Statement of Jon Brock, Executive Director, Oklahoma Employment Security Commission,
and President, National Association of State Workforce Agencies

Testimony Before the Subcommittee on Human Resources
 of the House Committee on Ways and Means

Hearing on the President's Unemployment Administrative Financing Reform Initiative

March 5, 2002

Mr. Chairman and Members of the Subcommittee on Human Resources, I am Jon Brock, President of the National Association of State Workforce Agencies (NASWA) and Executive Director of the Oklahoma Employment Security Commission.  Thank you for inviting me to testify today for NASWA and its members.   NASWA represents 53 state and territorial workforce agencies in general and Unemployment Insurance and Employment Service programs in particular.  Most of our state members also administer the programs authorized under the Workforce Investment Act, welfare-to-work programs and some administer public assistance programs, such as Temporary Assistance for Needy Families or “TANF.”

 I want to thank and commend the Chairman for scheduling a hearing on President Bush’s “New Balance” proposal.  NASWA appreciates the attention the Administration has brought to this critical issue through its effort to develop this proposal and stands ready to begin work immediately on enacting reform legislation this year.

Mr. Chairman, NASWA believes there are five major problems that call to the need for Unemployment Insurance and Employment Service reform legislation:

• The federal government has been overtaxing employers under the Federal Unemployment Tax Act (FUTA).
• The federal government has been under funding employment services, labor market information services, and unemployment insurance administration for many years.
• The permanent federal-state Extended Benefits program barely works.
• States need certain technical amendments to federal law to help them better administer their unemployment insurance programs.
• Worker representatives believe the unemployment insurance recipiency rate and wage replacement rates are too low in many states and they want the federal government to expand eligibility and benefit levels.

In addressing these problems, NASWA believes in the following principles:

• The federal government should collect only enough federal unemployment tax revenue to fund the system and maintain solvent trust fund accounts.  NASWA strongly supports repeal of the temporary 0.2 percent federal unemployment surtax.
• Unemployment taxes should fund fully employment services, labor market information services, unemployment insurance administration, and the federal half of the Extended Benefits program.  This funding should be stable, predictable, and equitable.  Mr. Chairman, states have been struggling to stay afloat in this system.  In fiscal year 2001 alone, they added nearly $300 million to our system from their own funds.  In fiscal year 2001, the State of California alone added $43 million of its own funds.
• The Extended Benefits program should be reformed as proposed previously by NASWA and now President Bush.
• The federal government should enact technical amendments as proposed previously by NASWA and proposed by President Bush that will help states better administer their unemployment insurance programs.
• States, not the federal government, should make decisions about benefit eligibility and benefit levels. 

In general, NASWA strongly supports the President’s short-term reforms described in his New Balance proposal.  NASWA also supports many of the provisions in the President’s long-term reform proposal, but has many questions and some concerns about the proposed federal tax cuts and administrative financing reform.

NASWA strongly supports an immediate extension of unemployment insurance benefits for up to 13 weeks and a $9.2 billion Reed Act distribution to the state accounts in the unemployment trust fund.  We know the recent economic news has been promising and that many economists now say the recession might be over, but we also know that unemployment lags economic recoveries and could stay high well into 2002.  Many of those who claimed unemployment insurance benefits in September, or later, are now beginning to exhaust their regular state benefits.  They need additional help, and many states need additional help with funding state benefits and the administrative costs of their programs.

Mr. Chairman, it is imperative that you enact the proposed Reed Act distribution along with the 13-week extension of benefits.  If the federal government enacts only the 13-week extension, it will consume projected Reed Act distributions for at least the next two years and make it very hard for the federal government to reform this system in the foreseeable future.  Indeed, this could be the last year in which the federal government can reform our system during the careers of most of the individuals in this hearing room.

Under the President’s long-term reform, NASWA strongly supports:

• Giving states access to the National Directory of New Hires for quick detection of individuals who have gone back to work, but continue to collect unemployment insurance benefits.
• Permitting states to pay certain tax collection activities by maintaining compensating balances in the banks performing the activities.
• Making technical changes so that states will follow state, rather than federal requirements, for Reed Act appropriations by state legislatures.
• Clarifying unemployment insurance claimants are not required to present proof of citizenship in person when they claim benefits that include federal funds.
• Making technical changes to the Short-Time Compensation program, which will allow states to continue operating these programs as they currently exist.
• Permitting states to use proceeds from sale of federal equity in real property for program purposes.
• Repealing a provision that results in certain federal employees being denied unemployment insurance benefits in cases where other workers would be eligible.
• Prohibiting states from reducing benefits due to rollover of pensions.

With respect to the 0.4 percent cut in the federal unemployment tax rate and administrative funding reform, NASWA has a number of questions before it could take an official position:

• After the federal unemployment tax rate is cut by 0.4 percent, will state constitutions or state law require states to enact new state unemployment taxes to fund employment services, labor market services, and unemployment insurance administration?
• In the Administration’s analysis of “gains and losses” to state resources in its proposal, shouldn’t the Administration have used the 0.4 percent cut in the permanent federal unemployment tax rate instead of 0.6 percent?  NASWA believes employers want a permanent 0.2 percent cut in unemployment taxes and will not want to give back the repeal of the temporary 0.2 percent federal unemployment surtax in additional permanent state unemployment taxes.
• Should the federal government reduce the ceiling on the federal loan account to a nominal amount and distribute the nearly $20 billion in the account to state accounts?  The federal government does not need these balances for the system because the loan account can borrow from the general fund and federal law virtually makes certain states will repay these loans with interest.
• Should the ultimate federal unemployment tax in the proposal be lower than 0.2 percent?  Does the federal government really need all of that revenue?
• Will certain states, such as California, Colorado, and Washington, be required by their state constitutions or laws to hold a voter referendum on new state taxes to fund employment services, labor market services, and unemployment insurance administration?
• Can the federal government assure small states will receive the funding they need if the small-state supplement is discretionary spending under annual federal appropriations?  Could the Administration and Congress accept treating the small-state supplement as mandatory spending?
• Will employers object to funding our system with state taxes that use a higher taxable wage base than the federal $7,000 base?
• Will co-mingling of benefit and administrative funds adversely affect the funding of administration or benefits?
• Are there enough federal and state benefits in the President’s proposal to gain support from those concerned about worker benefits?

Mr. Chairman, I realize this is a long list of questions, and normally it is the Subcommittee, not witnesses, who ask questions.  However, NASWA needs answers to these questions from the Administration and other interested parties before we can say more about the New Balance proposal.

On behalf of the state workforce agencies, we thank you for the opportunity to testify before this subcommittee today on this important issue.  We want to work with all interested groups in coming up with meaningful reform.

Enactment of unemployment insurance and employment service reform is urgent and critical.  I hope we can find answers quickly to all of our questions.  And, I hope Congress will consider reform immediately.  Please do not let this vital federal-state system wither any further.  Please act now.

Thank you.