UNEMPLOYMENT INSURANCE:  IMPLEMENT FEDERAL "MODERNIZATION" PROVISIONS FROM RECOVERY ACT

House Bill 4785 (Substitute H-4)

Sponsor:  Rep. Richard Hammel

House Bill 4786 (Substitute H-1)

Sponsor:  Rep. Bert Johnson

Committee:  Labor

Complete to6-22-09

A SUMMARY OF HOUSE BILLS 4785AND 4786 AS PASSED BY THE HOUSE5-6-09

The bills would enact amendments to the Michigan Employment Security Act to (1) provide unemployment benefits to individuals who are available for and seeking only part-time work, and (2) provide extended benefits to individuals who exhaust regular benefits and are enrolled in an approved job training program.  Enactment of these provisions would enable the state to receive $138.9 million in additional federal funding made available under the federal American Reinvestment and Recovery Act of 2009.

House Bill 4785 (Training Benefits)

The bill amends the Michigan Employment Security Act (MCL 421.27) to provide up to an additional 26 weeks of UI benefits to individuals who exhaust regular benefits (up to 26 weeks) during the time period they are enrolled and satisfactorily completing an approved job training program, including programs authorized under the federal Workforce Investment Act, PL 105-220.[1]  The additional benefits would be payable beginning eight months after the bill's effective date. 

Under current law, up to 18 weeks of benefits may be provided to individuals with an unexpired benefit year who exhaust regular benefits and who are enrolled in a job training program approved by the UIA.  The act provides that the UIA may authorize an individual with an unexpired benefit year to pursue vocational training or retraining only if it finds that[2]:

1.                   Reasonable opportunities do not exist locally for employment in occupations for which the person has training and/or experience.

2.                   The vocational training course is related to an occupation or skill for which there currently are, or are expected to be, reasonable employment opportunities (i.e. an "in-demand" occupation).

3.                   The training course has been approved by the UIA or the local workforce development board.

4.                   The individual has the required qualifications and aptitudes to complete the course successfully.

5.                   The training course is approved by the State Board of Education and is offered by a public or private school or the UIA.

The training benefits provision was added to the Michigan Employment Security Act with the enactment of 1965 PA 281.  The Unemployment Insurance Agency has indicated that this provision has not been active for at least 25 years. 

Under the bill, the training program must prepare workers for entry into a high-demand occupation, following separation from a declining occupation or following an involuntary and indefinite separation from employment due to permanent reductions in operations by the employer.  The training benefits would not be provided if the individual is receiving a similar stipend or other training allowance for nontraining costs, or if the individual is entitled to UI benefits under any other federal UI program or the federal-state extended compensation program, or if the individual is entitled to establish a new claim for regular benefits.  The benefits would be provided beginning eight months after the bill is enacted. 

House Bill 4786 (Part-Time Work)

The bill amends the Michigan Employment Security Act (MCL 421.28) to provide that for benefit years beginning after January 1, 2010, if a majority of weeks in an individual's base period include part-time work, an otherwise eligible individual could not be denied benefits for any week solely because the individual is (1) available only for part-time work; (2) seeking only part-time work; or (3) refuses an offer of full-time work.[3] 

Section 28 of the Michigan Employment Security Act,MCL 421.28, currently provides that, as a condition of eligibility for UI benefits, an individual must be able and available to perform suitable full-time work that he or she, by training or past experience, is qualified to perform, that is similar to the individual's previous line of work, and that is available locally.  Further, Section 29 of theMESA,MCL 421.29, provides that an individual is disqualified from receiving benefits for failing without good cause to (1) apply for available suitable work after receiving notice from an employment office or the UIA that work is available; or (2) accept a specific offer of suitable work.[4]

The bill provides that, during an individual's base period, "part-time work" means work that is less than 40 hours per week.  During an individual's benefit year, "part-time work" means work that is not less than 16 hours per week and not more than 40 hours per week, and that is comparable to the number of hours of work per week in a majority of the weeks of work during the base period. 

A base period is the time period used by the UIA in determining whether an individual meets the minimum wage requirements to be eligible for benefits.  A benefit year is the 52-week period beginning when the individual files a claim for UI benefits.  It includes the time period during which the individual would receive benefits.

The bill further states that an individual would continue to be ineligible for benefits if he or she voluntary separates from part-time employment without good cause attributable to the employer.

[Note:  The bill does not alter the initial eligibility requirements, based on an employee's earnings.  Employees who do not meet the earnings requirements under the act, even though their wages are subject to federal and state UI taxes, would still not be eligible for benefits under the bill.  Moreover, individuals who are not eligible for benefits because of other non-monetary reasons, such as voluntarily quitting employment, would still not be eligible for benefits under the bill.  The bill essentially provides benefits to individuals who are monetarily eligible for benefits, but are currently disqualified for benefits because they've restricted their availability to only part-time work.]

FISCAL IMPACT:

The bills are intended to enact two of four possible amendments to the Michigan Employment Security Act necessary for the state to receive the final two-thirds of its portion of $7.0 billion made available to states under the American Recovery and Reinvestment Act for "modernizing" their UI laws.  The federal Department of Labor - Employment and Training Administration (DOL-ETA) has indicated thatMichigan's share for enacting these provisions is $138,455,561.  This "two-thirds" payment is made available to states that have first enacted changes implementing an alternate base period and have received approval from theDOL-ETA. 

The state adopted the alternate base period in 1994 and, therefore, automatically qualifies for the one-third incentive payment.  This amount equates to $69,427,524 upon certification from the Department of Labor[5].  The UIA is in the process of submitting its application to theDOL-ETA.  The funds received by the UIA will support UIA information technology upgrades and administrative costs in light of the increasing UI benefit claims volume.  These funds are appropriated in Public Act 38 of 2009 (House Bill 4308.)[6]

Under the Recovery Act, the funds received by the UIA for enacting these changes may only be used to provide UI benefits or, upon appropriation, for UI or employment service administrative costs.[7]  The Unemployment Insurance Agency has indicated that funds received from the "two-thirds" payment are to be used for the payment of benefits.  Those funds would not be subject to appropriation by the Legislature. The Department of Labor notes that the modernization payments must be expended before the state may receive an advance (loan) under Title XII of the federal Social Security Act.[8]

House Bill 4785 (Training Benefits)

In a revised estimate, the Unemployment Insurance Agency has indicated that enacting this change would increase expenditures from the state unemployment trust fund by approximately $37.0 million on an annual basis.  In the near-term, one limiting factor is a provision in the bill, consistent with Department of Labor guidance, that provides that the training benefits would not be provided to an individual who is receiving a similar stipend (such as Trade Readjustment Assistance), or an individual who is entitled to UI benefits under any other federal UI program or the federal-state extended compensation program.  However, the continued receipt of extended UI benefits may provide sufficient income support to enable displaced workers to enter a training program (such as those funded under the state's No Worker Left Behind program) and be eligible to receive, under the bill, additional weeks of UI benefits after exhausting other benefits, which has the potential to increase programmatic costs.[9]  Given the eight month delay in the effective date of the bill, once enacted, claimants would have to exhaust their regular benefits (up to 26 weeks) and extended benefits (13 weeks), before potentially receiving training benefits under the bill.[10] 

The Michigan Employment Security Act currently provides that the cost of training benefits is paid from the nonchargeable benefits account (NBA).  This account is a non-experience-rated account where the standard tax rate paid by contributing employers is 1.0% of taxable wages.  As its name implies, the NBA used to pay the cost of UI benefits that are pooled among employers and not charged directly to a specific employer's experience account.  (The more common example of this type of "non-chargeable benefits" includes the costs of UI benefits payable to former employees of employers that have gone out of business.)  Because the NBA is not experience rated, charging the extended training benefits to the NBA does not directly impact the state UI tax rate of contributing employers.[11] 

Additionally, the bill would have a direct cost impact on the state and local governmental units (including schools), tribal governments, and non-profit organizations that do not pay state unemployment taxes, but instead are "reimbursing employers" that reimburse the state unemployment trust fund, dollar-for-dollar, for the unemployment benefits (including regular benefits, extended benefits and training benefits), to former employees.[12]  In 2007, there were 4,512 reimbursing employers.  For the state, the act provides that the actual cost of benefits is charged to the employing state department against the funds available for the payment of salaries and wages.  According to the Department of Labor, in 2008, 4% of benefits were paid out by reimbursing employers[13].  If that percentage continues for the benefits paid under the bill, approximately $1.48 million would be paid by reimbursing employers.

House Bill 4786 (Part-Time Work)

Based on Unemployment Insurance Agency data, enacting this change would increase expenditures (benefit charges) from the state unemployment trust fund by approximately $9.8 million to $17.2 million on an annual basis.  One factor that would serve to limit the amount of benefits payable, as provided in the bill, is a requirement that a majority of weeks of work in an individual's base period include part-time work and that the type of work a UI claimant is available for, and seeking, be comparable (in terms of hours) to the type of work in the majority of weeks of work in the base period[14]. Another limiting factor is that because initial eligibility for UI benefits is based on an individual's earnings, it could be the case that individuals who receive UI benefits under the bill and later secure part-time employment may not be monetarily eligible for UI benefits in the future.  It may also be the case that many individuals currently working part-time wouldn't meet the monetary eligibility requirements.[15]   Additionally, under the Michigan Employment Security Act, the earnings a UI claimant receives in a week reduce the individual's weekly benefit amount.[16]  Finally, because UI benefits are payable to individuals who are "underemployed" (working part-time), many of the claimants who could benefit from the bill are already a part of the UI system.  That is, many claimants who are receiving benefits are already working part-time, but are seeking full-time work.  Because of these "limiting factors," the UIA indicates that the $17.2 million figure is "on the high end" of the range of costs.  For each of the past several years, the UIA paid out nearly $1.8 billion in benefits.  As such, the bill increases benefit charges by less than 1.0% overall.[17]   

The bill would have a direct cost impact on the state and local governmental units, tribal governments, and non-profit organizations that are "reimbursing employers" and that reimburse the state unemployment trust fund dollar-for-dollar for the unemployment benefits paid to former employees.  Again, for the state, the act provides that the actual cost of benefits is charged to the employing state department against the funds available for the payment of salaries and wages.  The Department of Labor notes that, in 2008, 4% of benefits were paid out by reimbursing employers.  If that percentage continues for the benefits paid under the bill, approximately $0.4 million to $0.7 million would be paid by reimbursing employers. 

The bill would have a direct cost impact on contributing employers.  Generally speaking, under the Michigan Employment Security Act, the chargeable benefits component (CBC) of a contributing employer's state unemployment tax rate is the amount of benefits paid out divided by the amount of taxable payroll over the 60-month (5-year) period ending on the previous June 30.[18]  The bill increases an employer's benefit charges used in determining itsCBC rate.  As with any other tax, the increased tax burden does not cut uniformly across all industry sectors or among all employers.  There will be many employers that will not be impacted by the bill at all, and there will be others (those with many layoffs where a significant part of the workforce consists of part-time employees) that will see a larger tax increase.

BACKGROUND INFORMATION:

The American Recovery and Reinvestment Act of 2009, PL 111-5 enacted several changes concerning the provision of unemployment insurance benefits to displaced workers.[19]  Among these changes are a number of provisions aimed at encouraging states to "modernize" their unemployment insurance programs by increasing benefits and expanding eligibility.  Given that the cost of these changes is borne by the states (financed through the imposition of unemployment taxes on employers), states were offered, in total, $7.0 billion to assist in the cost of funding these changes.   These changes were previously encompassed in federal legislation known as the Unemployment Insurance Modernization Act (UIMA).[20]

The federal Department of Labor has indicated to states that applications should be submitted to the department no later thanAugust 22, 2011 in order to provide the department with sufficient time to review state applications to make the payments before theOctober 1, 2011 deadline set in the Recovery Act. 

Of the $7.0 billion provided to the states under the Recovery Act's UIMA provisions, one-third ($2.3 billion) is distributed to states that have a provision in their UI law allowing for an "alternate base period" that counts the most recent completed calendar quarter when determining eligibility for UI benefits.  All states use a "base period" (or "base year") to determine eligibility for UI benefits.  The typical base period used by states is the first four of the last five completed calendar quarters.  In order to be eligible for UI benefits, an individual must meet certain minimum wage requirements within the base period.[21]  If a person does not have sufficient wages within the regular base period using either the regular earnings calculation or an alternate earnings calculation, both earnings calculations are applied to the alternate base period to determine eligibility. Michigan is one of about 20 states that provided for an alternate base period prior to the Recovery Act, with many states adopting the alternate base period in response to the Recovery Act.[22] BecauseMichigan has already adopted an alternate base period it is slated to receive $69.4 million upon application to and certification from the Department of Labor.

The remaining two-thirds ($4.7 billion) is distributed to states that have adopted the alternate base period and adopted state UI law provisions containing at least two of the following provisions dealing with coverage for part-time workers, voluntarily quitting employment due to compelling family reasons, providing increased benefits based on the number of dependents, and providing extended benefits to claimants enrolled in a training program.[23]

                      Part-Time Work:  Permits (former) part-time workers to retain UI eligibility if seeking part-time work.[24]

The Recovery Act provides that under this provision, "an individual shall not be denied regular unemployment by any State law provisions relating to availability for work, active search for work, or refusal to accept work, solely because such individual is seeking only part-time work (as defined by the Secretary of Labor), except that the State law provisions carrying out this [provision] may exclude an individual if a majority of weeks of work in such individual's base period do not include part-time work (as so defined)."

 

Part-Time Work.The Department of Labor has stated that "part-time work" means any of the following:

o                    Situations where the individual is willing to work at least 20 hours per week.

o                    Situations where the individual is available for a number of hours per week that are comparable to the individual's part-time work experience in the base period.  For example, if the individual worked 16 hours per week in the base period, the state may require the individual to seek jobs offering at least 16 hours of work.  If the individual worked 32 hours per week, the state may require the individual to seek jobs offering at least 32 hours of work.

o                    Situations where the individual is available for hours comparable to the individual's work at the time of the most recent separation from employment.  This is similar to the preceding definition except that it allows the state to take into account the period between the end of the base period and the filing of the first claim for UI benefits.

The Department of Labor has stated that states can adopt any of the above provisions or a combination of them, or could have a broader definition, such as permitting an individual to be available for only 10 hours or more of work per week.  The underlying principle, however, is that a state could not permit individuals to limit their availability so as to effectively withdraw from the labor market.[25] 

 

Majority of Weeks of Work in the Base Period. In reviewing the "majority" provision, the Department of Labor has stated, "[s]tates are not required to have this exception in their laws in order to qualify for the incentive payment under this option.  In fact a state may determine that an individual who has previously worked full time may be eligible for [UI benefits] even if the individual limits him/herself to seeking part-time work."

Further, the Department of Labor has stated, "[t]o obtain certification, the state's application must demonstrate that, at a minimum, all individuals who work the majority of weeks in the base period in part-time employment will not be determined ineligible because they are seeking only part-time work."  States could not have a more restrictive provision, such as requiring part-time work throughout the entire base period

In Ford Motor Co. v. Unemployment Compensation Commission, 316 Mich 468 (1947), the State Supreme Court found that a claimant who limited her work availability to the afternoon because "she had two boys, 17 and 10 years of age respectively, and wished to be at home morning in order to awaken them, get their breakfasts, and start them to school" was not eligible for UI benefits because she did not meet the full-time work availability requirements.  The Court noted that the act, "contemplates availability for work of the character that a claimant is qualified to perform and further requires availability for fulltime work.  The central thought in the [act] has reference to the character of the labor for which a claimant is available.  There is nothing in the statute to justify the conclusion that the legislature intended a claimant might limit his [or her] employment to certain hours of the day where the work he is qualified to perform is not likewise limited.  It may be assumed that, in a so-called 'around-the-clock' operation, the work on different shifts does not vary in character.  When claimant states she would not accept work except on the afternoon shift, she clearly made herself unavailable for work of the character that she was qualified to perform.  She took such position, not for any reason connected with the character of the labor itself, but rather because of the situation in her home." 

According to committee testimony and prior research from the National Employment Law Project, to date, 27 states have enacted laws and policies extending UI eligibility to part-time workers seeking part-time work.[26] 

                      Voluntary Quit/Compelling Family Reasons: Provides UI benefits to claimants who voluntarily separate from employment for "compelling family reasons," which would be leaving employment because of domestic violence situations, to take care of an ill or disabled immediate family member, or to relocate to accommodate the employment-related relocation of a spouse. 

On this provision, the Department of Labor notes "[t]he Federal law provides that an 'individual shall not be disqualified from [UI benefits] for separating from employment' for compelling family reasons.  In some cases, such as when the individual fails to advise the employer of an absence, the basis for the separation may go beyond 'compelling family reasons.'  That is, misconduct may exist despite the existence of what otherwise would be compelling family reasons, and the state may deny the individual under its misconduct provisions Many state misconduct provisions have been interpreted to require a willful and wanton disregard of the employer's interest.  The Department anticipates that these state law provisions are generally expected to meet the conditions pertaining to compelling family reasons since separations for compelling family reasons do not in themselves constitute a willful and wanton disregard of the employer's interest."[27]

The Department of Labor notes that, at a minimum, "immediate family member" (used in the domestic violence and illness/disability provisions) means a spouse, parents, and minor children under 18 years of age.  State law can be more inclusive to include grandparents, siblings, domestic partners, adult children, or foster children. 

Currently, Section 29 of the Michigan Employment Security Act,MCL 421.29, provides that an individual is disqualified from receiving benefits if he or she leaves work voluntarily without good cause attributable to the employer.  An individual leaving work is presumed to have left work voluntarily without good cause attributable to the employer, and has the burden of proving that he or she left work involuntarily or for good cause attributable to the employer.  The act specifically states, however, that an individual is not disqualified from receiving benefits if the individual has an established benefit year and leaves unsuitable work within 60 days of beginning that work or if the individual is the spouse of a full-time member of the U.S. military and has to leave work due to the relocation of the spouse's military assignment.[28]

In Leeseberg v. Smith-Jamieson, Inc., 149 Mich App 463 (1986), the state Court of Appeals ruled that an individual who voluntarily left work to tend to her injured husband left work without good cause attributable to the employer.  The court noted, "[t]he Legislature's use of the term 'voluntary' is clear and requires application.  Although we sympathize with claimant's plight and recognize the harshness of our result, we are not at liberty to read into the statute provisions which the Legislature did not elect to incorporate nor may we broaden the scope of the statute by an unwarranted interpretation of the language used.  "Voluntary" connotes a choice between reasonable alternatives .Here, claimant was faced with returning to work and retaining employment or staying home to care for her husband and risking possible discharge.  She chose to face termination because she wanted to care for her injured husband.  While claimant's choice was prompted by compelling personal reasons, a good personal reason does not equate with good cause under the statute."  (Internal citations omitted.)

                      Dependent Allowance:  Provides an additional dependent allowance for UI benefits, with a minimum per dependent amount of $15 and a minimum cap of $50 per claimant. 

About this provision, the Department of Labor has said that the dependent allowance would only be subject to the aggregate limit (a minimum of $50) set in state law.  If an individual qualifies for the maximum weekly benefit amount ($362 inMichigan), that cap would not apply to the dependent allowance.

Section 27 of the Michigan Employment Security Act,MCL 421.27, already provides a dependent allowance of $6 per week for each dependent, up to five dependents, at the time the individual files a new claim for benefits.

                      Training Benefits:  Provides extended compensation to UI recipients who have exhausted benefits and enrolled in a state-approved job-training program or a job-training program authorized under the Workforce Investment Act (WIA).

The Recovery Act says under this provision that state law should provide benefits to individuals who are (1) separated from employment in a "declining occupation"; or (2) involuntarily and indefinitely separated from employment as result of a permanent reduction of operations at the individual's place of employment.  The Department of Labor has stated that these two provisions are distinct provisions, meaning that training benefits are payable if an individual meets either criteria.  The department notes that, under the first provision, "the state must pay the training benefit to an individual who voluntarily quits a job in a declining occupation, because the [Recovery Act] does not condition eligibility on the cause of the separation where the separation is from a declining occupation."[29]  The Department of Energy, Labor, and Economic Growth would determine whether an occupation is "declining."

Under the Recovery Act, the approved training program should train individuals for entry into a "high-demand" occupation.  The individual receiving benefits would have to be making satisfactory progress in the training program to continue to receive benefits.  The Department of Labor indicates that states may require progress reports from training providers and other evidence of attendance to make a determination that an individual is making satisfactory progress and that a state could, however, place certain time limitations on the receipt of training benefits.  The Recovery Act also provides that states would not be required to provide training benefits if an individual is receiving "similar stipends" or other training allowances that can be used for non-training costs. 

The Department of Labor notes that the above requirements are the minimum requirements and that, "[i]f the state pays training benefits to a broader class of individuals participating in training the state will meet the requirements for this option.  For example, state law may pay additional training benefits to any individual who is preparing for a job in a 'demand occupation'; as opposed to a 'high-demand occupation.'"  However, a state law would not qualify for certification if it limits training benefits to a narrower class of individuals.  For example, if the training benefits are payable only to individuals in job training programs leading to high-wage occupations.  The department also notes that training befits may be payable after an individual exhausts federal extended UI benefits (EUC08 or EB).

According to committee testimony and prior research from the National Employment Law Project, 12 states have provisions in their UI law providing training benefits to UI exhaustees.  Additionally, four states,  including Michigan which, as noted above, hasn't actualized the program in at least 25 years, has a training benefits provision that doesn't fully comport to the Recovery Act's requirements.[30] 

The Recovery Act provides that the above provisions, whichever two are selected, must be enacted as "permanent law" and "not subject to discontinuation."  In UIPL 14-09, the Department of Labor has stated that "the provision is not subject to any condition - such as an expiration date, the balance in the state's unemployment fund, or a legislative appropriation - that might prevent the provision from becoming effective, or that might suspend, discontinue, or nullify it."  This, in effect, means that a sunset date couldn't be included when the changes are enacted.  Similarly, the provision couldn't be enacted as part of an appropriations act, as appropriations acts are not "permanent law."[31] 

Following enactment of the Recovery Act, U.S. Senate Finance Committee Chair Max Baucus (D-Montana) stated in aMarch 9, 2009 press release, "[s]tates are not required to enact reforms and receive additional funds.  States that do participate are encouraged to evaluate unemployment levels and workforce needs in 2011 when the provision is set to expire.  If states decide to discontinue the reforms, they are not obligated to return Federal funds they have received.  The temporary provision is designed to help accelerate economic growth and stabilization."[32] 

In UIPL 14-09, Change 1, the department has further clarified that "[i]f a state eventually decides to repeal or modify any of these provisions, it may do so, and it will not be required to return any incentive payments.  However, in providing the incentive payments, Congress clearly intended to support states that had already adopted certain eligibility provisions and to expand eligibility to additional beneficiaries by encouraging other states to adopt these provisions.  By specifying that the provisions must be in effect as permanent law, Congress also made clear its intention that the benefit expansions will not be transitory.  While states are free to change or repeal the provisions on which modernization payments were based subsequent to receipt of incentive payments, Congress and the Department rely on states' good faith in adopting the eligibility criteria, and the application must attest to this good faith."[33]

[Please see the PDF version of this analysis, if available, to view this image.]

Source:  Federal Stimulus Produces Unprecedented Wave of State Unemployment Insurance Reforms, National Employment Law Project (June 16, 2009), [http://nelp.3cdn.net/045dbfa4719454865f_1pm6iyyjf.pdf].  "Enacted" indicates the state had the provision prior to the Recovery Act, "X" indicates the state enacted the provision after the Recovery Act, and "O" indicates the state has a has a provision that does not fully comport to the Recovery Act's requirements. [Michigan, technically, could be considered to have a non-Recovery Act compliant training provision, although it is permissive and not used in at least 25 years.]  Used with permission.

                                                                       Legislative/Fiscal Analyst:  Mark Wolf

■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

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