BILL ANALYSIS Ó AB 399 Page 1 Date of Hearing: April 29, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 399 (Ridley-Thomas) - As Amended April 14, 2015 ----------------------------------------------------------------- |Policy |Insurance |Vote:|9 - 3 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill allows classified, non-certificated public school employees to collect unemployment insurance (UI) benefits between school years. Beginning July 1, 2016 with two weeks of benefits, the bill phases in the level of benefits by two-week AB 399 Page 2 increments over four years, up to a total of eight weeks per year by July 1, 2019. FISCAL EFFECT: 1)There are approximately 250,000 classified, non-certificated employees throughout the state. If 60% of those employees received the maximum allotment of weeks of UI during summer vacation each year, it would cost an additional $90 million per year, each year for four years, until the cost reached approximately $360 million in fiscal year in 2019-20 (School Employees Fund). Costs to the School Employees Fund are funded by school districts, county offices of education, community college districts, and some charter schools, whose employees receive UI benefits through this fund instead of through the UI Trust Fund. 2)The increased costs in UI for these workers would likely increase the quarterly Local Experience Charges (LECs) paid by school districts. It is unknown how much those costs would increase, but increased costs could easily exceed millions of dollars throughout all the school districts across the state. LECs would depend on how many employees sought UI benefits in the particular district. 3)There could be a direct cost impact to the UI Trust Fund, potentially of millions to tens of millions of dollars, if some charter school employees receive benefits through this fund instead of the SEF. EDD does not track which charters rely on UI Trust Fund versus those that use a different reimbursement method, but reports that only a quarter of charters participate in SEF, meaning benefits paid to employees of the remaining three-quarters would potentially impact the UI Trust Fund (though it is unclear how many schools participate in the tax-rated methodology that impacts AB 399 Page 3 the UI Trust Fund). The remainder of charters reimburse the UI Trust Fund directly for costs incurred to provide benefits to their employees. Furthermore, the Employment Development Department (EDD) has raised a concern about whether increased expenditures from the UI Trust Fund could trigger an increase in federal UI taxes. Since the UI Trust Fund is insolvent and owes funds to the federal government, federal law requires a tax credit received by employers for their federal UI tax liability is reduced incrementally each year until the loan is repaid. There are also additional credit reductions, from which the state currently has a waiver. A condition of the waiver is that California does not take any action to reduce solvency from the UI Trust Fund. Increasing expenditures without corresponding revenue increases would reduce solvency, potentially threatening the waiver. 4)Finally, since this bill will result in such a large overall increase in UI benefits being paid out to school employees, there may be an indirect effect on UI Trust Fund solvency. Schools that currently do not use a tax-rated UI Trust Fund methodology may be financially better off to move to such a methodology, as the maximum tax rates for UI are capped at 6.2% of the first $7,000 of wages, a total of $434 per employee. That rate could be less than what they would end up paying through the SEF, though the large SEF fund balance could mitigate this for a year or so. The more schools that choose to move to a tax-rated methodology under this level of benefit expenditure, the greater the impact on UI Trust Fund solvency. 5)EDD also warns this bill may not conform to federal law, as it treats public school employees different than employees of nonprofits. Sanctions for non-conformity include withholding of a state's grant for administration of the UI program, and the loss of a federal tax credit for a state's employers. AB 399 Page 4 COMMENTS: 1)Purpose. According to the author, thousands of school employees find the months between academic years to be a stressful period financially. Existing law prohibits certain education employees, those who are not teachers, researchers, or administrators, from receiving benefits during months in which school is not in session, unless they meet very specific criteria. Many school employees rely on summer school to maintain a reliable income source. Since 2007, however, budget cuts have led to the elimination of summer school in many districts, leaving tens of thousands of education employees without a steady income or access to unemployment insurance benefits. This bill would allow those employees to receive unemployment insurance during the summer break between school years. 2)Federal Law. Federal law generally requires equal treatment for the payment of UI benefits to certain nonprofit organizations, Indian tribes, and state and local government workers in the same amount, on the same terms, and subject to the same conditions, as other workers subject to state law. An exception to the equal treatment requirement pertains to the denial of UI for professional and nonprofessional employees of educational institutions during a period between or within academic years or terms when there is a contract or reasonable assurance that the employee will go back to work in the same or similar capacity in the ensuing academic year or term. States must deny UI benefits to professional school employees between and within the academic years or terms when a contract or reasonable assurance exists. However, states have the option of providing UI benefits to nonprofessional school employees between and within the academic years or terms when a contract or reasonable assurance exists. AB 399 Page 5 3)School Employees Fund (SEF). Public school employers, K-12 and community colleges may elect to participate in the SEF, which is a pooled-risk fund administered by the EDD, which collects quarterly contributions based upon a percentage of total wages paid by public schools and community college districts. Employers who participate in the SEF may also have to pay an additional quarterly Local Experience charge if they have higher UI costs charged to their individual accounts. Contributions deposited in the School Employees Fund are used to reimburse the UI Trust Fund for the cost of UI benefits paid to former employees. The SEF had a projected reserve of $485 million at the end of the 2014-15 fiscal year. 4)Previous Legislation. AB 1638 (Bocanegra) of 2014 and AB 615 (Bocanegra) of 2013 were similar to this bill, and were both held on the Suspense File of this committee. Analysis Prepared by:Lisa Murawski / APPR. / (916) 319-2081