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Hearing on Moving from Unemployment Checks to Paychecks: Implementing Recent Reforms

April 25, 2012

Hearing on Moving from Unemployment Checks to Paychecks: Implementing Recent Reforms










April 25, 2012


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan, Chairman

WALLY HERGER, California                         
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel

GEOFF DAVIS, Kentucky, Chairman

RICK BERG, North Dakota
TOM REED, New York
TOM PRICE, Georgia
DIANE BLACK, Tennessee






Panel 1:

The Honorable Jane Oates
Assistant Secretary, Employment and Training Administration, U.S. Department of Labor

Panel 2:

Mr. Darrell Gates
Deputy Commissioner, New Hampshire Department of Employment Security

Mr. Larry Temple
Executive Director, Texas Workforce Commission

Dr. Wayne Vroman, Ph.D.
Senior Fellow, The Urban Institute

Mr. Douglas J. Holmes
President, UWC – Strategic Services on Unemployment & Workers’ Compensation

Mr. Michael Cullen
Managing Director, OnPoint Technologies


Hearing on Moving from Unemployment Checks
to Paychecks: Implementing Recent Reforms

Wednesday, April 25, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.

The subcommittee met, pursuant to call, at 10:08 a.m., in Room 1100, Longworth House Office Building, Hon. Geoff Davis [chairman of the subcommittee] presiding.

[The  advisory of the hearing follows:]


Chairman Davis.  Good morning.  Thank you for joining us for the hearing this morning. 

As we all know, we have been paying record unemployment insurance benefits for years now.  Despite characterizations by some that this is the best stimulus that money can buy, we know that the U.S. labor market remains in near critical condition today.  There are 5 million fewer jobs today than the administration predicted there would be at the end of 2010.  This is the slowest jobs recovery since data were first recorded in the 1930s.  Unemployment has been above 8 percent for 37 consecutive months, the longest stretch since the Great Depression.  Today’s 12.7 million unemployed Americans are almost 1 million more than when President Obama took office, and today’s 5.3 million long‑term unemployed are more than double the number when President Obama took office. 

Yet even those grim figures miss some major problems.  For example, beyond the 12.7 million unemployed and the 5.3 million long‑term unemployed, millions more have simply stopped looking for a job.  As this chart shows, the unemployment rate would be 11 percent today if these discouraged workers were counted as officially unemployed. 

To address this desperate need to change direction, in February of 2012 Congress passed and the President signed into law legislation originating from this committee containing historic reforms to the Nation’s unemployment insurance system.  When that legislation passed, the headlines often focused on how it extended Federal unemployment benefits through the end of the year with shortened durations and greater focus on the highest unemployment States.  But the legislation contained much more, including what the administration described last week as the first major overhaul of the unemployment insurance system in decades.  I would echo that sentiment. 

In sum, these reforms are designed to help more unemployed people, and especially more long‑term unemployed, get back to work.  Among other provisions the legislation includes new job search requirements for people collecting extended unemployment benefits, new waiver flexibility to test ways of using UI funds to help people get a job instead of just a benefit check, new reemployment assessments designed to address obstacles long‑term unemployed have to taking a new job, and new authority for drug screening and testing of some UI applicants. 

The American people need these reforms to take effect quickly and to work effectively.  This hearing is designed to review the implementation of these reforms as well as consider what additional steps may be needed.  Members will hear from the Department of Labor as well as State and private sector experts about what these reforms are meant to accomplish, what has already happened, and what is yet to come in terms of their implementation. 

We have some specific questions about how and why certain policies are being implemented the way they are, as well as about the challenges States and employers may have in adjusting to the reforms, but most importantly we use this hearing to ensure these changes are being implemented in a way that will help more unemployed Americans trade benefit checks for paychecks.  That is our ultimate goal and the standard by which this program should and will be judged. 

I know that over time we have had spirited discussions on this, both in the committee, on the floor.  Several of us who are up on the dais today have managed extensions of the previous unemployment program through the early period of the last Congress and the Congress before that, and we finally hit a center of mass where we were able to make some reforms, achieve a compromise with a focus on the process, getting away from the emotion of ideology on either end of the spectrum to really fix some problems that the States had, as well as addressing spending issues and incentives for folks to go back to work. 

So I appreciate all of you being here, appreciate the members of the subcommittee for joining us today.

Chairman Davis.  And one other note that I would like to make before we move on is I would like to take a moment to recognize Tim Ford, who is our Legislative Assistant on the Human Resources Committee, also helping to keep the trains running on time today.  Tim has been with the subcommittee staff since early 2011, and he leaves us tomorrow for the University of Michigan law school.  Tim does a lot of work before and during our hearings to make sure they run smoothly, and I know our witnesses are grateful for his help as they prepare to testify today. 

He is a great addition to our team.  I personally appreciate his contribution, his infectious enthusiasm, and his devotion to duty on what can be a very intense subcommittee to work on. 

And I just want to thank you very much and all of us give you a round of applause for your contribution. 


Chairman Davis.  With that, the ranking member, my friend from Texas, Mr. Doggett is recognized for 5 minutes. 

Mr. Doggett.  Thank you, Mr. Chairman. 

Certainly extending a hand to those Americans who have lost a job through no fault of their own and who are out searching for new opportunities is the right thing to do to keep our economy moving forward and to assist millions of our fellow Americans. 

Unemployment benefits helped in a significant way to avoid a very bad recession, the worst since the Great Depression, from becoming a catastrophic depression by helping folks put food on the table, a roof over their family’s head, and get the kids the clothes they need to go to school. 

Overall our economy is making some progress as evidenced by the nearly 3‑1/2 million jobs that have been created over the last 2 years, but there is considerable work to do.  And it is correct that since December of 2007, before this administration took office, we have, versus that point, 5 million fewer jobs. 

Though there has been some remarkably good news over time in Texas, according to the Center for Public Policy Priorities in East Austin, we still have a shortfall in our State of almost three‑quarters of a million jobs.  In San Antonio, for example, almost 40,000 workers are receiving unemployment benefits, and more than half of those have been unemployed for at least 6 months.  In Travis County, almost 25,000 unemployed workers are claiming benefits.  Last week the San Antonio Express‑News held a job fair that attracted some 1,400 people, including Amanda, a 46‑year‑old trained as a medical assistant, who has been searching for a job for 6 months without success. 

I think it is vital that we maintain the unemployment insurance lifeline for families who want to work, but have not yet been able to find a job.  Fortunately, in February a number of our Republican colleagues, after a great deal of foot dragging and creating an unnecessary crisis for too many of our families, joined with us as Democrats in maintaining emergency unemployment benefits throughout the rest of 2012. 

There have been included with that new law as a part of the extension a number of reforms that are designed to promote employment.  One of those was the subject of testimony in this subcommittee last year by Senator Ron Wyden of Oregon.  I worked with Senator Wyden in sponsoring legislation to encourage more States to promote entrepreneurship among the unemployed by allowing under certain conditions those who are unemployed to use their resources to help establish small businesses.  I think this is a program with much potential for some of the unemployed, and I look forward to hearing from the Secretary and others about how that potential can be achieved. 

The new law also contained provisions to avert layoffs through work‑sharing programs in which individuals receive partial unemployment checks when their work hours are cut.  The administration also had initiated a program that is included in the new law to require recipients of emergency unemployment to undertake reemployment assessments, and there are some demonstration projects that will be conducted by the Secretary of Labor to explore other alternatives, which we can discuss this morning. 

As we review how the States have responded to the various changes in Federal laws related to unemployment, we need to acknowledge that there is a much bigger challenge looming.  Thirty States now owe the Federal Government $41 billion in unemployment loans, and several other State unemployment programs, like my home State of Texas, have borrowed from the private market.  The magnitude of the recession had an obvious impact in driving up insolvency, but truthfully, a number of these States failed to make proper preparations for even a mild recession, much less a more severe one like that that we experienced.  A system that was more forward funded would have averted many of the problems and certainly the massive amount of State debt to the Federal Government that we have today. 

I look forward to suggestions and recommendations as to how we can create an unemployment insurance system that does a better job of saving for the future and protecting those who need it in an economic downturn. 

Thank you, Mr. Chairman. 

Chairman Davis.  Thank you, Mr. Doggett. 

Chairman Davis.  I would like to remind our witness to limit her oral statement to 5 minutes.  However, without objection, all of the written testimony will be made part of the permanent record. 

On our first panel this morning we will be hearing from the Honorable Jane Oates, Assistant Secretary for the Employment and Training Administration, U.S. Department of Labor. 

Ms. Oates, please proceed with your testimony.


Ms. Oates.  Good morning, Chairman Davis, Ranking Member Doggett, and other members of the subcommittee. Thank you for the invitation to testify today and for holding this hearing on the unemployment insurance provisions in the Middle Class Tax Relief and Job Creation Act of 2012.  It is an exciting time for the UI program, and I welcome the opportunity to talk to you about what we are doing to implement these provisions. 

Let me first start by thanking Congress for extending the Emergency Unemployment Compensation Program and the full Federal funding for the Extended Benefit Program.  We estimate that about 5.3 million unemployed workers will receive more weeks of benefits as a result of this extension.  Unfortunately, too many Americans are still unable to find work, particularly those that have experienced long‑term unemployment.  Therefore, both the extension of benefits and the provisions of these acts focusing on reemployment and layoff aversion are very important. 

My staff is rising to the challenge of having to implement multiple new initiatives at the same time, and we have made significant progress in developing the necessary guidance and providing technical assistance to States.  I am also pleased to report that States are generally being successful in implementing the mandatory provisions of the act in very short timeframes, and NASWA, their association, has a lot to do with that. 

As you know, the act makes many complex changes to the EUC program structure.  On March 5th, we issued initial guidance on the EUC changes, and we have additional guidance related to the random work‑search audits and responses to State questions in the final stages.  And to enable States to administer the new EUC provisions, Secretary Solis and all States signed addenda to their EUC agreements by March the 19th. 

The new provisions for providing reemployment services and eligibility assessments to claimants are an important step to ensure that long‑term unemployed workers are getting the reemployment services they need to regain employment as soon as possible.  Guidance was issued on implementation of RES and REA on March 16th, a full week ahead of schedule, thanks to my great career staff. 

States have articulated a number of challenges related to implementation of RES/REA, but by far the biggest one is the need to increase their capacity to serve the additional 4 million EUC claimants they will be seeing through the end of the year.  Despite these challenges, the States were able to commence RES/REAs by mid‑April, most of them, and almost all States will have implemented by the first week of May. 

Secretary Solis is pleased to have the opportunity to promote innovative reemployment strategies by allowing up to 10 States to conduct demonstration projects.  We know that States are excited about this new opportunity.  UI PL 15‑12 was issued on April 19th, providing guidance to the States on the application process, and many of the States will probably tell you they are still reading it.  A Webinar to review the guidance and response to State questions is scheduled for this Friday.  We welcome your staff and interested constituents to participate, and we will be happy to give you the information about how to get on that Webinar. 

We look forward to the opportunity to improve State take‑up and expansion of short‑term compensation as an important layoff‑aversion tool.  We began implementation of these provisions by consulting with stakeholders and other program experts in two listening sessions on March 19th and 20th.  Guidance for all the short‑term compensation provisions and the model legislative language will be issued soon, and we are planning for robust technical assistance so that everyone who wants to can take advantage of that. 

We anticipate that States currently operating an STC program may have to make at least some State law modifications to conform to the new Federal program definition and to be eligible for the available grants.  The 100 percent reimbursement of State STC benefit costs for States with permanent programs will begin soon after the guidance is issued. 

The self‑employment assistance that the ranking member mentioned, the SEA provisions to support increased State implementation and to expand the program to both EUC and EB, will enable many more unemployed workers to consider self‑employment as a reemployment strategy.  Similar to STC, we hosted two listening sessions on March 19th and 20th and consulted with stakeholders and other program experts. 

While most of the UI provisions in the act are temporary, it also establishes some permanent changes to the UI program, including an explicit statutory requirement that regular UC claimants must be able to work, available for work, and actively seeking work.  States will likely not need to make significant changes to their laws, as they already include such requirements. 

Other things on which we will be issuing a guidance, of course, are the changes permitting the permanent changes to include the provision allowing States to test certain applicants for the use of illegal drugs as a condition of eligibility.  We are consulting with SAMHSA and with other agencies to make sure that our regulation concerning the occupations that regularly conduct drug testing are uniform across our agencies. 

I appreciate the opportunity to talk to you about the UI provisions.  In the interest of time, I won’t talk about data exchange standardization, but please know we are very interested in that.  We have already engaged with the Office of Management and Budget and our State partners to explore ways that we can expand that.  You know we already bought into that.  My career staff will be dancing in the aisle when we can do that. 

Chairman Davis.  I would like to see that. 

Ms. Oates.  Right. 

And I would be remiss in my last few seconds if I didn’t say what a sad day for me to be testifying.  We all lost a good friend when Don Payne lost his battle to cancer, and I know that some of you know that I spent some years in New Jersey.  He was a great friend while I worked for Senator Kennedy and a terrific friend while I was in New Jersey.  And I understand that members may be coming and going to go to his services, and I fully appreciate that, Chairman. 

Thank you.  I look forward to your questions. 

Chairman Davis.  I thank you very much, Madam Secretary.

[The statement of Ms. Oates follows:]

Chairman Davis.  I move now to questions.  I have a question for you first as we move forward.  Your written testimony on page 6 notes, and I quote, “The Secretary was required, by statute, to issue guidance on implementation of RES/REA activities not later than 30 days after enactment.” 

To my knowledge there was not a similar requirement for the Secretary to issue guidance on waivers. Is that correct?  And, if so, why did DOL issue its recent guidance on waivers? 

Ms. Oates.  On the demo project, sir? 

Chairman Davis.  Yes. 

Ms. Oates.  We did the guidance on that so that we could make sure ‑‑ since this was a pilot and demo that the Secretary was very interested in pursuing and very happy that Congress gave her the opportunity to do, we wanted to make sure that we had some standardized process so that States would know exactly what we were looking for.  And while I think some people will say, and I respect their opinion, that the guidance is lengthy, we think that this was ‑‑ this is the first time that we have allowed States to use trust fund money for anything else other than the payment of UI benefits, and therefore it was important for us in good public policy to make sure that we told people what we were looking for in that. 

Chairman Davis.  Our review of the Secretary’s guidance reveals little additional information about how the States are supposed to apply, except for the section labeled “The Secretary’s Priorities,” and this section includes a number of provisions that, in effect, were part of the President’s American Jobs Act, but not the bill passed by the Congress.  And that includes new provisions related to the Fair Labor Standards Act, assurances that demonstrations lead to permanent employment, and goals involving low‑income and older workers.  Where exactly in the law Congress passed did these and other Secretary’s priorities for the waiver provision appear? 

Ms. Oates.  Well, in the guidance, sir, we did provide all the statutory provisions that are mandatory, and the Secretary’s priorities were included as additional things.  Yes, many of them were included in the President’s program that he put forward, but I think that the fact that we are using State trust fund money, that the businesses that are the sole providers of that money would want to make sure that raiding the trust basically resulted in permanent employment and did follow the Fair Labor Standards Act that was passed by Congress.  So, I mean, I am not quite sure why we wouldn’t have said that.  We don’t want temporary workers going in and displacing other workers, and the Fair Labor Standards Act is something that, quite frankly, businesses and States are used to already.  We didn’t add anything that was new or complicated that they are not already working under. 

Chairman Davis.  Well, I’ll just take this one step further.  The President’s bill actually was never enacted, and there is reflection of those priorities in the new rules, and if the law Congress passed and the President signed didn’t include such requirements, why does DOL think that it can include them in the State waiver applications?  I mean, coming back to the baseline legislation. 

Ms. Oates.  Sure.  I think that Congress gave the Secretary the discretion to add additional components, and the fact that the Secretary even ‑‑ Congress, as Members of Congress, you gave her the discretion to do this program or not do this program.  It wasn’t mandatory.  So I think in choosing what was in the final guidance, we did choose to follow laws that had been passed by previous Congresses, like the Fair Labor Standards Act. 

Chairman Davis.  If State applications do not include these “Secretary’s priorities,” will that be held against their application and result in it being rejected? 

Ms. Oates.  Well, quite frankly, like everything else we do, the guidance that we put out, whether it is a grant or a demonstration project like this, State applications will be weighted against their ability to meet the standards set in the guidance.  So it would be premature for me to tell you what the Secretary will or will not dismiss.  The process that we have developed has the Secretary only in the final stages, so therefore career people will be engaged in weighing State applications against what was in the guidance.  So I would encourage States to follow the guidance as closely as they could so that their application could be seen favorably. 

Chairman Davis.  I think this is bringing me back to one final point, and this really questions positional authority regarding what was enacted versus some of the additional, let’s say, interpretations that added legislation that was not enacted into it. 

Coming back to the core legislation that the Congress passed and the President signed into law, what is your authority for rejecting State waiver applications that satisfy the statute quite clearly, but not the additional requirements that were tacked on by the Secretary?  And I think there is a question of prerogative and balance of law that the States, I think, certainly have a right to redress or ask.  So if you could just quickly answer that question. 

Ms. Oates.  Yeah, I think, Mr. Chairman, quite frankly, oftentimes we go and give further guidance when laws are passed.  We do it through regulation, and we do it through guidance like this.  I don’t think anyone in our solicitor’s office thought that we were doing anything unusual with this guidance. 

So with great respect, you know, happy to work with you as we get applications and the Secretary makes decisions, and we are open to your opinions and possibly the option that we would differ with you on the interpretation. 

Chairman Davis.  Yeah.  Well, just in closing then what I would appreciate is if your office would answer us from your counsel, explaining the addition of or interpretation of rules that are outside the scope of the original legislation. 

Ms. Oates.  I am happy to do that, sir. 

Chairman Davis.  Great.  Thank you.

Chairman Davis.  With that, I would like to yield to my friend Mr. Doggett from Texas. 

Mr. Doggett.  Thank you, Mr. Chairman.  And thank you, Madam Secretary. 

In fact, the legislation we are referring to is permissive with reference to these demonstration projects.  It does not mandate the Secretary to set up any demonstration project.  It uses the term “may”; does it not? 

Ms. Oates.  That is correct, sir. 

Mr. Doggett.  And as I understand these other requirements that are not specified in the statute, one of the most basic ones is that in setting up these programs, these demonstration programs, and looking at whether you will grant waiver authority, you expect there to be compliance with other Federal statutes. 

Ms. Oates.  That is correct, sir. 

Mr. Doggett.  Such as the minimum wage, such as not going back to child labor and working excessive hours without being paid overtime.  Those would be the kind of requirements that I am sure that there are some still in this Congress that are as ideologically opposed to them as when they were first enacted into law decades ago, but you seek to assure compliance with Federal statutes; is that right? 

Ms. Oates.  That is correct, sir. 

Mr. Doggett.  And with reference to those demonstration projects, there will be some testimony shortly that what the Department has done is overly bureaucratic and administratively cumbersome. 

Can you tell us why certain requirements are imposed on the States wanting to use unemployment insurance funds to administer these programs, and weren’t some of these requirements, such as cost neutrality, requiring work to be suitable, and including a rigorous evaluation, already included in the statute; and don’t some of them, such as not using new programs to cause more unemployment with temporary workers replacing people who have not been unemployed, consistent with the goals of this legislation? 

Ms. Oates.  That is correct, sir.  Again, since this is the first time in history that the Federal Government has given States the permission to go into their State trust fund for anything else other than the payment of benefits, we took this very seriously. 

Additionally, we are hoping to get great innovative measures, and if we don’t make those measures adhere to other Federal laws, then we are using these demos as a political football rather than using them as really instructive techniques in order to get us information to share with you to get permanent changes to the UI system. 

Mr. Doggett.  You are trying to preserve the trust associated with trust fund monies, which, as I understand your testimony, have never previously been used for any purpose other than paying the unemployment insurance benefits that unemployed workers have relied upon when the Congress set this program up? 

Ms. Oates.  That is correct, sir. 

Mr. Doggett.  With reference to the self‑employment programs, are there some States that, in order to participate in those programs and help someone who has been unemployed innovate, be an entrepreneur, set up a small business, that the States will have to change their laws? 

Ms. Oates.  We firmly believe that some States are going to have to change their laws.  As I am sure you are aware, there are nine States who currently allow it, but only six of them are active, actively using it right now.  But we think that States will be able to make those changes in enough time, because you have been generous enough to give us enough time until 2015 to actually do this that those States will have time to do it. 

Mr. Doggett.  You have noted in your written testimony that those six States that have used the program and the individuals that have participated in the programs have a much better success rate than others in actually staying employed and getting a small business, as risky as that is, under way and going.  Can you tell us a little about the potential of these self‑employment programs? 

Ms. Oates.  Well, Congressman, we have done actual research following up in these States, and even if folks weren’t able to open their own business because of credit problems, you know, or things that they couldn’t get right then and there, these programs are five times more likely to get a job and keep it. 

And so the lessons they learn in these entrepreneurship activities really make them a better candidate for another employer.  They understand all aspects of a business.  So we think it is a win‑win.  We think it would be great if they could get their own business up and going, but we definitely think this gives them a leg up in competing for jobs that would be available in their local area. 

Mr. Doggett.  Madam Secretary, at a time when we have made significant economic progress, but still have a good ways to go to get the unemployment rate down, what is the effect of seeing major, substantial cuts in training and job‑training programs across the country? 

Ms. Oates.  Well, certainly, sir, I have a bias here, but I think this committee, in crafting the REA/RES provision that is now mandatory for States, it is going to be really a shell game for our constituents, mine and yours, if we gut the workforce programs so that when people go to get those reemployment activities, the services that they have been promised, there is no one there or the one‑stop has closed up. 

So I hope that we are able to show you quickly the benefits of getting folks both the assessment and the services that they need quickly, and get them back into the employment ranks where they are adding to the tax revenue and not taking money from the UI trust anymore.  But I think it will be really terrible for all of us if we pull the rug out from under these folks that have suffered enough. 

Mr. Doggett.  Thank you so much. 

Chairman Davis.  I thank the gentleman. 

The chair now recognizes the gentleman from Minnesota Mr. Paulsen for 5 minutes. 

Mr. Paulsen.  Thank you, Mr. Chairman. 

Madam Secretary, you also mentioned in your testimony on page 4 actually about the program, EUC program, expiring coming up.  It ends completely with no phase‑out on January 2nd of 2013.  And, of course, we are making progress on jobs, we are moving forward.  You stated that as well, and that is our goal across the board up here. 

So my question is this:  Does the administration believe that current economics and the job growth that exists right now is strong enough that the EUC program should not be extended past the deadline of its expiration coming up in January at the end of this year? 

Ms. Oates.  Well, if I could say two things on that, Congressman.  First, I think that we have all learned with this recession that predictions are likely not to be correct.  So I don’t want to make a prediction, and I don’t think the administration has yet shared with me their opinion on whether or not to go for another extension or not.  I think we are all trying to look at everything as the glass is half full, hoping that the economic situation will continue to improve. 

But the other thing is really a plea for all of us to make sure that people understand this cliff in January.  It is different than anything they have experienced since we have begun this in 2008, 2009, 2010, 2011, 2012.  People will not understand that all of their benefits will end abruptly; they are used to a cascade.  And I think if I were still staffing, as I did for many years, in the other Chamber, I would be letting people know that, because some people may be getting job offers that don’t meet the job that they lost either in terms of dignity or salary, and they may be holding out to wait for a better job offer that is closer to the job they lost.  They need to really understand that in January of 2013 they may not have another option. 

Mr. Paulsen.  Yeah, and to know that those job options are going to be employment options before that cliff hits. 

So let me ask you this:  Are there any other economic indicators that you would maybe hold out there that might be indicative of when it is time to end the temporary extension of these unemployment benefits?  Is it 7 percent, is it 6‑1/2 percent, is it 6 percent?  You know, is there some sort of other benchmark or marker when it sort of makes sense to start to phase that out? 

Ms. Oates.  You know, I think we are all confused about what everything means.  I mean, I think that the chairman brought up people who are off our radar screen who have already exhausted benefits, that are still searching or underemployed.  So I don’t know what the right number is.  And, quite frankly, over the last 3 years, we have seen things like the economic situation in Greece and the tsunami impact our economy when none of us would have been able to predict that. 

So I wish I could give you a better answer.  The only answer that I can give you is that we are trying to put as much information out there as we can and work as closely with employers as we can, both directly and through our regions, you know, our States that are such important partners with us, but also our local one‑stops, to help figure out, you know, what are the indicators out there besides just looking at warn notices with layoffs, but also starting to look at where are we seeing job growth in your State, in Minnesota, as well as in other States, so that we can figure out ‑‑ we could come to you and say, look, it looks great; it looks like these companies are really on solid ground, and they are going to be adding jobs for the next 5 years.  I just don’t have anything, any indicator that really predicts that right now. 

Mr. Paulsen.  Okay.  Let me ask one other question, because we talked about the reforms being targeted to those who are able to work and actively looking for work.  Under the new law, the States are also required to reduce current State and Federal UI checks to recover any prior overpayments for unemployment, but with about 11 percent rate of overpayment being in error, it is about $30 billion, actually a huge amount of money. What effort is the Department of Labor making right now to help States implement some of those new overpayment recovery requirements? 

Ms. Oates.  You know, we are really doing everything in partnership, mostly with NASWA, who is their association, and individually with States.  We are trying to give them clear guidance, and we are really trying to tell the stories of the States that have done a great job at this. 

We haven’t done a lot of work on specific tools with them, although we will, just as we did last year, have some additional over the base money that we will be putting out for States to work on things like integrity and improvement of their IT system.  And we are hoping that States, just as they did in the past, will take advantage of this to customize this additional money to an area that is in need for them.  Some States are having a tougher problem with IT in terms of overpayment; some are having a tougher time interacting with other State agencies as well as Federal agencies.  For us that is Treasury, but in a State that could be two or three different State departments. 

Mr. Paulsen.  Are certain States having more success reaching that? 

Ms. Oates.  I can tell you best about the States that are having real initial success on the TOP program where they can garnish it from people’s tax returns, and so far we have seen somewhere ‑‑ and I will get you the exact number ‑‑  somewhere in the area of about $135 million in terms of reclamation since that program started.  So the early‑on States like New York, you know, did a great job on that, and newly we have had Mississippi that has come on later in this year, and they have had a great success rate in getting money back that way. 

You know, we would like to suggest that our system ‑‑  because my State friends will tell you this ‑‑ you know, if you do $10 in overpayment and you reclaim 9 of it, you are still dinged for having $10 in overpayment.  You know, we would like to look at ways that we can address the system so that States could get the credit for getting that $9 back in reclamation.  We don’t think it is a $10 overpayment anymore; we think they reclaimed 9 of it.  So until we can get our system to reflect that, I don’t think we are doing enough to incent States and recognize them for their efforts in this area. 

Chairman Davis.  Thank you. 

The gentleman’s time has expired.  The chair now recognizes Mr. Berg for 5 minutes. 

Mr. Berg.  Thank you, Mr. Chairman. 

Secretary, thank you for being here. 

Ms. Oates.  Hi, how are you? 

Mr. Berg.  I tell you, one of the bright spots in my first year in Congress was when we were talking about the HIRES Act.  We were talking about these pilot projects in a bipartisan way that we said, you know what, the best solution is to put people to work; the best solution is to have them find a job that works for them.  And I think almost unanimously some of the senior veterans as well as other freshmen said, you know, we think the States can probably figure this out best for their population.  They know what their population needs; they know what the work opportunities are on that local level. 

And so that was the thrust that has been behind this pilot project, and one of my top concerns is it seems to me that we are not going to have anyone who is going to have a chance to even do one of these pilots before it expires.  And my goal or quest is really to encourage the States to have innovation, to come up with things, and, sure, to meet all these requirements and meet all the laws, but, more importantly, to put someone back to work as quickly as we can. 

So I guess my first question to you is what are the main barriers you are hearing from States?  If you said, here is the top three things that they are saying that they have problems with this, what would they be? 

Ms. Oates.  With the demo, sir? 

Mr. Berg.  Correct. 

Ms. Oates.  We haven’t really heard a lot from States.  I mean, I have heard some from my friends who have said, really, 19 pages worth of guidance?  So they didn’t like the length of the guidance, but we haven’t heard a lot about the specifics.  I am sure you will hear.  You have two terrific State folks here on your second panel.  I am sure you will hear things, and I am sure we will hear a lot more on Friday during the Webinar. 

Mr. Berg.  So you don’t have things today that you can tell this panel here is the number one, number two or number three thing? 

Ms. Oates.  I don’t, I am sorry.  Friday I might.

Mr. Berg.  So let me just ask you this:  If, in fact, through the rest of this panel we are hearing things that quite frankly are redundant requirements or barriers that really don’t make sense because they are qualifying, are those things that you are open to saying, okay, we are going to relook at these requirements or the things that are redundant to help streamline this?  You are willing to do that? 

Ms. Oates.  I can’t say that I am because that would slow down the process.  Quite frankly, we have the guidance out there, and we don’t know if people are already working on applications under that guidance.  I suppose that if we find in, you know ‑‑

Mr. Berg.  I am saying if someone says here is something that you are asking in these 19 pages that you already have or you don’t need… I mean, one of my concerns is I heard or saw in the testimony one State was saying it is going to require us to hire another full‑time person to fill out this application.  And so if there is a way to streamline this, is that something you are open to giving a waiver of the requirements? 

Ms. Oates.  Requirements for waivers, yeah.  I don’t know how I could say yes to that since this is not a process that is just me, it goes through a clearance process.  So that if we were going to make changes, we would have to go through that clearance process.  And, again, unless we suspend it and said don’t respond to the guidance that we put out, we have no idea how many States are at the 10‑yard line on this and finished, so if we change the rules now, would that mean they had to go back? 

But, certainly, let me give you a scenario.  If no States applied in the first several months, I think that would make us go back to the drawing board on this one.  I think that States ‑‑ there are some States that may not apply for other reasons.  They are all under the gun and stretched doing REA and RES for everyone. 

Mr. Berg.  Well, let me ask you.  I mean, if no one applies for 2 months, we have lost the opportunity of what we are doing.  Maybe just to make it more simple, if, in fact, as we go through the panel, if on a bipartisan basis our legislative committee here says, here are things we think are redundant, here are things that we think would help remove some barriers, I am asking you, is that be something you would be open to? 

Ms. Oates.  I think we would at least be willing to discuss it with you, and share with you, get your ideas and share with you what that would mean in terms of our getting implementation, absolutely, sir. 

Mr. Berg.  All right.  Thank you.  I will yield back. 

Chairman Davis.  I thank the gentleman. 

The chair recognizes Mr. McDermott from Washington for 5 minutes. 

Mr. McDermott.  Thank you, Mr. Chairman. 

I was once a State legislator, and some of the people up here were State legislators.  We all have been through the business of setting your unemployed insurance rate, tax rate for the State, and State legislators love to cut the taxes on their businesses, so they are always thinking, well, there is this ‑‑ we already got this pile of money over here in the account; why shouldn’t we lower the rate?  And now we have $41 billion in debt at the State level, and I am sure State legislators aren’t very interested in raising those rates to take care of those things. 

What leverage do we have in terms of forcing the States to pay their debts to the Federal Government?  I mean, they are riding on our back.  They are buying our money.  They are getting our money for free, and they are going on down the road, acting like it was falling out of the sky for nothing.  We are paying taxes at the Federal level for the failure of the States to tax adequately to cover their own funds.  So what leverage do we have in that game? 

Ms. Oates.  Well, first of all, now that the Recovery Act money is gone, all States are paying interest on the money that they are borrowing. 

Mr. McDermott.  Are they paying it? 

Ms. Oates.  Yes.  And they are ‑‑ there are mandatory increases to their FUTA tax if they are in borrowing status as of a certain date, and I can get you that information.  In fact, 20 States will actually see their rate go from .3 percent to .6 percent, and I think two States will actually be at .9; one that I can think of, but there might be a second. 

So those mandatory triggers happen and, you know, some of the things, it is a problem for their trust funds.  We have seen the borrowing slow down dramatically.  But you are right, I mean, we still have $41 billion that is owed to the Federal fund. 

Mr. McDermott.  Could you give us a list ‑‑

Ms. Oates.  Sure. 

Mr. McDermott.  I would like to see that so we can see where you are in sort of recovery or forcing the States to be responsible.  We talk about responsibility up here a lot. 

Ms. Oates.  Absolutely.  I can send that to the chair today.  We have that list.  We will make sure that we put on there as of a certain date. 

Mr. McDermott.  Okay.  I have a second question, and that is this whole business, and Mr. Doggett touched on it, of the Workforce Reinvestment Act, and the legislation or the budget resolution that says we are going to cut $16 billion out of there.  That is money we are not using for anything, I guess, useful anyway, so the States won’t miss it.  Is that your view? 

Ms. Oates.  Well, the States are already limping because both of us, the Congress in the previous years and this year in the President’s budget, have taken away what they have had since 1998.  They have been able to keep 15 percent at the State level, 5 percent for admin and 10 percent for State activities.  And that money was used to be glue, you know, to fund things like the kinds of things we are talking about today without UI funds. 

But if we are to cut the workforce investment funds to States, States are not going to be the only ones who suffer.  Local areas.  Local areas run the local boards.  They are the ones that have direct conversations with business, businesses that may be too small to be captured in LMI data at the States, but the businesses that are really creating jobs. 

I think it is a huge mistake, sir.  Of course, I have a self‑interest in this.  I love the bill, I love ETA, but if the Workforce Investment Act goes away, there are going to be real people who don’t get information on jobs in demand, who don’t have access to the training they need in order to qualify for those jobs and, quite frankly, have no one caring whether they are retained in those jobs or not, and I am talking about people like all of us as well as vulnerable populations. 

Mr. McDermott.  When you are talking about these entrepreneurial, States are being given the flexibility to use their funds for entrepreneurial things for the first time. 

Ms. Oates.  Uh‑huh. 

Mr. McDermott.  As we pull away, is any of this Reinvestment Act money being used in training those people who are going into the entrepreneurial kind of thing?  Is there a connection, I guess, is what I am really looking for?  

Ms. Oates.  Yes, sir.  We are not the experts in that, so what we have done is partnered with SBA, the Small Business Administration, because they are the experts in this.  So whether we are doing entrepreneurial activities through a one‑stop or through a State, or whether we are doing them in one of our Job Corps, we are partnering with SBA. 

All of our one‑stops offer people access to things that help small, budding entrepreneurs, computers, fax machines that they might not have at home in order to start their business, and an ability to use space sometimes to meet with other people.  Some of our one‑stops are partnering with 4‑year and 2‑year colleges that operate business incubators.  They are linking them with that business incubator.  I think our system is trying not to duplicate things that already exist in their community, but partner with local colleges or other entrepreneurial efforts like trade associations that are already doing this and learn from them.

Mr. McDermott.  Thank you.

Chairman Davis.  The gentleman’s time has expired.  The chair now recognizes the gentlewoman from Tennessee Mrs. Black for 5 minutes. 

Mrs. Black.  Thank you, Mr. Chairman.  And, Ms. Oates, thank you for your testimony here today. 

We all know in the unemployment world there are several pieces of information reported on a regular basis that experts examine to gauge the economic health of the economy, and one important piece of information is the weekly reports on initial claims for the unemployment benefits, which are released every Thursday by the Employment and Training Administration, over which you are the Assistant Secretary. 

This data comes out in a preliminary form one week, and then it is revised to be the final report in the following week, and a number of reviewers have noted on a pretty consistent basis that these first initial claims data have been revised upward and only upward when they are made in the final week. 

For example, on April 5th, the Wall Street Journal reported “the Dow Jones analysis of claims reports found that the Labor Department has revised upward its first estimate of seasonal adjusted claims of 56 of the past 57 weeks, and revisions to the government data occur on a regular basis, but it is uncommon for the numbers to nearly always be restated in the same direction.” 

And the article went on to say, “while the consistent need for upward revisions doesn’t undermine the overall trend of the improving job market, it does suggest that the government’s methodology for the initial estimate might not properly take into account factors such as seasonal adjustments and underaccounting by States.”

So is the ETA aware of this issue, and, if you are, should experts and policymakers be concerned about this data revision always flowing in one direction; that is, when the initial reports are always revised upward? 

Ms. Oates.  This is something that we are aware of, and, you know, we don’t do this alone.  We do this in partnership with our sister agency, the Bureau of Labor Statistics, BLS.  And the fact is that basically seasonal factors are challenging, and that is what we are working with. 

But happy to give you and your staff a better briefing with both of us there.  This is not my area of expertise, Congresswoman, at all, but this is something that we have noticed.  And, you know, we would love to explore with the committee, your staff any way that ‑‑ your ideas on how we can improve this.  We don’t like that ‑‑ we don’t like always being off either, and we are not quite sure what it means that we are always adjusting up.  Is that because people are conservative in what their initial estimates are?  These are all estimates as we try to get this moving.  And should we maybe not do it weekly so that we can have more time to make the number correct?  We have had all those discussions and would welcome your expertise and your staff’s in those discussions with us. 

Mrs. Black.  So you have had discussions, but you don’t have any plan at this point in time to say… this is what we are going to do to try to better balance this?  It is just still in the discussion phase; is that what you are saying? 

Ms. Oates.  Yeah, we do not have a plan.  I mean, basically there has been no allegation of wrongdoing in any of this.  No one has told us we are doing anything wrong.  It is just that we ‑‑ this is a complicated issue, and there could be better ways to do it.  And we would be delighted to have conversations and get your ideas about what those might be, and I am sure my partner Jack Galvin at BLS would feel the same way.

Mrs. Black.  And likewise, I would like to hear about what your discussions are in the office where you may come up with something that you can bring back to us to say, this is what we have thought about and researched and found would be more effective. 

Ms. Oates.  Certainly. 

Mrs. Black.  Let me turn to something that has already been discussed, but just to follow up on the unemployment insurance benefit overpayments.  In one of the charts that we have in our folder, we see that there was a $13.7 billion overpayment, and I wanted to know if there is anything being done to collect this overpayment or how that is done. 

Ms. Oates.  Well, as you know well, the States are the primary agents in this.  We run this program only through them.  So different States are doing different things in order to do the re‑collections.  I talked a little bit about the States that are already using the garnishment of Federal tax returns.  Some States are looking at using State tax returns as well. 

So that I think that each State is actively working in this.  I mean, in our improper payments activities, I am delighted to report to the committee every State has a task force, cross‑agency in their State.  Every State has a plan, and we are really starting to see terrific trending. 

You know, the trend in improper payments, whether over or under, was going up since 2008, and we are delighted that finally in fiscal year 2011, the trend is ticking down.  Not fast enough, we are not reclaiming enough money, but States are really paying attention to this in the midst of the busiest time, in my lifetime, that States have had in the UI program. 

Mrs. Black.  Do you have any numbers for us to say what those percentages are that they are recovering?  Do we know what those percentages are overall? Also, I would like to know specifically State by State what kind of recovery is occurring so we can get a better handle on making sure the taxpayer dollars are being used efficiently. 

Ms. Oates.  Absolutely.  The numbers that we could give you in a table today are the numbers from the TOP program, that is the Treasury Offset Program, but I would be happy to work with my staff and NASWA.  We would have to collect that information from the States.  We would be happy to do that. 

Chairman Davis.  Thank you. 

The gentlewoman’s time has expired.  I would now like to welcome the distinguished gentleman from Texas, a senior member of the committee and also the chairman of the Subcommittee on Trade, Mr. Brady.  Thank you for joining us today.  Would you like to ask a question? 

Mr. Brady.  Thank you, Chairman Davis, for allowing me to sit in today and for calling this hearing. 

As you know, we literally have tens of millions of Americans who can’t find a full‑time job.  We have millions more who have simply given up looking for work.  After all the bailouts and stimulus and programs, we have fewer Americans working today than 3 years ago.  We have fewer, about 700,000 fewer, women working today than 3 years ago.  That is why when Republicans and Democrats passed the payroll extension bill, it included important reforms to unemployment to try to match local workers with local jobs sooner, because what we are doing clearly isn’t working. 

I sat on that conference committee, sat through the discussions, and a key part of that reform was to allow States, many of whom have successful, innovative programs, to step forward and share that innovation in programs to allow us to better get people back to work.  The law we passed, passed by both Republicans and Democrats, clearly said the first 10 States to meet the criteria laid out in that new statute would receive the waivers in order to allow the innovation to go forward.  Texas submitted their application 2 days after the President signed the law, and rather than being accepted, embraced, and put to work, Texas was denied. 

So the two questions I have are, one, is the Department of Labor ignoring the intent and statute of Congress when it comes to these waiver programs to allow the States to innovate? 

Ms. Oates.  Absolutely not, sir.  The statute gave the Secretary the option of approving a demonstration project. 

Mr. Brady.  Well, I would counter, no, it gave the States the option to apply for an innovation project.  The mandate within the law was that the Department of Labor would grant 10 waivers, up to 10 waivers, for States that apply on a first come/first serve basis. 

Ms. Oates.  Sir, with great respect, and I am a former staffer, the word was “may” and not “shall.”  So it gave the Secretary the option.  I mean that with great respect. 

Mr. Brady.  And I do, too.  I just was a lowly Congressman serving on the negotiating team.

Ms. Oates.  Lowly staff person. 

Mr. Brady.  We clearly had discussions here.  And so in my view, with the delays you are putting in place, you are hurting a lot of workers who could be taking advantage of this innovative program at the State level.  I think you are substituting the administration’s judgment for that of Congress.  And one of my worries is that this is an election year, and that the Department of Labor is playing politics with a very important program. 

In your testimony you made the point that you want to embrace best practices and innovation in these programs; is that correct? 

Ms. Oates.  That is correct, sir. 

Mr. Brady.  The Texas program a year and a half ago received an award from your agency ‑‑ 

Ms. Oates.  Yes, it did. 

Mr. Brady.  ‑‑ for innovation and best practice. 

Ms. Oates.  And deserved it, yes. 

Mr. Brady.  They submitted that program to you in a timely manner and were denied.  So why the delay?  Why the denial? 

And, by the way, if that waiver had been granted, and Texas would have been allowed to go to work, we would have more than 2,000 Texans back to work today who aren’t.  So are you ignoring the intent of Congress, or in this election year, are you playing politics with such an important issue? 

Ms. Oates.  Sir, we are neither ignoring the intent of Congress, nor are we playing politics with this.  Quite frankly, Congress told us the Secretary could approve up to 10 demonstrations, and these demonstrations for the first time in history could use their UI Trust Fund dollars to do this experimentation. 

By telling us we could do up to 10, and to do them as demos that would show innovative practices that could be institutionalized and used into the future at net cost neutrality to their trust fund, you put us in a situation where we had to be, just as you are every day, good stewards of the taxpayers’ money. 

Mr. Brady.  Now, you recognize, don’t you, that States using innovative programs today are actually investing their own dollars ‑‑

Ms. Oates.  Absolutely, sir. 

Mr. Brady.  ‑‑ in these programs?  So there is very poor ‑‑

Ms. Oates.  And in the case of Texas, that 10 percent money that I was talking about was the money that ‑‑ which the Governor used. 

Mr. Brady.  ‑‑ which is, I think probably as or equally or more important than the trust fund dollars.  And my question continues to be if you are not ignoring the intent of Congress, not playing politics, when will these applications be granted?  Will they be granted in May? 

Ms. Oates.  Within 30 days of the day they submit them to us.  You have my word on that.  We have a timeline internally, and we are ‑‑ the career people are running this process. 

Mr. Brady.  So that could be, what, months from now? 

Ms. Oates.  Well, if the first application comes in today, it will be 30 days from today. 

Mr. Brady.  But you just heard from those most interested that the paperwork is very burdensome, the criteria, again, is much broader than what Congress intended.  You have taken what was an enthusiastic response by States to want to help you and may put people back to work and have, frankly, chilled it.  I would be surprised if many States, frankly, step up now, given the fact it is now top down rather than innovation up. 

I yield back, Mr. Chairman. 

Ms. Oates.  I will be disappointed, sir, if we don’t. 

Chairman Davis.  I thank the gentleman. 

The chair would also like to apologize to the gentleman from New York, who became an inadvertent victim of circumstances, and I would like to recognize him now for 5 minutes. 

Mr. Reed.  Well, thank you very much, Chairman.  I appreciate that apology.  But no offense taken ever with me. 

Thank you for being here with us today.  I wanted to follow up on something.  When I was on the conference committee for the payroll tax rate and unemployment extension, one issue that came up that I took personal interest in was the drug‑testing ability for folks on unemployment insurance.  And I was proud that as part of the final package that the authority to the States was granted in that legislation to implement programs to drug‑test folks in that situation, because I do believe that one of the things we should be doing not only by providing people who are in the circumstance of being unemployed with resources to carry them through that, but put ourselves in the best position to arm those individuals to control their own individual destiny, and if they shall or should or may have a drug issue, which I firmly believe is a major barrier to reemployment, that the tools are there to identify the issue and have those individuals overcome it so that they can get back to an employed status sooner than later. 

But I would note your Department has yet to release guidance for the States on how to proceed with that new authority.  You noted that you are consulting with the Substance Abuse and Mental Health Administration in HHS about the drug‑testing provisions of the new law, specifically the section allowing States to screen and test individuals seeking jobs in sectors requiring drug tests as an eligibility requirement. 

I would encourage you also to consult with the Society for Human Resource Management, which in 2011 issued a study that found that 57 percent of organizations conduct drug testing on all job candidates, and 71 percent of organizations conduct some form of preemployment drug testing on at least some candidates. 

At this point, Mr. Chairman, I ask unanimous consent to insert that SHRM study in the record.  Has it already been done? 

Mr. Paulsen.  [Presiding.]  No objection.

[The information follows, The Honorable Tom Reed:]

Mr. Reed.  Thank you very much, I appreciate that, Mr. Chairman. 

Madam Secretary, could you tell us when you expect to issue that guidance that you are consulting with the ‑‑ at this point? 

Ms. Oates.  Absolutely, sir.  And, you know, I apologize.  We would love to get everything done at once.  We worked at first on the things that had a mandate, especially the REA/RES with the 30‑day deadline and the demo, on which we put our own internal mandate because States were interested in it.  We hope to have that done in the next month or two.  We hope to have all this guidance out by June. 

Mr. Reed.  By June, okay.  And will it be limited to identifying what occupations are eligible as directed by the act, or will the Department of Labor take additional criteria on States trying to use this authority as you did with the guidance on waivers? 

Ms. Oates.  Well, I think we will continue to have consultations with our stakeholders.  You give us ‑‑ I don’t think we have talked to SHRM before, so that is a great addition.  But our hope is that we will do the right thing, and, again, I don’t want to ‑‑ we haven’t issued the guidance yet.  We have had discussions.  I haven’t even seen drafts from my career people yet, so I really can’t answer your question. 

Mr. Reed.  Do you find any sentiment within your agency of objection to this ability of States to utilize this new tool for reemployment by drug testing?  Is there anything in the agency that would cause concern that this policy or this initiative or this authority to the States would be hampered because of a ‑‑ as I heard in that conference committee in the debates from my colleagues on the other side of the aisle that they were adamantly opposed to this type of requirement or tool because there was something that they disagreed with.  Do you see that within the agency at all, or are you seeing any concern about that? 

Ms. Oates.  You know, I think the longstanding tenets of this are someone who loses their job because of drug involvement on the work site has never been eligible for unemployment, so I don’t see any change to that coming. 

And then this idea that ‑‑ what we are struggling with is the language that States have the right to drug test someone who’s only suitable work is in jobs that require drug testing.  So finding those jobs and giving clear guidance to the States is what is really taking our discussion time now.  But in terms of seeing any hurdles within our building or any must‑dos or must‑haves other than what is current long‑term practice, no, sir, I don’t see anything coming in those discussions that would be, you know, hurdles to getting this done quickly and getting it done consistent with the intent of Congress. 

Mr. Reed.  I appreciate that.  Thank you very much.  I look forward to working with you on this issue.  And with that, Chairman, I will yield back. 

Chairman Davis.  I thank the gentleman. 

I want to thank you, Secretary, for joining us today.  We look forward to continuing to correspond with you and work with you, and appreciate you getting back to my office on the question that I asked specifically for documentation, as well as the other Members.  If Members have additional questions, they will submit them to you directly in writing, and all we would ask is that you reply or give a copy of the reply to the committee staff so we can make sure that it is inserted into the record. 

Ms. Oates.  Absolutely. 

Chairman Davis.  Thank you very much for being here. 

Ms. Oates.  It is a pleasure to work with this committee, sir.  Thank you so much.

Chairman Davis.  That concludes the first panel.  I would like to invite our second panel to come up. 

Chairman Davis.  I appreciate all of you gentlemen joining us here today for our second panel to continue this discussion on the unemployment insurance program, the reforms that have been made and, the implementation thus far. 

On our second panel we are going to hear from Mr. Darrell Gates, deputy commissioner of the New Hampshire Department of Employment Security; Mr. Larry Temple, executive director of the Texas Workforce Commission;  Dr. Wayne Vroman, senior fellow of the Urban Institute; Mr. Douglas Holmes, president of UWC, Strategic Services on Unemployment and Workers’ Compensation; and Mr. Michael Cullen, managing director of On Point Technology. 

Before we move on in the testimony, I would like to again recognize Chairman Brady from Texas to introduce the witness from his home State, Mr. Temple. 

Mr. Brady.  I again want to thank Chairman Davis for his leadership in calling this hearing.  And to all the witnesses who are here to testify today, it is a special pleasure to welcome Larry Temple, an outstanding public servant from my home State of Texas, to the Ways and Means Committee. 

In 2003, Larry took over as executive director with the Texas Workforce Commission, a State agency with a budget of nearly $1.1 billion.  The commission has oversight over all the state’s employment training, welfare reform, child care and unemployment insurance programs. 

During his time at the commission, Mr. Temple designed, implemented and administered Texas’ successful welfare reform initiative.  A significant portion of this initiative involved the transition of welfare services via block grant to our local workforce development board, and the result was an unprecedented caseload reduction to unemployment, and national recognition as one of the top 10 programs in the Nation for putting welfare recipients to work. 

It is an issue dear to the heart of this committee and critical to the country at this time.  He has an exemplary record designing programs that help people get back to work.  I am grateful he can share his expertise with us today, and I welcome you, Mr. Temple, along with the rest of the witnesses.  Thank you. 

Mr. Chairman, I yield back.

Chairman Davis.  All right.  Thank you, Chairman Brady. 

Mr. Gates, please proceed with your testimony.  You are recognized for 5 minutes.


Mr. Gates.  Thank you. 

Good morning, Chairman Davis, Ranking Member Doggett and members of the committee.  My name is Darrell Gates.  I serve as deputy commissioner for the New Hampshire Department of Employment Security.  I also serve as chairman of the Unemployment Insurance Committee for the National Association of State Workforce Agencies, known as NASWA.  On behalf of NASWA, I am pleased to speak on the implementation of the Middle Class Tax Relief and Job Creation Act of 2012. 

States have done an extraordinary job reacting and adapting to the unprecedented challenges of the great recession.  From 2008 to 2010, benefits paid to UI claimants more than tripled from roughly $42 billion in fiscal year 2008 to $143 billion in fiscal year 2010.  The rapid and unprecedented increase in UI claims since 2008 brought some State programs nearly to a breaking point.  This is due to the lack of funding for UI computer technology.  State UI programs have information technology systems averaging 25 years old and are unable to easily adapt to programs such as Emergency Unemployment Compensation Act of 2008.  But States are moving rapidly to implement the new law, and my comments will focus on the progress of implementation. 

First, States appreciate the new law kept the current tier structure intact.  If the program is continued beyond the end of the year with the goal of an eventual phaseout, NASWA recommends it should be accomplished by either adjusting the unemployment rate triggers for the tiers, the number of weeks in each tier, or eliminate tiers in reverse order with the last tier being the first to be eliminated. 

Second, States applaud Congress for funding reemployment activities known as RES and REAs.  States are moving aggressively to meet with roughly 9 million workers by the end of the year to comply with the in‑person requirement.  But the process could be easier if USDOL recognized basic technology, such as the telephone and video conferencing, that allow for virtual in‑person meetings. 

In New Hampshire and other States, investments have been made in video conferencing.  This technology would speed along the meetings with claimants and provide the services they need, but USDOL has said this would not comply with the in‑person requirement. 

Third, NASWA recommends early intervention of reemployment services as soon as the claimant files for UI.  Providing these services in week 1 rather than week 27 yields the greatest return for the unemployed, employers and taxpayers. 

Fourth, NASWA recommends a permanent REA and RES program through our capped entitlement grant at $500 million per year.  We recognize this is challenging, but it would ensure States receive sufficient funds for reemployment activities to help the jobless go back to work sooner, which also could lead to lower benefit outlays and lower employer taxes. 

Fifth, on the demonstration projects we recommend that reemployment bonuses should be added as a permissible activity.  The bonus could be graduated to pay larger bonuses for early returns to work and progressively smaller bonuses for later returns to work. 

Also, New Hampshire, and I suspect other States with limited staff, will likely not apply for the demonstration projects because USDOL imposed too many conditions.  My State would need an additional staff person to assure the application was complete. 

Sixth, on the work search criteria, States should have the flexibility to conduct the work search data that best meets the needs of the States.  USDOL has told New Hampshire that paper logs must be submitted during the in‑person session even though my State collects this information electronically. 

Seventh, on a nonreduction rule, NASWA recommends it should be eliminated completely and not just modified.  States should have the flexibility to determine the most appropriate methods for addressing Unemployment Trust Fund solvency. 

Eighth, on the data exchange provision, NASWA strongly agrees that data on participants in various publicly funded programs could be collected, stored and exchanged more efficiently, and used more effectively.  NASWA is hopeful OMB will fund a NASWA proposal to improve payment accuracy, administrative efficiencies and service delivery, and reduce barriers to program participation of eligible applicants. 

Finally, to address the aging computer infrastructure, NASWA was hopeful Congress will consider our administrative funding proposal that would do the following:  maintain the current funding structure for UI administration and give States an additional discretionary appropriation of $100 million each year for IT investments to promote efficiency and better services to employers and workers; and in years in which 50 percent of FUTA revenue exceeds the amount that would be allocated under the current system, generally in better economic times, provide States with an additional amount for UI administrative investments distributed via a formula. 

Thank you for the opportunity to testify.

Chairman Davis.  Thank you very much. 

[The statement of Mr. Gates follows:]

Chairman Davis.  Mr. Temple, you are recognized for 5 minutes. 


Mr. Temple.  Thank you. 

Good morning, Chairman Davis and Ranking Member Doggett, distinguished members of the committee, Congressman Brady.  Thank you for inviting me to testify on the implementation of the Middle Class Tax Relief and Job Creation Act. 

As we have talked about in previous testimony, Texas prioritized the UI claimant population as its number one population to serve in a State, second only to vets, in 2003 by actually self‑imposing a 10‑week reemployment measurement for UI claimants.  This isn’t a Federal measure, this isn’t a State legislative measure; this is one that we put upon ourselves. 

When we put this in place in 2003, our unemployment rate was about 6.4 percent.  Our performance was around 27 percent of the claimants were going to work within 10 weeks.  During the ‑‑ before the downturn in the recession, we had gotten up to 64 percent.  I am happy to report now that last year we were able to get back up to 50 percent, and it continues to grow.  Ten weeks is great; eleven, twelve or thirteen is certainly better than sixteen, twenty and twenty‑six.  So the Middle Class Tax Relief and Job Act supports what we are already doing. 

Another example of how Texas has made this population a priority is the legislature in 2009 created the Texas Back to Work Program, putting general revenue into our appropriation.  I am happy to report that to date, in less than 2 years, we have had over 25,000 placements with over 4,000 participating employers.  Two‑thirds of the employers participating have employees of 100 or less.  The average wage replacement before the individual became on UI, we are able to statewide 96.8 percent replacement rate of those wages.  We have been able to reduce on average, including State‑funded benefits as well as EUC, shorten the weeks by 9.01 weeks of UI.  And after the cost of the $2,000 incentive and the roughly $200 per to administer, it is still $596 cheaper on average than the total cost of benefits for those who did not go through the program.  This is not only saving State trust fund dollars, this is saving Federal EUC dollars as well.  And in addition, 15 percent of the people that we serve in this program are exhaustees, so we are not only serving those who were on UI, but we are also serving the long‑term unemployed. 

As you are aware, and we talked about it earlier, the testimony earlier, the REA/RES services, Texas is under way with that implementation.  To date, through our system of local workforce boards, we have outreached 28,000 individuals in the first ‑‑ just the first 4 weeks.  We expect this to be about 7,000 individuals per week through the end of August, which will total about a little over 160,000. 

Our first day of outreach was Monday, and we got the report yesterday.  We had a ‑‑ unfortunately we had a 53 percent no‑show rate for the first day of the three of our boards that reported the performance.  Those people will be held ineligible for that week.  We will have to outreach them again.  And I bring that up because as the way that we are funded, the $85 per claimant, we are only funded for those people who show up.  So States are going to have some unreimbursed expenses to this degree, and we are trying to work through that. 

The one thing that complicates this, we will be hiring an additional 225 staff on a temporary basis to help us administer this program, but our infrastructure was woefully inadequate to be able to fund this, this outreach, this quick, and we didn’t have it in place.  A year ago we had about 250 offices around the State.  We have 220 today.  These offices, Employment Services as well as Unemployment Insurance Administration, the vets program and those others, are funded through FUTA taxes paid by employers. 

Over the last 10 years Texas ‑‑ Texas is a donor State; we get about 35 cents on the dollar.  Over the last 10 years, Texas has contributed $5.2 billion into that system, and it received $2 billion back, and that is after paying back our loans.  So we don’t believe this money is falling from Heaven; it is money that we are sending to D.C., and we are not getting our return.  And it is part of the issues that Darrell Gates talked about would get some more parity into the funding to States, particularly donor States like Texas. 

I want to talk a little bit about the waiver process.  We did submit a waiver.  Very quickly, we thought we had met the criteria set out in the act that said what a complete application would be.  And we are now reviewing those requirements under the guidance, and one of the things that will ‑‑ just as an example, regardless of what your benefit amount is, everyone represents a $2,000 hiring incentive.  Under the guidance as we read it so far, and we are still reading it, we will have to have an individual reimbursement for each individual person depending upon their benefit amount.  And we are looking at serving ‑‑ I estimated 33,000 to 35,000 people per.  That is not the most business friendly ‑‑

Chairman Davis.  Your time is expired.  Thank you very much.  I appreciate your passion. 

[The statement of Mr. Temple follows:]

Chairman Davis.  Mr. Vroman.

Mr. Vroman.  Thank you, Chairman Davis, Representative Doggett, other committee members. 

I have submitted a written record, which I will refer to for certain of my comments.  However, the one aspect of the Middle Class Tax Relief and Job Creation Act that I do want to single out for particular attention is the provisions related to short‑time compensation; that is, allowing employers to reduce weekly hours for a large segment of their workforce, and allow those people on short hours to collect partial weekly unemployment benefits.  Half a billion dollars was set aside for this.  It is an innovative, forward‑looking part of the legislation which will be useful not in this economic recovery so much as in the front edge of the next recession, because the utilization by employers of this particular feature happens most intensely as the economy is going into a recession, employers are not certain about what their employment prospects are, they don’t want to sever workers, so they try to keep them on, and short‑time compensation allows this to happen.  After the extent of the downturn is more obvious, then employers are able to make better decisions regarding separation versus bringing people back to full‑time work.  Having this included in the recent legislation is a very strong and positive aspect of that legislation. 

Now, I will move to the bulk of my remarks, which focus on the situation in the trust funds and the situation of the benefit payments in helping to stabilize the economy. 

Four factors contributed to the loss of trust fund reserves in the States.  It has already been pointed out $41 billion is owed to the Treasury and an additional $5 billion in the private market.  There were low reserves going in, uniquely low compared to all the previous postwar recessions.  It is obvious to say the recession has been deep and long, and it is still persisting with an unemployment rate above 8 percent 4 years after things started to get worse.  The timing in 2008 affected revenue in 2009, because the recession really started to bite in the last half of the year.  And continuing low employment is continuing to keep UI revenues below what they would be if the economy had gone through a recession with the more usual V shape as opposed to the long trough shape that the current one has. 

The UI system has responded very strongly.  It paid out a little over $30 billion in 2007.  In 2009 and 2010, it paid out over $120 billion.  That is a quadrupling of the total amount of support payments.  It helped prevent poverty from rising, it supported many families, and it continues to do that even into this year.  The written statement has estimates of how much the economy was stabilized as a consequence of those added payments. 

Looking to the future I would make four comments.  First of all, for future solvency of the State trust funds, the most important single thing that could be done is to have the States operate with an indexed taxable wage base. Since the mid‑1980s, 16 States have operated continuously with indexation; only 6 of those States have borrowed in the current recession.  In contrast, for the 35 jurisdictions that are not indexed, 29 have borrowed, or over 80 percent.  So indexation is strongly associated with improved trust fund solvency, and it is something that the Congress should encourage the States to operate with. 

The funding problem in unemployment insurance rate now in the regular program is most serious in the biggest States.  Mr. McDermott, your State is unique among the 20 largest in the country.  The only State that hasn’t borrowed among the top 20 in size is Washington State, and that is partly because Washington has followed a consistent policy of restoring its trust fund after recessions and bringing the reserves back up. 

Any proposal to provide relief to States that have trust fund deficits, however, must recognize that many other States have operated responsibly through this recession.  States like South Dakota, there was a representative from Tennessee here, New Hampshire, as well as Washington have not had to borrow or have had to borrow only very limited amounts because of their prudent trust fund policies. 

The final point I would make is that borrowing in the private market is not a panacea.  There is about $5 billion outstanding right now.  The States are going to have to pay that money back, just like they are going to have to pay the debts owed to the Treasury.  So any relief to the States should include some kind of reward for the States that have operated prudently as well as providing partial relief to the States with indebtedness if that is the direction the Congress chooses to go in. 

Thank you very much.

Chairman Davis.  I thank you very much. 

[The statement of Mr. Vroman follows:]

Chairman Davis.  Mr. Holmes, you are recognized for 5 minutes. 


Mr. Holmes.  Chairman Davis, Ranking Member Doggett and members of the subcommittee, thank you for the opportunity to testify this morning.  I am Doug Holmes, president of UWC Strategic Services on Unemployment and Workers’ Compensation. 

We recently joined with 36 national and State business associations to send a letter to Secretary of Labor Solis requesting that the Secretary repeal current Federal regulations and develop new regulations consistent with the able to work, available to work and actively seeking work requirements included in the Middle Class Tax Relief and Job Creation Act of 2012.  I have attached a copy of that letter to my testimony. 

It is the claimant’s responsibility to show that the claimant is meeting the requirements of able, available and actively seeking work.  There is no authority to permit a claimant to restrict his or her efforts to a period less than an entire week and still be paid unemployment compensation for that week.  The State UI agency has a duty not to make payment for a week without first determining that these requirements have been met.  The claimant must show that he or she is actively seeking work without applying his or her own subjective evaluation of work that is, quote, “suitable.” 

One regulation in particular illustrates the inconsistency between current regulations and the act.  20 CFR 604.5(h) provides that, quote, “the requirement that an individual be available for work does not require an active search for work on the part of the individual.”  The plain language of the act is clear that individuals must be actively seeking work. 

With respect to short‑time compensation, employers ask what is meant by section 2163 with respect to the temporary Federal funding provision.  There is a provision that provides that any short‑time compensation plan entered into by an employer must provide that the employer will pay the State an amount equal to one‑half of the amount of short‑time compensation paid under such a plan. 

How will the amount to be paid by the employer be determined?  We don’t have any instruction on this yet.  When is it due?  Will the payment be considered contributions for purposes of State UI Trust Fund balances, repayment of Title XII loans and other purposes of the UI program?  All questions that still remain to be addressed by instructions from the Department of Labor. 

With respect to drug testing, section 2105 of the act provides that States are not prohibited from enacting legislation that provides for testing of applicants for unemployment compensation for the unlawful use of controlled substances.  If a State elects to enact such a provision, it should be developed in collaboration with employers, particularly those who already include drug testing as part of the hiring process.  To be most effective, State‑administered or supervised testing should be developed to meet proven standards upon which employers may rely in hiring decisions. 

With respect to reemployment services and REA, the act in section 2142 provides increased funding for reemployment and eligibility assessment activities, and these have been shown to be effective.  We would suggest, however, as I believe Mr. Gates indicated, that many of the enhanced methods that are included for EUC claimants should be addressed as part of serving regular UI claimants.  They would be most effective if provided early. 

Reemployment efforts should be coordinated with community resources as well as with staffing agencies and employers generally in the private sector.  State agencies should be permitted to use the full range of electronic communication devices to address the in‑person contacts.  Person‑to‑person video, as well as audio contact, is increasingly available and should be used to reach a larger number of individual claimants at lower cost to the individual and lower administrative costs. 

Thank you very much for the opportunity, Mr. Chairman.

Chairman Davis.  Thank you, Mr. Holmes. 

[The statement of Mr. Holmes follows:]

Chairman Davis.  Mr. Cullen, you are recognized for 5 minutes. 


Mr. Cullen.  Chairman Davis, Ranking Member Doggett and distinguished members of the committee, thank you for the opportunity to testify this morning. 

I am Mike Cullen, managing director of On Point Technology, a company focused solely on ensuring the integrity of the unemployment insurance system.  Prior to joining On Point, I spent 14 years at the Colorado Department of Labor, serving 6 years as the State’s unemployment insurance program director. 

For over 15 years, On Point Technology has enabled 19 States to find, and collect and properly pay UI benefits.  We are proud to provide software solutions to strengthen the UI program and help minimize employer taxes.  Over the years we have helped States return over $2 billion to UI Trust Funds and the U.S. Treasury. 

To address funding, solvency and integrity issues facing the national unemployment insurance program, On Point Technology would like the committee to consider three recommendations:  One, create incentives for sustainable integrity activities; two, propagate proven State solutions that utilize new data sharing and data standardization processes; and three, embrace the use of OMB’s recommended do not pay list by the unemployment insurance program. 

The unemployment insurance program suffers from some of the worst integrity performance in government.  During the last 3 years, the UI program’s improper payment rate has steadily increased from 10.3 to 12 percent.  At the same time, the average Federal program has decreased its improper payment rate from 5.4 to 4.7 percent.  This is even more striking when contrasted with the private sector.  For example, the credit card industry has reduced fraud to less than 1 percent. 

We believe that misaligned incentives serve as the primary impediment to addressing the integrity problem.  Very simply, we believe Congress should allow the States to use 5 percent of any recovered overpayments to support integrity activities.  This has been proposed in the Department of Labor’s Unemployment Compensation Integrity Act.  It would produce an immediate and dramatic effect on the integrity problem.  As a partner in administrating the UI program, States must be given the means and incentives to combat fraud and unemployment insurance.  Washington, D.C., cannot solve this problem on its own. 

There are existing success stories, and there are reasons for hope.  On Point Technology believes the U.S. Department of Labor should provide funding to take proven State solutions and aggressively replicate them throughout the country.  Just last year Michigan’s unemployment insurance agency installed software that increased its collection of overpaid benefits by 79 percent.  Similarly, the South Carolina Department of Employment and Workforce’s existing investigators completed 450 percent more audits and detected 86 percent more fraud with the new automated system.  Both States succeeded by eliminating paper files, automating repetitive activities, and reducing unnecessary tasks.  Each State solution was deployed in a matter of months; each State solution paid for itself in a matter of weeks. 

It is well documented by the National Association of State Workforce Agencies that 90 percent of the unemployment insurance systems are running on technology that was created before the personal computer was invented.  In the past year only two of the UI tax and benefit systems were replaced.  The pace of modernization is simply too slow.  Last year the majority of integrity investments went to long‑term strategic plans and multiyear development efforts.  We believe Congress should direct the UI program to also invest in proven solutions that provide an immediate financial return to the States UI Trust Funds and the United States Treasury. 

Finally, we believe the unemployment insurance program should adopt the Office of Management and Budget’s call to embrace the do not pay list.  This provides a tremendous opportunity for municipal, county, State and Federal government agencies to exchange data.  For example, the do not pay list can provide data on individuals who are not able and available for work for a variety of reasons, including incarceration. 

We believe a national do not pay list should be integrated into all UI systems.  It would have a dramatic impact similar to the use of the National Directory of New Hires, a database that has produced a 50 percent decrease in the size of overpayments via early detection.  Use of the do not pay list could be effective in eligibility determinations in addressing those determinations. 

In closing, our unemployment insurance system is a vital lifeline for millions of American workers.  We must act to preserve the integrity of the system for those in need.  Fortunately, the country is in a position to help strengthen the UI safety net and ease the tax burdens on employers across America.  Aligning funding priorities and investing in proven solutions will return precious dollars to State trust funds and to the United States Treasury to ensure viability of the unemployment insurance program for generations to come. 

Thank you for the opportunity to testify.  I am available for any questions you might have.

Chairman Davis.  Thank you very much, Mr. Cullen. 

[The statement of Mr. Cullen follows:]

Chairman Davis.  Where I would like to go in my line of questioning is going to be under the theme of the importance of common data standards in sharing information.  I appreciated Mr. Gates’ prescient and somewhat wry comment about the use of innovative technologies like the telephone.  The ability to share information in the private sector has saved tens of billions of dollars, it has created millions of jobs, and the government, I found, tends to be a bit of a lagging indicator, particularly at the Federal level.  And we have a habit in the Congress, certainly in the executive branch, of treating the symptom and not the root cause.  However, symptoms can point you to those root causes, and I would like to share an example with you. 

In March, the Los Angeles Times reported that convicted murderer Anthony Garcia continued to collect $30,000 in unemployment benefits in checks cashed by family and friends while he served time in the L.A. County jail system.  Not only did his accomplices deposit the money into Garcia’s jail account, they shared it among fellow gang members’ accounts as well.  It is unconscionable to think that the government is helping maintain the financial well‑being of a gang while they are in prison for murder and for other crimes. 

I note that public assistance programs have worked with the criminal justice system in the past to make sure benefits don’t go to criminals.  For example, the Social Security Administration was able to work with prisons to stop disability checks from being paid to inmates.  I would hope we could do the same thing with unemployment benefits by sharing inmate information with public assistance programs to make sure all our programs are on the same page. 

In the conference report on the Middle Class Tax Relief and Job Creation Act, we enacted uniform data standards into TANF, Temporary Assistant to Needy Families, and unemployment insurance programs, so we are taking steps in that direction. 

My question is how common are cases like this?  What caused the breakdown in this situation?  What tools do unemployment benefit agencies like yours have to make sure that unemployment checks only go to those who are eligible and not to those, for example, in jail?  Are States able to go after this money and recover it?  Tell me in what ways and what is being done to make sure this doesn’t happen again. 

I have tried to make the focus of the last year and a half on this subcommittee to fix broken processes rather than engage in ideological discussions because I believe there is real money to be saved for the taxpayers there as well as assuring help for folks on the front lines like you.  But here is my final point is what, if any, legislative authority or other tools do you need from us to prevent future episodes like this happening? 

Mr. Cullen, would you care to start? 

Mr. Cullen.  Thank you, Mr. Chairman.  I appreciate those comments, because those are simply down the path of an area that we do have some expertise in.  We do have the ability, and it is not just us, but the country has the ability to look at disparate databases, bring them together, and either through data mining or through cross‑matches eliminate some of this activity.  I am sure that others will agree that it is difficult to get that information sometimes out of other government agencies, and I think that is where the focus really needs to be. 

The technology is there to make best use of that information, but unfortunately the ability to get to that information, to get it reported on a timely basis so that programs such as unemployment insurance can use it either for the curtailment of benefits when they are not entitled to them or for making eligibility decisions at the very beginning so benefits never go out the door to begin with is where the issue is. 

So when you ask where can you help, you can help in making it easier for States to get that information made available to them. 

And then, again, I would like to go back to do not pay list.  We had the opportunity to testify last year in the Senate, and this issue came up.  And I think it is a good tool that starts the conversation of how from the Federal level, such as the National Directory of New Hires ‑‑ how from the Federal level can I look at other information to preclude these activities from going on? 

Chairman Davis.  Something as simple as just being able to have a bio from the uniform criminal registry flagged in social services for an individual who is receiving benefits if they log in.

Mr. Cullen.  Yes, sir.

Chairman Davis.  I would like Mr. Gates and then Mr. Temple to comment from your States’ perspectives.  Mr. Gates first.  I know we don’t want to mess with Texas, but we will start with New Hampshire. 

Mr. Gates.  I would have to say that it is very difficult, because I think the constant underfunding of our system has caused us to have to do things in technology that makes us not see our customers as often as we should. 

And so one of the things that we have tried to do is to establish individual relationships with each of the county corrections facilities as well as the State correctional facility, but we have to do that individually, and that makes it difficult.  A central registry would be very, very effective for us to be able to make sure that individuals are not doing things that they are not supposed to be and to be available. 

I honestly believe that oversight is the key, and that we need to see our customers more often and to have the ability to do that, because I think that by bringing them into the one‑stop and making sure that they are engaged in the work search activity is the best way for us to determine where to help them and to make sure that they are not in prison.  If I call them in, and they are in prison, they are not going to be coming, and, you know, that is a simple way. 

You know, we try to do things in New Hampshire that are much more simple, but the difficulty that we have is having to do all of these individual cross‑matches, and a central registry of services and individuals’ unavailability would be very helpful.

Chairman Davis.  Mr. Temple, quickly.

Mr. Temple.  We do quite a few data matches.  One is certainly with our criminal justice system.  We also monitor pay phones, those that are coming from, for instance, correctional facilities.  And we also monitor IP addresses, where we are seeing foreign Internet accounts coming in, and we do investigations on those.  We have a big border, and we have a lot of people who go back and forth into Mexico, it is understandable, but we also have a lot of other ones that may necessarily not be legitimate, and we look into them.  But we find people who are overseas working who know they are about to get laid off, offshore oil people and whatnot.  So there is a lot of legitimate ones, but we still do find those. 

And we work a lot with the Federal Government as well.  We are doing data matches on unemployment insurance with the U.S. Postal Service now, with IRS on their own employees, and it has been in the paper, several of those cases, where they have gotten criminal charges against a lot of their employees.

Chairman Davis.  Thank you very much. 

With that, I would like to recognize Mr. Doggett from Texas. 

Mr. Doggett.  Thank you very much. 

Mr. Temple, if I understand correctly, you got a waiver request in for demonstration projects for Texas within hours of the President signing the law permitting those demonstration projects to come about; is that right? 

Mr. Temple.  Correct.  Yes, sir.

Mr. Doggett.  And your application was not denied on the basis of any deficiency, but only the fact that it got here before the guidance had been issued by the Department of Labor, which took them, what, less than 2 months to issue, right? 

Mr. Temple.  That is what our letter said.  We ‑‑

Mr. Doggett.  Right.  In other words, they didn’t fault you for not having met this or that, but simply said, it takes us a few weeks to get the guidance ready.  And now that they have their guidance out last Thursday, do you anticipate that Texas will reapply? 

Mr. Temple.  We are still looking at the guidance.  There are some really burdensome requirements in it.

Mr. Doggett.  What would you say is the most burdensome requirement in the compliance? 

Mr. Temple.  At first blush the individual‑by‑individual calculation of weekly benefits and determining what the wage incentive, our subsidy, would be for each individual.  We have approximately half a million people in the State receiving unemployment insurance; 290,000 of those are receiving State funded.  We plan on serving about 35,000.  So technically we could have to have a different agreement for every claimant with each employer where we don’t now.

Mr. Doggett.  You don’t believe you can make those calculations easily and promptly in order to reapply? 

Mr. Temple.  No, sir, I don’t think it can be done easily and promptly because it is an individual basis.  And then you have to sell it to the employer.  So I may bring a $200‑a‑month wage subsidy, you may bring a $500, and so we have got parity now.

Mr. Doggett.  You don’t envision any problem, for example, with Texas complying with the Fair Labor Standards Act? 

Mr. Temple.  We do now.

Mr. Doggett.  Right.  And you don’t envision any problem complying with minimum wage law standards? 

Mr. Temple.  We do now.

Mr. Doggett.  Right.  So a number of the things that have been mentioned here this morning as being burdensome in the guidance are simply a restatement of existing Federal law, aren’t they? 

Mr. Temple.  Well, not the one that I talked about.

Mr. Doggett.  Not the one you talked about.  That is the one I want to identify, because there has been a lot of discussion here this morning about burdensome and delaying, and actually it is pretty unusual that you get a guidance out in less than 2 months, but to identify what the specifics are.  And many of the specifics that have been mentioned are things that you are already doing and you have no problem complying with, like paying the minimum wage and like complying with the Fair Labor Standards Act. 

Mr. Temple.  I never cited those as being a hindrance for us.

Mr. Doggett.  Actually it was difficult to tell in some of the written testimony what was being cited so those were so global.  I am pleased to hear that that it is not a problem in Texas, and I doubt it is a problem anywhere to comply with those. 

So it is this matter of how one calculates the amount of subsidy that is an issue for you? 

Mr. Temple.  That will be an issue for us.

Mr. Doggett.  Are there any others? 

Mr. Temple.  Well, it doesn’t say that you have to do this random assignment evaluation, but that preference will be given or something to that nature.  And, you know, we have been running this program for almost 2 years, and we know ‑‑ we know it works.  And it is almost as DOL is saying, okay, we know yours works in practice; we want you to do a study to see if it works in theory.  I mean, we are there.

Mr. Doggett.  Well, it is the first time that trust funds have been used for a purpose other than paying benefits, and you would expect that in terms of fulfilling its responsibilities as a steward for those trust funds that there would be some examination of your program even if it is an award‑winning program.

Mr. Temple.  Certainly, understandable.

Mr. Doggett.  And you didn’t expect that by applying on day 1, or almost day 1, that you necessarily should be accorded an advantage, even though I would like Texas to have an advantage, over the other 49 States that might choose to apply for only 10 demonstration projects.

Mr. Temple.  We absolutely thought we should have an advantage because we were the first in.  Absolutely we thought we would be. 

And then I would mention that those trust fund dollars are dollars paid by our employers.  They are not Federal dollars, they are State dollars.  And every dollar we have ever borrowed we have paid back.  We have never missed a benefit, we have never missed a loan, we paid all of our bonds early.  We are retiring the one we currently have early.

Mr. Doggett.  I applaud you for your efforts on that.  I hope that you will be able to apply and that Texas will get 1 of those 10 demonstration projects.  And as much as I would like Texas to always have the advantage, I think clearly the Department of Labor had a basis for putting out a clear guidance.  There may be problems with some aspects of it.  I am glad to get a specific rather than just the rhetoric we have heard so far.  Thank you for your service.

Mr. Temple.  Thank you.

Chairman Davis.  Thank you very much. 

The chair now recognizes Mr. Paulsen from Minnesota for 5 minutes. 

Mr. Paulsen.  Thank you, Mr. Chairman. 

And we will just follow up with Texas a little bit. I guess your organization won an award in 2011 from the Department of Labor for innovation, right?

Mr. Temple.  Yes, sir, we did.

Mr. Paulsen.  That is great.  And was that based on your Texas Back to Work program? 

Mr. Temple.  Yes, sir, it was for that program.

Mr. Paulsen.  All right.  And that program did not involve unemployment funds, but it still served unemployment recipients; is that correct? 

Mr. Temple.  Correct.  It was general revenue.

Mr. Paulsen.  Okay.  And in concept the idea behind this new waiver authority was that programs like Texas Back to Work would essentially be fully integrated into the unemployment insurance program.  Does this guidance allow for that? 

Mr. Temple.  It eventually would allow if you met those other criteria.  That would be the funding source.

Mr. Paulsen.  And how would you need to modify Texas Back to Work in order to meet the DOL requirement?  What modifications might have to be met as you look forward? 

Mr. Temple.  There is a possibility we could need a different work agreement with each employer representing each individual we placed, rather than we just have one agreement that covers everyone, much easier to sell and much easier to explain.  And our UI claimants actually go out and sell themselves, that we offer a $2,000 incentive if you hire me.  And now we may, as we understand it, I may only offer, you know, $100 to $150 a month; someone else may offer $500.  So we don’t have the parity in all things.  And we ultimately want the employers to pick, obviously, the best candidate that we send them, and there is an incentive here to hire someone on UI.  And we thought it was fair when everyone represented the same.  And that is the concern we have, one from the parity and one just operationalizing it.

Mr. Paulsen.  Mr. Gates, maybe can you add a little bit to that discussion? 

Mr. Gates.  Well, to be honest with you, as I indicated in my testimony, I am not sure that New Hampshire is going to apply for one of the demonstration grants only because we are a very small State, and when we applied for the reemployment and eligibility assessment programs back in 2010, that grant was written by me.  I don’t have a grant writer.  You know, we believe in having more staff on the front line helping the public, so we are not very top‑heavy.  The second year it was written by my director. 

The way we read this is that it appeared as if we were going to have to prove our concept would be successful before we could even try it, and that was just going to be very difficult for us and very time‑intensive.  Currently right now we are over capacity.  We are trying to implement SIDES, TALK, Barts.  You know, we are just trying to really do a lot of things that are moving us ahead, and we just saw this as just a Herculean challenge that we just couldn’t take on at this time.

Mr. Paulsen.  Thank you, Mr. Chairman.  I yield back.

Chairman Davis.  I thank the gentleman. 

The gentleman from North Dakota Mr. Berg is recognized for 5 minutes. 

Mr. Berg.  Thank you, Mr. Chairman. 

I appreciate the panel being here.  And obviously we are trying to look for innovation and how we can do things better out here.  I was a little bit frustrated going into the first panel. To me, it seems like this guidance is stifling the very innovation that we had hoped to get out of this effort. 

Mr. Gates, I come from the very large State of North Dakota, so I have no idea what you are talking about, New Hampshire, but I know in your comments you didn’t apply for the waiver, and maybe you could expand on that a little bit more.

Mr. Gates.  Well, it is mainly, as I said before, one of capacity.  And when we read the guidance, we thought the guidance was very well done, don’t get me wrong, and we think that there wasn’t anything in the guidance we took exception with.  We just don’t have the ability to write an application that is going to meet the standards.  It requires a lot of research before, during and after, and to be honest with you, we have so much going on now. 

We have a very effective return to work program that we initiated back in 2010, and through that ‑‑ which was modeled on the Georgia Works, but took into great length the requirements to make sure that we met the Fair Labor Standards Act.  We basically called it an extended interview, because what New Hampshire employers were telling us was that their problem was finding individuals who are going to fit in with their culture and their team. 

And so what we did was to make sure that individuals on a voluntary basis would be able to, while they were receiving unemployment, to go in and show what they could not do, because that is forbidden, but to show whether or not they were going to be able to, through observation, pick it up, and through questioning and through interaction with the others to see whether or not they would fit.  We applaud the other ‑‑ you know, any other State that does it.

Mr. Berg.  I guess what I hear you saying is it is one thing if we are going to appropriate money for a program or a new program.  That is where you tested it, and you pulled all the research together, and you say, okay, we are going to go down this road. 

What we are talking about here is innovation.  We are talking about something that is going to be risky, something that maybe only 20 percent of these ideas are ever going to work or really get people back to work.  And so kind of what I hear you saying is it is a different mind‑set in terms of, A, we are not funding a specific program; what we are doing is we are asking the States to take a little risk, try something, and we are not going to chop your head off if there is a mistake. 

We had the Secretary here earlier in the first panel, and, you know, her response was ‑‑ you know, and I asked her what are the barriers that are happening, and she couldn’t respond to that.  And what I would like to know is if you could be very specific on both New Hampshire and probably Texas, from a State’s perspective, in saying here are some things that are specific that we ought to change that will encourage States to step in, complete an application, and encourage States to bring their innovation forward so we can look at it.  So can you just respond to that? 

Mr. Gates.  Well, I guess what would help us to make our return to work program more effective is that we have been very mindful onto the guidance that the individuals can’t do anything.  They can’t produce a product, they can’t do a service.  And that is very difficult for an employer to determine whether or not ‑‑ you know, this individual fits in, they report to work, they have a good attitude, they seem to be catching on, but they haven’t done anything yet. 

And so what we have done is to try and parlay that into an on‑the‑job training.  So we have been one of the States that has been very effective in maximizing on‑the‑job training, because that was the missing ingredient in our return to work program.  So we actually were a State that actually went back and actually collected some money from other States that were not using their OJT money, because we burned through our money fairly quickly.  OJT, as far as I am concerned, is the best tool that the system has to use in order to get individuals back to work and to show employers. 

The other thing that we are doing is Work Ready, which is to take individuals on a voluntary basis and to find out what their skills are on day 1, on their first day of unemployment, so we know early on what we need to do to help them to have the skills and abilities to be matched with an employer.

Mr. Berg.  And then just briefly, these are things that would not qualify under this waiver. 

Mr. Gates.  These are things that we are doing now without the waiver.

Mr. Berg.  But if you were going to expand those with the waiver flexibility or something, is that a barrier? 

Mr. Gates.  I honestly don’t know.

Mr. Berg.  Okay.  Thank you. 

Mr. Temple, I know we are short on time.

Mr. Temple.  Well, and again, as we had talked earlier, we were looking at an extension and expansion of our existing program as we operate it now, and understand there could have been some changes.  But we tried to do something that was streamlined.  The OJT program, under the Workforce Investment Act On‑the‑Job Training, still has a lot of paperwork and red tape that is required of employers, and they shy away from it.  I know that we have had problems selling the OJT in times, and when we were able to put our general fund dollars and take away those hurdles, it was accepted much greater than our on‑the‑job training federally funded programs were.  And so we were looking at trying to craft it more in that direction. 

But as was stated earlier, our big concern is just operational out of this, making it easy to understand both for the employers and for the job seekers.  And the one that ‑‑ and it is supposed to be cost neutral, we understand that, and we demonstrated that we have been cost neutral.  And I don’t believe that restrictions and requirements they have in place States could monitor how they outreach. 

The one thing I would mention, though, we are serving in our program with general revenue State dollars not only people that we fund our trust fund, but also people who are being funded federally.  And so savings are enuring to the benefit of Federal dollars.  They are all tax dollars, but those are Federal dollars.  Under the existing waiver, and under actually the way the legislation was written, it doesn’t allow us to serve people who are receiving Federal unemployment ‑‑ extended unemployment benefits.  And that may be something you want to consider, because right now we are serving both populations, and our trust fund is saving money, and we are saving the Federal Government money.  And the expansion of it to include that, I think, would reap a good return on investment.

Mr. Berg.  All right.  Thank you. 

I yield back. 

Chairman Davis.  The gentleman’s time is expired. 

The chair now recognizes Mr. McDermott from Washington for 5 minutes. 

Mr. McDermott.  Thank you, Mr. Chairman. 

Dr. Vroman, the problems of States that have had has not been because they increased benefits, but because they reduced the rate that they were charging employers, an hourly rate that they were charging employers.  Is that a fair statement of the problem that we have to date? 

Mr. Vroman.  Yes.  Going back for the last 60 years, if you then look at the trust fund situation following the two previous recessions, taxes never came back up to where they had been in the previous recoveries, and as a consequence there was no major rebuilding of the trust funds in the mid‑1990s or between 2004 and 2007.  So when we went into the recession in 2007, the net reserves of the system were at their lowest position of any recession post‑World War II.  And the benefit side was actually lower in the decades of the 1990s and prior to 2007 than it had been in the 1970s, than it had been in the 1950s, than it had been in any of the previous periods.  So the funding problem was not excessive benefit outlays that the States were responsible for, but the failure of taxes to bring the trust funds back to previous balances.

Mr. McDermott.  Can you compare the benefit, the average benefit, of the State of Washington and the benefit of Texas or Kansas? 

Mr. Vroman.  Certainly, yes.  In terms of benefit levels, Washington is a little bit more generous.  The maximum as a ratio to the statewide wage is a little bit higher in Washington.  But the contrast, the big contrast, between Washington and Texas is the share of the unemployed who collect benefits.  In Washington State it averages 40 to 45 percent in most years, most nonrecession years, whereas in Texas it is closer to 20 to 25 percent. 

There is a big range of recipiency rates across the system, and the variance from one State to the next is much larger in terms of what share the unemployed collect compared to what the payment levels are relative to past wages.

Mr. McDermott.  How does that work?  I mean, how does Texas exclude three‑quarters of the people? 

Mr. Vroman.  They have harder eligibility requirements, for example, misconduct determinations by the State affect more than 30 percent of applicants in Texas, whereas in Washington State they affect fewer than 15 percent.  That is a major factor.  It is sort of like a race of hurdles where if you are a claimant trying to go down the track, it is a lot easier if the hurdles are lower.  And Texas has higher hurdles than Washington State.

Mr. McDermott.  How about the indexing of the average wage in the State? 

Mr. Vroman.  To the tax base? 

Mr. McDermott.  I mean, the tax base in Washington State ‑‑ or the Federal one has not been changed, I think, since 1983.

Mr. Vroman.  1983, correct, yes. 

Mr. McDermott.  Which is $8,000. 

Mr. Vroman.  $7,000.

Mr. McDermott.  Seven thousand dollars.  It is practically nothing.

Mr. Vroman.  Yes, very low.

Mr. McDermott.  What would it be if it had been indexed since 1983? 

Mr. Vroman.  Average wages in the country since 1983 have roughly tripled, so the 7‑ would be $21,000 had the Federal tax base maintained its position to the average wage.  And Washington State, which indexes at 80 percent of the statewide wage, now has a number like, I think, $38,000, something like that. 

There is a graphic in my written testimony that compares the average tax base in the 16 indexed States against the 35 nonindexed.  The 35 nonindexed in 2012 have an average tax base that is below $11,000 and is less than $4,000 above the Federal tax base.  States without indexation could raise it by State legislation, but there is extreme reluctance, and that reluctance has been present for a very long time.

Mr. McDermott.  Let me just switch here to this issue of the guidance that was issued by the Department with respect to this waiver.  My understanding is that it requires that ‑‑ what we put out requires neutrality in the trust funds, that they not cost more to do these. 

Now, is there ‑‑ we have heard complaints about it.  They have said, oh, it is too cumbersome, and we are going to have to individually look at everybody, and we got all kinds of reasons.  Is there a way to guarantee that that neutrality, or should we just throw the money to Texas and say, go and do whatever you want with it, we don’t care what it does to your trust funds? 

Mr. Vroman.  I do not have enough expertise in the evaluation that will accompany these waivers to have a judgment about what the net effect on the trust fund is likely to be.  I am sorry to pass on your question, but I don’t think I am the right person to answer it.

Mr. McDermott.  We are trying to figure out how to make it work.  I think that is probably the most important thing. 

I yield back the balance of my time.

Chairman Davis.  I thank the gentleman. 

And Mr. Reed from New York will have the last word. 

Mr. Reed.  Thank you, Mr. Chairman. 

Following up on this conversation of my colleague Mr. McDermott, Mr. Holmes, do you have anything you would like to offer on the differing tax rates being discussed here? 

Mr. Holmes.  Yes.  I think that, at least from an employer’s perspective, each State is different.  You know, each State has a different industrial make‑up.  Each State has negotiated and has a mature sense about what the tax rate should be with respect to funding unemployment insurance.  In some States it is a lower tax base and a higher contribution rate schedule. 

I think that it is difficult to draw the conclusion that all States should have an indexed wage base unless you also evaluate benefit payout and also the make‑up of the State.  I know a number of States in which there have been significant increases in benefits.  And, in fact, the trendline with respect to the replacement rate across the country, replacement of wage rate, has been up at least since 1988, according to the Department of Labor. 

So I think that we have to look at all the different pieces of the puzzle before making a conclusion about what should be done at the national level. 

The other thing I would say is that I think you should pay attention to the FUTA tax revenue for the purposes that it is dedicated for, which primarily should be administration of the programs, State and Federal, with some money for extended benefits if we trigger on. 

But as far as the State goes, that is a much different conversation, and we can’t really link the two and say one needs to be increased because the other one hasn’t been raised for a while. 

So those would be my thoughts about it.

Mr. Reed.  Well, I appreciate that comment. 

Dr. Vroman, I can’t miss this opportunity.  I was reading your testimony, and on page 10 you indicate a conclusion, “There is likely to be another recession later in the present decade.”  What is your source?  It is not footnoted.  What is your source for that conclusion? 

Mr. Vroman.  Since World War II, we have had 11.  World War II has 60 years roughly to the present.  Our economy tends to have a cyclical nature to it, and that is the basis for my comments. 

Mr. Reed.  So just based on patterns of history, you are projecting.

Mr. Vroman.  Yes.  And we have been fortunate in the last three decades.  1982, 1991, 2001, and the great recession.  That is only four over about a 30‑year period, so, in fact, the length between recessions has tended to grow, but there is going to be another one, and it is most likely ‑‑

Mr. Reed.  I am very interested.  You put a timeline on it of the end of the decade, so I am interested in what your thoughts would be to the White House as to what we could do to avoid this recession that is coming down the pipeline according to you.  What should the White House be doing right now? 

Mr. Vroman.  Pray?  No one has that good a crystal ball, and I am trained as an economist.  The surprise that the economics profession received at the depth and duration of the current recession should be a sobering reminder to all economists that our ability to forecast is extremely limited.  And so ‑‑

Mr. Reed.  So your own conclusion is probably just a guess, just a shot in the dark? 

Mr. Vroman.  Yes. 

Mr. Reed.  Okay.  I appreciate that then. 

Mr. Holmes, what I would be interested in is following up a little bit on the drug‑testing issue that we talked about previously with the prior witness.  From your perspective in the private sector, how big of an issue is reemployment and folks potentially that have a drug issue?  Could you comment on that? 

Mr. Holmes.  Certainly it is a significant issue with respect to not just the controlled substances which are addressed in the bill, but also abuse of prescription drugs.  It is a significant cost for employers with respect to their employees, their performance on the job, and also making decisions about firing people or hiring people.  Obviously their background with respect to drugs and whether they are testing positive or not, that becomes a significant part of the hiring decision process, and it hits the bottom line for employers. 

So I think we recognize that it is a big problem, and as I think I said in my testimony, it is something that we would like to have the business community, if a State chooses to go in that direction, be part of the evaluation of what really works, since we do have significant experience in how to address these issues. 

Mr. Reed.  Well, I appreciate that.  When you say a big problem, is there any way to quantify it when you reference “big problem” in your testimony? 

Mr. Holmes.  I would have to go back and pull some data.  I don’t have it with me today. 

One of the difficulties about UI as compared to public assistance programs is there is a fair amount of data that addresses this with respect to public assistance programs; less data that addresses it with respect specifically to UI, because it just hasn’t been done as much. 

Mr. Reed.  Appreciate that information.  Thank you very much. 

With that, Mr. Chairman, I yield back. 

Chairman Davis.  I thank the gentleman. 

I would also like to thank all of our witnesses and the staff for coming and joining us today.  I appreciate your help in understanding this issue further.  We look forward to working with you in the time ahead. 

Members may have additional questions.  If they do, they will submit them directly to you in writing, and we would appreciate your responses back to the subcommittee for the record that it could be shared with all concerned.

Chairman Davis.  Thank you again, and with that the committee stands adjourned.

[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]

Member Submissions For The Record

The Honorable Tom Reed

Member Questions For The Record

The Honorable Geoff Davis

The Honorable Jim McDermott

Public Submissions For The Record