[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
PRESIDENT'S FISCAL YEAR 2004 BUDGET FOR THE U.S. DEPARTMENT OF LABOR
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
MARCH 12, 2003
__________
Serial No. 108-13
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
90-269 WASHINGTON : 2003
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
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Page
Advisory of March 5, 2003, announcing the hearing................ 2
WITNESS
U.S. Department of Labor, Hon. Elaine L. Chao, Secretary......... 5
SUBMISSION FOR THE RECORD
New York State Public Employees Federation, AFL-CIO, Albany, NY,
Daniel M. Steen, statement..................................... 30
PRESIDENT'S FISCAL YEAR 2004 BUDGET FOR THE U.S. DEPARTMENT OF LABOR
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WEDNESDAY, MARCH 12, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:34 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
March 05, 2003
FC-6
Thomas Announces Hearing on the President's
Fiscal Year 2004 Budget for the U.S.
Department of Labor
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
the President's fiscal year 2004 budget for the U.S. Department of
Labor. The hearing will take place on Wednesday, March 12, 2003, in the
main Committee hearing room, 1100 Longworth House Office Building,
beginning at 10:30 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from the Honorable Elaine Chao,
Secretary, U.S. Department of Labor (DoL). However, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the
printed record of the hearing.
BACKGROUND:
On January 28, 2003, President George W. Bush delivered his State
of the Union address and outlined several legislative initiatives. The
details of these proposals were released on February 3, 2003, when the
President submitted to the Congress his fiscal year 2004 budget
proposal. The budget for DoL includes initiatives to create personal
reemployment accounts to help laid-off workers return to work and to
reform the administrative financing of the Nation's unemployment
compensation system.
In announcing the hearing, Chairman Thomas stated, ``This first
appearance of Secretary Chao before the Committee will provide us with
an opportunity to learn more about DoL proposals in the President's
fiscal year 2004 budget. This information will be helpful as we
continue laying the groundwork for the coming year's legislative
business, including our goals of encouraging more job creation and
crafting other measures to assist our Nation's workers and families.''
FOCUS OF THE HEARING:
The focus of the hearing will be DoL proposals in the President's
fiscal year 2004 budget that are within the Committee's jurisdiction.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by the close of business, Wednesday, March 26, 2003.
Those filing written statements that wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the full Committee in room 1102 Longworth
House Office Building, in an open and searchable package 48 hours
before the hearing. The U.S. Capitol Police will refuse sealed-packaged
deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman THOMAS. Good morning.
Today, the Committee welcomes Secretary Elaine Chao of the
U.S. Department of Labor in her first appearance before the
Committee on Ways and Means. We are very pleased to have you,
Madam Secretary.
Ms. CHAO. Thank you.
Chairman THOMAS. She will be discussing the
Administration's budget proposals for the Department of Labor
that fall within or affect the jurisdiction of this Committee.
I would urge Members, although there is the possibility of
a wide-ranging discussion over a number of issues, that it
probably serves all of us best if we focus our attention on
those measures we can actually affect and that fall under the
jurisdiction of this Committee.
Madam Secretary, it is appropriate that you are here today,
in my opinion, because President Bush, just 1 year ago this
week, signed legislation on extending unemployment benefits,
and of course the President, in his most recent State of the
Union and budget presentation, has outlined an aggressive and
active program. Many of those programs affect the jurisdiction
of this Committee.
Today, we will hear about specific proposals in the
President's budget that would provide States more funding
flexibility to help unemployed workers, improving the Nation's
unemployment compensation system, which is obviously not a new
subject of this Committee.
Over the years, a number of hearings have been held and
legislative proposals considered. In 1994, as a matter of fact,
a number of our Democratic colleagues proposed the creation of
re-employment bonuses, much like the re-employment accounts
proposed in the President's budget for 2004. We will look
forward to exploring this concept and other features of the
President's proposal today.
Prior to recognizing the Secretary, I would call upon the
Ranking Member, the gentleman from New York, for any comments
he may wish to make.
[The opening statement of Chairman Thomas follows:]
Opening Statement of The Honorable Bill Thomas, Chairman, and a
Representative in Congress from the State of California
Good morning. Today, we welcome Secretary Elaine Chao of the U.S.
Department of Labor in her first appearance before the Ways and Means
Committee. She will be discussing the Administration's budget proposals
for the Department of Labor that fall within or affect the jurisdiction
of this Committee.
Madame Secretary, it is appropriate that you are here today. It was
one year ago this week that President Bush signed legislation that has
provided Federal extended unemployment benefits to four million workers
to help them get through these tough economic times.
That's not the only action we've taken. The first bill passed and
signed this year continued the special extended benefits program we
created last year. As a result, an additional two million workers--for
a total of six million--will receive Federal extended benefits through
August 2003.
We did not forget States, either. As part of last year's
legislation we provided States a record $8 billion in surplus Federal
unemployment funds. Last week the General Accounting Office (GAO)
reported that this transfer has kept unemployment payroll taxes from
rising in 30 States. Further, more than $6 billion recently remained
available to States should they wish to use it for extended or expanded
benefits. Only a handful of States have used this money to expand
unemployment benefits, or plan to in the coming year. Perhaps that is
because States know that if they expand benefits now using these
Federal funds, they will have to keep paying for such added benefits in
the future through higher State taxes, undermining economic recovery
and job growth. To us, and I am sure the States, this flexibility is
one of the strengths of our approach.
This Committee also has focused a great deal of time and attention
to helping unemployed workers get what they most want--a job. We have
held a series of hearings on the President's growth and jobs proposal,
and expect to act in the coming days on this plan.
Today we will hear about specific proposals included in the
President's budget that would provide States more funding and
flexibility to help unemployed workers get back to work quickly.
Improving the Nation's unemployment compensation system is not a new
subject to this Committee.
Over the years, a number of hearings have been held and legislative
proposals considered. In 1994 a number of our Democratic colleagues
proposed the creation of reemployment bonuses, much like the
``reemployment accounts'' proposed in the President's budget for 2004.
We look forward to exploring this concept and other features of the
President's proposal today.
Madame Secretary, I look forward to your testimony. Before we get
started, I would like to first recognize the gentleman from New York,
Mr. Rangel, for any comments he would like to make.
Mr. RANGEL. Thank you, Madam Secretary, and I appreciate
your concern about the millions of people that not only do not
have jobs, but the jobs are not available for them.
So, while there is a deep dependency on the President's
economic recovery program, I would be most interested in how
you see where we can provide temporary relief for these workers
that don't find employment to be available for them, as well as
what help you can give in our various congressional districts
to a training center and basically how to ease the pain for
those who find themselves without employment opportunities.
The bonuses that are offered seem to suggest that people
need incentives to find jobs financially, but I think, as you
do, that the changes in job opportunity, that gap has to be
fixed. Whatever you can leave with us that would allow us to
meet with you, perhaps in a different setting, as to how we can
be helpful with whatever resources you have or recommendations
you have to ease the pain of those people who are without
employment, and I look forward to hearing your testimony. Thank
you, Mr. Chairman.
Chairman THOMAS. Thank you very much, Mr. Rangel.
I would caution everyone that the Secretary has a very busy
schedule, and we are going to try to finish the hearing, if at
all possible, with Members believing they have had an adequate
time to question, very close to noon. My concern is we may have
a series of votes at 11:00 a.m., and that will make it
difficult for us. So, I am looking forward to those Members who
do wish to inquire--obviously, there is no requirement that you
inquire--but if you do wish to, there will be time made
available to you. Does the gentleman from Illinois wish to
inquire?
Mr. CRANE. I pass.
Chairman THOMAS. Does the gentleman from Florida wish to
inquire?
Mr. SHAW. No, that is fine.
Chairman THOMAS. Does the gentleman from New York wish to
inquire?
Mr. RANGEL. I pass right now, Mr. Chairman.
Chairman THOMAS. Does the gentleman from California, the
Chairman of the Subcommittee on Human Resources, wish to
inquire?
Mr. HERGER. Thank you, Mr. Chairman.
Chairman THOMAS. The Chair apologizes because what we ought
to do is hear the testimony of the Secretary, although I do
think that would be an effective technique that I might plan on
using in the future, but I don't think I should use it now.
[Laughter.]
The Chair apologizes to the Secretary, and any written
statement you may have will be made a part of the record, and
you can address us in any way you see fit.
STATEMENT OF THE HONORABLE ELAINE L. CHAO, SECRETARY, U.S.
DEPARTMENT OF LABOR
Ms. CHAO. Thank you, Mr. Chairman. I do have a formal
statement for the record, which I will submit.
Good morning, Chairman Thomas, Congressman Rangel, and
Members of the Committee. Thank you for the opportunity for me
to be here to testify.
Today, I want to highlight two very important Presidential
proposals, a proposal to create Personal Reemployment Accounts,
which is included in the President's economic growth and jobs
package and reform of the Federal-State Unemployment Insurance
(UI) program, which is included in the President's fiscal year
2004 budget. Both deliver critical assistance to unemployed and
dislocated workers and ensure that our safety net remains
strong and flexible.
As you know, our economy started slowing down in the summer
of 2000. The stock market peaked in February 2000, and the
manufacturing sector began to hit the doldrums in August 2000.
This Administration came into office facing three quarters of
negative growth. Our economy began to tick upward, but then the
devastating attacks of September 11, 2001 occurred, in which
1.5 million jobs were lost.
Despite these blows, the economy has started to grow again,
and we are in our second consecutive year of growth. This
Administration is deeply concerned that the economy is not
growing fast enough or strongly enough and that too many people
who want to find work can't find it. That is why the President
has proposed a comprehensive jobs and growth package to jump-
start the recovery and create new jobs.
As you know, the plan contains many features to promote
long-term economic growth, but today I would like to highlight
the President's proposal to deliver critical, short-term
assistance to the unemployed and dislocated workers through the
Personal Reemployment Accounts.
Under the President's proposal for Personal Reemployment
Accounts, an eligible worker will be able to custom design his
or her own training package and supportive services. He or she
will be able to purchase the training, counseling, skills
assessment, transportation, child care and even relocation
services needed to get back to work. We believe support
services can make a critical difference in helping unemployed
and dislocated workers return successfully to the workplace.
States will administer these proposed Personal Reemployment
Accounts through the One-Stop Career Center System. Potential
eligible claimants would be identified through the existing UI
screening system, which assesses the likelihood of an
individual claimant exhausting his or her benefits before
finding a new job. Workers who find a job within 13 weeks would
be able to keep the balance remaining in their account.
The President has also proposed additional ways to
strengthen the safety net for unemployed workers. The
Department of Labor has spent 2 years meeting with interested
parties and examining ways to make the UI program more
responsive to the needs of workers.
Our proposal responds to the needs of workers by reforming
the permanent extended benefits program. It responds to the
needs of employers by reducing the amount of Federal taxation
and guaranteeing at least a two-tenths cut in taxes for all
employers in all States so they can have more dollars to
invest, hire new workers, and pay higher wages. It gives the
States the flexibility to administer the program in line with
their individual policies.
Our proposal addresses all of these issues while continuing
the nearly 70-year-old successful Federal-State partnership.
In conclusion, I think the two proposals will help us
respond more effectively to changing economic conditions and
will strengthen an important safety net for America's workers.
I look forward to working with this Committee as we move
forward on addressing assistance for unemployed dislocated
workers and how we implement the Personal Reemployment Accounts
and UI reforms to help these workers. I will be glad to respond
to any questions you may have. Thank you.
[The prepared statement of Ms. Chao follows:]
Statement of The Honorable Elaine L. Chao, Secretary, U.S. Department
of Labor
Good morning. Chairman Thomas and distinguished members of the
Committee, I thank you for inviting me to testify. I am extremely
pleased to have the opportunity to discuss the President's fiscal year
2004 budget proposal to reform the Federal-State Unemployment Insurance
(UI) program and the President's proposal for Personal Reemployment
Accounts (PRAs). Our proposed reforms of the UI program will promote
long-term economic growth and job creation by reducing federal
unemployment taxes, making Federal-State extended unemployment benefits
available earlier and to more workers in future economic downturns, and
giving States the opportunity to take control of administrative funding
along with new administrative flexibility. While UI reform will have a
positive impact on the economy in the long-term, PRAs will help our
current economy by giving UI claimants unprecedented choice in
accessing the services they need to get back to work as quickly as
possible.
The Unemployment Insurance program is a key element of our Nation's
economic infrastructure acting as an automatic stabilizer during
economic downturns by providing temporary, partial wage replacement for
workers who have been laid off and are seeking jobs. In addition, UI is
the front door for these workers to a wide array of reemployment
services available through the Workforce Development System. Improving
the UI program's ability to act as a macroeconomic stabilizer and
providing UI claimants with new resources and incentives to get back to
work foster labor market flexibility and mobility--two essential
elements of a dynamic and vibrant economy.
The President's Economic Message
UI reform and PRAs are important parts of the President's
comprehensive plan for the economy. On January 7, President Bush
announced a growth and jobs package that places great emphasis on
improved job creation to ensure the economy continues to grow. The main
goals of this economic agenda include encouraging consumer spending;
promoting business investment; and delivering critical help to
unemployed workers. In early January Congress responded on a bipartisan
basis to the President's request for an extension of Temporary Extended
Unemployment Compensation. Last month, Congress received the Economic
Report of the President that emphasizes the importance of designing
government policies that preserve and build on the dynamism and
vitality of the labor market. UI reform and PRAs are important elements
of the President's vision for the economy.
The President's FY 2004 Budget Request
Before addressing UI reform, I would like to comment briefly on the
FY 2004 discretionary budget request for UI State administration. $2.6
billion is requested, about the same as the FY 2003 enacted level. In
FY 2004, these funds will finance the following major functions of the
States:
LDetermining benefit entitlement for about 14 million
newly unemployed workers.
LPaying benefits to an average of 2.9 million unemployed
workers per week.
LCollecting State taxes from 7.1 million employers.
In line with the President's Management Agenda--to improve
government performance and efficiency--the request includes $500,000
for a study to examine current State payment practices and develop
cost-effective procedures to prevent and detect UI benefit
overpayments. Let me tell of some of the efforts the Department has
already undertaken in improving payment accuracy and combating fraud.
LTo focus State attention on payment accuracy, we are
developing a goal under the Government Performance and Results Act.
LTo quickly detect individuals who have gone back to work
but continue to collect UI, we are encouraging all States to use
information in State directories of new hires. About two-thirds of the
States currently use this information.
LTo prevent the fraudulent use of social security numbers
in filing UI claims, we are working with the Social Security
Administration to provide State UI agencies real-time access to the
social security database.
LTo provide a forum for sharing successful practices for
preventing, detecting, and collecting UI overpayments, we are co-
sponsoring a national UI integrity conference.
UI Reform Background
For several years now we have been examining ways to reform the UI
program so that it reflects the 21st century economy and workforce. The
system's major stakeholders have all expressed dissatisfaction with
some aspect of the present system. Worker advocates are concerned about
its responsiveness to worker needs during recessions. State program
administrators are dissatisfied with what they see as continued
underfunding of the UI program by the Federal Government. Business
leaders believe that federal unemployment taxes are too high and that
too little of those taxes is returned to States.
In response to these concerns, we have examined the program's
funding structure, the level of federal taxation, the effectiveness of
the extended benefit program, and the flexibility States have to
administer the program. Our proposal addresses all of these issues,
while continuing the successful Federal-State partnership that has been
responsible for this program for nearly 70 years.
Down Payment on Reform
I would like to start by thanking this Committee for its leadership
last year in crafting legislation that established the Temporary
Extended Unemployment Compensation program and distributed $8 billion
of federal unemployment funds (commonly called a Reed Act distribution)
to the States. These actions represent an important down payment on UI
reform. These short-term actions are helping to meet the present needs
of unemployed workers during the current economic slowdown and
improving States' capacity to provide vital benefits and services to
unemployed workers and businesses.
An immediate effect of the Reed Act distribution was an improvement
in trust fund solvency. In addition, a recently released report from
the General Accounting Office provides more detail on how States have
used the Reed Act funds to date. In 2003, increases in unemployment tax
rates were mitigated or avoided in 20 States. Nine States increased/
expanded benefits, and 20 appropriated some of these funds for UI
administrative improvements. Because many States plan to propose
further spending of Reed Act funds in 2003, a complete assessment of
the distribution cannot be made at this time. However, information
received so far indicates that States have acted appropriately to meet
their unique concerns. This is a promising start in our comprehensive
proposal to reform the UI program.
Give States Opportunity and Flexibility
Our proposal would resolve the longstanding issue of adequately
funding UI administration. Under the current system, the cost of
administering the State UI programs is funded from federal funds, while
the actual State UI benefit payments are funded from State UI taxes.
States determine the parameters of their UI programs, which, in turn,
can affect administrative costs. In addition, a State's unique
demographic and industrial characteristics affect the dollar amounts
needed to efficiently administer its UI program. Yet States have little
or no control over the amount of administrative funds they will get
from the federal partner. And we in Washington are not the best
situated to determine the appropriate amount needed by each and every
State to efficiently administer its UI program. The result is constant
struggle between the States and the Federal Government over the amount
of funds that should be granted to the States for administration.
By several measures, the States have a strong case that
administrative funding has been inadequate. During the 1990s UI
administration was funded below what was needed to cover workload
increases and inflation, reaching 13% underfunding by fiscal year 1999.
This occurred even though, during an average year in the 1990s, the
Federal Government took in $5.7 billion in dedicated federal
unemployment (commonly called FUTA) taxes each year, while returning
only $3.1 billion to the States for UI and Wagner-Peyser Act funding.
The Omnibus Appropriations bill just enacted resulted in an
estimated $104 million reduction from the funding level the President's
revised FY 2003 request for UI administration would have provided.
Moreover, the appropriators' change in the contingency funding
mechanism runs the risk of severely underfunding the States if
workloads are higher than projected, possibly up to a $260 million
shortfall. States have also suggested additional funding needs of at
least $400 million, based on their own accounting records. All of these
combined suggest States could fall short by three-quarters of a billion
dollars for UI administration.
The current funding system clearly is not working well and must be
replaced. Each State is in the best position to assess its own need for
administrative funds. When a State legislates a change in its UI
program, which may require increases in its administrative budget, it
should be able to determine its funding level for administration rather
than relying on the distant budgetary process in Washington. We propose
that States have that flexibility, concurrent with a reduction in the
federal taxes that now finance UI administration. States already have
in place a system to collect UI taxes. Indeed, States collect
approximately $30 billion annually for the payment of UI benefits.
In sum, our proposal gives States the opportunity to finance
administration from State revenues by transferring primary
responsibility for financing the administration of the UI program from
the Federal Government to State governments. Let me explain the details
of this transfer.
In our proposal, the transfer would begin with a transition period
for FYs 2007-2008 and States would have full responsibility effective
with the start of FY 2009. During the transition period, the Federal
Government would:
LTransfer $2.7 billion to States' accounts in the
Unemployment Trust Fund in each of FYs 2007 and 2008; and
LShare costs for FY 2007 (2/3 federal share) and FY 2008
(1/3 federal share).
To further ease this transition, the Federal Government would
provide hold-harmless funding beginning in FY 2009. For certain States
where costs are high relative to their FUTA revenues, these hold-
harmless funds will be provided as long as States make a strong effort
to raise their own administrative funds.
Some have questioned whether this new financial responsibility
could cause States to cut benefits and weaken system performance/
integrity to avoid increasing State UI taxes. States already have the
responsibility to determine UI benefit levels and benefit eligibility
requirements, and to set and collect experience-rated taxes. We believe
that State decision makers, who are closer to the workers and employers
served by the system, already have sufficient incentives to adequately
fund UI benefits and administration. Indeed, States are already
augmenting their federal administrative allocation by about $140
million a year. In addition, new incentives for adequate administrative
funding will be created. For example, although both States and the
Department are concerned with payment integrity, the current system
lacks a strong incentive to spend administrative dollars to reduce
fraud and erroneous payments. The proposal remedies this problem
because States recognize the direct connection between benefits and
administrative spending. A State agency will be well positioned to
request dollars from its State legislatures for payment integrity since
every dollar expended on overpayment reduction will translate into
direct savings to that State's unemployment fund.
Many other elements of the proposal give States new flexibility to
improve program administration. For example, although many States are
already using their State Directories of New Hires for quick detection
of individuals who have gone back to work, they do not have access to
new hires reported to other States. The proposal would address this by
giving all States access to the National Directory of New Hires. This
would be an additional, important tool for helping States quickly
detect fraud and would result in savings to State unemployment funds.
Promote Job Growth
Our 2003 proposal includes several features that will become the
seeds of economic growth and job creation. A key element that promotes
job growth is a major cut in federal unemployment taxes. As explained
previously, through the 1990s the Federal Government took in an average
of $5.7 billion in FUTA taxes each year, while returning only $3.1
billion to the States for administrative funding. Even if we had
adequately funded UI administration during this period, we were still
collecting more in taxes than needed to maintain sufficient reserves.
Therefore, a tax reduction is long overdue. Since our proposal would
transfer responsibility for funding UI administration to the States, we
are proposing a major cut in FUTA taxes.
Our proposal would reduce the net FUTA tax to 0.6% in January 2005,
representing a tax cut of 25%. The net FUTA tax would then be reduced
to 0.4% in 2007 and to 0.2% in 2009. Taken together, this represents a
75% federal tax cut for America's employers. Even though States will
need to impose their own administrative taxes, we believe most, if not
all, employers will receive a net tax cut of twenty-five percent or
more of their current FUTA tax. These tax cuts are vital because, by
reducing the cost of doing business, employers are better positioned to
invest, hire more workers, and pay higher wages. The remaining 0.2%
FUTA tax would be used to:
LPay the federal share of extended benefits;
LMake State grants for certain federal activities;
LSupplement administrative funding as necessary; and
LMake federal loans available to any State that runs out
of funds to pay unemployment benefits or administrative costs.
Rest assured that even with these tax cuts, federal accounts will
remain solvent. Sufficient funds will be available to handle all of
these federal responsibilities.
In addition, the proposal will save employers time and money by
streamlining tax filing. A technical change to federal law would allow
the IRS to simplify the federal unemployment tax form, saving employers
time and money in their efforts to comply with federal reporting
requirements thus freeing resources for economic development.
Strengthen the Economy
The UI system is an important economic stabilizer during economic
downturns and this proposal strengthens its stabilization capacity by
reforming the extended benefit (EB) program. The EB program did not
work in the early 1990s recession, when only 10 States met the current
5.0% insured unemployment rate trigger, which is the only mandated
method of ``triggering on'' the EB program in all States. Last year,
only 3 States met this trigger, and none currently meet it, although 3
States are now on EB using one of the optional triggers for the
program. In part because of the inadequacy of the EB program, special
emergency federal extensions have been enacted that made benefits
available in all States, not just those that had higher unemployment.
To address this problem, the level of unemployment at which EB is
triggered would be lowered from the current 5.0% insured unemployment
rate to 4.0%. Our goal is to ensure extra benefits are triggered when
they are needed without special legislation. Improving the
responsiveness of the EB trigger will mean more workers would receive
the extra help they need earlier in future downturns and EB would be a
stronger economic stabilizer.
In addition, we propose eliminating the special federal
requirements relating to eligibility of claimants for EB. State law
provisions regarding eligibility for regular compensation would apply
to EB. This will simplify State administration and cut ``red tape'' for
workers.
Maintenance of a Strong Federal Role
Although this proposal provides States with much flexibility, it
maintains a strong federal role. The Federal Government's role of
monitoring conformity/compliance with federal requirements and State
program performance against federal standards would continue. Moreover,
federal requirements related to prompt payment of benefits, fair
hearings, coverage of services, etc. would not change. Lastly, we would
provide funding for the hold-harmless, federal activities, 50% of EB,
and loans to States for UI benefits and administration.
Key Advantages
We firmly believe that this proposal has key advantages for all of
the UI system's major partners and stakeholders. By taking
responsibility for funding, States will have more flexibility and
control, enabling them to better serve the unique needs of their
workers and employers. By lowering the trigger for extended benefits
and using States' rules, unemployed workers will get help faster with
less hassle. By significantly cutting FUTA taxes and streamlining
filing, employers will be positioned to hire new workers.
Supporting Job Growth through Personal Reemployment Accounts
One of the proposals that would specifically help today's UI
beneficiaries who are struggling to get back to work is Personal
Reemployment Accounts (PRAs). These accounts will be worker-managed,
contain up to $3,000, and will be used for the purchase of a variety of
reemployment services or as a bonus for obtaining early reemployment.
These proposed accounts rely on existing program structures. They
will be administered through the established and easily accessible One-
Stop Career Center System, where UI claimants already seek assistance
in obtaining employment. As I'll discuss in more detail later, UI
claimants who are potentially eligible for these accounts will be
identified through the existing UI worker profiling system.
The anticipated economic benefits of the proposed PRAs are
numerous. These accounts represent a new and innovative approach to
helping unemployed workers make a quick return to work and provide
businesses with the skilled workforce that they need. They will empower
individuals by giving them more flexibility, personal choice and
control over their job search and career.
Since experience has shown that unemployed workers have a wide
range of needs, the PRAs allow each worker to custom design a
reemployment services package in accordance with his or her needs. For
example, some individuals may determine they need extensive retraining
in order to compete for jobs in a high-growth industry while others may
only need to complete a short-term computer course in order to return
to work quickly or purchase child care in order to search for work. The
flexibility of PRAs will accommodate these and many other situations,
thus making the delivery of government services more efficient.
By enabling unemployed workers to access the reemployment services
they need most, there is an increased likelihood that they will return
to work sooner and in a job for which they are more prepared and better
skilled.
Relationship of Personal Reemployment Accounts to UI
Although the accounts are closely tied to the UI program, they do
not supplant or replace UI benefits. They are an additional means of
speeding the long-term reemployment of UI claimants. In that sense,
they complement both the existing UI and One-Stop Career Center
Systems. Receipt of account funds will not adversely affect an
individual's UI eligibility nor make a UI exhaustee ineligible for
public assistance.
PRAs build upon the Social Security Act requirement, commonly
called ``profiling,'' which originated in this committee in 1993. Under
this requirement, States currently identify those workers who are at
greatest risk of exhausting UI and most in need of reemployment
services. Workers so identified are referred to available reemployment
services. PRAs will insure that a wide range of reemployment services
are available to at least 1.2 million UI beneficiaries who are
identified through this system. Under special transition provisions,
States will have the option of making accounts available to certain
current UI claimants who were previously found likely to exhaust UI or
to certain workers who have already exhausted their UI benefits.
The accounts can also be used to pay a Reemployment Bonus under
certain conditions. To provide additional assistance, new UI claimants
who receive PRAs and who become reemployed by the thirteenth UI benefit
payment will receive any cash remaining unspent in their account as a
Reemployment Bonus. Similarly, the groups added at State option--
certain UI claimants who were previously identified as likely to
exhaust UI and certain UI exhaustees--that become reemployed by the
thirteenth week of the effective date of the account can also receive
the Reemployment Bonus.
The bonus would be paid to the individual in two installments: 60%
at employment and 40% after 6 months of job retention. Individuals who
do not find employment within the thirteenth week rule would not be
able to ``cash out'' their account but would continue to be able to
purchase intensive reemployment, training and supportive services for
up to one year from the effective date of the account. With respect to
the income tax implications of PRAs, the Administration will work with
Congress to ensure that pay-outs for training and supportive services
would not be taxable; payouts for income support and reemployment
bonuses would be taxable.
Conclusion
I enthusiastically conclude that these proposals are exactly what
is needed to respond effectively to current economic conditions and
future trends. I look forward to working with this Committee as we move
ahead on UI reform.
This concludes my remarks. I will be glad to respond to any
questions you may have. Thank you.
Mr. HERGER. [Presiding.] Thank you, Madam Secretary.
Madam Secretary, in addition to matters raised in your
budget, are there issues that we could explore to make
unemployment benefits work better? For example, do unemployment
benefits encourage workers to find jobs quickly or do they
delay their returns to work? How much does this system lose to
fraud and abuse every year, and what steps are being taken to
prevent that?
Ms. CHAO. Well, I know that everyone is concerned about how
best to help unemployed workers. We work in a very successful
Federal-State partnership. The issues that you mentioned are
important ones, and that is how do we help workers find new
jobs? I think most people would rather receive a paycheck,
rather than an unemployment check, and so we want to make sure
that the incentives that we build within the Federal government
and the State governments, in terms of getting people back to
work, are truly there.
So, the President's Reemployment Accounts, we hope, will be
something that will be attractive to those who may have a hard
time with getting back to work. The Personal Reemployment
Accounts do give individual workers about $3,000, and if there
is any excess left over, they can certainly keep that for
themselves.
As for fraud, waste and abuse, unfortunately, there is an
element of that as well in UI. Annually, we have about an 8-
percent unintended rate, and that comes out to be about $2.8
billion in probably fraudulent claims that are paid out. We
have worked with the Inspector General in the Department of
Labor, and I know that this is an issue for some Members of the
Committee, and I would be glad to work with them on that as
well.
Mr. HERGER. Thank you very much. The Ranking Member from
New York, Mr. Rangel?
Mr. RANGEL. Thank you. I think your answer is that
unemployed people would rather have a job than to receive
unemployment compensation.
Ms. CHAO. Yes.
Mr. RANGEL. There seems to be a feeling, and I hope it is
not shared by the Administration, that people that receive
extended unemployment benefits would not be seeking jobs. Could
you shatter that myth of thinking? I thought it was
incorporated in the Chairman's question to you, that
unemployment benefits deter people from looking for jobs?
Ms. CHAO. Well, we certainly hope not because we think that
most people want a job, they want a new job, they want to get
back to work. So, we have always said that people who are
dislocated, laid off, would much prefer to have a paycheck
rather than an unemployment check.
Mr. RANGEL. Well, we can put that one behind us, and then
move forward to see whether or not you would support a
continuation of the current extended benefits program after it
expires in May.
Ms. CHAO. Well, the second part of the Chairman's question
about the unintended payouts is a real one as well, and that is
about $2.8 billion or $2.6 billion a year.
Mr. RANGEL. Madam Secretary, to someone that is unemployed,
that has no health insurance----
Ms. CHAO. I am not saying that it is all abuse and
fraudulent, but there is duplicate payments, for example, or--
--
Mr. RANGEL. Well, that is our fault.
Ms. CHAO. Right.
Mr. RANGEL. In other words, maybe the Congress has a lot to
do, you have a lot to do, but all I am asking is that for the
overwhelming number of people seeking a job, and seeking a
little dignity at the same time, could you see your way clear
to support a continuation of the existing program when it
expires, since the employment market has worsened?
Ms. CHAO. The President has extended UI benefits twice
already, and the second extension ends in May.
Mr. RANGEL. That was my question.
Ms. CHAO. Right. So, I think let us look at the situation,
and, as the time gets nearer, let us talk.
Mr. RANGEL. Thank you.
Mr. HERGER. Thank you, Mr. Rangel. The gentleman from
Illinois, Mr. Crane, to inquire.
Mr. CRANE. Thank you, Mr. Chairman, and thank you, Madam
Secretary.
When the issue of Personal Reemployment Accounts was up
before the Committee on Education and the Workforce, an
accusation was made by some on the minority side that those
workers who elect to take advantage of the plan would be
prohibited from receiving training and education at Employment
Training Centers for a year. Can you explain if this is true or
untrue.
Ms. CHAO. No, it is not true. People will be basically
still able to access core services at the One-Stop Centers.
Mr. CRANE. Very good. Thank you. I yield back the balance
of my time.
Mr. HERGER. Thank you. The gentleman from California, Mr.
Stark, to inquire.
Mr. STARK. Well, thank you, Mr. Chairman. It is a real
honor to see the Secretary from the Department of Labor here,
and see the person who dreamed up this voucher plan for
Personal Retirement Accounts, instead of cash. I can't think of
anybody in my district who wouldn't trade it for unemployment
benefits, but we will see.
I am sure that it probably comes from the Administration. I
do recall that the press secretary for the Canadian Foreign
Minister called our President a moron, and of course the press
responded and said that was not a political Statement, it was
an accurate assessment, but a bad choice of words. It would
take somebody with that kind of intellect to come up with this.
I read in the Washington Post this morning that the
Administration intends to spend $20 billion to reconstruct Iraq
to stimulate their economy. We will be employing 2 million or
more bureaucrats and soldiers to stabilize Iraq. Now, right now
you are protecting $53 billion in unemployment benefits and
$3.6 billion on the Personal Reemployment Accounts, just a
little bit more than the President is going to spend on Iraq.
Why wouldn't you go back to the Cabinet and suggest to our
leader that instead of wasting money on first destroying Iraq,
which a lot of the people, half the Americans think is a dumb
idea, and then paying $20 billion to rebuild it and putting 2
million Iraqis to work while we still have 2 million Americans
unemployed.
So, I want to know where your priorities are. Wouldn't it
be better to spend the $20 billion earmarked for Iraq and spend
that to extend benefits to 3 million workers in our own country
who are out of work? Doesn't that make more sense to you, Madam
Secretary?
Ms. CHAO. Extended benefits are important, and this
Administration has extended unemployment benefits twice
already. A person who is out of work can potentially receive--
--
Mr. STARK. So, they just got tired. Now they are going to
extend them in Iraq.
Ms. CHAO. A person right now potentially can receive 62
weeks of UI benefits.
Mr. STARK. Couldn't you take the money that he is going to
throw away at Iraq, hiring 2 million Iraqis, and couldn't you
spend that to provide benefits for our 3 million unemployed?
You could figure out how to do that, couldn't you?
Ms. CHAO. Well, the Department of Labor spends about $71
billion a year to help the unemployed with the training and
with also paying out UI.
Mr. STARK. There aren't any jobs. Now, all you would have
to do----
Ms. CHAO. Well, that is why the President's economic plan
is supposed to hopefully create more jobs.
Mr. STARK. So, in Iraq, 2 million jobs in Iraq. Now, I have
to go back and explain to my constituents who are out of work--
we have got 8-percent unemployment--Herb Caen, who used to
write for the San Francisco Chronicle, called San Francisco
Baghdad by the Bay. How's about that Baghdad getting 2 million
jobs first, and then let us worry about that other Baghdad
later. Wouldn't that seem to be a patriotic thing to do, as far
as you are concerned?
Ms. CHAO. Well, the President's job and growth package
would create about 1.4 million jobs by the end of 2004.
Mr. STARK. Do you want to bet? Are you a betting person? Do
you want to bet a month's salary that he won't come anywhere
near that. You are losing jobs.
Ms. CHAO. You seem to be so much more----
Mr. STARK. I just got a report last Friday that we lost
300,000 jobs in February, and we are going down, and down, and
down, and there is no end in sight. What I want to know is do
you think it is a good idea to spend $20 billion on 2 million
jobs in Iraq? How will that help the unemployed workers in this
country?
Ms. CHAO. Well, let me address your question about the
308,000 workers who lost their jobs last month. The February
unemployment rate was about 5.8 percent. That is a one-tenth of
a 1-percent increase.
Mr. STARK. You are avoiding my question. Let us go back to
Iraq.
Ms. CHAO. No, no. I am answering your question.
Mr. STARK. Tell me how it is going to help these people in
this country when you throw money away in Iraq. Just answer me,
Madam Secretary----
Mr. JOHNSON. Let the lady answer the question.
Mr. HERGER. The Secretary is a guest----
Mr. STARK. If you want to question the Secretary on your
time, Mr. Chairman, you question her on your time.
Mr. HERGER. The Secretary is a guest. She deserves----
Mr. STARK. It is my time. If you would like me to yield,
you could ask.
Mr. HERGER. The gentleman's time has almost expired----
Mr. STARK. Well, then would you be quiet, Mr. Chairman, so
I could finish my----
Mr. HERGER. Order.
Mr. STARK. If you would shut up and let me finish.
Mr. JOHNSON. He is out of order.
Mr. STARK. Mr. Chairman, shut up. Now, Madam Secretary----
Mr. HERGER. All the Members of this Committee have the
responsibility, as Members of the House of Representatives, to
show courtesy----
Mr. STARK. To you?
Mr. HERGER. To our guest.
Mr. STARK. To you? Well, you just interrupted my time.
Mr. HERGER. The time has expired.
Mr. STARK. Ah, Mr. Chairman.
Mr. HERGER. The gentleman from Louisiana, Mr. McCrery.
Mr. SHAW. A point of order, Mr. Chairman.
Mr. HERGER. Excuse me, Mr. Shaw.
Mr. MCCRERY. I thank the Chairman for the time. Secretary
Chao----
Mr. STARK. Would the gentleman yield? I had a few seconds
left.
Mr. MCCRERY. Mr. Stark, I think you have used your time.
Had you been pursuing a more worthwhile line of questioning, I
might have yielded to you.
Mr. STARK. Oh, I see. So, jobs in this country aren't
worthwhile. Thank you.
Mr. MCCRERY. That is not what you were asking about.
Secretary Chao, as you may know, I have been involved over
the last few years working with representatives from the States
trying to reform the administrative end of our unemployment
system, and the Administration has proposed an administrative
financing reform proposal, and I wonder if you could explain,
briefly, the rationale for wanting to shift that responsibility
or at least the responsibility for funneling the funds from the
Federal level to the State level.
Ms. CHAO. Well, during the 1990s, the UI administration was
funded below--we will acknowledge that--this proposal is
actually good for the States, let me put it this way, because
during an average year in the 1990s, the Federal Government
took in approximately $5.7 billion in dedicated Federal
unemployment taxes every year, and the States received only
$3.1 billion for UI funding. So, for the majority of States,
actually, and I have a little chart here which I would be more
than glad to share with the Committee, in fact, an overwhelming
majority of States paid in more in taxes than what they
received to help the dislocated workers in their States.
Mr. MCCRERY. Most States, even when times were good, were
complaining that they were not getting back from the Federal
government money sufficient to administer the UI programs in
their States; isn't that right?
Ms. CHAO. Yes, that is.
Mr. MCCRERY. Unfortunately, we are now back in bad times,
economically, for the States. They are having to rein in their
spending, and we are back in a deficit situation at the Federal
level. So, from a budget standpoint, it is going to be more
difficult for us to shift those funds to the States. As you
pointed out, we are getting more money in from the States than
we are paying out, and that helps obscure the rest of the
operating deficit at the Federal level.
Have you thought about that and are you still going to
press forward with these reforms that would shift that money
out of Washington back to the States?
Ms. CHAO. We think it is good for the States. For example,
last year there was such an excess balance within the Federal
accounts that $8 billion was disbursed through a mandatory
legislative intent that--it was called the Reed Act, and
approximately $8 billion were distributed last year, March of
last year, to the States.
Mr. MCCRERY. Yes, the Reed Act distribution that we
accomplished last year has been very helpful to the States.
Some of the States were able to use that money to prevent a tax
increase from taking place on their employer community, some
States were able to increase UI benefits, and other States used
that money to increase the effectiveness of their
administration benefits.
So, the Reed Act distribution worked as we thought it
would, and what the Administration is proposing is basically to
continue that practice of the States basically keeping what
they pay, what their employer community pays, in UI taxes for
administration and letting them use that money as they see fit,
whether it is to keep from increasing taxes, use it for a more
efficient or more effective administration, or even increasing
UI benefits.
So, I commend the Administration for putting forward this
proposal and saying to us in the Congress that even though we
are back in a deficit situation still, from a policy standpoint
and from an effectiveness standpoint for our UI system, it
makes sense to shift this from the Federal level back to the
State level, and I look forward to helping with it.
Ms. CHAO. Thank you.
Chairman THOMAS. [Presiding.] I thank the gentleman. Does
the gentleman from Florida, Mr. Shaw, wish to inquire?
Mr. SHAW. Just very briefly. I think here that there needs
to be some clarity as to the records, particularly following
the Statement by the gentleman from California, Mr. Stark.
You don't create jobs by increasing benefits for the
unemployed. You put incentives to be employed, and you work
toward the creation of jobs in this country. We had this debate
when we went through welfare reform back in 1996, and it
conclusively proved that if you put incentives and job training
in place, that people will rise to the level of finding jobs.
We also know, statistically, that someone who is the
recipient of a huge trust fund may very well not work. Somebody
who is going to receive unlimited benefits, as pre-1996, to
stay home, not to work and to have kids and not to get married,
that it certainly encouraged that type of self-destructive
behavior.
The real champion of welfare reform, I believe, and I have
always believed, is particularly the single mom who has gotten
out, become a role model for their kids and made something of
themselves, and it is this human spirit that we need to work
with.
I think to try to compare the rebuilding of a country that
might very well be partially destroyed by war to an
unemployment situation here in the United States, there is no
match-up. You can't let one part of the budget be the enemy of
the other part of the budget. You have got to work together in
order to try to complete a complete budget. So, I just wanted
to make that clarification.
Also, I think a lesson in history. When I first came on
this Committee, as I recall, and I think I am correct on this,
that we were hoping to attain 6-percent unemployment. Of
course, we went way beyond that, and a lot of that had to do
with welfare reform and the fact that what people did of
themselves, the unemployed, did make something of themselves.
We believed in the human spirit and that paid off, and it paid
off tremendously, in making better lives for many.
I think on the unemployment benefits that we have extended,
the added incentive that we have built into those programs for
people to go out and find work is going to prove to be very
beneficial, and I think that it certainly will pay off.
Madam Secretary, I want to thank you for being here and
your patience during one of the previous questioners. Thank
you.
Chairman THOMAS. I thank the gentleman.
The gentleman's memory serves him correctly. The Chairs
come and go, but since it is currently here, I believe it was
the Humphrey-Hawkins Act (Full Employment and Balanced Growth
Act 1978, P.L. 95-523) which declared full employment at a 6-
percent rate. Does the gentleman from Michigan wish to inquire?
Mr. LEVIN. Yes, I want to talk about the program of
extended benefits. I just want to say, I guess Mr. Shaw isn't
here, I think to draw a lesson from welfare reform, linking
welfare to work to the challenge of the unemployed is
essentially mistaken. For the vast majority of people who are
unemployed today that are looking for work, they are required
to look for work. Most of them have been working most of their
lives.
Let me just ask you about the extended program. How much is
there today in the unemployment trust fund?
Ms. CHAO. It is about $23 billion.
Mr. LEVIN. In the recession in the 1990s, how many weeks of
extended benefits were there for most people?
Ms. CHAO. I believe it was 4 weeks at the time. The
recession was worse. There was a recession with unemployment
about 7 percent.
Mr. LEVIN. How many weeks were available for the unemployed
under the extended program?
Ms. CHAO. It would be 26 weeks under the regular and then
13 weeks each additional.
Mr. LEVIN. In the early 1990s?
Ms. CHAO. There were four extensions. If I am not correct,
I will----
Mr. LEVIN. How many weeks?
Ms. CHAO. Approximately 13 weeks each, and if that is not
correct----
Mr. LEVIN. How many total weeks were available for the
unemployed under the extended program?
Ms. CHAO. I will calculate that.
Mr. LEVIN. What?
Ms. CHAO. I will count that up. It was about 65 weeks.
Mr. LEVIN. In the early 1990s?
Ms. CHAO. I believe so, yes.
Mr. LEVIN. I don't know quite how you arrive at that. For
most people in most of the States, they had 26 weeks, and then
for those who were in high unemployment States they had more
weeks. So, what we are talking about is now 13 weeks for the
vast majority versus 26 weeks for the majority in the early
1990s, and then in some cases in many States they had beyond
that because they were in high unemployment.
Ms. CHAO. That is correct.
Mr. LEVIN. So, let me ask you this. How many workers today
have exhausted their benefits, do you know?
Ms. CHAO. Approximately, about a million.
Mr. LEVIN. Who have presently exhausted, the total, those
are those who exhausted and are unemployed? How many all
together have exhausted their benefits?
Ms. CHAO. It is a very dynamic figure, but it is about a
million.
Mr. LEVIN. I think it is over 2.5 million----
Ms. CHAO. Those are those----
Mr. LEVIN. Who have exhausted their benefit at some point.
Ms. CHAO. Then many of them, approximately, 50 percent----
Mr. LEVIN. Have returned to work.
Ms. CHAO. Are still eligible.
Mr. LEVIN. Okay.
Ms. CHAO. The numbers are very--we need to talk about the
numbers, and if I can----
Mr. LEVIN. Well, I am talking about the numbers, Madam
Secretary. Look, there are over a million people today who have
exhausted their benefits who are unemployed.
Ms. CHAO. Some of them have found new jobs.
Mr. LEVIN. No, no, no. Aren't there a million today who
have exhausted their benefits who are unemployed, yes or no?
Ms. CHAO. Yes.
Mr. LEVIN. I read this article a week ago in the Wall
Street Journal about a fellow named Wilcox. He was a white-
collar worker, and he went in Canton, Massachusetts, on a
street corner, and he said, ``I need a job. Thirty-six years'
experience insurance management,'' with his phone number.
Now, what do we say to the million people who have
exhausted their benefits why we are not extending benefits, as
we did in the early 1990s, beyond 13 weeks?
Ms. CHAO. I think----
Mr. LEVIN. I want you to say----
Ms. CHAO. I want you to find a new job. That is what I
would tell them. I want to work with you to get a new job, and
let us get the economic conditions so that you can get a new
job.
Mr. LEVIN. Madam Secretary, he sent out over 500 resumes,
he has been begging for a job. He stands on a street corner. He
didn't want to tell his mother that he had done so. He was
ashamed. He has worked all his life. What do you say to the
Richard Wilcox's of this world, of this country?
Ms. CHAO. We want to help them.
Mr. LEVIN. Why don't you extend benefits beyond 13 weeks,
as we did in the 1990s. What----
Ms. CHAO. The 1990s' recession was harsher, and it was
deeper. As I mentioned, we want people to get new jobs, so let
us work on the economic recovery so that the economy gets going
again, so that people will be able to get new jobs.
Mr. LEVIN. So, your answer to him is the growth package?
Let her just finish. Your answer is----
Chairman THOMAS. The Chair is more than willing to let her
finish, but the gentleman has now asked a second question after
his time has expired.
Mr. LEVIN. I just want to be clear, your answer to him is
the growth package?
Chairman THOMAS. That may take longer than the time
available.
Mr. LEVIN. All right, Mr. Chairman. Look, this Committee
has had this issue before. I am asking her, in a responsible,
respectable way, what the answer is to Mr. Wilcox and the
million people who have exhausted their benefits and are out of
work, and I want you to give him--I talked to him yesterday on
the phone. I want your answer, so I can convey it to him.
Ms. CHAO. We will be more than glad to chat with the
gentleman as well. We will be more than glad to work with your
office. There are One-Stop Career Centers. Hopefully, that can
offer some assistance. These are Career Resource Centers which
offer core services, supportive services, and we would like to
introduce him, if he does not know them already, to the One-
Stop Centers.
Mr. LEVIN. He does.
Chairman THOMAS. I thank the gentleman. We have a 15-minute
vote and two 5-minute votes following. We can get one
additional questioner in if the gentlewoman from Washington
wishes to inquire.
Ms. DUNN. Thank you very much, Mr. Chairman, and I
appreciate your being here, Madam Secretary.
Chairman THOMAS. If the gentlewoman would suspend briefly.
Following her inquiring, the Chair will recess. The Chair hopes
that 5 minutes after the close of the last vote we can
reconvene to continue the hearing. Madam Secretary, we
appreciate your indulgence as we engage in something that is
part of our ongoing, ordinary business.
Ms. CHAO. Sure.
Chairman THOMAS. The gentlewoman from Washington.
Ms. DUNN. Thank you. I want to thank you, Madam Secretary,
for your help in addressing some very serious unemployment
problems we have had in Washington State. We have worked well
with the Department of Labor. We feel you are the most
responsive Department of any in government right now, and that
is great for us because we, indeed, have a huge problem with
the 35,000 Boeing employees that have been let off and problems
in the high-tech sector.
I want, particularly, to tell you how much I appreciate
your help in assisting us in securing the $15 million National
Emergency Grant. Before this public hearing, we had a
bipartisan meeting, where we were able to talk with you about
how important it is to increase the budget for the National
Emergency Grant. I want to underwrite that and support that. I
think that is vitally important because you have more
flexibility working with us, working with our governors to make
sure that help gets to us very quickly.
The funds that you got to our State have been critical in
providing for the displaced workers that are trying to search
for jobs, counseling, training, education services, and so
forth, so they can get back to work right away.
Further, your attention to the needs of dislocated workers
in my State who are adversely affected by foreign competition
has been highly noticed. Last year, the Department of Labor
announced that 18,000 Boeing employees in the Puget Sound area
were newly eligible for Trade Adjustment Assistance (TAA), and
we appreciate that.
As you know so well, Washington State and our economy was
impacted in a devastating way by the events of September 11,
2001, much more severely than by many other States, and it is
because of the aerospace industry largely. Thirty-five thousand
aerospace workers have lost their job, most of them in my
district, where I have 25,000 workers, mostly on the commercial
line, which is where the losses took place.
In addition, the unemployment rate in my State has
continued to hover around 7 percent, much higher than the
national rate at one point, the highest State in the Nation. I
would like in the time that I have left on my question period
to hear your comments on how the President's proposal is
designed to help States like Washington address the current
challenges that we have of unemployment.
Ms. CHAO. The President's proposal for economic job growth
includes a very important provision called the Personal
Reemployment Accounts. Basically, it gives people who are
unemployed $3,000 with which to decide what kind of training
they would like to purchase and what kind of jobs they
eventually would like to attain. They are also able to use the
$3,000 for supportive services, such as child care expenses and
also transportation expenses.
If there is any money left over during a 13-week period,
then that excess would be able to accrue to the individual,
meaning that the person would be able to keep the balance for
themselves.
This proposal gives workers, it empowers workers because it
gives them the ability to decide for themselves what kind of
training they want, rather than have to choose a training that
someone has thrust upon them. They are also able to use this
money for child care, and this is certainly very important for
a lot of single moms. For those that want to relocate, for
example, to another part of the country, if they so wish, or to
pay for local transportation--commuting--expenses, they will be
able to tap this fund for them to use as well. This will be new
money. The Administration wants to make it available in fiscal
year 2003, and we want to work with the Committee on it.
Ms. DUNN. Thank you, Mr. Chairman.
Chairman THOMAS. I thank the gentlewoman. The Chair
indicates the Committee will stand in recess until 5 minutes
after the conclusion of the third vote in this sequence. The
Chair, once again, thanks the Secretary.
[Recess.]
Mr. HERGER. [Presiding.] The hearing will reconvene. The
gentleman from Maryland, Mr. Cardin, to inquire.
Mr. CARDIN. Thank you, Mr. Chairman. Madam Secretary, it is
a pleasure to have you before our Committee. You have a tough
job, and we need to work together to deal with it. Let me
follow up if I could on the role that the UI system needs to
play during this time.
You and I have talked a little bit about the concerns that
I have about the number of unemployed. We had another 300,000
this past month. The total number of people who have lost their
jobs in the last 2 years is about 2 million. I want to just
challenge I think one of the Statements that you made about the
severity of this recession, and I urge you to go back and just
take a look at some of these numbers because, according to the
information that has been given to me, the number of long-term
unemployed is two-and-a-half times higher today than it was 2-
years-ago, and the current level is roughly equivalent to the
long-term unemployed in the 1990 recession.
So, I think we are now reaching that point that this has
been a difficult time for those people that are unemployed, as
it was in the 1990s.
I guess one of my concerns is that you say we have until
May to reevaluate before the extension of the UI benefits, but
as you know, Congress doesn't always work that quickly. We do
need a little lead time for a policy to be approved by the
Congress, and I would just urge you to try to get together with
the congressional leaders on both sides of the aisle to come
together with a program earlier, rather than later, dealing
with the UI.
The other point that I mentioned to you a little bit
earlier before the hearing is the fact that for every person
that is looking for a job, there are three times as many
unemployed as there are jobs available, and therefore the UI
fund really has a critical role to play at this point in our
economic history. We need to rely upon that, and people just
cannot find jobs.
You and I have also talked about the fact that Mr. McCrery
and I have been interested in the stakeholders group that met
and offered some reforms. I am particularly concerned about the
fact that low-wage workers are twice as unlikely to get UI as
higher wage workers.
So, I think we have some problems in the system itself that
need to be addressed sooner rather than later. I would just
urge you to meet with us promptly to develop a policy. I know
the Administration has not formulated one yet, as to what
happens after this current level of extended benefits, but I
think we should meet promptly on it, and I would just urge you
to do that.
Ms. CHAO. I look forward to it.
Mr. CARDIN. Let me move to the second point on these
accounts. I know that these reemployment accounts you have
estimated to be $3,000. I told you a little bit earlier that
our projections are that, based upon the unemployment levels,
the exhaustion levels during the last 2 years, that if the
exhaustion levels continue, that these accounts may be as low
as $500. I would urge you to get us as much information as
possible to indicate why the budget request will equal the
$3,000 that you are anticipating, and it would be useful if our
Committee had that information. So, if you would please do
that.
The last point I want to make is this: Your budget calls
upon a reduction in the Federal Unemployment Tax Act (FUTA)
tax, and I just question the wisdom of that in these uncertain
times, when we use the unemployment fund to level out the good
times and bad times in our economy, and we are now drawing more
money out of the account than is coming into the account. That
is what it is supposed to do during a recession, but we need to
make sure that we have adequate funds for future responses in
future recessions, and I am not sure this is the right time to
call upon such a dramatic reduction in Federal revenues to the
Federal Unemployment Trust Accounts.
Ms. CHAO. If I can just quickly answer a couple points.
Mr. CARDIN. Sure.
Ms. CHAO. One is the $3,000, we look forward to working
with you on that. Three thousand dollars per account is
approximately the amount that individual workers receive when
they are unemployed, in terms of training and supportive
services. So, that is kind of how we arrived at that.
As for the FUTA tax, the Department of Labor invests over
$71 billion. Take away the $12 billion in training, and the
remainder is UI. On top of that, there is $23 billion in
excess. We gave back $8 billion last year. The average State is
receiving only 55 cents on every dollar that they are
submitting into the Federal system. So, we think that since the
States are administering the system, that they should really
have greater flexibility in managing it as well.
Mr. CARDIN. I would just point out they did receive more
money back in FUTA taxes than were paid in, but we can go over
these dollar amounts and try to work it out. Thank you, Mr.
Chairman.
Mr. HERGER. Thank you. The gentleman from Georgia, Mr.
Collins, to inquire?
Mr. COLLINS. Thank you, Mr. Chairman, and thank you, Madam
Secretary, for being before the Committee this morning.
Before I ask a question of you, I would like to comment to
the gentleman from Michigan who spoke with a worker who was
standing on the street corner with the sign, ``Work Wanted.
Thirty-six years industrial management.''
As an employer for 40 years, my answer would be to the
gentleman that I have a job, but it is not industrial
management. Are you interested?
Madam Secretary, I read, with interest, after the last
census that we had something like 8 million illegal people in
the country. Do you recall those type numbers?
Ms. CHAO. Yes.
Mr. COLLINS. I believe 4 million of them came from South of
the border--Mexico--is that approximately the number that you
remember?
Ms. CHAO. Probably 7 million.
Mr. COLLINS. I am sorry?
Ms. CHAO. Probably 7 million.
Mr. COLLINS. Four to 7 million.
Ms. CHAO. Yes.
Mr. COLLINS. What is the main reason for the majority of
those people coming to the United States?
Ms. CHAO. I think people come for a variety of options.
They want better opportunities. I would think that would be
foremost.
Mr. COLLINS. In other words, to make it a little bit more
simple because that is what I have to deal with is simple terms
and facts. They are looking for work; is that a pretty good
assessment of why a lot of them come, not 100 percent, but a
lot of people come to this country--opportunity, work?
Ms. CHAO. Yes.
Mr. COLLINS. Do we have any numbers that show how many of
these illegal immigrants are actually employed in the
workforce?
Ms. CHAO. I would imagine that a significant number would
be employed in the workforce.
Mr. COLLINS. Would it not be a pretty good assessment to
understand that a lot of those who are working in the workforce
have replaced people who were in the workforce and possibly now
are in the unemployment roll?
[Pause.]
Mr. COLLINS. Just a guess, an assessment.
Ms. CHAO. I don't know that.
Mr. COLLINS. I didn't think you would. You are honest.
I remember as a young boy growing up, I heard the comment a
number of times, and it was different then, this was 50 years
ago, when an individual tended to be lazy, and wouldn't work,
and wanted handouts, and liked to stand on the corner during
the work hours. That person was classified as an individual who
really just wouldn't work in a pie factory, a pie factory. It
was supposed to have been an easy, ``cream puff'' job. In other
words, they just didn't want to work. They wanted a handout or
whatever they could do to get by or work for cash where it
wouldn't be reported.
Madam Secretary, I have a real concern for the unemployed,
and that is the reason I support the President's growth
package, because it will create jobs, jobs that will be long
lasting, because it will go to the workplace and help people to
be more competitive as an American worker in a world market.
Today, we have provisions of law that make us
noncompetitive, to a certain extent, and a lot of those are tax
laws because we have tax provisions that differ from other
nations. So, I think the President is on the right track by
looking at those provisions, and one of them happens to be the
double taxation on stock dividends. We differ there from many
industrialized nations.
I am also concerned about a continuing program or
rearranging or changing a program that will further the benefit
structure because it is kind of like 50 years ago when the
individual wouldn't work in a pie factory, they were wanting
something in lieu of it. Benefits can be in lieu of a paycheck
because they can still get by.
That is not what America is about. That is not what our
workforce is about. That is not the ethic of the vast majority
of the American worker. That is one thing we differ from here
than in many other parts of the world. We have a work ethic in
this country that supersedes all. That is the reason we have
been so productive, but we are losing a lot of that.
Let me just sum up by saying that I am concerned about the
unemployed across this Nation, as well as in San Francisco, and
I hope the good people in San Francisco will put another one on
the unemployed rolls for his disrespect for you, and for this
administration, and for this establishment, and this body.
Thank you, Madam Secretary.
Ms. CHAO. Thank you.
Mr. HERGER. Thank you. The gentleman from California, Mr.
Becerra, wishes to inquire.
Mr. BECERRA. Thank you, Mr. Chairman. Madam Secretary,
thank you for being here, and we welcome your participation,
always, in this Committee.
I missed some of the questions and some of your testimony
earlier, but I do want to get back to some of the questioning
that I heard from the gentleman from Maryland, Mr. Cardin,
address to you. It is the question with regard to unemployment.
To me, it seems like the economy continues to show sluggish
performance. Most economists are saying that the recovery that
we were expecting actually last year or the early part of this
year may not come until the latter part of this year, and that
is, of course, if things move in a positive direction.
If we find ourselves in war, and it doesn't go the way the
Administration believes, if we find that North Korea is
obstinate in trying to negotiate with us, for any number of
reasons, other economic circumstances, we might find ourselves
still in economic difficult come the latter part of this year.
It seems that, given that we have got about a $200-or-so-
billion deficit for this year, increasing to more than that--
perhaps $300 billion--next year, that what we might want to do
is prepare.
In terms of unemployment, with the unemployment numbers
continuing to increase and over 300,000 people having lost jobs
this past month, that we probably want to give not just the
markets, but the American people some confidence about what
they can expect.
When it comes to long-term unemployment, we are finding
that more and more Americans are having a difficult time
finding that next job. I am wondering if you can give us a
better sense of what the Administration is planning, not
necessarily what you are going to do or not necessarily what
you are going to do this month, but should we find that come
summer, we are still seeing persistent drags on the economy and
the difficulties in decreasing unemployment.
Can you give us a sense of what the long-term vision is of
the Administration with regard to unemployment? How will you
address it so that we can try to ensure that those who are
unemployed today will exhaust their benefits by summer, have
some opportunities to know that the Federal government isn't
going to just let them fall through the cracks.
Ms. CHAO. Well, the Federal government isn't going to let
them fall through the cracks. Every year we, at the Department
of Labor, invest about $71 billion to help people who are
unemployed, $12 billion of which is in training. Obviously, we
are in a recovery phase, but we are not satisfied, neither one
of us, and this President is not either. We lost 1.5 million
jobs during the attacks of September 11, 2001, and we are
trying to come back from that.
The 300,000 people that you mentioned who were not able to
find jobs this past month comprise 90,000 basically reservists.
So, they have now moved from the civilian rolls into the
military rolls, but they are obviously defending, they are
engaged in the activity of defending our country.
We have approximately 48,000, also from loss in
construction. That is because we have had a very harsh winter
compared to the mild two winters. We are very concerned,
obviously. We hope that the President's economic growth plan
will address short-term assistance to the unemployed with
Personal Reemployment Accounts and then longer term with
creating the economic circumstances through which job creation
will occur.
Mr. BECERRA. Let us say we do not find that we are creating
the jobs, the economy is not creating the jobs quickly enough,
and you still have three people out there looking for a job for
every job that is available. What can we tell folks come May,
when those extended unemployment benefits run out for those
Americans, what can we tell them today that we will be prepared
to do come May?
Ms. CHAO. Well, we obviously don't want people to suffer.
We all want to help. As we go toward spring/late spring, and we
are monitoring the situation very carefully, we will see, at
the appropriate time, whether that step is necessary or not.
Mr. BECERRA. Nothing----
Ms. CHAO. We want to help people get back to work. We want
to help them get jobs.
Mr. BECERRA. What I hear you saying, and I think you said
it before, was that you are monitoring. You are taking a look.
It seems to me that, at some point, you will have to go beyond
just taking a look and actually be prepared to do something, as
we are, for example, with regard to Iraq. We are not just
taking a look. We are preparing for the eventuality of war. We
are preparing for the circumstances, so everything is in place.
Is there something going on right now that the
Administration is doing to have in place, whatever mechanisms
you decide to use, come May, when those extended employment
benefits run out?
Ms. CHAO. We have been working on the President's economic
growth and job creation plan, which was introduced on January
7, 2003. We have extended UI benefits for an additional 13
weeks, from December 27, 2002. As we go forward, the economy
may change, current situations may change. So, we want to make
sure that we are doing the right thing in terms of helping the
unemployed.
Mr. BECERRA. So, I don't hear there is anything in place
other than monitoring the situation for those who are losing
their benefits come May.
Ms. CHAO. Let us see what happens to the economy as we get
closer, because, again, we don't want to add the wrong
incentive--the wrong stimulus, either.
Mr. HERGER. The gentleman's time has expired.
Mr. BECERRA. Thank you, Mr. Chair.
Mr. HERGER. Thank you. The gentleman from Kentucky, Mr.
Lewis, to inquire.
Mr. LEWIS OF KENTUCKY. Thank you, Mr. Chairman. Madam
Secretary, it is indeed an honor to have you before our
Committee today.
Ms. CHAO. Thank you.
Mr. LEWIS OF KENTUCKY. As a fellow Kentuckian, it is an
even greater honor. You alluded a little while ago in your
testimony to problems with fraud and abuse in the unemployment
benefits. Could you review for us some of the measures that are
being taken to try to deal with this problem.
Ms. CHAO. We try very hard to be responsive to workers who
need assistance. So, we try to get the unemployment checks out
as quickly as we can, and we err on the conservative side;
meaning that if there is sometimes a doubt, we pay the check
out anyway because we don't want people to suffer.
Since we do that, there will be instances, approximately 8
percent of the time, in which we are making wrong payments. So,
we are working with the various State Departments of Labor, we
are working with the Office of the Inspector General within the
Department of Labor to make sure that we are carrying out our
duties correctly because the 8 percent of money that is paid to
the wrong people or duplicate payments are basically money that
could be better utilized to help others who really need the
money.
Mr. LEWIS OF KENTUCKY. Thank you. That is all.
Mr. HERGER. I thank the gentleman. The gentlelady from
Ohio, Ms. Tubbs Jones, to inquire.
Ms. TUBBS JONES. Thank you, Mr. Chairman. Good morning,
Madam Secretary. How are you?
Ms. CHAO. Good. Thank you.
Ms. TUBBS JONES. Good. I want to focus in on, for a moment,
the TAA health credit tax implementation. Has anyone asked
those questions before I came?
Ms. CHAO. No, no. Go ahead.
Ms. TUBBS JONES. Great. I understand that the
Administration is working to implement the TAA health insurance
tax credit that was included in last year's trade bill.
Ms. CHAO. Right.
Ms. TUBBS JONES. Can you tell us how it is going, and
specifically when you expect the credit to be available to
people on an advance basis, and how the program will work in
terms of identifying and notifying potential recipients,
identifying and paying qualified insurers.
Ms. CHAO. I can give you the short answer or I can give you
the long answer. I will start with the short answer.
Ms. TUBBS JONES. Okay, great.
Ms. CHAO. The short answer basically is in August. We will
submit the long answer in writing.
Ms. TUBBS JONES. Okay.
[The information follows:]
The Health Coverage Tax Credit (HCTC) is a benefit that is
available to workers who are certified for Trade Adjustment
Assistance (TAA) and are either receiving trade readjustment
allowances under the program or would be eligible to receive
such allowances except that they have not exhausted
unemployment compensation; workers who are receiving benefits
under the Alternative Trade Adjustment Assistance (ATAA)
program; and certain individuals age 55 or older who are
receiving benefit payments from the Pension Benefit Guaranty
Corporation (PBGC).
The HCTC is a Federal tax credit equal to 65 percent of the
monthly amount paid by an eligible worker for coverage of the
worker and qualifying family Members under ``qualified'' health
insurance. ``Qualified'' health insurance includes COBRA
coverage, coverage under a group health plan that is available
through the employment of the eligible individual's spouse
where the employer pays less than 50 percent of the cost of
coverage, individual health insurance coverage obtained at
least 30 days prior to separation, and certain kinds of State-
provided coverage if the State elects to offer such coverage.
The end-of-year tax credit was first available in December
2002, and workers could claim that one-month credit on their
2002 tax returns. Beginning August 1, 2003, eligible
individuals are able to receive the tax credit on an advance
basis (i.e., the 65% credit is available each month to pay for
the health premium), or as an end-of-year credit when they file
their 2003 tax return.
Three Federal agencies share responsibility for
implementing the tax credit and ensuring that the benefit is
made available to eligible individuals: Department of Labor,
Department of Health and Human Services and the Treasury
Department.
1. LThe Treasury Department is responsible for managing the
tax credit. An HCTC office has been established in the Internal
Revenue Service.
2. LThe Department of Health and Human Services is
responsible for certifying qualified State health plans and
assist States with establishing high-risk pools.
3. LThe Department of Labor's Employment and Training
Administration is responsible for certifying petitions for
Trade Adjustment Assistance and providing grant funds to States
to establish the necessary administrative infrastructure for
the HCTC, as well as ``bridge'' payments for qualified health
insurance for eligible individuals between December 2002 and
August 1, 2003 (when the credit is available on an advance
basis). The Pension Benefit Guaranty Corporation (PBGC) is
responsible for submitting a listing of potentially eligible
PBGC recipients to the HCTC office at the IRS.
Once the Department of Labor certifies a petition for Trade
Adjustment Assistance, the State Workforce Agency (SWA) is
responsible for identifying eligible TAA and Alternative Trade
Adjustment Assistance (ATAA) recipients, and for notifying them
about the availability of the tax credit. The SWA will also
provide the names of individuals to the HCTC office in the IRS,
which will determine eligibility for the tax credit. The
vehicle for reporting this information to the HCTC office is
the InterState Connection (ICON) network, which is currently
used by the SWA for unemployment compensation purposes.
Beginning August 1, 2003, the HCTC office will use the ICON
claimant/recipient information to verify eligibility for the
advance credit payment of 65% of the qualified health insurance
premium. Individuals are responsible for the remaining 35% and
will provide the payment through the mechanism established by
the IRS.
Ms. CHAO. The other thing, also, is the TAA applications,
and this was the subject of some discussion before the hearing,
is more complicated. We can make available some bridge National
Emergency Grants, and we will be more than glad to work with
you on that. National Emergency Grants are an easier vehicle
for us to help people.
The TAA applications, especially now with its new form, is
a very lengthy and cumbersome process, and so we are not
thrilled with having to go through that process either. If some
of your constituents are having problems, let us work together
to address that.
Ms. TUBBS JONES. Let me ask you, it is my understanding
that you have already awarded two contracts for administering
the TAA program; one to assess the administrative issues and
participation by individuals, and one to administer the
advanceable tax credit.
I understand that this second contract authorizes up to $70
million this fiscal year alone. Of course, these costs are in
addition to the staff time and related costs of three Federal
agencies. Are the costs of implementing this program reflected
in the President's budget?
Ms. CHAO. Yes. Number one, that is apparently the
Department of Treasury's jurisdiction. The other thing, also,
is we do have these National Emergency Grants which we are
giving out to some States so that they can set up the capacity
with which to evaluate the health care component of TAA. We do
have these National Emergency Grants, but the majority of that
is in the Department of Treasury.
Ms. TUBBS JONES. I also understand that the tax credit can
be used for Consolidated Omnibus Budget Reconciliation Act
continuation coverage, for other coverage arranged by a State
or in limited circumstances for individual coverage. Can you
describe how States plan to arrange for coverage for these tax
credit recipients, given that the tax credit is theoretically
available now, though not advanceable? Can you tell me how many
States have plans in place and how many tax credit recipients
do you estimate will be enrolled in each of the types of
qualified coverage?
Ms. CHAO. Tax credits, in general, are pretty much in the
Department of Treasury, but I will try, to the extent that I
can, I will try to get you some answers to that.
Ms. TUBBS JONES. Except that this TAA is actually within
your jurisdiction, though, right?
Ms. CHAO. Yes, but the tax credits are something that the
Department of Treasury administers. It is very complicated.
That is why the National Emergency Grants are so much easier
for us to administer.
Ms. TUBBS JONES. Do you have input into what the Department
of Treasury does? We don't operate in a vacuum? The Departments
interact somewhere, correct?
Ms. CHAO. Right. Well, we would like to think that the
Departments work together on topics like this, but it does take
coordination, which can take time.
Ms. TUBBS JONES. So, you are saying August will be----
Ms. CHAO. Pretty much.
Ms. TUBBS JONES. I have no further questions. Thank you
very much.
Ms. CHAO. I will be more than glad, as I mentioned, to work
with your office on that.
Ms. TUBBS JONES. I would love for you to give--my earlier
questions, you are going to send me some written responses----
Ms. CHAO. Right.
Ms. TUBBS JONES. I appreciate that. Thank you. Thank you,
Mr. Chairman.
Mr. HERGER. Thank you. Now, the gentleman from Illinois,
Mr. Weller, to inquire.
Mr. WELLER. Thank you, Mr. Chairman. Madam Secretary, I
thank you for your appearance before our Committee. I know this
is a historic day. It has been some time since the Secretary
for the Department of Labor has appeared before the Committee
on Ways and Means, and we appreciate your commitment not only
to your job, but also to working with our Committee.
Ms. CHAO. Thank you.
Mr. WELLER. I also want to thank you for an initiative that
you and Assistant Secretary DeRocco have been working on, which
is of great benefit to workers in Illinois. I know questions
have been raised about the type of initiatives to help those
who are dislocated, workers who are unemployed and in need of
skills that bring them into the 21st century economy. Of course
I want to thank you for the new initiative we now have in
Illinois and Ohio, the Integrated Systems Technology program,
which will help workers get the skills to essentially be those
who operate the robots and maintain the robots in our
manufacturing facilities, since we have an impending shortage
of those kind of workers.
The good thing about this program is they will pretty much
be guaranteed a job because of those skills, and the demand for
those skills, and they will be high-paying jobs. So, I commend
you and Assistant Secretary DeRocco for your leadership on this
program, which will help retrain Illinois workers, and I hope
to see it successful----
Ms. CHAO. Thank you.
Mr. WELLER. To see it expand nationwide, and it will, of
course, affect Illinois State University, as well as five
community colleges in the State I represent, including Kankakee
Community College within my own district, as well as Illinois
State University. So, for that, I say thank you.
Also, on the Personal Reemployment Accounts proposal, I
would like to submit to the record some information. We always
like to check the legislative history on some ideas, and while
I am very supportive of the proposal you brought before us, and
the Administration is advocating, I would note that the
Personal Reemployment Accounts idea is not a new one. In fact,
in the 103rd Congress, Chairman Rostenkowski offered H.R. 4040
(Reemployment Act of 1994) legislation which had the
cosponsorship of 94 Democrats, including, obviously, Chairman
Rostenkowski, but also the former Democratic leader, Mr.
Gephardt, Mrs. Pelosi, and Members of this Committee, Mr.
Cardin, Mr. Lewis, Mr. Levin, Mr. Neal, Mr. Rangel, Mr. Stark,
Mr. Matsui, and Mr. McDermott. They all cosponsored legislation
basically identical to the Administration's Personal
Reemployment Accounts proposal.
Mr. Chairman, I would like to submit this into the record,
a copy of the legislation as well as the cosponsors.
Mr. HERGER. Without objection.
[The attachment is being retained in the Committee files.]
Mr. WELLER. So, it is not a new idea, and I certainly
commend you for coming up with new ideas to try and solve the
challenge of how do we give those who are unemployed the
opportunity to go back to work, move up the economic ladder.
I also want to commend you for the way you have presented
this proposal today before the Committee.
One question I do not believe has been addressed yet, and
that is the Personal Reemployment Accounts that recently came
out of the Committee on Education and the Workforce, as they
provide services for child care, and the payment of
reemployment bonuses. What is the Administration's view on
whether or not these accounts, and any moneys that a worker
with the reemployment bonus were to receive, and how it should
be treated from a tax standpoint? Should it be considered
income? Has the Administration made a recommendation on that?
Ms. CHAO. I believe the portion that is used to purchase
training is not taxable, but the supportive services are, but I
will get a definitive answer for you on that.
Mr. WELLER. That would be helpful because if it has tax
consequences, we certainly need to consider that as we move the
legislation through this Committee. Thank you, Madam Secretary.
I look forward to working with you, and I have enjoyed the
opportunity to work with you.
Ms. CHAO. Thank you.
Mr. WELLER. Mr. Chairman, thank you for the opportunity to
question.
Mr. HERGER. I thank the gentleman. I want to conclude by
thanking Secretary Chao for appearing before our Committee.
Again, as we recognized earlier, I believe you are the first
Secretary from the Department of Labor to appear before our
Committee since 1993. Thank you for your patience. I also want
to commend you for an outstanding job that you are doing for
our country, for President Bush, for all of us.
Chairman THOMAS. With that, this hearing is adjourned.
[Whereupon, at 12:08 p.m., the hearing was adjourned.]
[Submission for the record follows:]
Statement of Daniel M. Steen, Executive Board Member and Chairperson,
New York State Public Employees Federation, AFL-CIO, Albany, New York
Chairman Thomas, Ranking Member Rangel, and distinguished members
of the Committee on Ways and Means, I appreciate the opportunity to
submit written testimony concerning the President's budget for the U.S.
Department of Labor for the fiscal year 2004.
The President's proposal is of critical interest to the 53,000
member NYS Public Employees Federation, AFL-CIO (PEF), as nearly 3,000
of our members are the professional and technical employees of the New
York State Department of Labor, an agency that is approximately 95%
federal funded. Our members work making determinations on unemployment
insurance claims, matching qualified job seekers with employers, and
protecting the public in a myriad of ways such as inspecting the safety
of amusement rides and ski lifts.
Since the establishment of the unemployment insurance system and a
national labor exchange, the States have acted as agents of the Federal
Government in delivering these important services. Together, these
programs have helped our nation weather many periods of economic
uncertainty. Providing unemployed workers with funds to meet basic
needs, such as food and shelter, and by assisting workers find new
employment are among our most important safeguards that help keep a
downturn from becoming recession, and recession from becoming a
depression. These are national interests that require a national,
coordinated response.
The President's proposal to reduce Federal Unemployment Tax Act
(FUTA) from current levels, beginning in 2005 to .02% in 2009 does
nothing to improve the system and effectively creates an unfunded
mandate that will require States to increase their U.I. taxes once the
Reed Act distributions have been exhausted. The .02% funding level will
only support the U.S. Department of Labor. If the problem with the FUTA
tax is that the Federal Government collects too much from employers,
while at the same not distributing enough of the collected funds to the
States to run the system, surely these problems can be corrected
without abandoning a system that has served us well for decades.
Given the severe fiscal crisis facing State governments, few States
seem likely to invest State funds to improve the Unemployment Insurance
system. This will be aggravated by the fact that the Administration of
the system will be forced to compete for funding from the same pool of
money that pays benefits. For example, according to the GAO report
Unemployment Insurance States Use of 2002 Reed Act Distribution (GAO
03-496, March 2003), New York State used all $491.3 million that it
received to pay benefits or repay federal loans. NY did not invest a
single dollar in the system. Those States that did invest some of the
Reed Act funds in their system are unlikely to continue their
investment with State dollars once the Reed Act distributions have been
exhausted.
The availability of the Reed Act funds makes this proposal seem
attractive in the short run. In the long run, this concept simply
abandons a system that has served the nation well for many decades. The
system could certainly be improved, but does not need to be discarded.
The President's proposal also threatens the existence of a national
employment service. While the lack of specific details available on
this portion of the budget proposal make it difficult to critique,
providing funding through a block grant, rather than dedicated funding,
is no guarantee we will continue to have a national job bank. PEF
members proudly staff America's Job Bank, which connects the job banks
operated by each State employment service. It is the existence of the
national job bank that enable the many entities with whom we partner to
play a role in connecting employers with skilled workers. Without a
nationally funded labor exchange, each grantee will be left to recreate
the basic tools they need to function. A block grant arrangement would
also break the long standing link between the U.I. system and the
employment service. This would effectively eliminate the requirement
that U.I. benefit applicants make an active search for work. We believe
it is essential that these services be maintained as a public
employment system administered competently and fairly by qualified
civil servants.
The Migrant Seasonal Farm Worker program is an important component
of the national labor exchange. The population served is at risk, in
part because of the very nature of their constantly moving existence.
States alone are simply not equipped to provide services to a
population that will shortly move beyond its borders.
Programs which the States operate in partnership with the U.S.
Department of Labor could certainly benefit from many improvements and
enhancements. The President's proposals offer nothing of the kind. In
exchange for short term Reed Act disbursement funds, which are
available because of a pattern of under funding of the U.I. and
employment service systems, these important employment programs will
become the responsibility of the States after 2009. States will make
different decisions as to how much funding they will provide for these
programs which will create a disparate and uncoordinated employment
services program.
Thank you for the opportunity to provide information on these
important issues.
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