelligence Agency, 
1999.

---------------------------------------------------------------------------
Solvency of the Unemployment Insurance Trust Funds

    Although additional costs facing the UI system are a 
concern, the real issue is whether or not these costs would 
compromise the solvency of states' UI trust funds. If states 
have adequate reserves in their trust funds, an increase in UI 
costs would not necessarily mean an increase in firms' UI tax 
rates. If, however, the funds are inadequate, an increase in 
firms' tax rates will be required.
    The DOL's proposed regulations leave determination of the 
solvency issue up to the states. In response to the question 
``Does this regulation impose any solvency requirements upon 
the states before they enact BAA-UC?'' the document states:
    No. The DOL expects that a State will not enact changes 
without assessing the effect on the solvency of its 
unemployment insurance fund. Each State has the responsibility 
to assess the cost to the State's unemployment fund whenever 
coverage, benefit expansions, or tax changes are considered 
within the State's UC program. Consequently, DOL expects 
prudent decision makers in a State to examine the State's 
solvency position and projected taxes and benefits payments 
under current law before deciding to enact BAA-UC 
legislation.\7\
---------------------------------------------------------------------------
    \7\ Federal Register (1999), p. 67978.
---------------------------------------------------------------------------
    This laissez-faire approach is ill advised for two reasons. 
First, as noted earlier, states have overestimated the 
financial solvency of their UI trust funds in the past. Second, 
19 states and DC already have trust fund balances that fall 
below recommended solvency levels.\8\ One such state is 
Maryland, where implementation of a BAA-UC program is already 
being discussed.
---------------------------------------------------------------------------
    \8\ The solvency threshold used was the Average High Cost Multiple 
(ACHM), defined as the average of the three highest calendar benefit 
cost rates in the last 20 years. Benefit cost rates are benefits paid 
(including the state's share of extended benefits but excluding 
reimbursable benefits) as a percent of total wages in taxable 
employment. Although not a binding threshold, the DOL advises an ACHM> 
1 as a good ``rule of thumb'' measure of trust fund solvency.
---------------------------------------------------------------------------
    To assess the solvency of the UI trust funds, simulations 
were run using the annual cost estimates derived above. The 
amount of each state's weekly UI receipts was compared to each 
state's weekly UI costs (the sum of costs paid under the 
current system and estimated costs of funded parental leave 
programs) to compute the annual drain on the UI trust fund 
balance for each state.\9\ A solvency threshold was computed 
for the next three years (2001-2003) and the solvency of each 
state's UI trust fund was assessed.
---------------------------------------------------------------------------
    \9\ Costs exceeded revenues in all states and DC under Scenario 
One's 26-week assumption, and in all but two states in Scenario One's 
12-week assumption. Under Scenario Two, revenues exceeded costs in only 
one state under the 26-week assumption, and in four states under the 
12-week assumption.
[GRAPHIC] [TIFF OMITTED] T9340.004

    Under Scenario One (100% take-up), 45 states and DC would 
fall below recommended solvency thresholds after three years if 
12 weeks of leave are offered; 49 states and DC would fall 
below thresholds after three years if 26 weeks of leave are 
offered. (See Figure 2.) Even under the more conservative 
Scenario Two (European take-up), 34 states and DC would fall 
below recommended solvency levels after three years if 12 weeks 
of leave are offered, and 46 states and DC would fall below 
safe levels after three years if 26 weeks of leave are offered.
    Because five states (Connecticut, Maryland, Massachusetts, 
Vermont, and Washington) have expressed interest in 
implementing paid family leave, their solvency positions are of 
particular interest. As Appendix Tables 1 and 2 show, Maryland, 
Massachusetts, and Washington fall below recommended solvency 
levels within one year regardless of duration or expected take-
up of offered leave. In fact, Maryland's UI trust fund already 
falls below recommended solvency levels and Massachusetts and 
Washington are barely above recommended solvency levels--even 
in the absence of a paid parental leave program. Connecticut 
falls below recommended solvency levels within three years 
under the 100 percent take-up assumption regardless of duration 
and within three years under the 26-week European take-up 
assumption. Expanding eligibility for UI payments to new 
parents in these states will put the UI system in financial 
peril if new costs are not replaced by an increase in 
businesses' payroll taxes.

Unemployment Insurance Tax Rate Increases

    In order to assess the consequences of UI funded parental 
leave, Figure 3 examines the increase in tax rates needed to 
stem the rate of state trust fund depletion.

                        Figure 3: Tax Rate Increases Needed to Stem Trust Fund Depletion
----------------------------------------------------------------------------------------------------------------
                                                           Scenario 1: 100% Take-up   Scenario 2: European Take-
                                                         ----------------------------             up
                          State                                                      ---------------------------
                                                            12 Weeks      26 Weeks      12 Weeks      26 Weeks
                                                              Leave         Leave         Leave         Leave
----------------------------------------------------------------------------------------------------------------
AL......................................................       94.84%       189.78%        51.69%        96.28%
AK......................................................       24.77%        52.77%        12.53%        26.25%
AZ......................................................       74.31%       187.75%        21.98%        74.37%
AR......................................................       62.01%       130.11%        31.58%        64.18%
CA......................................................       40.62%        97.13%        14.65%        40.86%
CO......................................................       98.13%       237.80%        36.46%       104.19%
CT......................................................        4.19%        43.72%            0%         6.28%
DE......................................................       37.28%        96.41%        11.53%        40.62%
DC......................................................        4.38%        28.49%            0%         5.50%
FL......................................................      142.45%       279.79%        80.25%       145.02%
GA......................................................      206.83%       419.95%       109.79%       209.69%
HI......................................................       57.87%       124.10%        29.11%        61.80%
ID......................................................      128.29%       228.66%        83.19%       130.94%
IL......................................................       60.79%       133.58%        27.79%        62.07%
IN......................................................      115.37%       245.38%        56.27%       117.34%
IA......................................................      113.82%       226.72%        64.26%       119.35%
KS......................................................      523.71%       893.73%       357.98%       534.66%
KY......................................................       53.53%       125.69%        20.97%        55.15%
LA......................................................       85.61%       189.64%        38.28%        87.11%
ME......................................................           0%        37.81%            0%         1.42%
MD......................................................       71.22%       163.23%        30.78%        75.60%
MA......................................................       36.96%        86.88%        14.85%        38.97%
MI......................................................       49.25%       107.15%        23.09%        50.47%
MN......................................................       82.35%       179.10%        39.63%        86.53%
MS......................................................       70.81%       161.53%        29.71%        72.49%
MO......................................................       61.98%       144.48%        25.54%        65.51%
MT......................................................       39.84%        98.10%        14.30%        42.76%
NE......................................................      279.35%       545.48%       160.45%       287.87%
NV......................................................       31.00%        86.55%         5.96%        32.28%
NH......................................................      183.51%       397.17%        87.96%       190.14%
NJ......................................................       57.36%       113.51%        31.75%        58.03%
NM......................................................       62.67%       142.75%        26.44%        64.24%
NY......................................................       62.48%       128.93%        32.03%        62.96%
NC......................................................      145.96%       285.22%        83.48%       149.84%
ND......................................................      108.47%       215.24%        61.54%       113.55%
OH......................................................       83.76%       178.47%        41.20%        86.26%
OK......................................................      338.08%       626.34%       205.37%       338.81%
OR......................................................       23.72%        62.18%         6.34%        24.52%
PA......................................................       41.50%        86.69%        20.90%        42.08%
RI......................................................           0%        28.82%            0%            0%
SC......................................................      106.97%       219.46%        55.65%       108.26%
SD......................................................      223.29%       472.71%       112.63%       232.95%
TN......................................................       87.50%       172.59%        49.66%        90.61%
TX......................................................      166.23%       327.63%        92.08%       166.96%
UT......................................................      202.23%       426.89%        99.21%       203.67%
VA......................................................      208.38%       428.37%       109.89%       214.97%
VT......................................................       36.75%        89.39%        13.73%        39.50%
WI......................................................       69.64%       138.12%        39.76%        73.38%
WY......................................................       92.91%       188.75%        49.76%        95.27%
U.S. AVERAGE............................................       68.70%       145.43%        34.00%        70.24%
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.

    As Figure 3 shows, tax rates would have to rise on average 
by 34 to 145 percent in order to stem the steady rate of 
depletion of the UI trust funds. For some states, increases up 
to eightfold would be required.
    Tax rates may have to increase even before a state's UI 
trust fund approaches insolvency. In most states, tax rates are 
based on the current level of state UI trust funds. Additional 
taxes are imposed or current tax levels are raised when a 
state's trust fund drops below a specified level.\10\
---------------------------------------------------------------------------
    \10\ For a full description of these threshold amounts, see 
Highlights of State Unemployment Compensation Laws, Strategic Services 
on Unemployment & Workers' Compensation, January 1999.

Employees Bear the Burden of Unemployment Insurance Tax 
---------------------------------------------------------------------------
Increases

    Payroll tax increases will put the direct burden of the 
costs of paid parental leave on employers. Although individuals 
and legislators alike often believe that such mandates are 
``free'' or are provided ``at the employer's expense,'' at 
least some share of employer costs are shifted to employees, 
either through lower wages, higher prices, or lower employment 
levels. Without raising UI rates, the unemployed face 
substantial jeopardy.
    Most economists acknowledge that employer payroll taxes get 
at least partially shifted to employees. In a recent survey, 65 
labor economists at 40 leading universities were asked their 
best estimate of the share of payroll taxes borne by employers 
in the long run. The median value was 20 percent; the mean 
value was 25.6 percent.\11\ Other economists predict even 
greater cost shifting. A recent study by economist William 
Conerly estimates that \2/3\ of a change in UI tax is borne by 
workers the short run, and \1/3\ is borne by employers.\12\ 
Conerly's estimates suggest that of the up to $28.4 billion 
annual burden that would immediately fall on employers, $19 
billion would be passed on to workers in the short run through 
reduced pay raises, lost jobs, or lost benefits. That amounts 
to a $155 loss per worker annually. In the long run, however, 
he estimates that the burden of the tax almost fully shifts to 
workers.
---------------------------------------------------------------------------
    \11\ Victor Fuchs, Alan Krueger, and James Poterba, ``Economists' 
Views about Parameters, Values, and Policies: Survey Results in Labor 
and Public Economics,'' Journal of Economic Literature, Vol. 36 No. 3, 
September 1998.
    \12\ William Conerly, ``Jobs, Not Unemployment: Reforming 
Unemployment Insurance,'' Policy Insight, No. 104, Cascade Policy 
Institute, January 1998.
---------------------------------------------------------------------------
    Cost shifting is likely to occur because mandating benefits 
does not improve employee productivity. Because competition 
dictates that employee compensation track employee 
productivity, increasing benefits requires an offset, which 
often occurs through lower wages. If wages are not flexible 
downward, fewer jobs may be offered or increased labor costs 
may be passed on to consumers in the form of higher prices.\13\
---------------------------------------------------------------------------
    \13\ Lawrence H. Summers, ``Some Simple Economics of Mandated 
Benefits,'' American Economic Association Papers and Proceedings 79 
(May 1989): p. 177-183.

---------------------------------------------------------------------------
Conclusions

    To date, the UI system has served both employers and 
workers effectively--providing compensation to those who are 
both unemployed and able and available for work. The proposed 
regulations funding parental leaves through the UI system would 
fundamentally alter the nature of this system, while subjecting 
the system to costs of up to $28.4 billion annually--one and 
one-half times the current cost of the system. Aside from their 
direct cost, these outlays could also put the UI system and the 
financial protections for unemployed workers in jeopardy, 
pushing as many as 49 states' and DC's trust funds below 
recommended solvency levels. An increase in employers' tax 
rates of up to eightfold will be necessary, shifting long-run 
costs to workers and consumers.
    The President's UI funded leave proposal could severely 
cripple the effectiveness of the UI system and the strength of 
the U.S. economy, which is currently experiencing its longest 
economic expansion in history. To enact costly government 
mandates at this time could put this remarkable economic 
performance at risk. Thank you for your consideration of our 
views.

Appendix

                       Table 1: States with Trust Funds Below Recommended Solvency Levels
                                  Under Scenario 1 (100 percent take-up rates)
                                  (X= falls below recommended solvency levels)
----------------------------------------------------------------------------------------------------------------
                                                Currently         2 Weeks Leave              26 Weeks Leave
                                                  below    -----------------------------------------------------
                    State                      recommended
                                                solvency      2001     2002     2003     2001     2002     2003
                                                 levels
----------------------------------------------------------------------------------------------------------------
AL..........................................            X        X        X        X        X        X        X
AK..........................................  ............       X        X        X        X        X        X
AZ..........................................  ............  .......  .......       X   .......       X        X
AR..........................................            X        X        X        X        X        X        X
CA..........................................            X        X        X        X        X        X        X
CO..........................................  ............       X        X        X        X        X        X
CT..........................................  ............  .......  .......       X        X        X        X
DE..........................................  ............  .......  .......  .......  .......  .......       X
DC..........................................            X        X        X        X        X        X        X
FL..........................................  ............  .......       X        X        X        X        X
GA..........................................  ............  .......  .......       X   .......       X        X
HI..........................................  ............       X        X        X        X        X        X
ID..........................................  ............       X        X        X        X        X        X
IL..........................................            X        X        X        X        X        X        X
IN..........................................  ............  .......       X        X        X        X        X
IA..........................................  ............       X        X        X        X        X        X
KS..........................................  ............       X        X        X        X        X        X
KY..........................................            X        X        X        X        X        X        X
LA..........................................  ............  .......  .......       X   .......       X        X
ME..........................................            X        X        X        X        X        X        X
MD..........................................            X        X        X        X        X        X        X
MA..........................................  ............       X        X        X        X        X        X
MI..........................................            X        X        X        X        X        X        X
MN..........................................            X        X        X        X        X        X        X
MS..........................................  ............  .......  .......  .......  .......       X        X
MO..........................................            X        X        X        X        X        X        X
MT..........................................  ............  .......       X        X        X        X        X
NE..........................................  ............       X        X        X        X        X        X
NV..........................................  ............       X        X        X        X        X        X
NH..........................................  ............  .......  .......  .......  .......       X        X
NJ..........................................  ............       X        X        X        X        X        X
NM..........................................  ............  .......  .......  .......  .......  .......       X
NY..........................................            X        X        X        X        X        X        X
NC..........................................  ............       X        X        X        X        X        X
ND..........................................            X        X        X        X        X        X        X
OH..........................................            X        X        X        X        X        X        X
OK..........................................  ............  .......       X        X        X        X        X
OR..........................................  ............  .......  .......       X   .......       X        X
PA..........................................            X        X        X        X        X        X        X
RI..........................................            X        X        X        X        X        X        X
SC..........................................  ............  .......       X        X        X        X        X
SD..........................................            X        X        X        X        X        X        X
TN..........................................            X        X        X        X        X        X        X
TX..........................................            X        X        X        X        X        X
UT..........................................  ............  .......       X        X        X        X        X
VT..........................................  ............  .......  .......  .......  .......  .......
VA..........................................  ............  .......       X        X        X        X        X
WA..........................................  ............       X        X        X        X        X        X
WV..........................................            X        X        X        X        X        X        X
WI..........................................  ............       X        X        X        X        X        X
WY..........................................  ............  .......  .......       X   .......       X        X
U.S. TOTAL..................................           20       33       40       46       41       48       50
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.

                       Table 2: States with Trust Funds Below Recommended Solvency Levels
                                    Under Scenario 2 (European take-up rates)
                                  (X= falls below recommended solvency levels)
----------------------------------------------------------------------------------------------------------------
                                                Currently         12 Weeks Leave             26 Weeks Leave
                                                  below    -----------------------------------------------------
                    State                      recommended
                                                solvency      2001     2002     2003     2001     2002     2003
                                                 levels
----------------------------------------------------------------------------------------------------------------
AL..........................................            X        X        X        X        X        X        X
AK..........................................  ............       X        X        X        X        X        X
AZ..........................................  ............  .......  .......  .......  .......  .......       X
AR..........................................            X        X        X        X        X        X        X
CA..........................................            X        X        X        X        X        X        X
CO..........................................  ............       X        X        X        X        X        X
CT..........................................  ............  .......  .......  .......  .......       X        X
DE..........................................
DC..........................................            X        X        X        X        X        X        X
FL..........................................  ............  .......  .......       X   .......       X        X
GA..........................................  ............  .......  .......  .......  .......  .......       X
HI..........................................  ............  .......       X        X        X        X        X
ID..........................................  ............       X        X        X        X        X        X
IL..........................................            X        X        X        X        X        X        X
IN..........................................  ............  .......  .......  .......  .......       X        X
IA..........................................  ............  .......       X        X        X        X        X
KS..........................................  ............       X        X        X        X        X        X
KY..........................................            X        X        X        X        X        X        X
LA..........................................  ............  .......  .......  .......  .......  .......       X
ME..........................................            X        X   .......       X        X        X
MD..........................................            X        X        X        X        X        X        X
MA..........................................  ............       X        X        X        X        X        X
MI..........................................            X        X        X        X        X        X        X
MN..........................................            X        X        X        X        X        X        X
MS..........................................
MO..........................................            X        X        X        X        X        X        X
MT..........................................  ............  .......  .......  .......  .......       X        X
NE..........................................  ............       X        X        X        X        X        X
NV..........................................  ............  .......  .......       X        X        X        X
NH..........................................  ............  .......  .......  .......  .......  .......       X
NJ..........................................  ............  .......       X        X        X        X        X
NM..........................................
NY..........................................            X        X        X        X        X        X        X
NC..........................................  ............       X        X        X        X        X        X
ND..........................................            X        X        X        X        X        X        X
OH..........................................            X        X        X        X        X        X        X
OK..........................................  ............  .......       X        X   .......       X        X
OR..........................................  ............  .......  .......  .......  .......  .......       X
PA..........................................            X        X        X        X        X        X        X
RI..........................................            X        X        X   .......       X        X        X
SC..........................................  ............  .......       X        X        X
SD..........................................            X        X        X        X        X        X        X
TN..........................................            X        X        X        X        X        X        X
TX..........................................            X        X        X        X        X        X        X
UT..........................................  ............  .......  .......  .......  .......       X        X
VT..........................................
VA..........................................  ............  .......  .......       X        X        X
WA..........................................  ............       X        X        X        X        X        X
WV..........................................            X        X        X        X        X        X        X
WI..........................................  ............  .......       X        X        X        X        X
WY..........................................  ............  .......  .......  .......  .......  .......       X
U.S. TOTAL..................................           20       28       32       35       33       41       47
----------------------------------------------------------------------------------------------------------------
Source: EPF tabulations of UI data.

      

                                

Statement of LPA

    Madame Chairman and Distinguished Members of the 
Subcommittee:
    Thank you for the opportunity to submit this testimony to 
your Subcommittee on the critical issue of whether using 
unemployment compensation funds, collected to help those 
involuntarily unemployed, to pay benefits to those voluntarily 
taking family leave is good policy and whether it is 
appropriate for the Department of Labor (``DOL'' or the 
``Department'') to circumvent Congress in ordering this 
dramatic redirection of the unemployment insurance system.
    LPA, Inc. is a public policy advocacy association of senior 
human resource executives and over 250 major corporations. 
LPA's purpose is to ensure that employment policies in the 
United States support the goals and interests of its member 
companies and their employees, and it regularly represents the 
interests of its members on these issues. Collectively, LPA 
members employ over 12 million individuals, roughly 12% of the 
private sector workforce. LPA members therefore fund a 
significant portion of the costs of this country's unemployment 
compensation system and are extremely concerned about any 
proposals that would increase those costs or undermine the 
stability and viability of that system.
    While we firmly support employers' efforts to accommodate 
the family needs of their workers, LPA is submitting testimony 
to express our strong opposition to the potential dilution of 
the federal unemployment insurance system through the Birth and 
Adoption Unemployment Compensation (``BAA-UC'') regulations 
proposed by the DOL's Employment and Training Administration on 
December 3, 1999. See Notice of Proposed Rulemaking on Birth 
and Adoption Unemployment Compensation, 64 Fed. Reg. 67972 
(proposed Dec. 3, 1999) (``NPRM''). On February 2, 2000, LPA 
filed comments on the proposed BAA-UC Program. These comments, 
prepared by the law firm of Jones Day Reavis and Pogue, 
establish the legal basis for a lawsuit LPA will file in 
federal court seeking an injunction against the regulations if 
they are finalized.
    We wish to make it clear at the outset that LPA and its 
member companies are strongly committed to enabling American 
workers to reconcile the conflicts between work and family 
needs. This is being done through a wide variety of innovative 
programs that have shown our members to be among America's most 
family-friendly companies. While we oppose this attempt to 
compensate birth-and-adoption leave under a program clearly 
designed to address other needs, any responsible attempts by 
Congress to remove existing legal impediments to birth-and-
adoption leave under the wage/hour, tax, and other laws would 
obviously receive a warm welcome from our members.
    In the view of LPA and its member companies, there are a 
number of defects in the proposed BAA-UC regulations. First and 
foremost, if the proposed BAA-UC regulations were widely 
adopted, they would increase the costs of the unemployment 
compensation system, which are almost entirely borne by 
employers. Depending upon how the states responded, these costs 
could very likely double to more than $50 billion per year, 
thereby undermining the financial stability and viability of 
the unemployment compensation system. The $30 billion a year 
that full BAA-UC coverage would cost, in turn, would increase 
the taxes paid by employers by 34% on average, imposing a 
massive burden on employers. In addition, the proposed 
regulations cannot be reconciled with the requirements of the 
Federal Unemployment Tax Act (``FUTA'') or with the provisions 
of the Family and Medical Leave Act of 1993 (``FMLA''). 
Adoption of the proposed regulations would also be arbitrary 
and capricious because, among other things, the NPRM fails to 
offer any justification for the Department's abrupt change of 
position on BAA-UC.

    Paid Birth-and-Adoption Leave Should not be Created Through the 
                    Unemployment Compensation System

    LPA members and their companies strive to accommodate the 
needs of parents and families in a number of different ways, 
with flexible work schedules, leave, both paid and unpaid, and 
other innovative employment practices. It is, however, both 
unwise and inappropriate to permit states to provide wage 
replacement to parents on birth-and-adoption leave through the 
unemployment compensation system. However laudable it is to 
assist employees in balancing the demands of an increasingly 
competitive and intense workplace with the needs of their 
families and personal lives, the unemployment compensation 
system is not the proper method for implementing such a policy.
    As the Employment Policy Foundation has pointed out, the 
authorization of unemployment compensation for birth-and-
adoption leave would impose a potentially massive financial 
burden on employers and an already-underfunded UI system. See 
Letter from Edward E. Potter to Grace A. Kilbane, Jan. 26, 
2000, available at http://www.epf.org/documents/20000126.pdf. 
Although the Department estimates that the cost of its proposed 
regulations would be minimal, ``from zero to approximately $68 
million,'' this estimate is based upon the assumption that only 
a small number of states are interested in providing birth-and-
adoption leave unemployment compensation. If, however, such 
unemployment compensation is adopted by all the states, the 
cost of providing birth and adoption unemployment compensation 
could climb as high as $30 billion. As the entire unemployment 
system currently pays out only about $20 billion per year, full 
adoption of BAA-UC would more than double the pay outs in the 
entire system. Moreover, even assuming that the economy will 
continue to grow, the unemployment funds in as many as 46 
states and the District of Columbia would face insolvency 
within three years if they were to adopt birth-and-adoption 
leave pursuant to the proposed regulations. In addition, based 
upon conservative assumptions, states would on average have to 
increase their unemployment compensation taxes by 34% to pay 
for this shortfall.
    In addition, the unemployment compensation system is ill-
equipped to deliver wage replacement to parents on birth-and-
adoption leave, just as birth-and-adoption leave is ill-suited 
for the unemployment compensation system. One of the enduring 
strengths of that system is its simplicity and focus. The 
system is not designed to have the flexibility to deal with 
birth-and-adoption leave. Although Congress found that unpaid 
family leave was too burdensome to impose upon small business 
and therefore exempted them from the obligations imposed by the 
FMLA, no similar exception can be carved out of the 
unemployment compensation system because, as the NPRM 
recognizes, any eligibility test for unemployment compensation 
must relate directly to the fact or cause of the individual's 
unemployment. Thus, by encouraging workers to take birth-and-
adoption leave, the proposed regulations would require all 
businesses to plan for, find, and train replacement personnel, 
no matter how burdensome doing so may be in light of a small 
business' limited resources. Similarly, under the unemployment 
compensation system, the payment of birth-and-adoption leave 
unemployment compensation cannot be limited to one parent in 
each family, denied to highly-compensated individuals, or 
adjusted to reflect the means and needs of claimants. In short, 
the unemployment compensation system is not well-suited for 
dealing with the complexities of birth-and-adoption leave.
    It has not been demonstrated that the burdens of BAA-UC 
would be counterbalanced by any benefits relevant to the 
unemployment compensation system. In the NPRM, the Department 
hypothesizes that providing parents on birth-and-adoption leave 
with unemployment compensation would be consistent with the 
goals of the system because it would ultimately promote their 
attachment to the work force. Notably absent from the NPRM, 
however, is any solid evidence that BAA-UC would have this 
effect.
    Finally, the provision of unemployment compensation for 
birth-and-adoption leave would create an unstable and 
pernicious precedent. As there is no tenable distinction 
between birth-and-adoption leave and other forms of personal 
leave, once unemployment compensation were provided to 
individuals taking the former, there would be an irresistible 
pressure to extend compensation to the latter, as the NPRM 
itself appears to recognize. If that were to happen, however, 
the unemployment compensation system would be transformed from 
a focused and relatively uncontroversial insurance program into 
an over-stretched and difficult-to-maintain source of funds for 
programs that may or may not have the support of the public and 
the business community. The Department should not jeopardize 
the unemployment compensation system in this way.

      The Proposed Regulations Conflict With Federal Unemployment 
                            Compensation Law

    In this country, unemployment compensation is provided 
through a cooperative federal-state system in which a 
federally-collected tax is used to finance state unemployment 
compensation programs that meet certain minimum federal 
requirements. One of the most fundamental requirements imposed 
by federal law is that the money made available through this 
system be used solely for the payment of ``unemployment 
compensation.'' 26 U.S.C. Sec.  3304(a)(4). In this context, 
the term ``unemployment'' has a well-established and understood 
meaning: It requires claimants to be (1) without a job; (2) 
able and available for work; and (3) involuntarily without 
work, which normally means that claimants must be actively 
seeking work. As LPA makes clear in the comments it filed with 
DOL in response to the NPRM, these requirements are inherent in 
the plain language of FUTA and are confirmed by the legislative 
history of FUTA; the amendments to the Act and the Act's 
statutory predecessor; the administrative interpretations 
stretching from the enactment of FUTA's predecessor in 1935 up 
until the current NPRM; and the Supreme Court's interpretation 
of FUTA.
    The proposed regulations cannot be reconciled with the 
statutory requirements for unemployment. Indeed, the NPRM does 
not even attempt to reconcile the proposed regulations with the 
joblessness and involuntariness requirements. The proposed 
regulations would authorize payments of unemployment 
compensation to individuals who have jobs but are simply taking 
temporary leave, who have chosen to make themselves unavailable 
for work, and who are not seeking work. Indeed, the model state 
legislation included in the NPRM would effectively preclude the 
application of the joblessness, availability, and 
involuntariness requirements to BAA-UC claimants, thereby 
virtually stripping the term ``unemployment'' out of 
unemployment compensation. The DOL's prior treatment of state 
law provisions concerning temporary layoffs, illness, jury 
duty, and training does not provide any justification for the 
proposed regulations. Congress has not delegated to the 
Department authority to carve out exceptions to the fundamental 
restrictions imposed on state unemployment programs in service 
of goals that, whatever their benefits, are foreign to federal 
unemployment compensation law.

 The Proposed Regulations Conflict With the Congressional Requirement 
                  That Family-Related Leave be Unpaid

    The proposed regulations are also inconsistent with the 
FMLA because they effectively require employers to pay for 
birth-and-adoption leave. Although the proposed regulations on 
birth-and-adoption leave would clearly be linked to the FMLA's 
family leave provisions and could create confusion between BAA-
UC and FMLA, the NPRM does not attempt to reconcile the 
proposed rules with the FMLA. This is not surprising. In the 
FMLA, Congress struck a delicate and purposeful balance between 
the burden on employers and benefits to employees: While the 
statute requires employers to grant familyand-medical leave to 
employees, including leave for birth and adoption, it 
explicitly provides that such leave ``may consist of unpaid 
leave,'' thereby protecting employers from federal requirements 
that such leave be paid. Indeed, even the FMLA's chief sponsor, 
Rep. Patricia Schroeder (D-CO), made it clear that there would 
be no federal unemployment compensation for leave under the 
FMLA:
    ``The leave is unpaid, so your paycheck will stop. There is 
no federal compensation such as unemployment.''
    139 Cong. Rec. E2010 (daily ed. Aug. 5, 1993) (emphasis 
added).
    The proposed regulations disrupt the balance struck by 
Congress. The FMLA's savings clause confirms this. Although 
that clause states that nothing in the FMLA ``shall be 
construed to supersede any provision of any State or local law 
that provides greater family or medical leave rights than the 
rights established under this Act,'' it leaves no room, absent 
separate statutory authority, for a federal agency construing 
federal law to require paid leave in disregard of the 
protections that Congress chose to provide employers.

         The Proposed Regulations are Arbitrary and Capricious

    Even apart from their conflict with FUTA and the FMLA, the 
proposed regulations are arbitrary and capricious. First, the 
NPRM fails to consider obviously relevant factors such as the 
policies underlying the FMLA and the massive cost of funding 
birth-and-adoption leave through the unemployment compensation 
system. Second, the NPRM fails to justify the Department's 
departure from its long-standing interpretation of FUTA's 
unemployment requirements. For decades, the Department has 
refused to permit payment of unemployment compensation to 
individuals who remain out of work for personal reasons, and in 
1997 it expressly rejected a Vermont proposal to pay 
unemployment compensation to individuals on family leave. See 
Letter from Raymond J. Uhalde to the Hon. Patrick Leahy, July 
17, 1997. The NPRM does not explain why the Department has 
suddenly departed from these positions and, more generally, 
from the joblessness, availability, and involuntariness 
requirements that it has recognized for more than sixty years. 
Third, the NPRM fails to draw a reasoned distinction between 
the proposed regulations' authorization of unemployment 
compensation for individuals on birth or adoption leave and the 
Department's refusal to authorize compensation for other types 
of family and personal leave.

    The Process by Which the Proposed BAA-UC Regulations are Being 
                        Considered is Defective

    Finally, the rulemaking suffers from two procedural 
defects. First, the NPRM violates the Administrative Procedure 
Act (``APA''). Although the APA guarantees the public an 
opportunity to participate in the rulemaking process by 
requiring agencies to consider and respond to comments 
submitted by the public, the President has short-circuited that 
process here by directing the Department to issue regulations 
authorizing BAA-UC and thereby preventing the public from 
playing any meaningful role in the decision whether to issue 
such regulations. Second, this rulemaking fails to comply with 
the Regulatory Flexibility Act (``RFA''), under which any 
proposed rule affecting small businesses must be accompanied by 
a regulatory flexibility analysis that, among other things, 
describes any significant alternative to the proposed rule that 
would minimize the impact on small businesses. The NPRM 
neglected to include any such analysis on the theory that the 
proposed regulations will have no effect on small businesses. 
Plainly, however, if the regulations are promulgated and states 
authorize BAA-UC pursuant to them, small businesses will feel 
the effect of the regulations in the form of higher taxes, 
increased absenteeism, and decreased productivity. Thus, an 
initial regulatory flexibility analysis must be formulated and 
made available for public comment.

                               Conclusion

    Although LPA members and other employers are attempting to 
accommodate the family needs of their employees, we must oppose 
this attempt to undermine the nation's 65-year-old unemployment 
compensation system by seeking to serve needs that clearly fall 
outside those that the system was designed to address. The 
unemployment compensation system is not well-suited to deal 
with birth-and-adoption leave because it does not have the 
flexibility to deal with matters such as the interests of small 
businesses or needs testing. In addition, BAA-UC would impose a 
massive financial burden on the unemployment compensation 
system, necessitating an increase in taxes of an average of 34% 
per state to cover the shortfall that would be created by 
nationwide coverage. The proposed regulations also create an 
unstable and pernicious precedent that may transform 
unemployment compensation from a focused, well-functioning, and 
uncontroversial program into an over-stretched and 
controversial one. The fundamental flaw in DOL's approach from 
which all of our criticisms emerge is that it is seeking to do 
something that only Congress can accomplish. We strongly 
support any efforts by this Committee to forestall this 
dangerous precedent.
    Thank you for consideration of our views.
      

                                

                                Maryland House of Delegates
                             Annapolis, Maryland 21401-1991
                                                      March 3, 2000

The Honorable Nancy L. Johnson, Chairman
Subcommittee on Human Resources
Committee on Ways & Means
Room B-317, Rayburn Building
U.S. House of Representatives
Washington, D.C. 20515

Re: Birth and Adoption Unemployment Compensation Regulations (64 Fed. 
Reg. 59918, Dec. 3, 1999)

    Dear Chairman Johnson:

    As members of the Maryland House Economic Matters Committee and 
having jurisdiction for unemployment insurance issues, we are aware 
from national media reports that the State of Maryland has been cited 
as one of four states (Maryland, Massachusetts, Vermont and Washington) 
that has expressed interest in the BAA-UC experimental program. We 
write to set the record straight regarding Maryland's interest in the 
proposal being promulgated by the U.S. Department of Labor.
    House Bill 1124, Unemployment Insurance-Eligibility for Benefits-
Birth or Adoption of Child, was introduced during the 1999 Session of 
the Maryland General Assembly. House Bill 1124 provided 12 weeks of 
unemployment compensation for individuals who leave work immediately 
following the birth or adoption of their child, if they are the primary 
care giver and are not otherwise entitled to wages or salary from their 
employer. Maryland's Unemployment Insurance Office opposed the 
legislation because: (1) it would place Maryland out of conformity with 
federal law under the ``able and available for work'' requirement; and 
(2) it would negatively impact the Unemployment Insurance Trust fund 
balance. Allowing an entirely new category of individuals to file for 
and receive unemployment insurance benefits would deplete Unemployment 
Insurance Trust Fund revenues and trigger an increase in the surtax. 
The legislation was promptly defeated in the House Economic Matters 
Committee. This was the extent of Maryland's involvement in the issue 
at the time DOL issued the BAA-UI proposal.
    Identical legislation has been reintroduced during the 2000 Session 
of the Maryland General Assembly (HB 1198 and SB 167). HB 1198 is 
scheduled for public hearing in the House Economic Matters Committee on 
March 9, 2000. Interestingly, neither bill reflects the content of the 
model legislation proposed by DOL. Again, the Maryland Unemployment 
Insurance Office is opposing the legislation as incompatible with the 
unemployment insurance system, and estimates the financial impact on 
the Unemployment Insurance Trust Fund to be $68 million annually. If 
enacted, this legislation would trigger a .4% increase in the 
unemployment insurance surtax in Maryland, costing all Maryland 
employers an increased unemployment insurance tax liability of $34 per 
employee.
    Contrary to national media reports, there is little sentiment in 
Maryland to enact legislation that increases the tax liability of 
businesses by allowing birth and adoption leave to be financed through 
the unemployment insurance system. We hope this clarifies for the 
record Maryland's limited interest in this issue.
            Sincerely,
                                   Delegate Van T. Mitchell
                                                    [D-Charles Co.]

                                    Delegate Richard La Vay
                                                 [R-Montgomery Co.]
      

                                

                         Mechanical Contractors Association
                                           of America, Inc.
                             Rockville, Maryland 20850-4340

                                                   January 27, 2000
Ms. Grace Kilbane
Director, Unemployment Insurance Service
Employment and Training Administration
U.S. Department of Labor
200 Constitution Avenue, N.W.
Room S-4231
Washington, DC 20210

RE: Birth and Adoption Unemployment Compensation, 20 CFR Part 604, 64 
Fed. Reg. 67,972 (Dec. 3, 1999).

    Dear Director Kilbane:

    The Mechanical Contractors Association of America (MCAA) opposes 
the proposed rule that would provide unemployment insurance benefits to 
individuals who are able yet unavailable to work:
     Federal unemployment insurance law requires that claimants 
be ``able and available'' to work.
     The proposed rule circumvents the statutory requirements 
of the Family Medical Leave Act (FMLA).
     The original purpose of unemployment insurance should not 
be expanded for voluntary leave.
     Unemployment insurance benefits must be available for 
unemployed workers when the economic cycle turns and unemployment 
rises.

1. Federal unemployment insurance law requires that claimants 
be ``able and available'' to work.

    Up until the Administration's change in policy this summer, the 
Department of Labor's (DOL) long-standing administration of the Federal 
Unemployment Tax Act (FUTA) has required that unemployment insurance 
claimants be ``able and available'' to work. While there are four 
exceptions to this requirement--training, illness, jury duty, and 
temporary layoffs--none of them are voluntary, temporary withdrawals 
from employment with the intention of returning to the same job.

2. The proposed rule circumvents the statutory requirements of 
the Family Medical Leave Act (FMLA).

    FMLA provides up to twelve weeks of unpaid leave to employees who 
work for employers of at least 50 employees. Employees must have worked 
for the employer for a minimum of 1,250 hours during the previous 
twelve months to qualify for family leave.
    The proposed rule would prohibit the application of unemployment 
benefits eligibility factors unrelated to the cause of unemployment, 
e.g., employer size. Therefore, the carefully crafted compromises in 
the FMLA on employer size and job tenure--worked out by executive and 
legislative officials--would be circumvented by a unilaterally imposed, 
unnegotiated rule. Furthermore, extending unemployment insurance 
benefits to employees who voluntarily leave work for a short time 
period is very controversial; it is so controversial that the 
Commission on Leave, a board created by FMLA to study workforce issues, 
did not include such a recommendation in its report to Congress, A 
Workable Balance: Report to Congress on Family and Medical Leave 
Policies.
    MCAA's members are heating, air conditioning, refrigeration, 
plumbing, piping, and service contractors who perform new construction, 
service, and maintenance of mechanical and HVAC systems. They rely on a 
stable workforce of highly skilled employees to perform highly 
technical construction within strict timeframes and other highly 
variable work sequence schedules, including inclement weather. A 
stable, always available workforce is an essential element of quality 
construction. The proposed rule would add an element of uncertainty 
into the workforce planning that would negatively impact contractors' 
ability to perform.

3. The original purpose of unemployment insurance should not be 
expanded.

    According to a January 1996 report by the Advisory Council on 
Unemployment Compensation, Defining Federal and State Roles in 
Unemployment Insurance--A Report to the President and Congress (Report 
to the President), ``The fundamental objective of the [unemployment 
insurance] system is the provision of insurance in the form of 
temporary, partial wage replacement to workers experiencing involuntary 
unemployment.'' Unemployment insurance benefits serve a narrow 
purpose--to provide temporary assistance to workers who are 
involuntarily unemployed and who are seeking employment. That purpose 
should not be expanded into a sort of publicly mandated employee 
benefits measure administered by the state and federal government.

4. Unemployment insurance benefits must be available for 
unemployed workers when the economic cycle turns and 
unemployment rises.

    According to Report to the President, ``[The] second objective of 
the [unemployment insurance system] is the accumulation of adequate 
funds during periods of economic health, thereby promoting economic 
stability by maintaining consumer purchasing power during economic 
downturns.'' Unemployment insurance benefits lessen the burdens of 
those hard economic times and become a macroeconomic tool to keep up 
demand. The system should not be expanded so as to jeopardize its 
fundamental purpose.

            Sincerely,

                                              John McNerney
              Executive Director for Government and Labor Relations
      

                                

Statement of Judith L. Lichtman, President, National Partnership for 
Women and Families

    As the leaders of the growing movement to make family leave 
more affordable, the National Partnership for Women & Families 
wholeheartedly supports the proposed regulation that is the 
topic of today's hearing. Formerly the Women's Legal Defense 
Fund, the National Partnership wrote the first draft of the 
Family and Medical Leave Act (FMLA) and led the nine-year fight 
for its passage. In 1999, the National Partnership launched the 
Campaign for Family Leave Income, a multi-year initiative to 
make family and medical leave more affordable for all working 
Americans.
    Encouraging states to provide unemployment insurance to new 
parents is the right move for working families. This new form 
of unemployment coverage will let millions of mothers and 
fathers help their children thrive during the critical months 
after birth and adoption. It will alleviate a major source of 
economic pressure on working families. And it will put our 
nation's policies more in sync with the realities facing 
today's workforce.
    This concept is catching fire in the states. Legislators 
around the country are introducing new bills that would extend 
their state unemployment benefits to new parents. In fact, 
legislative efforts to provide some income during family leave 
are already underway in at least 13 states: California, 
Connecticut, Illinois, Indiana, Iowa, Maryland, Massachusetts, 
Minnesota, New Hampshire, New Jersey, New York, Vermont, 
Washington.
    Since the FMLA became law in 1993, more parents are 
spending precious time with new babies, fewer children have to 
face hospital stays alone, and more workers can care for their 
parents in an emergency. In almost seven years, the FMLA has 
helped some 26 million women and men care for their loved ones 
and keep their jobs, without harming employers.
    The FMLA was a critical first step, but it was not enough. 
Too many Americans simply cannot afford to take the unpaid 
leave the law provides. The bi-partisan Family Leave Commission 
found that lost wages are the number-one reason people do not 
take needed leave. Sadly, nearly one in ten FMLA users is 
forced onto public assistance while on unpaid leave. At a time 
when we have such a strong economy--and working families need 
relief so urgently--this regulation is a major step forward 
that can make a real difference in the lives of millions of 
Americans.

Providing Family Leave Income Through Unemployment Insurance

                          Questions & Answers

    On December 3, 1999, the Department of Labor proposed a new 
federal regulation that encourages states to let new parents 
collect unemployment insurance while on unpaid family leave. 
This document answers some of the most common questions about 
using unemployment insurance to provide family leave income and 
about the upcoming regulation.

    Background

    Since the Family and Medical Leave Act (FMLA) was enacted 
in 1993, it has helped at least 24 million Americans take up to 
12 weeks of unpaid, job-protected leave to care for their new 
babies and sick family members, and to recover from their own 
serious illnesses, without hurting businesses. Yet too many 
women and men simply cannot afford to take unpaid leave, even 
when their families need them most. The bipartisan Family Leave 
Commission found that nearly two-thirds of employees who did 
not take needed leave cited lost wages as the primary reason.
    In June 1999, the National Partnership for Women & Families 
launched the Campaign for Family Leave Income, a multi-year 
initiative to make family and medical leave more affordable for 
all working Americans. ``Family leave income'' (FLI) describes 
a variety of ways to help people afford time off when a baby is 
born or adopted, when a close relative is seriously ill, or 
when workers themselves need medical care.
    Unemployment insurance is one of the most widely considered 
and promising vehicles for providing FLI. Legislators and 
advocates in several states--including Connecticut, Georgia, 
Illinois, Indiana, Maine, Massachusetts, Maryland, New 
Hampshire, New Jersey, Oregon, Vermont, and Washington--are 
considering extending unemployment benefits to employees taking 
family or medical leave. A 1998 National Partnership survey 
found that most Americans--79%--support this approach.

Family Leave Income and Unemployment Insurance

    Why should unemployment insurance be used to provide FLI 
benefits?
    Originally a safety net primarily for male breadwinners, 
unemployment insurance was designed with the assumption that 
women could devote themselves exclusively to family needs. With 
the massive entry of women into the workforce and the rapid 
aging of the population, along with an historically high demand 
for workers, the unemployment insurance system must evolve to 
accommodate the real-life challenges facing today's families: 
more people need care, but fewer people are available to 
provide that care without compensation. Using unemployment 
insurance to provide FLI benefits would help update the 
unemployment system to fit the changing composition of the 
American workforce and the American family.
    Won't it be very expensive to provide FLI through 
unemployment insurance?
    No. Because it is based on an insurance model, providing 
FLI this way is very inexpensive. For instance, extending 
unemployment benefits to Massachusetts workers on family or 
medical leave is estimated to cost no more than a modest $1.25 
per covered worker per week. Further, in states with such 
proposals, the cost can be fully offset by unemployment fund 
surpluses--surpluses that states like Massachusetts are 
considering simply returning to employers in the form of tax 
cuts.
    At the same time, the hidden costs of not having FLI are 
substantial. The costs to employers include higher turnover and 
replacement costs and lower productivity when employees are 
forced either to forgo needed time off from work or to leave 
their jobs entirely. The costs to society include increased 
health care and public benefits expenses. In fact, the 
bipartisan Family Leave Commission found that nearly one in ten 
leave-takers, and 12% of women leave-takers, were forced onto 
public assistance during leave.
    But isn't unemployment just for people who get laid off?
    Since its creation in the 1930's, the unemployment 
insurance system has given states considerable flexibility in 
determining how best to use their unemployment funds, including 
setting eligibility requirements. Many states have found it 
worthwhile to provide unemployment benefits to people in 
situations that do not fit the narrow, traditional criteria of 
being involuntarily laid off and immediately available for 
work. Examples of such state policies now in place with the 
approval of the U.S. Department of Labor include the following:
     Employees who are temporarily laid off, but will 
be ``recalled'' to work for the same employer, are not required 
to be ``available'' to work for anyone else to be eligible for 
unemployment benefits in seven states. Similarly, people who 
are temporarily not working because they are on family or 
medical leave also want and intend to return to the same job: 
the bipartisan Commission on Leave found that 84% of employees 
who take FMLA leave return to their jobs.
     Several states provide benefits to workers who 
become unemployed and then develop a physical condition that 
prevents them from working. Employees who must take medical 
leave to recover from a physical disability are in essentially 
the same position. The mere timing of their disability should 
not control employees' access to benefits.
     One-third of states already recognize that 
employees who must leave their jobs for an urgent and 
compelling reason--such as a spouse getting relocated or the 
inability to find child care--still deserve unemployment 
benefits, even though they were not laid off.
     People enrolled in approved job training programs 
receive benefits, even though they are allowed to turn down 
work during their training periods. Such employees are no more 
available for work than employees taking family or medical 
leave.
    Won't providing FLI endanger unemployment insurance trust 
funds in times of recession?
    No. The real threat to trust funds comes not from an 
expansion of unemployment benefits, but from repeated and 
dramatic employer tax cuts. Even as American businesses have 
enjoyed record-breaking profits, they have been lobbying 
aggressively and successfully for large cuts in their 
unemployment taxes: at least 15 states have cut unemployment 
taxes sharply in the past five years, and legislation to lower 
taxes is pending in many more. Ironically, some of the same 
business groups insisting that providing FLI would 
``devastate'' state trust funds are still calling for cuts that 
would deplete those same funds--but would benefit their own 
bottom line. For example, Massachusetts business interests 
oppose using unemployment insurance for family or medical 
leave, even as they lobby for tax cuts equal to the entire cost 
of providing FLI throughout the state.
    In fact, many states are well positioned for an expansion 
of unemployment insurance benefits to include employees on 
family and medical leave. State trust fund reserves increased 
85% overall from the end of the last recession in 1992 through 
1998. Well over half the states have reserves that exceed 
solvency guidelines specifically designed to measure the 
ability to withstand a severe recession. These guidelines are 
calculated by averaging actual unemployment costs from the 
three worst economic downturns of the previous twenty years.

The President's Directive on Unemployment Insurance for New 
Parents

    What was President Clinton's directive to the Department of 
Labor?
    In May 1999, the President directed the Secretary of Labor 
to propose a new regulation confirming that states may offer 
unemployment insurance to working parents on leave to care for 
a newborn or newly adopted child.
    How will the regulation be developed and when will it go 
into effect?
    The Department of Labor issued a ``notice of proposed 
rulemaking''--or draft regulation--on December 3, 1999. States 
and the public now have the opportunity to submit comments 
until February 2, 2000, as part of the process of developing 
the final regulation. An effectiveness date for the final 
regulation has not yet been set.
    Why is this regulation necessary?
    Four states (Maryland, Massachusetts, Vermont, and 
Washington) asked the Administration to confirm that they could 
use their unemployment insurance systems to offer FLI in 
accordance with federal law. In response, the President 
directed the Labor Department to clarify how states wishing to 
use unemployment insurance to assist new parents could put 
those plans into effect.
    How long will people be able to take leave and receive pay?
    States will be free to define the length of time employees 
may receive unemployment insurance while on family leave.
    Who will be eligible for this new form of unemployment 
insurance coverage?
    Each state may establish its own eligibility requirements.
    Why should new parents be singled out for this benefit?
    Providing FLI benefits to new parents is an important 
investment in the future workforce. Research shows that 
parental involvement is crucial to help babies develop 
physically, emotionally, and intellectually, and that children 
benefit from early parental attention long after they leave 
infancy.
    While recognizing the needs of new parents, advocates for 
women, children, parents, seniors, and people with disabilities 
also strongly support making family leave affordable for those 
who need to care for seriously ill children or other family 
members or to recover from their own serious illness.
    Right now, employers who fire more workers pay higher 
unemployment taxes--it's called ``experience rating.'' Won't 
this regulation increase unemployment taxes for employers with 
more new parents on the payroll?
    No. States can, and should, exempt this new form of 
unemployment coverage from experience rating.
    Won't the new regulation force state governments to pay for 
people's individual choices?
    No. State participation in this program is wholly 
voluntary. Indeed, the new regulation protects state 
governments' choice to provide FLI to new parents through 
unemployment insurance (or not). In choosing to set up FLI 
programs, states fulfill our collective responsibility to help 
young families thrive, to value caregiving, and to prevent 
poverty--all longstanding American values that are already 
reflected in a range of public policies, from Social Security 
to dependent care tax credits.
    The Labor Department estimates that the annual cost of this 
regulation could range from $0-68 million. What does this range 
represent?
    The Department of Labor based its cost estimate on data 
from the four states (Maryland, Massachusetts, Vermont, and 
Washington) that asked the Administration to provide guidance 
on providing FLI through their unemployment insurance systems. 
If no state enacts UI/parental-leave legislation, the annual 
cost of the regulation will be 0, while if all four of these 
states enact legislation, the Labor Department estimates that 
the total annual cost will be around $68 million. This estimate 
reflects the Labor Department's assumptions about how many 
people are likely to use the benefit. Several other independent 
studies have also estimated the cost of providing unemployment 
insurance benefits to employees on parental leave. These 
studies are summarized on our website at 
www.nationalpartnership.org/workandfamily/fmleave/expansion/ 
uitdichart1.htm.
    How many states can participate?
    The regulation does not limit the number of states that can 
participate. A state simply must amend its unemployment 
insurance law to include parental leave.
    Isn't this a backdoor way of addressing a question that 
Congress should decide?
    No. In creating the national unemployment compensation 
system in 1935, Congress envisioned a federal-state cooperative 
scheme that would provide a uniform national floor for the 
benefits states could grant, while leaving states otherwise 
free to develop eligibility criteria that would offer more 
generous coverage and benefits. When questions about this 
scheme have arisen, however, states have routinely asked the 
Department of Labor to clarify the law, as four states did in 
this case.
    This document was produced by the Campaign for Family Leave 
Income, a project of the National Partnership for Women & 
Families. For more details about state proposals and programs 
and the Campaign for Family Leave Income, please see 
www.nationalpartnership.org or call 202/986-2600.

State Family Leave Income Initiatives

                  Making Family Leave More Affordable

    Around the country, activists for women, children, seniors, 
and working families are organizing to make family leave more 
affordable through family leave income. Efforts have been 
undertaken in at least nine states to provide family leave 
benefits. For example, many states are considering expanding 
unemployment or disability insurance to provide some pay during 
periods of unpaid family and medical leave.
     Most Americans--fully 82% of women and 75% of 
men--support such ``family leave insurance'' proposals.*
---------------------------------------------------------------------------
    * National Partnership for Women & Families, Family Matters: A 
National Survey of Women and Men, 1998.
---------------------------------------------------------------------------
    Currently, the federal Family and Medical Leave Act (FMLA) 
guarantees covered employees 12 weeks of unpaid leave each year 
to care for a newborn or newly adopted child or seriously ill 
family member (family leave), or to recover from their own 
serious health condition (medical leave). The FMLA was an 
essential step toward recognizing Americans' work and family 
responsibilities. However, because FMLA leave is unpaid, many 
employees cannot afford to take time off at the very time their 
families need them most.
     The bipartisan Family Leave Commission found that 
nearly two-thirds of employees who needed but did not take 
family or medical leave cited lost wages as the reason.**
---------------------------------------------------------------------------
    ** Commission on Leave, A Workable Balance: Report to Congress on 
Family and Medical Leave Policies, 1996.
---------------------------------------------------------------------------
    Existing public and private responses are limited. For 
instance, five states (as well as Puerto Rico) require 
employers to offer temporary disability insurance (TDI), which 
provides partial wage replacement to employees who are 
temporarily disabled for non-work-related reasons, and many 
employers voluntarily offer TDI as an employee benefit. While 
TDI covers disabilities arising from pregnancy or childbirth, 
TDI currently offers no benefits for employees who take leave 
beyond the period of maternal disability, or take leave for 
paternity, for adoption, or to care for seriously ill family 
members. Although the five states with TDI systems employ 22% 
of working Americans, employees in other states have no such 
coverage guarantees.
    To make family leave more affordable for more Americans, 
state legislators, activists, and researchers are mobilizing 
behind a range of innovative proposals. Attached is a sampling 
of current state efforts compiled by the National Partnership 
for Women & Families as the leader of the Campaign for Family 
Leave Income.

                               California

    A dynamic coalition of advocates for women, children, and 
labor has advanced a family leave agenda for the 1999-2000 
legislative session. In February 2000, a bill was introduced 
requiring employers with five or more workers to offer at least 
six days of paid sick leave to their full-time low-wage 
employees. In 1999, California enacted a law requiring a study 
of the cost of extending the state's TDI program to cover 
family leave, and increasing the weekly TDI benefit cap from 
$336 to $490. Also in 1999, California passed a law requiring 
employers who offer paid sick leave to let employees use some 
of their sick leave to care for a sick child, parent, or 
spouse.

    Contact:
State Senator Hilda Solis
(916) 445-1418

State Senator Tom Hayden
(916) 445-1353

Lisa Ecks
California Labor Federation
(916) 444-3676

Netsy Firestein
Labor Project for Working Families
(510) 643-6814

Assemblyman Wally Knox
(323) 932-1201

Aimee Durfee and Emily Katz Kishawi
Equal Rights Advocates
(415) 621-0672

Patricia Shiu
Employment Law Center
(415) 864-8848

                              Connecticut

    The Connecticut General Assembly's Labor and Public 
Employees Committee introduced a bill in February 2000 to 
provide unemployment benefits to workers on parental leave. The 
bill would also create a ``Family and Medical Leave Insurance 
Fund,'' financed by an employer payroll tax, that would pay 
benefits to employees taking leave to care for a seriously ill 
family member or to recover from a serious health condition. 
The cost of offering benefits equal to unemployment 
compensation to workers on family and medical leave has been 
estimated to cost as little as 28 cents per covered worker per 
week, and no more than $1.15 per employee per week. The Labor 
and Public Employees Committee recently held a hearing on the 
bill at which a wide range of legislators, advocacy groups, 
unions, and leave-takers testified in support of the proposal.

    Contact:
State Representative Christopher Donovan
(860) 240-0540

Leslie Brett
Connecticut Permanent Commission on
the Status of Women
(860) 240-8300

                                Illinois

    A bill was introduced in February 2000 to provide up to 12 
weeks of unemployment benefits to workers on any approved FMLA 
leave and to workers who leave a job for any reason specified 
in the FMLA.

    Contact:
State Representative Julie Hamos
(217) 782-8052

Lindsey Crawford
Women Employed
(312) 782-3902

                                Indiana

    In January, 2000, Indiana House legislators introduced a 
bill that would provide up to 12 weeks of unemployment 
insurance benefits to parents who take leave to care for a 
newborn or newly adopted child. The bill passed by a 52-44 
vote, with bipartisan support. The Senate is now considering 
the legislation; it has been referred to the Committee on 
Pensions and Labor.

    Contact:
State Senator Anita Bowser State
(317) 232-9400

Representative Linda Lawson
(317) 232-9600

                                  Iowa

    A bill introduced during the 1998 legislative session would 
have established a fund for providing benefits to employees on 
family leave. It would also have created a work and family task 
force to examine the impact of this family leave insurance 
program.

    Contact:
State Senator Michael Gronstal
(515) 281-3901

                                Maryland

    Bills were introduced in the House and Senate in February 
2000 to provide up to 12 weeks of unemployment insurance 
benefits to parents who take leave to care for a newborn or 
newly adopted child. Several local groups, including the 
Maryland Women's Law Center and the Public Justice Center, have 
been working to support the bill. A hearing before the House 
Committee on Economic Matters is scheduled for March 9. During 
the 1999 session, Maryland passed a law requiring employers 
that grant paid leave to workers following the birth of a child 
to grant the same leave to employees who adopt a child.

    Contact:
Delegate Michael Dobson
(410) 841-3850

Denise Davis
Maryland Women's Law Center
(410) 321-8761

Debra Gardner
Public Justice Center
(410) 625-9409

                             Massachusetts

    Spearheaded by the Women's Statewide Legislative Network, a 
diverse and active Family Leave Coalition is rallying support 
for a bill to extend unemployment benefits to employees taking 
family and medical leave. The estimated cost of providing 
unemployment benefits for family and medical leave is less than 
$1.25 per week per employee. Also pending is a bill aiming to 
create a ``family and employment security trust fund.'' In 
April 1999, the state legislature's Joint Committee on Commerce 
and Labor (chaired by Senator Steven Lynch, sponsor of the 
unemployment insurance bill) held a hearing on the two bills. A 
broad array of researchers, legislators, advocates, and leave-
takers testified in support of the bills, and the hearing was 
widely and favorably reported by media across the state. The 
bills are currently pending in the Joint Committee on Commerce 
and Labor. Further, Massachusetts recently unveiled a $13 
million plan to make the state a more ``family friendly'' 
employer, including a proposal to allow state workers to use up 
to 12 weeks of accumulated sick leave for maternity or adoptive 
leave without a doctor's note.

    Contact:
Monica Halas
Greater Boston Legal Services
(617) 371-1270, ext. 621

State Representative Anne Paulsen
(617) 722-2140

Linda Johnson
    Women's Statewide Legislative Network
    (617) 426-1878

                               Minnesota

    In February 2000, two bills were introduced in the 
Minnesota House and Senate that would provide income to 
employees taking leave to care for a newborn or newly adopted 
child. One bill (SF 3541/HF3869) would establish a ``voluntary 
paid parental leave program'' that would partially reimburse 
employers that provide ``qualified paid parental leave.'' 
Another bill (SF2996/HF3605) would provide benefits under a 
``birth and adoption leave program'' financed through 
unemployment insurance funds. Since July 1998, a state-funded, 
at-home infant child care program has allowed working parents 
who fulfill income eligibility requirements to receive 
subsidies for caring for infants under the age of one.

    Contact:
Marcie Jefferys
Children's Defense Fund-MN
(651) 227-6121

State Senator Jerry Janezich
(651) 296-8017

Cherie Kotilineck
(651) 582-8562

Department of Children, Family & Learning
State Senator Ellen Anderson
(651) 296-5537

                             New Hampshire

    The New Hampshire House of Representatives is currently 
considering a bill to establish a committee to study a broad 
range of options for providing benefits to New Hampshire 
employees who take family and medical leave.

    Contact:
State Representative Mary Stuart Gile
(603) 224-2278

Jonathan Baird
New Hampshire Legal Assistance
(603) 542-8795

                               New Jersey

    The New Jersey legislature will consider at least two 
family leave income initiatives this session. Bill A3027, 
introduced in February 2000, would extend unemployment 
insurance benefits to employees who take leave to care for a 
newborn or newly adopted child and TDI benefits to employees 
who take leave to care for an ill parent, child, or spouse. 
Another bill introduced this legislative session--A1577--would 
also extend benefits for leave taken to care for newborn or 
newly adopted children or ill parents, children or spouses, but 
would do so solely through the statewide TDI system.

    Contact:
Laurel Brennan
New Jersey AFL-CIO
(609) 989-8730

Assemblywoman Arline M. Friscia
(732)-634-2526

Assemblyman Charles Zisa
(201)-996-8040

                                New York

    A dedicated group of labor unions is generating support for 
family leave insurance in New York. A bill has been introduced 
to amend New York's TDI law to cover employees taking family 
leave.

    Contact:
Assemblywoman Catherine Nolan
Attention: Geri Reilly
Counsel for Labor Committee
New York State Assembly
(518) 455-4311

Deborah King
New York Union Child Care Coalition
AFL-CIO
(212) 494-0524

                                Vermont

    A bipartisan bill was introduced in the 2000 legislative 
session to authorize a three-year pilot program, financed 
through Vermont's general fund, that would provide partial pay 
for employees who take leave to care for newborn or newly 
adopted children. The estimated cost of providing income to 
Vermont workers on parental leave is less than 15 cents per 
week per employee. In February 2000, the Senate Committees on 
Appropriations, Finance, and General Affairs and Housing held 
hearings on the bill.

    Contact:
State Senator Jan Backus
(802) 655-7455

State Senate President Peter Shumlin
(802) 828-2228
Michael Sirotkin and Adam Necrason
Vermont AFL-CIO
(802) 223-9988

    State Senator Cheryl Rivers
    (802) 828-2228

    State Senator Peter Illuzzi
    (802) 828-2228

                               Washington

    In early February 2000, the Washington State Senate 
Committee on Labor and Workforce Development held hearings on, 
and passed, a bill providing 5 weeks of unemployment benefits 
for employees taking leave to care for newborn or newly adopted 
children. The witnesses, who all supported the bill, included a 
pediatrician, advocacy groups, union representatives, and 
parents who had suffered financially in taking unpaid family 
leave. Similar legislation is also pending in the Washington 
House of Representatives, where the Children and Family 
Services Committee held a Work Session on Family Leave later in 
February that also featured strongly supportive testimony from 
advocates, labor representatives, and leavetakers. These 
proposals have been estimated to cost 11 cents per employee per 
week. Washington law already allows employees to use accrued 
sick leave to care for sick children.

    Contact:
John Burbank
Economic Opportunity Institute
(206) 633-6580

Jeff Johnson
Research Director, Washington State Labor Council, AFL-CIO
(360) 943-0608

    State Senator Lisa Brown
    (360) 786-7604
    State Representative Mary Lou Dickerson
    (360) 786-7860
          * * * * *
    For more information about the Campaign for Family Leave Income, 
including a list of Advisory Committee members, a round-up of state 
proposals, and the latest news and research, please see our web site 
(www.nationalpartnership.org) or contact the National Partnership for 
Women and Families at 1875 Connecticut Avenue, NW, Suite 710, 
Washington, D.C. 20009, (202) 986-2600, [email protected].
      

                                

Statement of National Restaurant Association

    The National Restaurant Association, representing America's 
831,000 eating establishments, respectfully submits this 
statement regarding the Department of Labor's (DOL) proposed 
regulation to allow states to use their unemployment 
compensation (UC) funds to pay UC benefits to parents who take 
leave under the Family and Medical Leave Act (FMLA) for birth 
or adoption. As the nation's number one retail employer--
providing jobs and careers for 11 million people--our members 
are eminently aware of the importance of providing meaningful 
benefits to employees and share the Subcommittee's commitment 
to helping American workers balance the needs of the family 
with the responsibilities of the workplace.
    The Association strongly opposes the proposed rule, 
however, and is extremely concerned that the DOL is advancing 
this measure outside the proper process and without lawful 
consideration of its impact on workers, employers and the 
solvency of the UC fund. A short comment period, set over the 
holidays after Congress had adjourned, did not allow for the 
fundamental deliberation needed to evaluate such sweeping 
change to 65 years of labor law. The Administration's decision 
to force this expansion without proposed legislation ignores 
serious problems with the current FMLA and dismisses the 
authority of Congress and this Subcommittee to preserve the UC 
fund for unemployed workers.

Proposed Rule Contradicts Existing Labor Law

    The proposed regulation erodes federal unemployment 
compensation law by raiding funds reserved for involuntarily 
unemployed workers to pay employed workers who voluntarily take 
FMLA leave. Eligibility for unemployment compensation benefits 
is defined by state and federal law under the cooperative 
state-federal system. 42 USC Sec. Sec. 501-504 and 1101-1108. 
The term delineating the relief is ``unemployment.'' As stated 
under 26 USC Sec. 3304(a)(4):

        all money withdrawn from the unemployment fund. . .shall be 
        used solely in the payment of unemployment compensation [except 
        in certain specified circumstances]. . ..

    Indeed, ``compensation'' paid under UC is defined as ``cash 
benefits payable to individuals with respect to their 
unemployment.'' 26 USC Sec. 3306(A). Using the unemployment 
fund to pay employees on FMLA leave from employment for 
childbirth or adoption is using the fund to support leave 
during a period of employment, not unemployment.
    The DOL's argument about interpreting the ``able and 
available'' requirements when an employee is unemployed appears 
irrelevant. The issue is not whether the employee is ``able and 
available'' when he or she takes FMLA leave. Clearly, the 
employee is not ``available'' since the leave was taken for 
childbirth or adoption. Rather, the issue is whether temporary 
leave while employed should be funded by an unemployment 
compensation system.

Proposed Rule Jeopardizes The Unemployment Compensation Fund

    Temporary leave should not be funded by a UC system. The UC 
system was designed to protect workers who lose their jobs when 
the employer no longer has work available. To receive UC 
benefits the unemployed worker must be seeking new work, and 
these benefits stop upon offer of an appropriate job. The 
proposed regulation would drain UC benefits away from the very 
people who rely on them and for whom the system was originally 
created.
    As this Subcommittee is well aware, this misdirection is 
particularly remiss given that Congress has historically had to 
bail out numerous state UC funds. Critical funds will be 
diverted that are needed to pay standard UC claims for 
unemployed workers who do not have a job to which to return. 
Moreover, numerous implementation problems will burden state 
agencies that are ill equipped to administer this expansion to 
a new pool of claimants.

Proposed Rule Creates New Benefits Without Appropriate Funding

    The amount an employer must pay into a state unemployment 
compensation system is determined in part by how many of the 
employer's ``ex-employees'' are awarded compensation. 1B 
Unemployment Insurance Report (CCH)  1120. Thus, by allowing 
employees on FMLA leave to claim ``unemployment'' compensation, 
the employer's payment into the UC fund will obviously 
increase, imposing a massive new tax burden on businesses. 
According to some estimates, the proposed regulation will add a 
$68 billion a year payroll tax increase to the $30 billion 
employers already spend on the UC system each year.
    This hefty payroll tax increase will subsidize employee 
leave for childbirth and adoption while crippling employers' 
ability to create new jobs and provide employee benefits. 
Payroll taxes will increase even for employers who are not 
covered by the FMLA. It is particularly troubling that the DOL 
would propose a change of such magnitude without lawfully 
evaluating the impact on small businesses.

Proposed Rule Abrogates Congressional Intent

    Unlike the unemployment compensation program, the FMLA was 
created in 1993 to allow individuals who have a job and are 
working to take temporary time off for medical and family 
reasons. Congressional language expressly provided for unpaid 
leave in the FMLA. Conversely, the UC system was created to 
provide benefits to involuntarily unemployed workers. Workers 
taking FMLA leave are not unemployed and should not be added to 
the UC system.
    To do so would misuse the UC system at great consequence to 
the solvency of those funds and the employers who subsidize 
them. In fact, serious problems with the current FMLA have not 
been addressed by the DOL and would be exacerbated by this 
proposed regulation. Although numerous implementation and abuse 
problems with the FMLA have been documented in three 
congressional hearings, the proposed regulation seeks to expand 
the FMLA without rectifying these existing burdens. This 
expansion would be in direct conflict with congressional intent 
and would establish a precedent for additional expansion.
    We urge the Subcommittee to uphold the intent of Congress 
and preserve the UC fund for its original purpose, to provide 
benefits for unemployed workers, not employed workers taking 
temporary FMLA leave. The Association appreciates your 
consideration of these concerns and strongly supports any 
action the Subcommittee may take to prevent implementation of 
this ill-advised regulation.
      

                                

Statement of Mark Wilson, Research Fellow, Heritage Foundation

    Madam Chairman, Members of the Committee, thank you for the 
opportunity to submit this written statement for the record. 
The views I express in this testimony are my own and should not 
be construed as representing any official position of The 
Heritage Foundation.
    On December 3, 1999, while Congress was in recess and 
Americans were busy with the holidays, the U.S. Department of 
Labor (DOL) published proposed new regulations in the Federal 
Register that both redefine what it means to be unemployed and 
allow states to pay workers who choose to stay home up to one 
year with their newborn or newly adopted children. The 
President's plan would put at serious risk the ability of 
states to pay unemployment benefits to laid-off workers.
    Congress should not allow the President to unilaterally 
convert the Unemployment Insurance (UI) program into a huge new 
government entitlement program unrelated to unemployment. The 
current federal-state UI partnership--particularly the system's 
outmoded method of administration and financing--is already 
seriously flawed. Substantially changing the purpose of UI and 
expanding the program to cover family leave will only make 
these problems worse. The new program would pit employees who 
voluntarily choose (and in many instances can afford) to be out 
of work against workers who involuntarily lose their jobs.
    Congress should repeal the federal unemployment surtax on 
workers' wages and transfer the UI system to the states. 
Senator Mike DeWine (R-OH) and Representative Jim McCrery (R-
LA) have introduced the Employment Security Financing Act of 
1999 (S. 462 and H.R. 3174), which would repeal the surtax, 
begin to reform the UI system, and prevent Washington from 
raiding the program to pay for new spending.

Governors Recognize Threat.

    North Dakota Governor Ed Schafer, chairman of the 
Republican Governors Association, has said that UI ``is not 
designed, equipped or adequately funded to pay for absences 
from work that are related to extended family leave.'' Michigan 
Governor John Engler has said that his state ``will not put at 
risk the financial integrity of its unemployment insurance 
program.'' Even the Interstate Conference of Employment 
Security Agencies has expressed concerns with the potential 
cost of the proposed regulation.
    If all 50 states provide just 12 weeks of benefits to new 
parents in the labor force, as recommended by DOL, the cost 
could be $11.3 billion per year--over one-half the amount of 
regular benefits paid to out-of-work Americans in 1999. State 
UI benefit payments could balloon from $24.9 billion to $36.2 
billion this year and quickly drain the trust funds. By 2002, 
state trust fund balances could fall by over 60 percent from 
$53.7 billion to just $21.4 billion, substantially threatening 
the ability of states to pay regular UI benefits to laid-off 
workers during the next economic downturn unless states 
increase taxes. Moreover, the cost of the program could explode 
if Washington expands it again to cover other types of leave 
such as illness and elder care.
    Despite DOL's claim that the new program is designed to 
give states the ``flexibility'' to experiment with the UI 
program, the proposed regulation in reality gives them the 
flexibility to do only one thing: expand UI benefits to new 
parents. True flexibility would allow the states to conduct 
many different types of experiments, such as privatizing UI or 
offering other reemployment incentives that are not allowed 
under current law.

Higher Taxes, Slower Wage Growth, Fewer Benefits.

    Without large state tax increases to pay for these new 
benefits, the payment of regular unemployment benefits to laid-
off workers will be jeopardized. A number of states have 
automatic tax increases built into their UI systems that kick 
in when their trust fund balances fall below certain levels. In 
Ohio alone, taxes could increase by $900 million, nearly 
doubling the existing unemployment tax rate. Moreover, studies 
indicate that, on average, over 70 percent of the cost of all 
employer-paid payroll taxes is shifted to workers in the form 
of lower real wages.
    Employees want creative pay and benefit packages, and they 
often choose their employers based on these packages. Employers 
know this and have incentives to compete for the best talent by 
offering innovative benefit packages. There is no need for the 
government to intervene. Many workers already have paid 
parental leave programs from their employers that pay more than 
what they would get from the UI system. However, DOL now 
proposes to reduce or eliminate the incentive to compete by 
substituting a new, less attractive government benefits program 
for all workers.

The Proposed Rule Effectively Creates an Employer Paid 
Severance Program.

    DoL's proposed rule says that states may provide birth and 
adoption unemployment compensation (BAA-UC) to new parents 
without requiring that they return to their previous employer 
or demonstrate any attachment to the workforce. Since around 50 
percent of new parents that take family and medical leave never 
return to their job this would dramatically alter the UI 
program by effectively creating an employer paid severance 
benefit for new parents. For the first time, workers who are 
new parents could receive a UI benefit without having to look 
for work or even return to work. New parents that sign up for 
the benefit and decide not to return to work would receive an 
average severance package of $2,520.

The Proposed Rule Creates a Permanent Program.

    DoL's proposed rule describes the BAA-UC as an experimental 
program, but nothing in the proposal distinguishes it from any 
other permanent program. There is no sunset date, evaluation 
process, or other factor in the proposed rule that would 
suggest that this program is truly experimental.

The Proposed Rule Could Lead to Benefit Fraud and Abuse.

    DOL does not propose to condition receipt of BAA-UC benefit 
payments on any demonstrable effort to actually spend any time 
with a child. How can state UI agencies or an employer possibly 
determine if a parent is bonding with a child consistent with 
the intent of the regulation? This defect would quickly result 
in BAA-UC being little more than a paid vacation plan. The 
amount of improper payments in the UI system is always a 
serious concern. DOL should take no action that exacerbates 
this problem

Conclusion.

    When both UI and Social Security were created in 1935, 
policymakers knew there would be political pressure to use the 
tax revenue for other government programs. That is why they 
placed limits on the use of those funds. Now DOL is rushing to 
remove those limits by regulatory fiat. Enough time should be 
allowed so that such an important change can be considered 
carefully by Congress, governors, and the public.
    With the tax burden on American jobs at a record high, the 
Clinton Administration has found a source of money to pay for 
new government programs that threatens the payment of regular 
UI benefits. Congress should repeal the federal unemployment 
surtax on workers' wages, transfer the UI system to the states, 
and restate the historical intent of the UI program: that UI 
benefits should be paid only to individuals who are 
involuntarily out of work.
          * * * * * *
    Members of The Heritage Foundation staff testify as 
individuals discussing their own independent research. The 
views expressed are their own, and do not reflect an 
institutional position for The Heritage Foundation or its board 
of trustees.
      

                                

Statement of Hon. Lynn Woolsey, a Representative in Congress from the 
State of California

    Thank you for giving me this opportunity to add my voice in 
strong support of the Department of Labor's proposed regulation 
which clarifies that States may provide unemployment benefits 
to new parents. I urge final adoption of the regulation.
    The proposed regulation permits States to voluntarily 
extend their unemployment compensation programs to cover 
workers who take approved leave to be with newborn or newly 
adopted children. Implementation of a birth and adoption 
unemployment compensation program is entirely at the discretion 
of the States.
    The Unemployment Insurance system is a unique federal-state 
partnership that sets a national floor for the benefits that 
States can grant, but gives States the right to provide more 
generous coverage if they choose. It should be left up to 
States to decide whether or not to provide unemployment 
benefits to new parents.
    The nation's workforce has changed dramatically since the 
unemployment insurance system was started. Among the most 
significant changes has been the increase of women in the labor 
market and the dependence of most families on more than one 
wage earner. The proposed regulation will bring the 
unemployment insurance program closer to this new workforce 
reality.
    It is important to point out that paying unemployment 
benefits to workers who are not immediately ready and available 
for work does not establish a new precedent. The proposed 
regulation is fully consistent with previous rulings by the 
Department of Labor that workers who are in training programs; 
workers who become ill; workers on jury duty; and workers who 
have been temporarily laid-off may be eligible to receive 
unemployment compensation under State law.
    Most importantly, however, the proposed regulation is a key 
part of the long-term investment in families, and a family 
friendly workplace, that this nation must make. Research has 
shown how important it is to establish a strong bond between 
parents and their new children during their first few months of 
life together. Unfortunately, far too few babies in America get 
that kind of start. If today's children are lucky enough to 
have both parents living with them, chances are both work 
outside the home. And, its almost impossible for new parents to 
take time off from work without pay.
    The recent tragedies in our nation's schools and 
communities compel all of us to ask the question, ``Who is 
taking care of our children?''
    We all know that during those critical first months, it 
should be the child's parents. . ..Mom and Dad. But, families 
are struggling to make ends meet and our children are getting 
left behind. The Family and Medical Leave Act gives parents the 
right to take leave when a new baby joins the family. The 
reality is, however, that a recent study found that nearly two-
thirds of the employees who were eligible for Family and 
Medical Leave did not take it because they could not afford to 
give up their income.
    New Parents Must not be Forced to Choose Between Taking 
Care of Their Child Financially, and Taking Care of That Child 
Physically and Emotionally.
    Using unemployment benefits to help more American workers 
take care of their new children is a sound investment in the 
current and future workforce of this country. States that want 
to make that investment should be allowed to do so. Again, I 
urge you to adopt the proposed parental leave regulation.

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