Waukesha County Workforce Development Center
892 Main Street
Rooms 108 and 110
Management: James Buchen, Bob Oyler, Earl Gustafson, Ed Lump and Daniel Petersen
Labor: Red Platz, Dennis Penkalski and Michael Bolton
Chair: Greg Frigo
Department staff present: Hal Bergan, Carol Laudenbach, Dick Tillema, Andrea Reid, Brian Bradley, Mary Conrad, Terese Wojick, Tom Smith, Johanna Wilbert, Natasha Wilson, Bob Jessel and Laura Kwiecinski
Others present: Robert Anderson of WCCF, Steve Krieser of Sen. Reynolds’ office
Frigo welcomed Council members, expressed regrets for members Neuenfeldt and Lyons, who could not attend. Frigo introduced new UI Division Administrator, Hal Bergan. Frigo commended his energy and capacity to learn after only 12 days on the job.
Bergan noted his 16 years as a private consultant, commended the knowledgeable and experienced UI staff. He also noted his prior experience as policy director for Govs. Schreiber, Lucey and Earl. He recalled working with past biennial UI bills, praised the potency of the Council, anticipated similar legislative success in the coming bill cycle.
Bergan recalled last meeting Buchen during a radio broadcast many years ago. He joked that their congeniality may have caused listeners to tune out. Laughter ensued.
Frigo introduced BOLA’s new legal interns, Johanna Wilbert and Natasha Wilson. He promised he would find challenging and valuable tasks for them in their first law-related jobs.
Frigo asked for amendments to the April 1, 2004 Council meeting minutes. The motion to approve was seconded. The 4/1/04 minutes were approved without objection.
Frigo introduced a law change proposal to solve a federal compliance issue raised by US DOL to the most recent UI bill, now 2004 WI Act 197. He explained the background, noted he and Smith after study agreed with US DOL. He noted acting-DA Whitaker had sent a letter to US DOL promising to fix the law in the next UI bill and the Feds were appeased.
Smith explained prior law concerning recouping UI benefits paid to impostors. He said AB 668 had permitted using other Department collection measures to collect imposter benefits and penalties, noted the US DOL objected to using UI benefit offset to collect the 50% penalty charged to impostors, because the money would improperly shift from the trust fund to the administrative fund.
Smith said the Department proposal would eliminate the Department’s ability to collect the impostor penalty through benefit offset. Frigo explained that the change does not negate the penalty. Buchen tried to find a semantic way around US DOL objections through reducing future benefits.
Smith said such a scheme could also run afoul of US DOL rules, unless it was a proven fraud, which is possible in impostor cases. Oyler noted impostors are frauds. Smith agreed, said future benefit reduction is a possibility.
Buchen asked about impostor prevalence, Frigo and Smith noted their paucity. Frigo said the issue is raised more than it is proven, noted the difficulty in proving impostors when family members share personal identification numbers (PIN) and one family member claims benefits under another’s PIN. Buchen and Frigo shared hypothetical situations.
Oyler said US DOL is nit-picking. Gustafson asked for clarity on the proposed change. Smith explained that, under current law, impostor benefits and penalties could be taken from current UI benefits, noted US DOL objects to offset collection of the penalty.
Gustafson understood US DOL objected to penalty funds diminishing the trust fund, asked if penalty would be non-charged to the employer liable for current UI benefits. Smith said the penalty would go to the interest and penalty fund. Frigo said the liable, taxable employer would be non-charged for overpaid benefits, then the balancing account would be credited when the overpayment is recouped.
Platz asked if the Council had any option but to conform to US DOL’s opinion, asked if there was a time limit on recouping impostor overpayments and penalties. Smith said there was no statute of limitations, but a permitted write-off for uncollectable debts.
Platz noted he had heard there was a five-year limit. Smith asked if there was an informal limit. Bradley said there was no limit. Frigo noted a 6-year limit on recouping through benefit forfeitures. He assured that the change was mandatory, in US DOL opinion, and refusing to change would raise a conformity issue.
Smith added that recouping an administrative penalty through forfeiture of future benefits was unworkable. Buchen asked, Frigo clarified that impostors have wrongfully collected benefits that must be repaid with penalty.
Buchen commented on US DOL’s close attention to Wisconsin’s UI bill. Frigo said US DOL pays close attention, usually suggests a bill amendment, which would have been too difficult in this situation.
Frigo asked, Gustafson motioned for approval. Penkalski seconded. Petersen asked, Frigo affirmed that the provision would be part of the next UI bill and would not apply in the interim. Buchen, Oyler, Gustafson, Petersen, Platz, Penkalski and Bolton approved the motion.
Frigo said US DOL would be notified of the Council’s approval.
Frigo commented on the freshly signed UI law, said US DOL has raised the only issue to-date. Frigo asked about the plain language bill summary. Tillema noted it was still being printed. Frigo said hardcopy would be available soon, noted the Council website might have an electronic version. Tillema was unsure of web availability.
Frigo introduced Reid’s update on SUITES. Reid said Wage and Tax modules would be the first deployed. She said Wage should be deployed in mid-June, noted all workers have been trained and five successful weekend mock-conversions to ensure data integrity.
Reid noted some performance issues are being addressed through enhancements and regression tests. She said voluminous batch runs at night must fit batch window for arrival at the bank, so this week there would be a full, end-to-end test, rather than extrapolating from small sample, to ensure window fit.
Frigo clarified that the Wage system referred to wage data that employers submit in various formats. Reid said the Wage system would not immediately change how employers submit data.
Reid said the Department is shifting to a 14-digit identifier, which would soon appear on all UI documents, noted that employers have been advised not to change their systems to accommodate the new identifier. She said employers would have plenty of advance notice before they need to make reporting changes, which will not occur until the Tax module is deployed.
Reid said wage data would initially be run on both systems then compared, to ensure integrity.
Reid said the Tax module is about 60% complete, in detail design, code is being written, noted the Tax module is huge compared to the Wage module. She said the expected Oct. 2004 deployment is probably going to be moved to Spring 2005.
She said Reports, Letters and Forms are 45% complete, noted 65-70 people working on SUITES. She said full deployment had been expected in May 2004, but now will likely be in March 2005, due to larger than expected time requirements. She cited Accenture’s re-estimation of SUITES’ complexity, new .NET platform and Visual Basic software.
Reid said reducing SUITES’ scope was not an option, due to trouble creating extra systems bridges and reverting to more manual processing. She cited ongoing talks with Accenture, but the project could ultimately be finished in-house. She said Accenture is supposed to develop some options on how to finish the job under the current contract.
Oyler asked about cost. Reid said cost was unknown, but finishing would require 40-50,000 more hours, give or take a few contingency hours, which would be kept at a minimum to negotiate a fair price. She said the current 60-40 Accenture-DWD workload ratio could be shifted more to DWD.
Oyler asked, Reid explained Accenture’s original hourly rate was $155, though they have assumed more hours than estimated, bringing their rate to $116 an hour. She noted their most recent offer was $130 an hour, which could change depending on which and how many Accenture staff are on the new development team.
Buchen asked the cost of DWD staff. Reid said it was $71 an hour, but this year is projected to be $64. Buchen noted, Reid agreed the hour rate difference adds to $3.5-5 million over 40-50,000 hours.
Gustafson asked who was responsible for the original project estimate, asked whether Accenture bears any responsibility for under-estimating the hours needed to complete the job. Reid said the original estimate was not collaborative, it was all Accenture custom-built, but was eventually divided 60-40 with DWD.
Reid noted DWD had originally questioned their proposal, in light of similarly priced bids using existing frameworks, but Accenture held to the accuracy of their bid. She said Accenture has assumed about 20,000 hours beyond their original bid.
Oyler asked about Accenture’s legal liability. Reid said DWD has determined that ending the contract would exempt DWD from costs for any incomplete work, regardless of its stage of completion. She said ending the contract would withhold $1.8-2.3 million in payments to Accenture – funds that could be used to finish the project.
Gustafson asked the original project value. Reid said Accenture would get $11.8 million. Petersen noted the 50% change order made it a nice contract. Platz asked if the 40-50,000 additional hours was a DWD-Accenture blend. Reid said Accenture has expertise that DWD does not. She said the in-house cost to complete was about the same, considering loss of DWD staff productivity.
Reid said DWD has team leaders in project development, but losing Accenture would hurt overall project management, momentum and productivity. She said DWD’s lower internal cost would make it cheaper to finish in-house, though it would take longer.
She said Sec. Gassman’s office would ultimately decide which plan to complete the project, considering the completion timeline, internal capabilities and costs, noted she is scraping for funds at present. She said funds for the Accenture contract are encumbered and could be used, but a funding source has not been found for the 40-50,000 extra hours.
Gustafson asked where SUITES cost ranked, as an IT project. Reid said it was a fairly routine cost over-run, noted IT projects typically over-run about 40%, a sad fact of life, despite the size and expertise of the IT companies.
Buchen asked if Accenture was versed in this type of project. Reid said SUITES was Accenture’s first use of .NET language, with a concurrent project in Colorado. Buchen noted, Reid agreed, that Accenture would then want to market this type of work to other states. Reid noted Accenture lost a state contract due to comments received from DWD.
Frigo asked Reid’s confidence in the projected remaining hours. She joked that she was confident in the previous projection. She said that with 60% of detail design complete, with the project nearer completion, the labor projections get more accurate, though unforeseen bumps could appear down the road.
Reid explained systems information requests (SIRs), requirement changes and other technical and communications problems that can slow completion. She noted that Wage was 15% of SUITES and generated many SIRs, predicted many more for the much larger Tax module. She described potential tradeoffs for correcting or adapting to inevitable problems.
Bergan said DWD’s in-house capabilities are a good bargaining chip, though a cost agreement is preferable to keep intact the development team and speed completion. He said more would be known on Thursday.
Buchen asked for clarity on the funding source. Frigo noted it was the roughly $2 million a year from the administrative fee. Reid said any reserve funds would be exhausted by EnABLES. Buchen asked about other funding sources. Frigo said Reed Act INP was available.
Buchen suggested finding a way to pay with cash on hand rather than extending the administrative fee. Frigo said that was an option, noted the Council had approved using Reed Act funds with a promise that processing efficiency savings would be used to repay the funds.
Buchen asked if more Federal monies were coming. Frigo said the National Association of State Workforce Agencies (NASWA) proposed an additional $9 billion Reed Act disbursement to states, including $186 million to Wisconsin. Bergan said it was an active proposal, but not yet a bill. He noted that political reluctance stems from the $9 billion disbursement adding to the federal deficit.
Frigo introduced Conrad’s and Kwiecinski’s presentation on employer agent UC Express/TALX, noted they represent employers in UI and other issues, said UI dealings are mostly on tax but sometimes benefits issues. Frigo said the Department sends UI information to the agent on behalf of the employer. He said there used to be about 6 employer agents, but they were bought by UC Express (TALX), increasing the Department’s dealings and problems with the large agent.
Conrad said her focus since Oct. 2002 has been on obtaining better information from TALX for benefits and appeals. She said TALX represented 4,100 employers, including some major employers, about 300,000 employees.
Conrad noted Frigo had initiated the project due to appeal backlogs, noted TALX was refusing to use Department forms, sending incomplete information, omitting requested information, responding late to information requests, sending duplicate information.
Kwiecinski noted TALX did not always list the local employer’s address or identify the determination being appealed. She said TALX also fails to attend hearings, despite the Department’s efforts to accommodate and schedule hearings. This wasted UI staff and ALJ time.
Conrad noted the cost of processing unnecessary paperwork. She said TALX’s notoriously inaccurate wage reports have led to numerous UI benefit underpayments. She said their late filings have needlessly led to employer fines.
Kwiecinski said their failure to provide information for the initial determination has needlessly added UI staff investigative work and created needless appeals that displace valid appeals, creating unnecessary backlogs.
Conrad noted the initial October 2002 meeting led to compiling evidence, which was sidetracked temporarily by the Administration change. Now, in light of TALX problems in other states, TALX has appointed Laurie Roberts to handle state’s issues.
Conrad said Roberts met with Wisconsin UI staff in September 2003 and took their complaints back to TALX to try to eliminate unnecessary paperwork and delays. She said Benefits and Legal Affairs Bureaus cooperated on a 9/29/03-11/17/03 study to find out how many UI claims and investigative staff calls were generated by TALX.
Conrad said the study found that of 570 total calls to TALX, 278 (about 49%) were not returned within the requested 48-hour time frame. She noted UI investigators alone accounted for 304 calls, with 188 (about 69%) not returned or returned late. She noted the study was conducted only among 30 of about 150 claims staffers statewide.
Conrad said many of these cases, because they were discharge cases, resulted in allowing benefits that were then appealed, leading to more non-responsive calls by appeals investigators. Kwiecinski noted 4 hearing offices did a one-week tally of appeals by TALX and found 69 appeals were received, 35 with missing or inaccurate information. 53 of the 69 resulted from TALX’s non-response to UI adjudicators.
Buchen asked for clarity, if TALX was appealing, then not responding and getting default determinations. Kwiecinski said that because they are discharge cases, employers were losing the appeals because TALX did not respond, then TALX automatically appeals again.
Conrad said the next meeting was in December 2003 with some TALX managers, where a plan was devised to approach the problems. TALX asked UI staff to train TALX supervisors about UI’s claims process. She noted TALX promised to desist using TALX forms, though they have not entirely followed through.
Conrad said TALX also promised and created a new call center in January 2004. She said UI staff began training TALX call center staff in Milwaukee. She noted a follow up study showed minor improvement in claims and benefits areas, but total calls not-timely returned only reduced to 39%. Of 119 adjudicator calls, 53 (about 44%) were returned late or not at all.
Buchen asked, Conrad explained that employers in general respond within the requested time-frame. Conrad said TALX call center operators respond quickly if they have the information on hand, but TALX operators are slow if they must request the information from their investigators. Conrad said she did not know nor was it her responsibility to know TALX’s process, so she could not speculate why TALX had such trouble making timely responses.
Oyler asked what the Department would do to a large employer who was similarly non-responsive. Frigo said that has never happened. Conrad said she has not encountered such an uncooperative employer in her 30 years with UI.
Gustafson asked to what TALX attributes their response troubles – under-staffing, training, workload. Conrad said she has heard all those excuses. Frigo noted the TALX reps were nonchalant when confronted with their unreturned call rate and allegations of belligerent TALX staff.
Frigo said he asked TALX why their staff did not respond to calls, noted it was either because they don’t care or they are too busy. But TALX did not respond.
Frigo asked if TALX client identity was a public record. Frigo said it is normally confidential, but is publicly available on appeal tribunal decisions. Gustafson said the cost to TALX’s clients is either un-alarming or unknown to the clients. Frigo said some local clients complain, but the larger, national clients are less apt to be aware of the problem.
Kwiecinski recalled a case with a large national franchise employer. The employer agent withdrew the appeal. The employee was notified. The local franchise operator showed up for the hearing and was shocked, said he did not wish to withdraw the appeal and filed a complaint.
Petersen asked which other states were having problems. Conrad did not have the list in hand. Frigo said that it took some research to discover other problem states, noted that a smaller eastern state, for a time, refused to recognize TALX as a valid employer rep and worked directly with employers.
Platz asked if TALX assumed any liability for poor performance. Conrad said only the employer would know. Frigo said no state penalties would apply to TALX. Buchen said employer reps have been around a long time and most were reputable, noted his familiarity with the now-defunct Frick Co. Buchen postulated that employers paying fines because of the employer rep’s negligence would probably want to end the contract.
Buchen grasped for an approach to solving the problem. Frigo noted TALX’s negligence affects claimants and employers, as well as UI staff and the Trust Fund. He used the example of a claim paid due to TALX negligence then reversed on appeal, creating an overpayment and harming all involved. He said many of these cases could be settled at a lower, less costly level.
Platz asked if there were state or federal licensing requirements for employer agents. Frigo did not believe so. Platz said the release of confidential information to the agent demonstrates some agreement. Frigo said the employers have a written agreement with the agent.
Gustafson commented on industry consolidation and lack of competition among employer agents, said employer must enjoy the service. Frigo said rapid consolidation of disparate systems may be part of the problem. He complained of TALX’s sluggish improvement despite ongoing talks with UI staff.
Gustafson asked if TALX provided other services beside UI representation. Frigo said some employer reps may provide some payroll and tax services, but he was unsure if TALX did so. Conrad, Frigo noted TALX is a national firm based in St. Louis, MO and Columbus, OH. Lump asked, Conrad explained briefly how the various firms became TALX.
Buchen asked, Frigo confirmed that the Department knows the employers who use TALX. Buchen said the Department could communicate the problems directly to the represented employers. Frigo said the Department has not taken that step, postulated that many employers are aware of the problems.
Frigo said the Department has considered not recognizing TALX and working directly with employers, but that would be like the Department denying the employer’s contract with TALX. Buchen said an interim step could be a warning letter to employers that TALX must reform or lose Department recognition.
Frigo proposed sending warning letter to TALX and warning employers directly, on a case by case basis, if TALX does not respond. Some members seemed to like the idea.
Petersen noted that other state bids are rejected if the bidder does not use or alters the state bid form, suggested creating rule to mandate similar compliance on UI forms. Frigo said that was possible and was partly why the issue was presented to the Council.
Petersen agreed with Buchen that the Council should tell the employers about the problem and proposed remedy, such as rejection of reports for non-compliance. Frigo noted TALX often blames the employers for TALX’s failures. Council members agreed that employer’s failures are TALX’s problem. Frigo said the Department agreed.
Buchen said wage and general employment data is likely easily transferred to and stored by TALX, but information like the reasons for discharge are less likely to be on-hand and employers may be slow to respond to TALX’s request because it lacks the force of a state request. Buchen added that his aforementioned explanation was not to be construed as an excuse.
Conrad reiterated that many times TALX makes no attempt to return calls. She said TALX contracts make them the primary contact, which creates problems for UI, because TALX is not the primary source of the information UI needs.
Gustafson asked if TALX was making a good faith effort to improve. Frigo said yes, but they are reforming too slowly, they are still not even returning calls to say they are still trying to get requested information. Buchen suggested TALX might be motivated by a letter threatening to reveal their poor performance to represented employers. Frigo agreed.
Buchen suggested a letter to TALX noting negotiations have led to modest though inadequate improvement then including a deadline for meeting an improvement standard, under the threat of a Department notice to employers.
Kwiecinski noted her follow-up study February 16-20, 2004 showed 103 new appeals with only 39 with missing or inaccurate information, an improvement from 50% to 37%. She noted a similar improvement in the number of appeals due to TALX’s non-response to adjudicators, to 53.1% from 65.6%.
Kwiecinski noted a follow-up study of all employer appeals dismissed, withdrawn or reversed between January 1 and April 28, 2004.
[Note: Employer appeals ask the ALJ to reverse the Department’s initial determination and deny benefits; a reversal, in this case, is where the ALJ agrees with the employer and reverses the initial determination. This is asserted to be inefficient if UI benefit overpayments are created by employer reps not responding to adjudicators, then subsequently winning on appeal. The overpayments are asserted to be a drain on the trust fund and a burden on claimants.]
Of 429 dismissals for non-appearance by employer, 231 (53.8%) were TALX cases where the agent failed to appear. She noted a similar study between January and October 2002, and TALX had a similar 56.7% of total dismissals for non-appearance.
Kwiecinski returned to the 2004 study. Of 638 employer appeal withdrawals, 287 (45%) were TALX cases. Frigo asked, Kwiecinski affirmed that TALX withdraws late, not giving the Department time to schedule another case. She noted TALX withdrawals are faxed the day of the hearing or the day after.
Kwiecinski noted her study showed 534 victorious employer appeals to reverse and deny benefits, and 262 (49%) were TALX cases. She lacked the statistics to show how many created overpayments and how many were due to TALX not responding to adjudicators.
Conrad reiterated the options previously discussed to deal with TALX problem: Department ignore TALX and deal directly with employers, BOLA refuse to recognize TALX at hearings, Department hold employer at fault if their rep fails to provide requested information.
Lump suggested telling employers and TALX of potential Department actions to remedy the ongoing problem. Platz recalled a former manufacturing job, asserted that if he had a 39% error rate or a 53% absence rate he would have been fired.
Platz called the TALX situation terrible, asked if the Department could legally refuse to work with them. Frigo said yes, though TALX would challenge such a decision. Lump reiterated need to inform employers. Frigo agreed, since employer is responsible for TALX actions.
Platz asked, Conrad explained that TALX has acquired virtually all employer rep agencies, except for some very small firms. Frigo noted mentioned good relationship with UC Management. Conrad noted John Jay. Bergan noted the small employer reps are local and TALX operates from out of state headquarters, without in-state employees.
Bergan understood TALX’s 50-state business model presents difficulties, but he called their practices unacceptable. Oyler asked, Kwiecinski noted TALX contracts with people to show up at hearings. Frigo noted TALX reps are typically non-attorneys.
Bolton asked if TALX had state as well as national clients. Conrad confirmed both. Kwiecinski had list of TALX clients, did not know the ratio of state to national. Lump asked if the list was confidential. Frigo said yes, at this point, perhaps could be shared with the Council.
Gustafson asked how employers find out about TALX. Kwiecinski did not know. Frigo noted TALX website, noted promotional material promises big savings to employers. Buchen recalled an old royalty arrangement with Frick for referring employers. Conrad said TALX expressly denied offering royalties for referrals.
Gustafson asked if labor-intensity of legal expertise prevented competition with TALX. Conrad guessed both, noted high turnover rate, loss of expertise and processing barriers. Penkalski suggested a $300 per incident penalty, noted similar penalty for claimant errors. Frigo said it is an option, noted the added work to process the penalty and defend challenges. Lump agreed.
Buchen said the Department has the leverage to compel compliance or else. Frigo noted law permitting the Department to suspend representation at hearings, cited Milwaukee case of a claimant rep calling himself an “attorney in fact” who solicited business by phone.
Buchen predicted the threat of suspension, sent to employers, would motivate TALX to comply. Platz disagreed, noted TALX’s 53% non-appearance rate shows they do not care about hearings. Buchen argued a Department letter with evidence would convince employers that they were poorly represented by TALX.
Bergan noted meetings have not helped, said it was time to take the next step. Frigo said the Department would meet again soon with TALX, announced a lunch break.
Frigo introduced Bradley’s summary of the first quarter of activity under the new UI tax deferral provision. He described the 2-year old provision, which recently became applicable. He noted 8,500 employers qualified for deferral.
In 1Q04, 472 employers with $18.6 million total liability took the deferral. Bradley noted that they were required to pay 40% of 1Q04 liability and actually paid $9 million, estimated $348,000 lost interest on the deferred amount. He expressed surprise at how few employers took the deferral. He noted the top 100 taxpaying employers had a $63 million tax liability, but only 10 took a total $4.9 million deferral.
Bradley said the Department did not require a notice of intent to defer, so many of the 472 deferrals could simply be inadvertent underpayments. He noted the Department was preparing an explanatory letter to the deferring employers.
Gustafson asked, Bradley explained his estimate on lost interest. Peterson asked, Bradley explained that the contribution reports have no obvious reference to the tax deferral option and only UI’s quarterly inserts ever mentioned the deferral.
Buchen asserted that the state economy and UI trust fund balance were not in the best position to implement the deferral. Bradley said the law gave the Department an option to implement in 2003 or 2004, and 2004 was a better option.
Frigo introduced Tillema’s presentation on US DOL’s discussion paper concerning their alternate UI funding proposal. Tillema noted the current proposal concerns the US DOL’s interest in reducing the balances of three federal trust funds. He described the FUTA tax calculations and collections and their three purposes: program administrations, benefit extensions, and making loans to states.
Tillema described the US DOL’s proposed voluntary shift from federally collected tax to state-collected tax, and federal inducements to electing a state-funded UI program. Tillema noted the plan permits US DOL to supplement state trust funds during the transition. He noted last year’s US DOL proposal included "hold harmless" provisions that did not benefit Wisconsin, but without an actual bill, there is no way to determine if the new proposal would benefit Wisconsin.
Gustafson asked, Tillema explained US DOL would create a formula to distribute supplementary funds, said proposal is labeled as a “hold harmless” during the 2-year transition. Tillema said the new US DOL proposal does not decrease federal supervision of state UI programs.
Tillema said funding employment services is uncertain under the new plan, compared to last year’s plan. Employer taxes are reduced in the short term. Buchen asked, Tillema commented on the employment services (ES) currently funded by FUTA taxes, gave some examples, said ES funding was about a fourth of total funding for program administration supported by the FUTA tax in 2002.
Tillema said the state-funded UI program would be susceptible to state UI tax increases during periods of high UI claims, unless states created their own reserve fund, similar to the current federal reserve fund. He postulated that 50 state reserve funds could be larger than the current federal reserve, but would not be accessible to needy states, as is the federal fund. He called this a “hidden disadvantage” of the current US DOL plan.
Tillema described the contents and functions of the three federal UI reserve funds, particularly the administration and benefit extension funds, and how they affect state operations. Tillema described the result of all states opting into the US DOL plan.
Tillema said the extended benefits fund would be weakened by the plan, making Congress more hesitant to pass extended benefits than they were during times of a strong extended benefits fund.
Oyler asked if FUTA was intended to be temporary. Tillema said FUTA was raised from .6% to .8% in the 70’s, because state funds were exhausting and the extended benefit fund was falling, due to high unemployment rate. Tillema said the extra .2% FUTA was never repealed, but the Reed Act send funds back to states when the federal reserve funds reach certain statutory limits, noted $166 million Reed Act funds came to Wisconsin in 2001-02 to benefit state employers.
Frigo asked if the US DOL proposal pushed extended benefits onto states. Tillema said the proposal does not explicitly say so. Frigo suggested US DOL would not make such a proposal if they were concerned about funding extended benefits. Tillema said that seemed like a reasonable assumption.
Bergan asked, Tillema commented on which states were still receiving extended benefits, noted any extended benefits would not be federal TEUC, which expired, noted Alaska is always granting extended benefits because of their climate.
Frigo asked, several commented on TEUC’s expiration date. Tillema said TEUC claims filed by 12/31/03 could carry those benefits to exhaustion in 2004. Someone asked about TEUC-A for airlines. Buchen said US DOL’s proposal penalizes Wisconsin’s wise program management. Tillema agreed that efficient states support inefficient states.
Buchen asked if, under a state-run UI program, a .6% state tax like FUTA would cover state UI program expenses. Tillema said it would cover administrative expense, but not cover extended benefits, like the $128 million TEUC in 2002.
Buchen asked how much state tax would be required to cover UI program expenses and if that tax would be more or less than .6%. Buchen suggested UI program costs could be covered, an extended benefit fund could be created and employer could be given a small tax break.
Tillema calculated .5%, as opposed to current .8% FUTA, would equal the current federal administrative grant, including employment services. Petersen asked if the hypothetical state UI tax would be applied, as currently, to the first $10,500 of earnings. Tillema postulated keeping the $10,500 base would avoid confusion, but noted FUTA is applied to $7,000 wage base, so .5% may not be the correct tax rate.
Frigo asked, Buchen said he liked the idea for Wisconsin. Lump agreed, said that if the plan saves employers some money, it would be hard to argue against it. Frigo noted some fear the US DOL plan would subject the UI program to state legislative whims, unlike the current federally funded program, noted but did not agree that the Legislature might bypass the Council in the biennial budget.
Buchen said the Council’s composition would be helpful, though not determinate of outcome, to crafting the UI portion of any state budget. Frigo asked, Buchen confirmed his belief that the Council could affect the state budget.
Frigo asked if the Council wanted to know more or take a position on the US DOL plan, noted Council members could, as individuals, contact Congress or US DOL. Penkalski asked for more time to evaluate the plan. Lump asked for a more detailed written summary. Buchen asked the time-frame for comment. Tillema said the US DOL paper predicts no legislative action this year, so the comment period is likely extended until the next Congress.
Frigo noted the NASWA’s proposal for another Reed Act distribution is more active in Congress than US DOL’s proposal, noted lobbying to include the NASWA plan in the current federal budget.
Frigo said the NASWA plan more urgently needed Council action, if the Council had a position, noted the $185 million federal money windfall for the trust fund. Buchen noted it would help cover obligations paid by the weakened solvency fund. Frigo vowed an update at the next meeting.
Buchen asked about the June 30 trust fund balance, wondered when the bulk of UI tax collection would arrive. Bradley said the current balance is $878 million, noted 2Q payments are not included in the June 30 balance. Several mentioned the $900 million threshold for boosting to the next higher tax schedule. Frigo noted the proposed $185 million would boost it over the threshold, if the funds arrive by July 30, 2004.
Platz asked how the Department accounts for the 1Q tax deferrals, when considering the June 30 threshold. Bradley said they were treated as not received, that “cash balance” is the legal threshold for tax schedule purposes, noted LAB decided how the “cash balance” would be determined. Buchen said $9 million would not affect the June 30 balance. Platz noted the deferral could be more in future years. Buchen said the first year would be the most dramatic effect, said the effect would smooth out over time.
Someone suggested borrowing $60 million. Bradley said it was possible. Frigo said the tax schedule change may not mean a significant increase. Tillema said it would be about $30 million more under change to Schedule B, which, as Bradley said, would be the schedule for 2005.
Frigo noted the unexpectedly large attendance for the public hearing and the need to reconfigure the room.