Statement of William A. Signer,
Counsel, National Employment Opportunities Network,
and Chambers Associates Incorporated

Testimony Before the Subcommittee on Oversight
of the House Committee on Ways and Means

Hearing on the Work Opportunity Tax Credit.

July 1, 1999

Good morning, my name is Bill Signer, and I am pleased to have this opportunity to appear before the Subcommittee today in my capacity as Counsel to the National Employment Opportunities Network (NEON). NEON is comprised of management assistance companies who provide technical services to thousands of employers who have established hiring tax incentive programs. The services they provide include: designing a system for an employer to participate in welfare to work hiring tax incentives; training hiring managers in how to pre-screen those eligible; establishing sophisticated outreach programs designed to maximize the pool of Work Opportunity and Welfare to Work Tax Credit eligible job applicants interviewed; helping complete, file, and track the paperwork required to ensure that an employer receives the certification needed to claim the credit; and working directly with state employment services to assure that persons eligible for the tax credit are certified by the states.

I would like to begin by noting that this hearing is occurring on the first day after the Work Opportunity and Welfare to Work Tax Credits expired. As you know, last year the program experienced a 3 ½ month hiatus. From past experience, we know these interruptions have a dramatic adverse impact on the programs' effectiveness.

First of all, employers who are currently participating in the program must evaluate whether they want to continue assuming the extra costs and risks associated with participating. Some decide not to. Others scale back on their efforts. Employers not currently participating either defer their decision or lose interest all together. Perhaps most damaging, a program hiatus always results in dramatic increases in processing backlogs by the state job services. This inevitably leads to certification denials due to lost or misplaced paper work.

That is why NEON and the thousands of employers we work with are pleased to support Chairman Houghton's and Mr. Rangel's bill, H.R. 2101, The Work Opportunity Tax Credit Reform and Improvement Act of 1999, which calls for a permanent extension and merging into one program both the Work Opportunity and Welfare to Work Tax Credits. I also want to commend the principal sponsors on the fact that their bill enjoys the support as co-sponsors of almost every member of this Subcommittee as well as a majority of both Republicans and Democrats on the full Committee.

The disruptions that result from a hiatus are particularly unfortunate in light of the fact that in the vast majority of the states the WOTC/Welfare to Work community believes that the program is working extremely well. This is in large part due to the excellent job that has been done by the Department of Labor's United States Employment Service headed by John Beverly, and the IRS team headed by Robert Wheeler. Both have done an incredible job in setting up the program and in being responsive to the concerns of employers.

But what is even more encouraging is that over the past two years and nine months since the inception of WOTC, employers have responded positively to what this Committee and the Congress wanted. Employers participating in the programs have embraced the idea that in order for the program to work correctly they had to dramatically change their hiring practices. They have willingly done that and, as a result, have expanded the breadth of their hiring pool to include public assistance recipients and others with limited job skills and minimal work experience. Over 80% of those hired under the two tax credit programs came off the public assistance rolls, that is a record, Mr. Chairman, of which the Congress should be proud.

Since October of 1996, employers have responded in a number of ways to the enactment of the WOTC program. These include:

• Making sure that the mandated "Pre-Screening Form" is filled out as part of the job application provided each entry level applicant;
• Establishing extensive corporate wide training programs for hiring managers to inform them of the company's commitment to hiring those eligible as well as to instruct them in how to help a job applicant fill out a pre-screening form;
• Providing hiring and retention bonuses for store and hiring managers;
• Establishing extensive corporate outreach programs designed to maximize the number of WOTC/W-t-W hires; and
• Undertaking mentoring programs to insure a successful transition into the work place.

Because of the added costs involved in setting up and operating those activities as well as the added training costs and relatively high drop out rate involved, few companies could afford to justify such extensive efforts without the partial financial offsets provided by the Work Opportunity and Welfare to Work tax credits. Certainly, the extensive efforts and costs involve should dispel any notion that hiring tax incentives are a windfall to the employer.

While, generally the program is working well. There are two concerns that the WOTC / Welfare to Work community hope can be addressed this year. The first is the fact that few males are being certified in the program. Second, in about ten states there are significant processing backlogs.

We estimate that only about 21% of program participants are male. This conclusion is based on a large sampling of about 90,000 hires in calendar year 1997 and another 96,000 in 1998. Most employers participating in the program would like to hire more males, but despite their best efforts, young men coming from households dependent upon public assistance are not being certified. There are two reasons for this. First, the vast majority of states are qualifying very few people through the food stamp program, the category under which young men and women were originally supposed to qualify. Second, the definition of a member of a family on welfare has been so narrowly interpreted that it only includes those on the welfare grant and not those living in the household once they turn 18 and are no longer eligible for welfare.

While better cooperation between the state job services and food stamp offices could help to alleviate this problem, we also recommend that you modify the definition of who is a member of a family on welfare to include the parents, stepparents, siblings, step-siblings and legal guardians living in the household of a child on welfare. We believe that anyone who is living in a household with a child on welfare who meets this definition is the type of person who the Committee originally intended to assist through WOTC and Welfare to Work Tax Credits. Inevitably, such individuals living in a welfare household share the same obstacles to finding work as those currently qualifying under the program and so deserve assistance. We urge the Committee to make this change.

The problem of processing backlogs is even more troubling. Most states process requests for certification within 30 days of receiving the paperwork from the employer. Yet some states are backlogged anywhere from 6 months to as much as 2 years. In those states, the employers involved have a great deal of difficulty in motivating their hiring managers to actively participate in the program and some employers have discontinued their WOTC programs in certain problem states. If employers are going to continue to participate in the national welfare to work initiative, they need the assurance that the program will work the way it was intended to.

To address this problem, we recommend that the Committee proscribe a series of steps that will ensure a reasonable certification process. Employers have indicated that when there are unreasonable delays, they are willing to assist the job service to obtain the information needed to verify eligibility. Thus, we propose that if a state job service has not acted on a certification request within a specified period of time after an employer has filed the necessary paperwork, the employer would have the right to go to the agency responsible for verifying eligibility (welfare, Social Security, food stamps, parole officer, etc.) and ask it to fill out a DOL form that verifies eligibility. That form would then be filed with the job service which would either issue a certification or provide specific reasons as to why the applicant is not eligible. A 90 day processing standard is what DOL already expects from the states in the WOTC/Welfare to Work Handbook. We would propose that similar procedures also apply to employer appeals of denials of certifications.

We have had extensive discussions with both DOL and Treasury about this proposal and have made significant modifications to reflect the concerns they raised with us. We are currently working with the state job services to further refine our proposal and hope to have the details worked out before you go to mark up.

There are a number of other issues we would like to bring to the Committee's attention.

• Since the pre-screening form (IRS form 8850) is now part of the employer's job application, program modifications that necessitate a change in the 8850 are very costly for employers, especially if they must change over to the new form in a relatively short time frame. Employers would find it much less burdensome if they could have a grace period which would allow them to replace the pre-screening form through their normal process of restocking job applications.

Thus, we would propose that for at least one year after any change is adopted that requires a modification of the 8850, employers could use either the old or new 8850. This grace period would not apply if they hired someone from a newly added category. In that situation, they would be required to use the new form.

• We are opposed to the Administration's FY 2000 Budget proposal to charge employers a user fee in order to receive a certification. Many employers participating in WOTC and the Welfare to Work Tax incentives are doing so despite the added costs that are not fully being offset by the credits provided. To expect employers to make cash payments to the government on top of the extra costs already incurred when hiring welfare recipients, would in many cases result in their abandoning the programs.

In addition, $20 M a year has been appropriated out of Wagner-Peyser Trust Fund for the state job services to administer WOTC and W-t-W. The Unemployment Insurance Tax funds the Wagner-Peyser Trust Fund, which in turn funds the services provided to employers and workers from the state job services. Thus, in effect, if employers were required to pay for certification services, they would be asked to pay for something they have already paid for through the unemployment tax. Charging a user fee would almost certainly discourage many small businesses from participating in the program by adding a new up front cost to what many of them already believe is a program which presents too many administrative hurdles to be worth participating in.

• As a community, we are concerned about recent proposals to allow electronic filings of the pre-screening notice IRS form 8850. We believe that the integrity of the program is dependent upon making certain that the pre-screening notice is filled out and signed by the job applicant before he or she is offered a job. Therefore, if electronic filing is to be permitted, we recommend that employers be required to maintain an original pre-screening form for at least 5 years after a certification has been granted. This would provide a legitimate control against undercutting the Committee's original intent in requiring that the pre-screening form be filled out and signed before the job offer is made.

As an intermediate step, we would encourage the Committee to allow the faxing of pre-screening forms since that would result in a signed form being filed with the local job service.

• To reduce the paperwork burden on employers, we would encourage that the pre-screening form and the Individual Characteristics Form (ICF) be made into one form. The ICF is a DOL form which provides the backup information the job service needs to verify eligibility. While we have no problems with the form itself, employers would find it much easier to fill out and file a single comprehensive form.

• Finally, while the entire WOTC / Welfare to Work Tax Credit Community actively supports a permanent extension of the program, past experience indicates that this may be difficult. On this point, we urge the committee to reflect on three points:

1. Hiring tax credits are no longer an experiment. The results are in. They work very well. Tax measures that do what they are supposed to should be made permanent.
2. If revenue constraints prohibit a permanent extension, I urge you to grant a multi-year extension. The program suffers significantly with annual extensions, and fewer welfare recipients get jobs.
3. If you are forced by circumstance to grant a multi-year extension, please move the expiration date from June 30. Based upon past experience Congress never completes a tax bill by June 30, and rarely finishes before the end of the fiscal year. Thus a June 30 expiration virtually assumes a disruptive program hiatus. Since the money needed to administer the program is provided on a fiscal year basis we would urge that the Committee move any expiration date to September 30 or December 31.

Again, please let me thank you for this opportunity to present the views of NEON and the thousands of employers they represent.

REACHING OUT
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June 9, 1999, Courtesy of APG, Inc.