Unemployment Insurance Advisory Council Meeting Minutes

Thursday, May 28, 2009 – 9:30 A.M.

Dane County Job Center Ballroom
1819 Aberg Avenue
Madison, Wisconsin

Members Present

Management: James Buchen, Dan Petersen, Ed Lump, Susan Haine

Labor: Phil Neuenfeldt, Dennis Penkalski, Anthony Rainey
[Neuenfeldt arrived at 9:53 a.m. and quorum was established.]

Chair: Daniel LaRocque

Department staff present: Hal Bergan, Tom McHugh, Troy Sterr, Tracey Schwalbe, Dick Tillema, Mary Pronschinske, Lutfi Shahrani, Carla Breber, Mike Mathis, Chris O’Brien.

Others present: Bob Andersen (Legal Action of Wisconsin), John Metcalf (WI Manufacturers and Commerce), Michael Metz (WI Independent Businesses), Brad Boycks, Tom Fonfarra.

MINUTES

Mr. LaRocque calls the meeting to order at 9:50 a.m.

1. Opening Remarks – Hal Bergan

As of yesterday, we borrowed $293 million dollars to pay benefits. That number will continue to increase throughout the year. We received the first quarter contributions. The July contributions will be about one-half as much and then the quarterly contributions are lower. We initially thought we would be in the black for several days when the first quarter contributions came in, but that did not happen. The three-month adjusted unemployment rate is now at 8.2%. This means that we reached the trigger point for high Extended Benefits (EB). Those additional 7 weeks of benefits will be available to claimants starting June 7. The first checks will be drawn on June 15. The programming is finished for this so claimants should transition smoothly. This is the program approved by the Council in April. Claimants will receive up to 7 additional weeks of EB. This is funded by the federal government in 2009 and will mean an additional $200 million or so coming into the state.

Under the EB program there are stricter work search requirements. That has been an extra workload for us and an extra requirement for claimants. We are in an environment where work search is much more difficult. The federal government has issued some guidance that we were waiting for that indicates we can release checks and then collect the work search records. Before, we had to withhold checks until we saw the evidence of the work search. Now we just need to be notified that the work search has been done and we will monitor these on an audit basis. It is easier to handle from an administrative standpoint and claimants are able to get their benefit checks faster.

The UI modernization proposals were passed by the Legislature and signed by the Governor. The “compelling family reasons” sections are in force already. We are in process of getting the procedures put together so staff understands what they mean. The extended training period for approved training has an effective date of August 23. That is a more ambitious endeavor and that is why there is a delayed effective date.

We understand that the federal government is working on some UI issues. This includes a push on program integrity and collecting delinquent payments from tax refunds. We are not sure what form that will ultimately take. The other major initiative is a redesign of the EB program. They may try to put together a program that is more responsive to economic conditions and so there is just one program. Right now we are running several programs, regular UI benefits, EUC08, EUC08 Tier 2, Extended Benefits, High Extended Benefits, plus the $25 in additional benefits under the Federal Additional Compensation (FAC) program. Each of these has different requirements and it creates an administrative burden. Hopefully, they will go forward with one federal benefits program.

Because of the time of year, we have fully-trained new staff and are doing a good job keeping up with claims. Mondays are still hard to get through, and we tell people to avoid Mondays, but it is still busy. People who need to file a claim are getting through and the process is working well. Through last week we have taken about 500,000 initial claims for regular UI, compared to 202,000 claims last year. That is an increase of 77%. For the extensions, there are another 75,000 initial claims for EUC and 16,000 for EB claims. Continued claims are up 83% for regular UI benefits.

For adjudication, we are holding the line on about 25,000 paying decisions. This is a 4-5 week delay. We keep trying to improve that, but holding it to 25,000 has been an accomplishment for our benefits staff when you look at the increased claims and the fact that people are in the system longer. Our priority is preparing for our winter workload. We generally have vastly more claims starting in October and going through March. We are in the process of making sure we will have the resources to handle that.

The federal funding of the program is strong. The above-base funding is substantial and there is an indication that in the next federal budget there will be a substantial increase in administrative funding. It is less certain how the state budget activity will affect hiring, overtime, etc. As far as we know, UI will be subject to furloughs so we will have to factor that in. That is still under development.

Finally, we are working hard on the reserve fund to be able to give you as much information as we can about what is going on with our fund, what is going on in other states and what the overall context is. We want to make sure you have the information in hand in advance of September when you turn more directly to that topic.

Question (Buchen): Is the amount of money that has been borrowed to pay benefits consistent with the previous projections?

Mr. Bergan indicates that it is ahead of the projections. The projections for the end of last year in the fiscal report were for -$696 million. We will not be less than that and are likely to borrow more, but we are not sure how much more. Generally, benefit payments will drive this, but we have also seen some falloff in revenue because there are fewer people on payroll. The report we did took into account the new estimates from the Department of Revenue at the end of the year.

Comment & Question (Neuenfeldt): This is also a function of how long people are on unemployment and that puts extra stress on trust fund. Has the average length of time that people are on benefits increased?

Mr. Bergan indicates that the average duration is going up. However, our measure of this does not include the federal extensions. We would like to get the statistical data that talks about duration in a way that goes outside the traditional statistical categories. People on the benefit extension programs are included in the unemployment rate, but some of the statistics from DOL relate only to regular UI. People are on UI longer, but the traditional way that this is measured is not telling us enough. We have the ability to go back and include everyone on federal extended benefits as well. We traditionally look at the average. It would be more helpful to have a frequency distribution. If we have 500,000 claimants, we would show how many were on for 1 week, 2 weeks, etc. That would be the kind of information that will tell us vastly more than the averages we get from DOL. We want to see the distribution so we can get a better idea of what is happening. We are going to get that information to you and use it for guidance when we return to the topic of the reserve fund.

Question (Penkalski): Why are the $25 FAC payments on a separate check?

Mr. Bergan responds that they generally are combined. Everyone’s check is for $25 more. However, separate checks were issued when we had to do catch-up payments. Of all of the programming adjustments we had to do, that was the most complex so it took a while to get this in place. We are moving toward a debit card option that will make these things easier.

3. UI Treasurer’s Financial Statements

Tom McHugh, Director of the Bureau of Tax & Accounting, reviews the financial statements. The “Cash Analysis” page for April 30, 2009, shows our actual cash balance including loans. It factors out things in our trust fund we do not use for benefits. The balance was -$141 million which is about the size of the loan. For tax receipts year-to-date, we received $272 million; last year was $320 million. The next line shows the amount to the balancing account. Year-to-date this is $108 million and last year was $73 million. This is because of the tax rate changes where 2% was moved from the basic to the solvency account and 4% for overdrawn accounts. Solvency is ahead of last year. There will be no more interest received for a long time. Last year we collected $31 million in interest. Year-to-date benefits paid are $729 million; last year this was $395 million. This does not include extended benefit programs. The “Balancing Account” page for April 30, 2009, shows that the amount paid into the balancing account this year is $98 million versus $74 million last year. Forfeitures are up due to the claim load; year-to-date it is $3.1 million versus $1.6 million last year. Benefits charged to the balancing account this year are $71 million versus $43 million last year, due to claim load. The overall balance in the balancing account is -$715 million. If you add up all of the employer accounts, that is a positive $500,000. The difference is really the amount in the account or loans.

Question (Buchen): In the balancing account’s prior year’s activity year-to-date, the total increases were $80 million and the total benefits charged were $58 million. This was heading in the right direction. As you go through the year the increases must decrease because the later quarter contributions are less and the benefits charged continue. Is this why the year end balance continues to get worse when it seems to look like it is positive on this report?

Mr. McHugh responds that the big hit on the balancing account is the 10% write-off. That happens in October after we calculate rates. Last year the write-off was about $198 million; we are not sure what it will be this year because there will be a lot more accounts overdrawn. The balancing account will take a big hit for about $200 million and we will close some accounts which will be another $20 million. Maybe the balancing account would stay afloat if not for the 10% write-off. In the 1980s the 10% write-off was suspended.

Comment (Buchen): It is interesting that receipts are down. To the extent people get hired again, taxes will jump up.

Mr. McHugh notes that gross wages were down for the year about $1.7 million, or 8.29%. Taxable payroll was down $1.4 million compared to first quarter 2008, despite the increase in the wage base. Tax receipts were down about $10 million despite the rate increases. The further rate increases will be in effect in a few years because of the rate increase limiter.

2. Minutes of Meetings of March 26, 2009 and April 15, 2009

Motion (Lump), seconded (Haine) to approve the minutes. Motion passes unanimously.

4. 2009 Wisconsin Act 11

A copy of the Act was included in the packets.

Comment (Lump): He was not able to attend the April meeting, but would have voted for it. He would like to see a short summary that he could share with people.

Comment (Neuenfeldt): He would like to see a summary as well.

Mr. LaRocque indicates that the department provided a longer summary for the April 15 meeting. He is working on shorter summaries for staff and will get a summary to the Council members. Act 11 contained other law provisions than just UI.

5. Task Force on Misclassification of Workers – report

Mr. Bergan indicates that the only thing that remains for the task force is to finalize the report. It is a report to the Secretary that would serve as the basis for legislation. It will be shared with legislative leadership and the Governor’s office. He will send the Council members a copy of the report. It does not provide for changes in the definition of employee because they wanted to defer to the Council’s Committee to Review the UI Definition of “Employee”, which is working on that definition.

Question (Penkalski): Does the Task Force report have a direct bearing on what the Council Committee is working on?

Mr. Bergan indicates that the task force was trying to attack the problem in the construction industry and from an enforcement perspective. For now, it will not apply to other industries. It does not propose to amend chapter 108.

Question (Buchen): There are many people in the department working to ensure proper classification. Are 6 new people needed to ensure that people are properly classified?

Mr. Bergan indicates that in construction the presumption is that there is a need for a rapid response to misclassification. We are attentive to it now through the audit process, but that takes weeks and months and by the time that is done, the job is finished and people are gone. The idea is to create a unit that would respond to information from the public that would be able to visit the work site and if they found violations issue a stop work order for that subcontractor. The stop work order would not be for the whole job. The subcontractor would have instant appeal rights and a set period of time to demonstrate compliance. The focus is on compliance; if the person remains noncompliant, then the stop work order stays in effect. It is a practical penalty. The general contractor would have to find a compliant subcontractor to do the work. The idea of a rapid response would reestablish a practice that workers compensation had in the past. The alternative of having building inspectors do this would not work because they do not have the resources; we need dedicated personnel. We want people who get up in the morning and this is their professional reason for being.

Comment (Petersen): Agrees that it is appropriate to add additional staff dedicated to this. There are people who are already doing audits, but they are working on other things as well besides misclassification. He has a problem with the 2% withholding proposal. That can become a problem in a lot of ways. Employers have never had to do this for subcontractors, so it would be a new requirement. It is a burden on the subcontractors who need the money. It is an enforcement problem. A lot of times there is a layer in between the general contractor and the misclassified subcontractors. The general contractor may not even know if they are hiring employees or other contractors.

Mr. Bergan responds that the 2% withholding was used in other states and the Department of Revenue wanted this. In the absence of something like this, they cannot identify who the subcontractors are. This gives them a record of entities that should be in their system.

Comment (Petersen): He can see the Revenue side of this, but it would still be hard for smaller contractors.

Mr. Bergan indicates that there were contractors on the task force and as observers and they have questions on this. He will share these concerns with them.

Question (Penkalski): Would there be some kind of clearinghouse or distribution of information? Will departments be sharing information?

Mr. Bergan indicates that one recommendation is to have a hotline where people can report violations. There will also be a very active outreach activity to the contractor community about what the rules are. One of the advantages to what the Department of Commerce has done is that it sets up a conduit for distributing information. That is an important part of the whole picture. Some contractors do this because they do not know any better; others do misclassification as a business strategy. The departments will cooperate to share information and are reviewing that now; this does not need a law change.

Comment (Haine): There should also be education for employees.

Comment (Petersen): His last point is that the various departments should work towards a uniform definition for independent contractor/employee.

Mr. Bergan responds that this was not a recommendation of the task force, but it was listed as something that should require more attention. The workers compensation and unemployment insurance definitions are similar; the Revenue definition is different. We might be able to do something with workers compensation and UI.

Comment & Question (Buchen): For Revenue, the question seems to be how you pay your taxes, not whether you pay the taxes. They have a different interest than coverage for workers compensation or UI. The idea of criminal penalties for misclassification seems inappropriate. He does not like the idea of leaving this up to prosecutors; penalties should be spelled out in the statute.

Mr. Bergan indicates that criminal penalties provide serious sanctions for those employers that use misclassification as a business model and misclassify intentionally.

6. Committee to Review UI Definition of “Employee” – report

Mr. LaRocque indicates that the committee met twice since the Council met last. They heard comments from the public. The comments request more clarity in the law and predictability in the outcomes from applying the law, greater fairness and understandability of the law. The committee considered that and tried to address these concerns. The committee also heard from some industry representatives, such as mystery shoppers. The workers are engaged for a very short period of time. The pitch was made to exclude these services from the definition of employment. They are concerned that they get caught up in unemployment claims when there is little pay and little at stake. They have appealed many cases to LIRC. The issue is whether to exclude them or not because they are not coming close to satisfying the test.

Comment (Buchen): Some of these things you just have to exempt because they will not meet the test and should not be covered. There was the sense that truckers and loggers did not fit.

Comment (Lump): The question for mystery shoppers involves lots of cases and lack of clarity in the law. There are small amount of money involved.

Mr. LaRocque indicates that there are exclusions in the statutes for about 20 categories of workers. The committee is going to give a more formal response to that industry. The refrain is the common across other industries: the numbers are small, the services involve small amounts of earnings that do not often impact benefit eligibility. So far, the department’s view is that they have not made a case for exclusion.

Question (Haine): They may not meet the test and there may not be much money involved, but does that philosophically justify putting them in a noncovered employment category for that reason?

Comment (Buchen): These are policy decisions and it is a judgment call. He does not have a problem with it. Sometimes it is a smart policy choice to exclude a type of work even though there is direction and control, etc.

Comment (Lump): Some of these are at risk of ending the industry if they are included in coverage. It is hard to compare mystery shoppers with drywallers.

Mr. LaRocque indicates that if the Council wants to exclude workers, they should give the department the policy reasons why so that this can guide the process. The department has to explain to people why they are in or outside the program. The other exclusion that came up for the committee is for home care workers. This is characterized as domestic services because it can involve a broad category of activities. These can be family members or not, engaged independently or through a service provider engaged by the recipient of the services. They are engaged when there is a lot of stress on the family. The person identified as the employer can be severely disabled or ill, and it may be a substitute for hospice care. The committee is proposing changes to the 10-point test and an exclusion for family members providing care for family members. The definition reestablishes direction and control as an important element of the test.

Question (Buchen): Would the services be nonprofits?

Mr. Mathis indicates that nonprofit organizations are defined as having 501(c)(3) ruling from the IRS. Most of the home care workers would not have that.

Comment (Neuenfeldt): Some health care is nonprofit, but some are individuals. There are some pending legislative changes about their status as state employees. He would like to talk with his law firm to figure out what implications this might have.

Mr. LaRocque indicates that the committee will meet again and provide the Council with its report. The department proposes to repeal the special rules for loggers and truckers. The committee will need to digest that.

Question (Buchen): Have the truckers and loggers weighed in the proposal?

Mr. LaRocque indicates that the committee has not heard from them directly. They have been alerted to this.

Comment (Lump): He has heard from the knowledge industry.

7. Department proposals for changes to the unemployment insurance law, Wis. Stat. Chapter 108, presented at previous meetings.

8. Department proposal to revise DWD 129, Benefit Claiming Procedures

9. Department proposal to revise DWD 128, Able to Work and Available for Work

Mr. LaRocque indicates that the proposals to revise rules DWD 128 and DWD 129 have been presented to the Council but the Council has not voted on them. Mr. Bergan indicates that some of these are noncontroversial, but some may need more attention.

Question (Neuenfeldt): What is the proposal on the penalties for protecting claimants and witnesses from retaliation?

Mr. LaRocque responds that there are penalties in the law for discouraging an individual from filing a claim, but there is no penalty if the employer actually fires the person. It seems to be an obvious shortcoming of the statute. The proposal also adds protections for witnesses as well as claimants. The Equal Rights Division and others have told us that they get calls from employees complaining that they have been retaliated against for filing unemployment claims or testifying. This is one of the more substantive proposals on the list.

Motion (Buchen), seconded (Neuenfeldt), is passed unanimously to go into closed session to consider the department law change proposals and rule proposals, pursuant to section 19.85(1)(ee) of the Wisconsin Statutes. Closed sessions by the management and labor members of the Council, respectively, begin at 11:18 a.m.

Open session resumes at 1:00 p.m.

Motion (Neuenfeldt), seconded (Buchen), to approve department law change proposals:

Motion passes unanimously.

Comment (Neuenfeldt): Has some concerns about the department’s debit card proposal in D09-19 (Enable Recovery of Unclaimed Transfers to Debit Card Accounts) because it raises questions about fees and other activities and the employee representatives have not had a dialog on that yet. The Department will prepare a presentation for the Council on the debit card program.

The next meeting will be September 1, 2009, at 9:30 a.m. in Madison.

Motion to adjourn (Rainey), seconded (Buchen), passes unanimously. Meeting adjourned at 1:15 p.m.

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