GEF-1, Room B205
201 East Washington Avenue
Management: James Buchen, Ed Lump, Susan Haine, Earl Gustafson
Labor: Phil Neuenfeldt, Dennis Penkalski, Red Platz, Mike Bolton, Patricia Yunk
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Bob Whitaker, Dick Tillema, Tracey Schwalbe, Lutfi Shahrani, JoAnn Hium, Carla Breber, Bill Brueggeman, Brian Bradley, Troy Sterr, Tom McHugh, John Zwickey, Christopher O’Brien, Therese Wojick, Robin Gallagher, Rachel Adams
Others present: Larry Smith (UC Management Services), Michael Metz (WI Independent Businesses, Inc.), Bob Anderson (Legal Action of Wisconsin), John Metcalf (Wisconsin Manufacturers & Commerce)
Mr. LaRocque calls the meeting to order at 9:48 a.m.
Mr. Bergan indicates that we are still in the closing phases of the IT planning process, particularly for benefits and appeals. At the next meeting we will bring a summary of this. The Council will need to look at renewal of the administrative fee for IT purposes. Before the department puts that proposal before the Council, he would like to present a plan for how the department uses those funds and how those funds fit into the broader picture of what we need to accomplish with our IT system.
The Legislature continues to have an active interest in the IT projects. There was a meeting on the Speaker’s Special Task Force on IT Failures and we participated in that. The task force is set up with legislators and private sector members, most with years of experience with IT. They appear to be moving in a good direction to strengthen the state’s overall IT effort.
We will be hearing soon about federal grants and what our grant will be. We are optimistic. We have made some changes in how we go about the charging of our various activities which should pay some dividends when those grant announcements are made. We will not know until they tell us in the next few weeks, and we will let the Council know.
In terms of operations overall, things are going well, particularly on the benefits and adjudication side our timeliness is very strong. Things are harder in the tax bureau right now in part because so many personnel are dedicated to the testing of SUITES project.
Motion (Haine), seconded (Penkalski) to approve the Minutes of the May 29, 2007, meeting. Minutes are approved unanimously.
Brian Bradley, Bureau of Tax & Accounting, indicates that the statement that was handed out is not the report we had talked about at the last meeting. He will bring that report to the next meeting. At the end of April, the Reserve Fund cash balance was $734 million. Benefits disbursements during April were $87 million. First quarter tax collections, the quarter with the highest tax collection because of the $10,500 taxable wage base, totaled $336 million. Benefit disbursements for May were $53 million and the reserve fund balance at the end of May was $684 million.
Mr. Bergan gives a PowerPoint presentation to accompany the Unemployment Insurance Reserve Fund Stability report. The introduction to the report explains that at the close of 2006, the Reserve Fund was 40% of its level in 2001. The processes that led to this situation were identified in the reports to the Legislature in 2005 and 2007, and the study on the Reserve Fund was required by Act 86. The background section discusses the history of the program, the program objectives and the roles of the state and federal governments. Although the report was done for the Council, this material is in the report because we expect it may be circulated outside the Council. This will educate Legislators and the public about the program. It discusses calculation of benefit levels, the definition of the benefit year and base period, and how eligibility is determined. It also discusses the taxable wage base and distinguishes between the basic tax rate and the solvency rate. It specifically explains how the reserve ratio is determined and how that reserve ratio is applied to the tax schedules.
In terms of benefits and taxes, the report makes the basic point that the highest tax rate of 8.9% (without the solvency rate added), when applied to the taxable wage base of $10,500, generates at the most $934.50 per employee. By comparison, if a claimant is eligible for the maximum benefit and collects for the maximum duration of 26 weeks, the liability for the fund is $9,230.
Question (Haine): Is this a worst case scenario?
Mr. Bergan explains that yes, this is the maximum tax rate and the maximum benefit rate.
Question (Haine): Was there a basis for the $10,500 taxable wage base when it was adopted in the 1980s? Was this a percentage of the annual wage at the time?
Mr. Tillema indicates that this was adopted at the time the fund was in debt and there was a need to generate a certain amount of revenue in order to come out of debt to avoid certain federal penalties and to keep the interest rate down. The feeling was that in order to meet those criteria for the year ahead, we needed to adopt this taxable wage base. It was raised from 6,000 to 8,000 to 9,500 and then 10,500.
Question (Buchen): Was the $10,500 taxable wage base adopted in Act 8?
Mr. Tillema indicates that it was Act 17. At that time the Department of Labor was pressuring the department in terms of what they would allow us to count as increases in taxes in order to avoid the credit reductions.
Question (Gustafson): What is the federal taxable wage base?
Mr. Bergan indicates it is $7,000. The federal law has not been reviewed in a long time on several subjects. We have policy initiatives we might want to take, but we are stuck with some things in the federal law. It would be timely to have the federal law updated.
In reviewing the Reserve Fund report, in terms of balances in employer accounts and the Reserve Fund, it is important to keep in mind that a positive balance means that more taxes are collected than benefits paid, and a negative balance means more benefits are paid than taxes collected. Also keep in mind that benefits charged to employer accounts may replenish the Reserve Fund, while benefits paid but not charged to employer accounts or charged to the balancing account reduce the Reserve Fund without resulting in any increase in revenue.
Mr. Bergan refers to two graphs [on page 14 of the report]. The first graph shows how benefits have increased over the years. The second graph also shows the benefits paid but as a percentage of total wages. This indicates that although benefit expenditures have gone up, they have gone up on the benefit side in tandem with wages. The exception to that is when we are in a recessionary period when benefits outstrip wages. A theme in many of the graphs is that the economy over the last 10-15 years seems to be less volatile than it was in the 15 previous years.
Question (Gustafson): On the graph showing benefits as a percentage of total wages, does this show the benefits as a percentage of wages in that calendar year and not a cumulative increase?
Mr. Bergan indicates this is correct; it is a benchmark for that year. We use the total wages number often because we think it is a good measure of what is going on in the economy. You could use the inflation rate or cost of living rate, but we think this is a better measure of how the economy is doing.
Question (Gustafson): On the same graph, does the reference to wages refer to gross total wages in the state or wages in covered employment?
Mr. Tillema indicates that this is for covered employment.
Comment (Buchen): On the graph showing total benefits, it seems that after each successive recession we settle into a higher level of benefits. It is not clear that this is a pattern, but it does seem to show that benefits go down after a recession but return to a higher level than the previous level.
Comment (Gustafson): This reflects the increased benefits paid during the recession and the increase in the maximum benefit that we allow which keeps coming up.
Question (Buchen): Does it correlate with or is it proportional to the increase in wages and the growth in the workforce, or is something else going on?
Mr. Bergan indicates that this is true in the most recent era. The most recent recession was a garden-variety recession but it generated a very substantial spike in benefits.
Comment (Buchen): At a recent Federal Reserve program, I heard that it appears that after each recession we are not seeing the employment numbers increase as fast as we used to. In the past after we had a recession, the economic output measures showed we were doing well and the employment would be right behind it. Now employment seems to lag quite a bit. The Federal Reserve’s explanation was that now if you get into a recession and people get laid off, the companies tighten their belts, automate more, and make do with fewer people and then are more reluctant to hire people back than they used to be. Now when companies lay people off they bring in machines or build in China, so employment does not bounce back like it used to.
Comment (Neuenfeldt): This is because of the trade imbalance.
Comment (Gustafson): In 1982, the paper industry continued to add jobs modestly through that recession and then picked up with steady, slow growth afterwards. That has not been the case after the most recent recession. The paper industry dramatically lost jobs.
Mr. Bergan indicates that the report provides both graphs because they each tell a different story. The graph showing benefits as a percentage of total wages is corrected for economic growth and in general is a little more accurate. We included the graph showing total benefits because that information is also useful.
The graph “Average Weekly Wage and Average Weekly Benefit” [page 15 of the report] shows that between 1990 and 2005, the average weekly wage went up 3.7% per year or 72%. During the same period the average weekly benefit increased by 2.7% or 49%. This indicates that benefits have not kept up with cost of living or wages. The underlying message is that although there have been increases in benefits, they have not been extraordinary; that is not the thing that is driving our problem.
We broke out where the increases in benefits came from [page 16 of the report]. In 1990, the total benefits were $341 million. Benefits in 2005 were $752 million. The largest part of the increases came from increasing wages and benefit rates, $241 million. This is what you would expect. Increased employment accounted for $89 million. The insured unemployment rate was higher in 2005 than 1990 and accounts for $61 million. Changes in policies of who gets benefits, etc., account for $20 million, which is relatively modest.
Question (Gustafson): Is it too simplistic to say that if you take out the change in the insured unemployment rate and in a sense normalize it for employment levels that benefits doubled due to the other factors?
Mr. Bergan indicates that this is a fair characterization.
For revenue, we show the Total Basic and Solvency Taxes [page 17 of the report]. In the 1990s the taxes were flat. The last time there was a crisis in the fund in the 1980s, the numbers spiked. A second graph shows Taxes as a Percentage of Total Wages [page 17 of the report]. This was done like the benefit graph to show the taxes corrected for growth in wages. The graph shows that the taxes were steadier and even declining in the 1990s. We continue to be under 1% for wages and the line shows this is decreasing slightly.
The graph “Interest Earnings” should not be surprising [page 18 of the report]. With less money in the Reserve Fund and interest rates going down, we earn less interest. This means we are more likely to need to rely on taxes to fund expenditures. In prior years we have had almost $120 million in interest earnings. We do not have a lot options in terms of interest.
The graph “Change in Average Wage and Taxable Wage, 1990-2005,” compares the increase in the average weekly wage of 72% with the increase in the average weekly taxable wage, or the wages that are actually subject to tax, which was 14% [page 19 of the report]. As we look at policy options, this is an important graph to keep in mind.
We show the same type of calculation we did for benefits [page 19 of the report]. In 1990 taxes were $417 million; in 2005 taxes collected were $680 million. The increases came from wages subject to tax of $82 million, growth of employment of $103 million, and changes in the average tax rate which was higher in 2005 than 1990 of $78 million.
The balancing account is funded by solvency taxes which are taxes for the specific purpose of keeping the fund solvent, interest, and Reed Act funds which were a one-time disbursement of money from the federal government. Expenses come from quits, etc., where benefits are paid but not charged directly to the employer’s account, and the 10% write-offs. The graph “Balancing Account Charges, 1990-2006” [page 21 of the report] shows that from 1990 to 2006 direct charges to the balancing account have increased steadily, though they have gone down a little lately but are still substantial. However, since 2002 the 10% write-off spiked and stayed high.
Question (Buchen): Is the entire overdrawn amount written off at the end of the year? Is the employer then at the maximum tax rate?
Mr. Tillema indicates that the account is written down so that the employer’s negative balance in relation to total taxable wages is no more than -10%. At -6%, the employer would be at the maximum tax rate. Mr. Bergan indicates that the write-off was initially designed as a cushion for particularly bad times, but the write-offs continue to be high in better economic times.
Comment (Buchen): For some employers in manufacturing this is for taking care of cyclical people, but some seasonal employers continue to carry huge negative balances but their taxes will not be higher so it does not matter to them.
Question (Gustafson): What is the maximum tax rate now?
Mr. Bergan indicates that the maximum basic tax rate is 8.9%, the solvency tax is 0.9%, so 9.8% is the total maximum tax rate.
The table “Percentage of Benefit Claim Paid if Claimant at Maximum Weekly Benefit Rate, Employer at Maximum Tax Rate” relates to write-offs [page 22 of the report]. This shows that the maximum basic tax per employee has stayed the same from 1990 to 2006 at $935. As the maximum weekly benefit rate has increased, this shows that the percent of the benefit claim that is funded decreases. In 1990, this was 34.63% and in 2006 this was 20.77%.
The graph “Reserve Fund Revenue and Expenditure, 1970-2005” [page 23 of the report] summarizes most completely our situation. This shows the level of taxes and interest, and benefit expenditures. The bottom line is that even now when we are operating in an environment where the economy is performing reasonably well, the benefit expenditures exceed the taxes.
Question (Gustafson): Are the balancing account funds included in the Reserve Fund calculation or are they accounted for separately?
Mr. Bergan indicates that they are included in the Reserve Fund calculation. The balancing account balance is negative. We are revising the negative number we gave you most recently. Previously we indicated the balance was -$482 million, however, we reviewed this to make sure we were presenting it in the correct way. The -$482 million figure reflected the accrual basis for reviewing this. For our purposes we decided that showing this figure on a cash basis is more relevant. This figure is -$348 million.
The graph “Basic Taxes and Net Benefit Charges to Employer Accounts, 1990-2006” [page 24 of the report] shows that when we are not in a recession the basic tax rate covers our benefit charges after the 10% write-off which is good. The solvency account is not as sound.
Question (Bolton): For the last three years, did we increase weeks of benefits during that time?
Mr. Bergan indicates that this is because the insured unemployment rate was higher. When the insured unemployment rate goes up, we have more recipients of benefits and we have an increase in what we have to pay. The number is driven by the number of recipients we have to pay.
The table “Employer Accounts - Revenue and Expenditures 2001-2006” [page 24 of the report] shows that during the recent recession, there were pretty substantial deficits in the basic taxes. The cumulative deficit was -$368 million.
The graph “Solvency Account Revenues and Expenditures, 1990-2006” [page 25 of the report] shows the heart of the matter with the balancing account. During the 1990s, the system worked well. Solvency taxes and interest were slightly more than the solvency charges. This is essentially the way we want to operate. This changed with the recent recession and solvency charges exceeded the revenues. When the recession ended, the solvency charges continued to exceed the revenues from solvency charges and interest, and the gap has remained unacceptably high.
Question (Buchen): Is the difference between 2000 and 2006 the same ratio as general benefits? Are we paying more out of the account than we are in general?
Mr. Bergan indicates we are paying a proportionately higher share out of this account.
Comment (Buchen): The unemployment circumstances are then disproportionately in those categories.
Mr. Bergan indicates that this is true, and it is also has to do with people getting savvy about the system and understanding how benefits are not charged to their account.
The slide “Recent History of the Balancing Account” gives a sense of the timeline of the problems with the account. This PowerPoint table differs from the table on page 25 of the report. The total deficit amount on the table in the report is -$891 million which may lead readers to a wrong conclusion. For various reasons, this might lead one to believe that is the current deficit in the solvency account. The actual current deficit is -$348 million. These are year-end balances. The table shows that the deficit has grown steadily.
The graph “Wisconsin Insured Unemployment Rate” [page 28 of the report] shows a pattern similar to the graphs showing benefit expenditures during periods of recession. The most recent recession had an insured unemployment rate of 3.4%, but we have had recent recessions with much higher unemployment rates. In the recessions of the 1980s, the insured unemployment rate was 5.4%, 6.2% and 6.8%. The most recent recession was not very deep. These become important for the scenarios and fund projections.
Comment (Buchen): The most recent recession tied for the mildest recession since World War II. People usually think of the 1950s as a period of robust economic growth, but this graph shows that there were four major recessions.
Question (Gustafson): Do you think the fewer fluctuations more recently, compared to the spikiness of the late 1940s and 1950s, reflect better or more sophisticated federal fiscal policy?
Mr. Bergan agrees and also thinks the economy has more information and is more efficient and stable.
The graph “Reserve Fund Balance December 31” [page 28 of the report] shows graphically that we are down to $700 million from $1.8 billion from 2001 to 2006. The table on page 29 of the report shows that since 2001, we have lost more than $1 billion. The table showing the probability of borrowing is a federal calculation [page 30 of the report]. This shows that the probability of borrowing has increased from 28% in 1990 to 79% in 2006.
Mr. Bergan provides general policy guidelines for what a solution might look like. The first policy includes providing a one-time boost to the Reserve Fund to guard against recession. The scenarios starting on page 19 of the Financial Outlook of the Wisconsin Unemployment Insurance Program, the report sent to the Governor and Legislature earlier this year, relate to this first policy parameter. Using the official forecast, by 2011 we are down to $89 million in the trust fund. The next scenario considers an actuarial recession with a 6% insured unemployment rate, which is more of a worst case, the deficit in the Reserve Fund is -$704 million in 2011. Using the most recent recession insured unemployment rate, the scenario shows the Reserve Fund turns negative in 2009 and stays there. It would be prudent to give the program a push and deal with this eventuality by providing a one-time boost to the Reserve Fund to serve as insurance against a recurring recession.
The second policy guideline is to provide recurring revenue to address the ongoing deficits in the balancing account. The most likely place to look for this is in increasing the solvency tax because that is what it is for. In the absence of this, we need to figure out a way to deal with the recurring deficit in the balancing account. Several options in the report fit in that category.
If we are being the most responsible stewards of our fiscal situation, we should also look at the accumulated balance of -$348 million and figure out a way to reduce that as well. We might have a solution that would do both things at the same time. Eliminating the accumulated balancing account deficit could be spread out over a number of years.
Finally, we would be well advised to look at the revenue system in general and the static triggers that change the tax schedule. In the long run, we want to come up with a new system that is more dynamic and in tune with what is going on in the economy. There are some alternatives suggested in the report, but there are various ways this can be addressed.
These are the parameters that I think would make for a sound long-term solution. Within the parameters of the alternatives identified in the report, there is plenty of room to deal with the problem.
Question (Gustafson): Could you provide us with the presentation?
Mr. Bergan indicates that he will do so.
Question (Haine): When does this go to the Legislature?
Mr. Bergan indicates that this is a report for the Council to be delivered no later than July 1. The report has alternatives, not department recommendations, because the department wanted to leave maximum discretion to the Council. The alternatives are to inform the caucus deliberations; that will be the hard work on this. The document is public, but the topic will not be ripe in the Legislature until the Council decides how it wants to go forward.
Comment (Gustafson): Thank you to the department for the information. It has been very helpful in setting the stage and giving us information we need.
Question (Penkalski): Do we have any projections as to what the balancing account deficit will be over the next six years in addition to the -$348 million?
Mr. Bergan indicates that what we have seen over the course of the last two years, assuming the economy continues as it has, it has gone up approximately $125 million a year. This could be $1 billion if we do nothing.
Question (Larry Smith, UC Management Services): To get a sense of how this might be received by employers, last fall there was a charge to recover a deficit from reimbursing employers. I never heard more about it after the department sent out the notices. Did it go well?
Mr. Bergan indicates that it went well. The number was $200,000. For most of those reimbursable employers, it was a modest charge. Mr. Bradley indicates that the department had a few phone calls on this, but no complaints. All but two employers paid.
Point of Order (Yunk): When someone from the public speaks they should identify themselves.
D07-08 Failure to provide correct and complete information in fact finding investigations: lift sunset; admissibility of records at hearings
Mr. LaRocque presents the department’s proposal. In 2005 a law was passed in response to department concerns about how employers, particularly large employers and those represented by third party agents, were failing to respond timely or to provide information in response to fact-finding investigations. Benefit awards were made without the employer’s information and the claimants would collect benefits until the appeal where the employers would provide for the first time enough information to cause a reversal, resulting in overpayments to the claimants. This caused hardship to claimants and significant cost and administrative expense to the department. The law was effective January 1, 2006. The law provided that benefits paid in these situations would stand as paid through the time of reversal on appeal. There would be no overpayment to the claimant and the employer would be charged for those benefits.
The experience with the law has been positive. It has had the intended effect to change employers’ and employer agents’ behavior. We have not heard any complaints from employers. We are proposing to continue the law and lift the sunset of June 28, 2008. This is the primary and most important part of this proposal for the department. Other states are interested in this law to resolve the similar problems they are having.
The other two parts of the proposal are somewhat technical. We would like to make some changes to the language to ensure that we continue to get the proper interpretation of the law. The administrative law judges and LIRC agree that with this law no overpayment is created, but we see some vulnerability to a different, incorrect interpretation in the language and would like to prevent an interpretation that would be contrary to the intent that no overpayment be created.
The third part of this proposal is also to obtain the intended purpose of the law that no overpayment be created. This is to strengthen admissibility of records at a hearing. The department cannot economically provide witnesses to testify at every hearing in which the issue is whether the employer provided correct and complete information. We never intended to do that. The process has been that the paper record of the adjudicator’s notes as to the contacts with the employer, correspondence with the employer, the body of the department file, including the rationale, travel routinely from the adjudicator to the administrative law judge. The administrative law judge then has a basis to make a determination as to whether the employer provided correct and complete information.
Most administrative law judges recognize that these records are admissible and that they can reach a decision without any further testimony. However, some have shown reluctance to do this in some cases. We think this is wrong and that these records should be admitted routinely. The information in the record is trustworthy in that the matters observed by the adjudicator in corresponding with employers are the product of a regular business routine adhered to by adjudicators. The adjudicators indicate that correspondence was sent out and nothing came back, or that what came back was not what was requested, or that a telephone call was made to the employer and the time ran without the employer responding. Sometimes the employer chooses not to give further information and state that they will just let the department make its determination on the information it has. With these types of records, we think it is fair to require that these records be admissible and that the record can be the sole basis for the decision that the employer failed to provide correct and complete information. The purpose is to prevent the overpayment from being assessed against the claimant. This will prevent administrative law judges from assessing the overpayments where they otherwise would have not admitted the records or have determined they could not make the decision based solely on the department record.
Question (Haine): Would the testimony be the person saying these are the records?
Mr. LaRocque indicates that this is a fair characterization. The adjudicators are not going to remember what they were doing 30 days previously other than by virtue of their business routine and what they write down. They would state it is a reliable record of the business they transacted with the employer on that day.
Question (Buchen): What would be the status of these documents at a trial? Do you have to have someone come in and lay foundation for the documents?
Mr. LaRocque indicates that in administrative hearings there are relaxed rules of evidence. In the judicial context, there is both a hearsay issue and a question of foundation for the document. We think the record is within the hearsay exception for public records and as a public record it is also self-authenticating. Most administrative law judges agree with this analysis, so someone does not have to testify that the document is an adjudication record of an individual’s benefit claim. Instead, the administrative law judge looks at it and says this is an adjudication record. Just because it is hearsay does not mean it is not reliable. The exceptions to hearsay in the rules of evidence are numerous. We think these records meet a hearsay exception, but we have some administrative law judges who have a different opinion. Our proposal is to require them to take notice of this record without taking authenticating testimony, and to make this an exception to hearsay that can be the sole basis for the determination. In the judicial context and in other administrative agencies there are some limits that prevent a hearsay document from being the sole basis for a fact finding.
Question (Gustafson): Are these treated as fact or opinion?
Mr. LaRocque indicates that in most cases these would be facts. The employer is entitled to rebut it with other facts. The employer is at the hearing, the department is not.
Question (Buchen): Is the employer getting any benefit out of having someone at the hearing to testify that the document it what it is? The employer has to bring evidence to rebut what is in the document not the testimony of the person who says the document is what it is. There is not much of an impact on an employer whether the department employee shows up or not.
Mr. Shahrani indicates the employer could choose not to rebut the document per se, but to provide other evidence to show they have good cause. Mr. LaRocque indicates that the reason this is important is that administrative law judges are determining this is hearsay and they are not considering it. Then there is no proof on the correct and complete issue and there are not making that finding so claimants are being assessed overpayments.
Comment (Buchen): In a criminal trial context, you may be looking at scraps of paper and miscellaneous documents and there is a need for the testimony to tell what it is. Here, this is dealing with a consistent form of official documents from the same department.
Mr. LaRocque indicates that as a practical matter, the issue will come to the hearing either way. If the department witness appears, it could conceivably be a stronger case for the department. If the adjudicator does not show up, the employer has the same opportunity they would have otherwise to say the record is not right, the facts are incorrect, or the response we made was sufficient. If we do nothing to change this, some claimants will get overpayments and some will not in the same situation just by the assignment of the administrative law judge.
The removal of the sunset is the most important part of this proposal and we certainly want to accomplish that. The admissibility will provide some equity and fairness. There is a chart on the back of the proposal that shows that reversal overpayments dropped 26% in 2006 as compared to 2005. They were not all traceable to the law change, but it is a significant factor.
Comment (Larry Smith, UC Management Services): This section is great. It is helpful to get employers to supply the information. I encourage the adoption of the hearsay provision. I have had experience with some of these administrative law judges and this can happen. In my experience the adjudicators are putting in enough information to make the determination. I have one request. When the employer indicates that it will not respond to the request, the determination is worded very harshly that the employer “failed to respond” or agent “failed to provide information.” It is a positive effect for the employers to take this position, so it would be better to word the determination less harshly. It could state the employer “elected not to provide” the information. We could call the adjudicator back within an hour and move the case. The way it is worded now, a week later we get a determination that makes everyone sound like a bad guy.
Mr. Shahrani agrees and will review the language. However, employers and agents need to understand that simply stating that they are not contesting the case is not enough for the department; the department still needs to make a determination on the issues. The employer can choose not to supply the information, but they cannot make the conclusion on the substantive issue. Mr. Bergan notes that agents have been much better with this and this has made a huge difference for the department.
The Council will consider the proposal.
Mr. LaRocque indicates that the rule is before the Legislature and has almost cleared the passive review process. We will have more information at the next meeting.
Mr. LaRocque indicates that this is an issue raised by Mr. Lump. The department provides the Council with a one page summary and a lengthy memo on the federal law and the history of the approved training provision.
Mr. Shahrani states that federal law requires that we have an approved training provision. The Department of Labor uses the term “reasonable criteria” which is subject to their interpretation. If we make some changes that they think are not reasonable, they could determine that we are out of conformity. The federal law provides that a claimant who is otherwise eligible to receive benefits cannot have the benefits denied or reduced because they are not available for work, they do not do the work search, or they refuse to apply for or accept employment when they are in approved training. The federal law gives the states freedom in defining what is approved training, what institutions are approved, what programs are approved, the length of the training, and other criteria such as being enrolled, making satisfactory progress, and that the training improves your skills so you become more employable. We should not forget that one of our performance measures is reemployment. The UI program includes temporary help to those who are laid off or out of work, and stabilizing employment which includes helping people get training to get the skills they need to become employed long term at better paying jobs and compete in the economy.
There are options that we can look at to change the approved training provision. I am not suggesting, recommending, or advocating any particular options. We can limit the scope of what training we consider approved. We can limit the period of training. However, we must remember that we cannot limit this under TRA or the dislocated worker program so we would limit it for a smaller portion of workers which may be inequitable. Administratively, any change that tightens the program would increase investigator costs. We would have to check with schools on each of their programs. Different schools run their programs and courses differently. Every time we add criteria, it is a costly administrative burden to implement. For policy implications, if we limit the training, we limit a lot of people’s opportunities to gain the skills they need to compete and be stably employed. The chart shows that job refusals in approved training was 35 cases, the work search was even less. The other options include making this a noncharge for employers or create an assessment and earmark those dollars for training so you do not have to go back to the balancing account on noncharges.
Comment (Buchen): If the average benefit is $4,500 and there are 3,300 cases where claimants were protected by approved training, the approved training is costing about $12 million.
Comment (Lump): I brought this question on approved training forward and thank the department for the information. I think there is a philosophical question that goes beyond the financial question. Was it the intent to actually provide benefits not just for getting retrained but to get someone an associate’s degree? Do we really want to do this? The fact that there are only a few using it now does not mean it cannot become a problem. Noncharging is not perhaps the best way to handle this.
Mr. LaRocque indicates that the administrative challenges and the challenges of a bright line limit on the policy are related. The durational limit might be easier to administer, but it could create some very harsh equity issues. Other than the durational limit, there are not other bright lines that are easy to administer or make clear policy sense to us.
Comment (Lump): The policy is not just to improve employability or we could take that to its logical conclusion and extend the program to four-year degrees, which improve employability for many people.
Mr. Shahrani indicates that the federal regulations for TRA and dislocated workers require the department to accept training under the Workforce Investment Act. This implies they do not want to limit the training opportunities. If we narrow the approved training provision for others, we are putting them at a disparity with their peers because we cannot narrow it for TRA or dislocated workers. Someone out of work from a large employer may be able to get training because of the federal protection, but someone out of work from a smaller employer could not get training. The intent of the federal laws was to act to remove the impediments to training which remain in the UI system. If we limit the approved training to a shorter duration, we may end up with these people not getting the skills that are needed in today’s marketplace.
Comment (Buchen): The initial policy was for employees who are permanently unemployed from an employer. The theory was that there are fewer of those jobs like they had or that pay like they did, so they should be trained to get them reemployed. It is different with a kid working at McDonald’s who gets laid off and wants to go to technical school and makes a personal decision to do so. I am not sure it is the responsibility of the employer to pay for that. It is a different situation.
Question (Bolton): On the chart of experience with approved training, does this include TRA, is that broken out somewhere?
Mr. Shahrani indicates that this chart does not include TRA or dislocated workers.
Mr. Bergan indicates that we try to have a policy that covers as consistently as we can as many circumstances as we can, but we will occasionally get anomalous results. The example raised by Mr. Lump was probably not the intent of the program, but sometimes it is hard or dangerous to adjust and change a sound policy.
Comment (Buchen): There may be 1,000 of these situations under the A&A approved training issue with kids laid off from jobs and collecting UI. It is a different situation with students choosing to go to school who may be living at home, compared to older workers getting retrained who may have a family and mortgage, etc. It is hard to draw those lines.
Ms. Breber indicates that a good share of the 3,300 people protected by the approved training were people who had real, permanent jobs and were laid off and are now going to school. If you look at changing the duration, we did some research and schools vary on the length of their programs. The same program may be 10 months at one school and 2 years at another. You may need to look at how much training they have left. Mr. Shahrani adds that if we exclude the young students from the approved training provision, the alternative is that they may not go to school and get the training but they will continue to claim benefits. Six months later they have not had training, are not more employable, and the department has still paid the benefits.
Comment (Buchen): The economy is not bad but I hear from employers that they cannot get trained employees.
Comment (Lump): The question is whether the UI system is where the students should come for support. I am not sure it is intended to be.
Comment (Bolton): Regarding employers not finding trained employees, I hear this from employers also, especially the paper industry. They want an associate’s degree or five years of experience to shovel in the yard. A number of years ago, you could get the job out of high school. Part of the reason employers are not finding workers is because of the restrictions they are putting on the people they will look at for the positions.
Comment (Haine): I agree. I have had this experience with employers in the job placement industry. We try to get people in the door even if they do not have all of the requirements. They get in as a temp and many times they get hired when they would not have gotten past human resources because of the requirements. The employers make it harder on themselves by setting unrealistic requirements. A college degree may show that the person can commit to something, work in a team, and possibly have math skills, but it may not be necessary to do the job.
Comment (Buchen): This is rooted in employers finding that a lot of people are not dedicated to working or they do not have the basic math skills to be trained. Maybe rigid application is not right.
Mr. LaRocque indicates that the department replied to Will Sample on his May letter.
The next meeting is set for Tuesday, June 26th, at 9:30 a.m. Mr. LaRocque will send out a matrix to determine availability for additional meetings.
Motion (Buchen), seconded (Neuenfeldt), to go into closed session to discuss the trust fund, options for improving stability of the trust fund, management and labor law change proposals, and other UI business, pursuant to section 19.85(1)(ee) of the Wisconsin Statutes. Motion passes unanimously. Closed session deliberation by the employee members of the council and the employer members of the council, respectively, begins at 11:55 a.m.
Meeting is adjourned after the closed session is completed.
March 25, 2013
Unemployment Insurance Division, Bureau of Legal Affairs (BOLA)