Unemployment Insurance Advisory Council Meeting Minutes

Wednesday, February 10, 2010 – 9:30 A.M.

The Pyle Center
702 Langdon Street, Room 325
Madison, WI 53706

Members Present

Management: James Buchen, Earl Gustafson, Susan Haine.

Labor: Phil Neuenfeldt, Dennis Penkalski, Patty Yunk, Sally Feistel, Anthony Rainey.

Chair: Daniel LaRocque

Department staff present: Hal Bergan, Lutfi Shahrani, Carla Breber, Tom McHugh, Pam James, Dick Tillema, Tracey Schwalbe, and Robin Gallagher.

Others present: Ken Walsh (Martin Schreiber (Associates/Forest County Potawatomi), Mike Metz (WI Independent Business), Bob Andersen (Legal Action of Wisconsin), Tom Fonfara (DeWitt Ross), John Metcalf (WMC), Jane Pawasarat (DOA), and Jenna Weidner (DOA).


Meeting called to order at 10:00 a.m.

1. Opening Remarks – Hal Bergan

Mr. Bergan states that the unemployment program has been in the news lately with reports that 100,000 people will be losing their federal benefits at the end of February. Our expectation is that Congress will extend the federal benefits. The extensions are being proposed within jobs legislation. The House passed a version with a 4-month extension. The Senate has been talking about an extension proposal. Our hope is that they act this week since we have to give formal notice to claimants. The department sent a mailing to about 8,700 people who had exhausted their benefits when EUC08 Tier 4 triggered off. We are hoping Congress acts before the recess starting February 15, but this has been complicated by the snowstorms in Washington. As of February 28, people could finish the EUC08 tier they are in, but that would be the end of it. It is a complicated public information challenge to let people know with some precision what it means to them, and to offer some generalities to the media so they know what is going on. The ones that were notified their benefits were ending were those affected by Tier 4 triggering off; they were not notified that the federal programs would end.

Comment (Haine): The newspaper headline did not accurately reflect the content of the article.

Mr. Bergan states that as of this morning the loan balance is $1.086 billion. On the national level, other states are in similar situations. Some states have systems that do not have smoothing and they are looking at dramatic tax increases. In Hawaii, the tax increase is expected to be 1,000%. Some states are beginning to take action now. In Wisconsin, we moved into tax rate Schedule A in 2010. We expect an increase of about $154 million in revenue in 2010 over 2009, or an increase of about 24% with this Schedule.

Question (Buchen): Is that increase entirely a result of Schedule A, or is it because employers are moving up in the tax rates because of their layoff experience?

Mr. Bergan responds that this is a result of both.

Question (Haine): Did the wage base increase affect this in 2010?

Mr. Bergan responds that the increase went into effect in 2009 and the wage base stayed the same in 2010. The increase in revenue from the increase in wage base would have been reflected in the 2009 numbers. The startling thing about those numbers was that our revenues were essentially flat from 2008 to 2009, notwithstanding the wage base increase. Although the wage base was broader, there were fewer people on payrolls to tax.

There are concerns about tax increases. Our situation is relatively moderate compared to some other states given what we are looking at for 2010. Almost whatever steps the Council takes would not take effect until 2011, hopefully when the recovery is well under way.

The department handed out a one-page modification to the trigger system for moving between the tax schedules. It offers an alternative that is more typical to what other states have. It would not trigger the applicable schedule based on a dollar figure in the reserve fund, but the trigger would be based on a ratio of the dollar amount in the reserve fund compared to the total payroll. In general, it is a better measure. There are some numbers to illustrate the amounts in the reserve fund, but the Council could change that. This does not deal with Schedule AA because it presumes that Schedule AA would be in effect when we are borrowing. This is something to think about as one element to a solution to move forward. There is agreement that the current set of benchmarks to move between the tables have not served us well.

Question (Neuenfeldt): When is the taxable wage base next set to change?

Mr. Bergan responds that under current law it will increase in 2011 to $13,000, and in 2013 to $14,000.

Question (Buchen): Has anyone tried to isolate what going to Schedule A will mean for revenues?

Mr. Bergan responds that this will mean an increase in revenues of about $90 million. When you move from Schedule B to A, it generates about $90 million in additional revenues. When you move from Schedule C to Schedule B, it generates about $35 million. Until you get to moving from Schedule B to Schedule A, the increments are quite small. In terms of making longer term changes to the system, we need those schedules to be more like what we generate with moving from Schedule B to Schedule A. If you add it up, the potential for growth from Schedule D to Schedule A is about $200 million. That is if you hold the taxable wage base constant. That is the most you can generate no matter what happens in the economy. That is not sufficient; we paid $1.9 billion in benefits last year.

Question (Haine): What is the minimum wage? We had talked about this previously in the context of a rationale for the taxable wage base.

[The federal and Wisconsin minimum wage is $7.25.]

2. Minutes of Meeting January 27, 2010

Motion by Haine, seconded by Neuenfeldt, to approve the minutes of the meeting of January 27, 2010. Motion passes 8-0-0.

Mr. LaRocque indicates that the following items are on the agenda so the Council can take action.

3. D09-23 Amend extended benefit trigger

Ms. Schwalbe summarizes the proposal. This is to change when Extended Benefits would trigger off for the trigger that was adopted for the purposes of high EB.

Comment (Neuenfeldt): Labor wanted to get a legal opinion on this and did not have a chance to do so yet.

4. D09-22 Harmonize approved training and extended training

Motion by Neuenfeldt, seconded by Buchen, to approve department proposal D09-22 to Harmonize approved training and extended training in the form presented at the January 27, 2010 meeting. Motion passes 8-0-0.

5. Council Committee recommendation to improve definition of “employee”

Comment (Buchen): There are several parts to this. Management is prepared to go forward with the broad definitional change. They do not want to do the changes to loggers and truckers. They want to take care of mystery shoppers with an exclusion.

Comment (Penkalski): Labor has a problem with the exclusion. There are too many exclusions now.

Comment (Buchen): There is just no other way to deal with some of these things. There is not a definition that works for all jobs, such as babysitting. We do not have an exclusion for babysitting, but maybe we should. Many people are probably violating the law because they are not paying unemployment taxes on wages earned by babysitters. Some issues cannot get addressed by a general definition. There are all kinds of things that do not need to be covered by the system. The only way to do it is with specific exclusions. They have been put in the statute over the years for that reason. He is resigned to the fact that this is how we have to deal with some jobs.

Comment (Haine): There are types of work that are not or should not be covered such as church workers, grass cutters, babysitters, selling concessions, etc.

Mr. LaRocque indicates that we tend not to confront issues about babysitting and grass cutting because those people tend not to make claims for UI benefits when separated from those jobs. Mystery shoppers have made claims and relied on those wage earnings to support a claim. As a practical matter, that is why we hear about one type of work and not another.

Comment (Penkalski): There are people who work three or four jobs and this may be one of them. Excluding this work may be what keeps the person from qualifying for benefits. He hates to see another exclusion in the statutes.

Comment (Buchen): They will think about this proposal and come back to it.

6. Assurance requirement for tribal government employers

Mr. LaRocque states that the Forest County Potawatomi proposed the repeal of the assurance requirement for tribal government employers.

Comment (Buchen): Management would like to discuss this issue further.

7. Amend limit on voluntary contributions

Mr. LaRocque states that this proposal came from Patrick Cudahy at the last meeting. This is to amend the voluntary contribution provision in the UI statute. The purpose is to allow an employer to reduce its tax rate further than the statute would now allow. The change would be limited to situations involving layoffs occurring as a result of a catastrophic event beyond the employer’s control. The Council asked the department to draft language to accomplish the proposed change. The draft language is provided to the Council today.

Question (Penkalski): What is the definition of a “catastrophic event”?

Mr. LaRocque indicates that the department has not tried to define it. Ms. Schwalbe indicates that she did not find any other definition in the statutes, and one case that referred to a “catastrophic event” as something such as a flood, fire or tornado.

Comment (Buchen): You have to read the language as a whole. It has to be physical damage caused by a catastrophic event that is through no fault of your own that results in people being laid off. All of those things have to be met. It would be hard to see how an employer could abuse that. They are only able to make a larger contribution. It is not like they are scamming or getting away with something. It is not likely to be abused. The department would be the finders of fact to determine whether this provision applied to the situation. An employer could appeal the determination.

Comment (Neuenfeldt): Labor wants the opportunity to have their lawyer review the language.

Question (Gustafson): How far does the concept of “no fault of its own” go? For instance, about two years ago the Wisconsin Public Service Corporation had a catastrophic failure caused by lightning hitting a transmission line. It was a major question whether there was adequate grounding, etc. The issue at the time was whether the customers were going to pay for the repairs or not. But the issue of whether the business was at fault became complicated. Would this law proposal require that level of a determination on fault?

Mr. LaRocque states that concepts like fault and causation are some of the most litigated and difficult to resolve factual issues. The concept and resolution are inherently unclear in some situations. It is also difficult to prescribe any wording that would make it much more certain. There are a series of conditions in the language, of which all are essential, that make it difficult for an employer to satisfy.

Question (Neuenfeldt): Was the issue really because Patrick Cudahy wanted to pay back the fund in a certain timeframe because of their insurance company?

Mr. LaRocque indicates that this is part of the issue. Even without the insurance company involved, the employer would like the opportunity to make the voluntary contribution to buy the rate back down to the level it would have been more rapidly. Under current law, the employer can buy their rate down with voluntary contributions only one bracket each year. In the absence of this change, the employer will pay more solvency taxes over time than they would have paid had the catastrophe not occurred.

Comment (Yunk): Whether you argue the clearest definition, there has to be a trigger of the abnormal event occurring such as a fire.

Comment (Gustafson): In the WPS case, the regulatory agency found for purposes of rate recovery that WPS was not at fault.

Comment (Buchen): In the WPS situation, that agency was charged with the responsibility of making that determination. For this proposal, this agency may rely on that determination. We rely on finders of fact to make the determinations and there is really no substitute for that. Every fact situation is unique and these are close questions.

Comment (Haine): There is some similarity with business interruption insurance. An employer has a duty to mitigate. That is the responsibility of the finder of fact to determine. She thinks the language is adequate to cover what we are intending with this law. The facts in each incident will need to be examined.

Comment (Neuenfeldt): Labor supports the concept, but wants the opportunity to review the language.

8. Unemployment Reserve Fund solvency

Motion by Buchen, seconded by Neuenfeldt, to go into closed session pursuant to section 19.85(1)(ee) of the Wisconsin Statutes, for purposes of discussing changes to chapter 108 of the statutes regarding funding of the program, and all other issues of potential change to the unemployment statute and rules. Motion passes 8-0-0.

Closed sessions by the management and labor members of the council, respectively, begin at 10:38 a.m.

Meeting adjourned when caucuses ended.

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