GEF 1 - Room B205
201 East Washington Avenue
Management: Earl Gustafson, Ed Lump and Daniel Petersen
Labor: Phillip Neuenfeldt, Dennis Penkalski and Patricia Yunk
Chair: Daniel LaRocque
Department staff present: Hal Bergan, Andrea Reid, Lutfi Shahrani, Dick Tillema, Beverly Crosson, Tracey Schwalbe, Terese Wojick, Brian Bradley, Troy Sterr, Tom McHugh, John Zwickey, JoAnn Hium and Carla Breber
Others present: John Metcalf and Bob Anderson
Mr. LaRocque calls the meeting to order at 9:45 a.m. Six council members are present.
Mr. LaRocque introduces Tracey Schwalbe, the new Unemployment Insurance Research Attorney. Tracey arrives with substantial experience as an attorney in private practice. The Department is fortunate to have an attorney of her caliber serving the UI program.
The Department has made some substantial changes in the process of adjudicating issues between employers and claimants, and issues relating to benefit years, etc. Those changes have been working very well. It is a timely change because recently we have been farther behind in the adjudication process than we would like.
Over the last few weeks we have made up a lot of ground and are getting these decisions done in a more timely way. The new process means that we get in touch with claimants and employers a lot sooner than we would have otherwise. Sometimes in the past, after an issue was identified, we would not get to [interview] people for 10 to 30 days. Now we make an initial contact and get these cases resolved faster.
This is a change that originated with our own people; it was the result of a pilot that was initiated in Eau Claire. It worked very well there. We have rolled it out in an accelerated fashion to the other adjudication centers, and it has made a big difference. The adjudicators like it better because they have more control over their day. In the old system, they were chained to their telephones making scheduled calls. Now, they are doing the calls [without appointments] according to their own schedule and finding people when they can find them. Claimants and employers like it better because we get fresher information. We are heading into our busiest season, so we are encouraged by this success.
Our IT projects are problematic. EnABLES, the project for benefits and appeal, “Release 2” (appeals) has been delayed until spring.
We are very satisfied with Release 1, which dealt with imaging documents and work flow. There have been a lot of benefits to this program. The adjudication improvements are made much more doable because of Release 1 and the fact that we have the ability to manage our workflow better. We are not sure exactly when Release 2 will be deployed.
We are in the process of revisiting our approach to these IT project, so we scale the amount of work that we do to the revenue available. In the past, we have been able to fund these projects using carryover from one fiscal year to the next. That carryover is not what it used to be. We need to find a more consistent funding source and scale our efforts accordingly while moving forward. We need to work with our people, vendors, and more broadly with IT resources statewide. We are moving away from this “big project” model and more towards a realization that we will always be upgrading. We need to set up a system that accommodates that, as opposed to these big projects that have been the norm. We have a couple of those large projects under way and we will need to decide how to manage within that context.
The SUITES project relates to the tax system, which is so interrelated that you do not have an alternative to doing it in a large release. We will manage that release carefully, and will stick with the model for SUITES. But for EnABLES, we may see a different kind of approach as we move forward. At the next meeting, we will report on these topics. It is a key for us to do our business and key to have an approach that sets a high standard in terms of how these projects are managed.
A few weeks ago Mr. Bergan went to Denver for the annual meeting of UI Directors. These projects are of concern to directors nationally. There are efforts at the national level to build products that can be used by several states so that may have benefits for us as well.
As for federal funding, we are still waiting. Our appropriations bill is one of several awaiting action in Congress. In general, the differences between the bills in the two houses are relatively small as far as the basic grant is concerned. In the House bill, there is more discretionary money available for the DOL to pass out on reemployment and program integrity. Both subjects are important to us and we would be in line for some of those monies if the provision stays. It is important to do what we can to reemploy people and to shore up program integrity.
On the agenda today, there are rules for consideration. We are making a real push to get our rules as up to date as possible. Some of the rule changes are technical, fixing cross-references. Others are more substantive, in particular the Able and Available rule, that we will talk about in some detail today. Mr. Bergan has asked his staff to be very conservative in identifying the substantive matters, even the small ones, so it is clear to the Council and the Legislature what the changes. One person’s “technical” change is another person’s substantive change. The Department will take a conservative view and anything that might change something with the program is highlighted for your consideration.
The presentation to follow is an explanation of what drives benefit payments and tax collection in our system, to give you a broad overview of how these things are related or in some cases not related. It is an important step forward and will give you information about the general direction you want for the Trust Fund Study.
The Department has an obligation to produce a study by July 1st. Mr. Bergan would like that study to be something that reflects the deliberations of the Council up until that time. There is some urgency to this. Our current balance is ok, but we are not well situated to handle a deep recession at this time. There is urgency about acting, and for us, setting some direction sooner rather than later.
At the end of the presentation, Mr. Bergan will be very interested in any comments you have about areas you think we should explore more deeply or any conclusions you reach about the presentation. We are anxious to move that conversation forward.
For example, there are some potential questions about the use of noncharges and the 10% write off, and how that affects the overall revenues in the system. We will have questions like this to ask ourselves. Do we want to reexamine those policies that have driven the situation we are in now? Or do we want to say that these policies were adopted for a reason and we want to leave those in place and then approach the trust fund question from another perspective? If you have thoughts on that after the presentation, it would be interesting to hear those.
Also, we have a system of static triggers. We have some benchmarks where we move from one tax schedule to another. This is a system that is slow to respond and does not generate much revenue. Do we want a system that is triggered off the previous year’s benefits payments? Or off the previous 3 years of benefit payments? Increases can be steeper in any given year but there may be less need to maintain a big balance. There are tradeoffs for all of these options. If at an early stage we can get direction from the Council, it will be helpful for us as we focus on what we do next.
Question: Will the Council be reviewing the trust fund balance issues in the context of bill negotiations? This might affect how they approach bill negotiations, depending on the time line involved.
The report is due July 1st. The Department can make recommendations, but would rather have the Department recommendations reflect some of the thinking of the Council. That may not be possible; we may not get consensus as to any particular direction. Our report may not be the final outcome. The final outcome will be determined as it has in the past by the negotiations. On the other hand, it would be valuable for the Department to narrow the range of issues if there is agreement on some issues.
Question: So the study will be a mix of laying out where we are, why we are here, the situation we are faced with, and possibly policy recommendations?
The language of the statute requires us to make recommendations. It’s general but it envisions the Department making to the Council some specific recommendations.
Question: Is this report due at the same time Mr. Tillema provides his outlook report?
No, the financial outlook report is due January 15th. It will follow the format and deal with some of the issues as the previous financial outlook report. The outlook has not changed significantly, and in some ways it was the last report that prompted the trust fund study.
Question: When you are talking about the adjudication changes being rolled out, is there a way we can get a summary of what that is?
The Department will provide a written response.
Question: On IT projects, in dealing with these companies, does the state have consultants to help deal with the project vendor?
A third-party overseer of the contract is a model that is used, but we have not done that. It has been done in other states. It is an alternative.
Approval of minutes will be deferred until a quorum is attained.
Trust Fund Study presentation by Mr. Tillema. At the end of the last presentation, we looked at different ways that states have come up with for deciding how they switch from one tax table to another.
States that had borrowed from the federal government had been using the same method Wisconsin had, a fixed dollar amount for determining at what point one moves into the highest tax schedule. In 4 of 5 cases, the states had the fixed dollar amount that ended up borrowing. The fifth case was Texas, which has a provision that whenever there is a negative balance in the fund, the tax rate will be such as to eliminate the negative balance. They also have something like 2 months of recession level benefits in their trust fund which is a very low balance. They did borrow money in the private market and then issue bonds and put that money into their trust fund. Even with that, their tax rate went up substantially, and their maximum tax rate was something like 12.68% in one year. It dropped down to something like 8.5% the following year. One of the disadvantages of that particular strategy is that it has fairly sharp variations in tax rates.
Question: If a state borrows money from a private source, do the federal restrictions on how you can use the money apply?
Not in that sense. There may be state restrictions on bonding for operations. It is conceivable that one could bond for something like capital expenditures, assuming the willingness of the lenders.
Mr. Tillema presented a power point presentation on Reserve Fund Stability. Council members each receive a 3-ring binder with the information from the presentation. The presentation looks at the determinants of taxes and benefits, and how the determinants impact differentially on benefits and taxes. Specifically, in terms of the determinants of taxes and benefits, the presentation compares 1990 and 2005, and looks at wage growth, employment growth, the insured unemployment rate and some policy changes.
As far as wage growth and benefits are concerned, the average weekly wage in 1990 was $397.38, in 2005 it was $684.94, an increase of 72%. The average weekly benefit rate in 1990 was $154.03, in 2005 it was $229.84, an increase of 49%. If you divide the average weekly benefit by the average weekly wage rate to get some indicator of wage replacement, in 1990 we have 39% and in 2005 34%. The wage replacement is limited by the maximum weekly benefit rate.
If nothing else had changed except wage growth, expenditures since 1990 would be proportional to wage growth, increasing at 72%. Total benefits would have increased solely due to wage growth from 1990 to 2005 from $341 million, $587 million, or $246 million. With the limit on the maximum benefit rate, the benefits would have increased solely due to wage growth from $341 million to $ 509 million, or $168 million.
For employment growth, from 1990 to 2005, there was an increase of 21% in private taxable employment. If nothing else had changed, benefits would have increased from 1990 to 2005 by $72 million.
For the insured unemployment rate, the rate increased from 1990 to 2005 by 17%. If nothing else had changed, that would have increased benefits by $58 million.
Question: What do you mean “if nothing had changed”?
This means that if we had all of the policies and same benefit rate, etc., and only increased the insured unemployment rate, we would have paid out $58 million more in benefits.
For policy changes, we have had 17 policy changes affecting benefits from 1990 to 2005. If we take the 2005 policy framework and apply it to 1990, we would have spent $20 million more.
These previous numbers are calculated as if nothing else changed. However, if we combine the determinants, we can calculate the total effects. The grand totals for 1990 benefits based on 2005 wages, increased employment, increased IUR, assuming the policy changes, would account for the benefits of $752 million, which we actually did spend in 2005. Wages are the largest percentage factor in determining the benefit growth of this period at 58%; employment is 22%, IUR is 15% and policy change is 5%.
Next Mr. Tillema discussed the determinants of changes in taxes in 1990 and 2005, which includes wage growth, employment growth and tax rates. The average weekly wage rates are the same as noted above. Taxable pay per employee has gone from $181.84 in 1990 to $206.90 in 2005. If we calculate the taxable pay divided by the weekly wage, in 1990 this was 46% and in 2005 it was 30%. The maintenance of tax effort is limited by the maximum on wage base, taxing only the first $10,500 of wages.
If nothing had changed except wage growth, taxes since 1990 would be proportional to wage growth and taxes would have been $717 million, rather than the $417 we collected, or $300 million more. However, with the limit on the wage base, the additional increase was only $59 million.
For employment growth and taxes, the private taxable employment increased 21% from 1990 to 2005. If nothing else had changed, the total taxes in 2005 would have been $87 million more.
For tax rates and taxes, in 1990, the average tax rate was 2.47%, in 2005, it was 2.93%, or an increase of 19%. That is due primarily to the movement of employers primarily within the tax table. As benefits increase, their taxes will increase. It is somewhat comparable to the IUR. Total taxes as a result of the movement within the tax table increased by $78 million.
If we combine the determinants for taxes, we come out with 2005 taxes of $680 million instead of $417 million in 1990. There is actually a difference of 1.2% between the $680 million and the actual tax of $688 million most likely due to using average tax rates rather than discrete .01 increments. The determinants of tax growth are fairly equal, wages at 31%, employment at 39%, and tax rates at 30%.
Question: Why is 1990 the base?
Mr. Tillema responds that we had adopted and were using the wage record system that came in April of 1989 but was fully in effect in 1990. The other reason is that 1990 is a good year to compare is that in 1990 we were at the end of the previous business cycle and that is similar to current conditions. There is a certain amount of stability in the system at this point in both of those years that makes the comparison fair.
The gap between taxes and benefits in 2005 is $64 million shortfall.
Looking at tax policies, since 1990, there have not been any significant changes in tax policies to increase revenue. Revenue has increased because of movement in the tax tables, but we have not had any increases due to policies. We have had some policies decreasing revenues. We transferred revenue from the solvency account to the administrative account, we provided small employer solvency rates to employers with taxable payroll between $300K and $500K, and we transferred some charges from employer accounts to the balancing account.
The first policy is the transfer of revenue to the administrative account. This amount is used for technology improvements and is $2 million.
We changed the definition of small employers for purposes of solvency rates. Small employers have lower solvency rates. If we reverse the change by applying the difference between the average large employer rate and the small employer rate, for 2005 we would have had an additional $19 million in taxes. We took in less in taxes because we increased the definition of what is a small employer.
The final factor with respect to policy is transferring charges to the balancing account as a percent of total benefits. We changed the policy regarding transferring benefits for a second benefit year of an employee who is laid off from an employer who had not again employed the employee before the second benefit year begins. This was a change with the wage record system so that the wages earned in the lag and current quarter are not included in tax computation. The 10% write off we have had all along, but the charges to the balancing account have increased from 17% to 22%. If we had not transferred these charges to the balancing account, the average tax rate would have been 3.22%, with the transfers, it is 2.98%, for a difference of .24%. If we apply that difference to the 2005 taxable payroll, the amount of revenue lost for these transfers is $60 million.
In summary the tax policy effects, if we took the total revenue reductions of $80 million. If we undid the three policy changes, we would have had a surplus of $16 million. If we add the interest we earn on the trust fund, we would have had a surplus of $54 million if we had not had the tax reductions from policy changes. That might be enough if we had a substantial reserve, but $54 million will never restore the reserve to the position we had previously. The reserve has been more than cut in half by the recession and the sluggish economy since 2000.
Wages has had the most substantial effect on benefits, and not nearly as much of an effect on taxes. Taxes have kept up with benefits insofar as the increase in employment is concerned. The impacts of IUR and tax rates are pretty well matched. In terms of policies, however, our policies have increased our benefits quite a bit but reduced our taxes substantially. Mr. Tillema opens the floor for questions.
The Council will like additional time to digest the information from the report.
Mr. Bergan notes that the presentation essentially reflects background information we think will be helpful as we move forward. His question to the Council is whether there are any other particular parts of the trust fund and how it operates that the Council would like the Department to look at in detail and bring back some additional information. Let us know before the next meeting.
Mr. LaRocque discussed the proposed change to DWD 128, Able and Available. At the last meeting we focused on a few issues and we have addressed those issues since the last meeting. Blacklined copies of the proposed changes since the last meeting were handed out. Council members also have copies of the rule with all of the blacklined changes from the current rule. Mr. LaRocque notes that the changes are substantial, both conceptually and in the language. Both blackline drafts display the proposal.
To recap, in the fall of last year, there was an agreement by the Council to eliminate the 50% threshold in the availability rule. The 50% threshold means that in order to qualify the claimant has to show availability for 50% of full-time suitable jobs in the labor market area. Having eliminated that, the Department needs a decision on how to replace it with something. At the same time, the Department work group had been looking at A&A, including both the 50% rule on availability and the 15% rule for able to work. We presented that to the Council in July with a fair amount of discussion. This proposal moves us more toward the mainstream of what other states are doing – in other words, applying A&A without percentage thresholds. By going to a series of factors test in both able to work and available to work, we would be closer conceptually to what other states are doing. We have drafted accordingly, and this is our current best attempt to put that together. Our focus at the last meeting was on the “shift and time” restrictions. In reference to a concern by Ms. Yunk regarding the child care provision, we worked with Bob Anderson, and took out the reference to child care. Child care is only one of many situations affecting shift and time and it need not be specified in the rule. We feel the redrafted provision adequately deals with it. Since the last meeting we also focused on the issue of the claimant whose family member requires unique care that causes them to be less available. In the current rule, that situation is not explicitly addressed by any provision of DWD 128; now we are addressing it explicitly where it belongs -- as an availability restriction -- not a restriction on ability to work. We met and had a lot of dialogue with Bob Anderson and Dennis Penkalski on this issue. We think we have come up with a good proposal. Mr. LaRocque opens the floor for questions.
Bob Anderson indicates that he and Dennis had a very productive meeting with the Department. This improves the original draft and takes care of the child care situation.
Mr. LaRocque requests comments and suggestions on the draft.
Questions by Ms. Yunk: Number 5 was addressing the problem when had with people with a planned trip or vacation and then been laid off? We had a lot of discussion on this. If someone has a planned vacation and then gets laid off, the initial proposal would have implied that they were not available for work for that week and unable to collect unemployment. Number 5 means that as long as I maintain contact and can return in 24 hours, I would potentially still be eligible for benefits.
Ms. Hium responds that we routinely ask questions about ability to return to work.
Number 5 is the policy we currently follow regarding absence from the labor market. If you are willing and able to return to the labor market within 24 hours you would not be considered to have withdrawn by your absence. [Subparagraph 5 of proposed DWD 128 reads as follows: 5. Absence from the labor market: A claimant who is absent from his or her labor market area for more than 48 hours during any week is considered to have withdrawn from the labor market for that week, unless the claimant shows that he or she remains continuously attached to the labor market during the absence or that the primary purpose of the absence was to seek work. A claimant may show continuous attachment to the labor market by claimant’s availability to timely receive and respond to offers of work by phone or other means of communication and willingness and ability to return to the labor market within 24 hours.]
Mr. LaRocque indicates that since there are no further questions, we will bring it back to the next meeting and move on.
Council members prefer to save discussion of these rules until there is a quorum.
Question by Mr. Gustafson: Do you do any special effort to notify industries that might be affected by rule changes, such as the logging industry change? This is not a substantive change, but do you notify associations or businesses if there is something more substantive?
Mr. LaRocque states that in general we have not followed that path, but we put it on the Council’s agenda.
Mr. Gustafson works with those people and will get in touch with them.
Mr. Lump states that this is something that has been brought up before. The Department should notify these industries that are specifically affected.
Mr. LaRocque states that he will take that as a suggestion.
Mr. Bergan notes that he believes this is through the Department rule process they may be required to do some of that contact. He believes it is a departmental responsibility, not a UI division responsibility, but he will check on this.
Agenda item number 5 will be deferred to the next time.
Mr. LaRocque notes that these rules were submitted to the Legislature and have now passed. They will be effective January 1, 2007. There were hearings scheduled on them but they were cancelled, so the legislative review window has closed.
Mr. LaRocque notes that these school employee issues came to our attention at the public hearing in September. A school employer brought up two cases with benefit awards. Following the public hearing the Department contacted the employer, Rusty Helland, Superintendent of the Baldwin-Woodville School District, and communicated an explanation of how those issues were decided.
Carla Breber discussed the matter with Mr. Helland. They had contacted us about two school year employee cases. UI for school employment is heavily regulated by the federal government, so much of what is in our law is required for federal conformity. Both of his cases had an initial determination and both went to hearings where the appeal tribunals affirmed the initial decisions. The first case involved a long-term substitute in the 2005-06 academic year. In 2006-07 year, they only had short-term substitute work for this person. If you compared what they had earned in the previous year compared to what they had reasonable assurance of earning in the second year, it did not meet the criteria of being similar that our code requires. It has to be a reasonable assurance of more than 80% of the gross weekly wage and more than 80% of the hours per week. In this case, the person did not have reasonable assurance until the hearing, but even then it did not meet the test of being similar work. That is why this person got benefits.
The second case is a little more complicated. The employee worked for the school district of Baldwin-Woodville in 2004-05 school year. They were the only base period employer. In 2005-06, she had worked for an out-of-state employer as a full-time teacher. This was not a combined wage claim and that is why the Baldwin-Woodville school district was the only one liable. The out-of-state employer did not give her reasonable assurance of work for the next year until June 28th, and neither did any other school give her reasonable assurance. She was eligible from when school got out until June 28th. When she received reasonable assurance, benefits were denied. The cases were adjudicated properly and were upheld. Ms. Breber did speak with the employer and explained the cases to him. He understood the Department’s reasoning, but he did not believe she should be eligible under any circumstances.
Mr. LaRocque notes that there is one letter to the Council. The Council takes a moment to review the letter.
Mr. LaRocque asks the Council to take a moment to review and see if there are any comments or questions.
Next Meeting Date
Mr. Bergan notes that we need a quorum to take official action on the rules. The Council members discussed the possibility of alternate or proxy voting if someone cannot attend. Mr. Bergan indicated he will look at this but given the open meeting rules, the telephone option may be the best option. Mr. LaRocque indicated that it may be prohibited by statute, but he will look into the idea of alternate or proxy voting. Mr. Bergan notes that if this is something the Council wants to do, it may need to be done statutorily.
The next meeting is scheduled for January 17, 2007, at 9:30 a.m. The alternate date is January 16, 2007. The meeting will be at GEF-1 again. Mr. Bergan notes that we will canvass the Council five days before the next meeting to make sure we have a quorum; if there is no quorum, we will cancel the meeting. Mr. LaRocque noted that we will also explore the telephone option.
Meeting is adjourned.
March 25, 2013
Unemployment Insurance Division, Bureau of Legal Affairs (BOLA)