Interim Joint Committee on Labor and Industry


Minutes of the<MeetNo1> 6th Meeting

of the 2005 Interim


<MeetMDY1> November 17, 2005


The<MeetNo2> 6th meeting of the Interim Joint Committee on Labor and Industry was held on<Day> Thursday,<MeetMDY2> November 17, 2005, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative J R Gray, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Kerr, Co-Chair; Representative J R Gray, Co-Chair; Senators Julian M Carroll, Julie Denton, Brett Guthrie, Denise Harper Angel, Ray S Jones II, Jerry P Rhoads, Katie Stine, and Jack Westwood; Representatives Joe Bowen, Denver Butler, C B Embry Jr, Bill Farmer, Charlie Hoffman, Joni L Jenkins, Thomas Kerr, Charles Miller, Russ Mobley, Rick G Nelson, Jim Stewart III, and Brent Yonts.


Guests:  Andy Frauenhoffer, Deputy Commissioner, Department of Workforce Investment; Jim Zimmerman, Director, Division of Employment Standards, Apprenticeship and Training, Office of Workplace Standards; Bill Emrick, Executive Director, Office of Workers’ Claims.


LRC Staff:  Linda Bussell, CSA; Betty Davis, Adanna Hydes, Melvin LeCompte, and Ashli Schmidt, Committee Assistant.


Chairman Gray welcomed the members to the final 2005 interim meeting of the Labor and Industry Committee. Following a motion made by Rep. Nelson and seconded by Sen. Carroll, the minutes for the October meeting were approved without objection.


Chairman Gray welcomed Andy Frauenhoffer, Deputy Commissioner, Department of Workforce Investment to provide a final update and report on the Unemployment Insurance Trust Fund.  Mr. Frauenhoffer made a Power Point presentation.


Mr. Frauenhoffer stated that the 2004 Year End Balance of the UI Trust Fund was $267 Million, which triggered schedule “C” into effect on January 1, 2005 for calendar year 2005. The Maximum Weekly Benefit Amount (MWBA) for calendar year 2005 remained frozen at $365. During 2005, the trust fund balance has increased slightly to $275 Million. Mr. Frauenhoffer said the tax rates for calendar year 2006 may change depending on the trust fund balance as of December 31, 2005.  If the balance is $275 million or above, the tax rates in schedule “B” will trigger into effect for 2006, and the MWBA will increase from $365 to $402, but if the balance is below that amount, the tax rates in schedule “C” will remain in effect.


Reviewing the latest Mercer Model projections, Mr. Frauenhoffer stated that the trust fund could become insolvent as early as 2009 if corrective legislation is not enacted. Mr. Frauenhoffer offered recommendations from the Department of Workforce Investment that would address the solvency issues of the trust fund. He said the recommendations included: an equitable distribution of the impact of the changes between employers and claimants; a phase in of the changes to minimize the impact to the employer community and the unemployed worker; retention of a competitive position with the surrounding states; and a decrease in the disparity between contributions and benefits. 


The first recommendation was to incrementally increase the taxable wage base by $500 per year for a period of four years.  The second recommendation included imposition of a one week wait period before benefit payments begin. Mr. Frauenhoffer commented that Kentucky is one of only twelve states that do not have a waiting period, but all of Kentucky’s surrounding states have implemented the one week waiting period.  The third recommendation was to freeze for 2007 and 2008 the MWBA at the 2006 level. The fourth recommendation would be to decrease the annual increase in the MWBA which occurs when the trust fund balance exceeds a certain amount. 


Mr. Frauenhoffer then showed a graph illustrating the impact the recommendations changes would have on the UI trust fund.  If the changes are adopted, insolvency may not occur until 2013.  At this point, Mr. Frauenhoffer concluded his presentation and opened the floor for questions. Joining him on the panel were Larry Moore, James Inman, and Janet Clayborne.


Chairman Gray asked the panel if there were any plans to put the recommendations into legislation for the 2006 General Assembly. Mr. Frauenhoffer responded that if there is any support for the recommendations, legislation could be prepared for the upcoming General Assembly. 


Rep. Hoffman asked if the one-week waiting period would have a negative effect on the carpentry trade. Mr. Frauenhoffer responded that the one-week waiting period would primarily effect temporary shutdowns. 


Chairman Gray stated that some states that have the one-week waiting period provides that payment is made for the one week period at the end of the benefit period.  Sen. Westwood questioned that if the recommendations were implemented, would this not simply postpone the problem until 2013? And if so, are there any long term solutions?  Mr. Frauenhoffer stated there were none at this time. Sen. Westwood stated that we should plan ahead for the future instead of fixing the problem short term.


Sen. Carroll asked if interest groups participated in development of the recommendations and would the recommendations simply postpone the problem? He then advised the committee to start looking at long range solutions.


Sen. Guthrie stated that many workers use an employer's shutdown as a vacation, using both vacation days and drawing unemployment benefits. He also asked if companies could be charged because they use seasonal employment?  Mr. Frauenhoffer stated that the tax is based on the reserve ratio.


Rep. Mobley asked if the predictions of the Mercer Model were accurate?  Mr. Frauenhoffer stated that they were fairly representative and accurate.


Rep. Yonts asked if the recommendations listed were from the department only and what would happen if the legislature chose to do nothing in the 2006 General Assembly, but passed legislation in the 2007 Session, making it retroactive.  Mr. Frauenhoffer stated that the recommendations are from the Department of Workforce Investment, not the administration. He also stressed that a serious look needs to be taken and actions need to be taken regarding the trust fund.


Sen. Denton asked a question about employers who employ workers for a specific amount of time. She asked if workers who take a job for a specific period of time are eligible for UI benefits? Mr. Frauenhoffer responded that a worker would not be disqualified for benefits because the worker accepted a job for a short period of time. 


Rep. Farmer asked if an independent contractor can receive unemployment benefits? Mr. Frauenhoffer responded that if a contractor is truly independent, they cannot receive UI benefits.


            Rep. Hoffman asked if other states have attempted to deal with problems associated with independent contractors. Mr. Frauenhoffer stated that he was not aware of any. 


            Sen. Rhoads asked, if implemented, would the proposed recommendations favorably benefit the employer? Mr. Frauenhoffer stated that over time the recommendations would put employers at the highest tax rate schedule.


            Sen. Harper Angel asked if there were any other options applicable to workers besides the one-week waiting period?  Mr. Frauenhoffer stated that the waiting period was less painful to the workers and, if implemented, would save the trust fund five to twenty million dollars annually.


            Moving on to the next item on the agenda, Chairman Gray welcomed Jim Zimmerman, Director, Division of Employment Standards, Apprenticeship Program, Office of Workplace Standards and Philip Anderson, Commissioner, Department of Labor to update the committee on the Apprenticeship program.


            Mr. Zimmerman thanked the committee for allowing him to update them on the Apprenticeship program.  Stating that the apprenticeship program decreases employee turnover, this program enables employees to “earn while you learn.”  He stated that with the baby boomer generation getting ready to retire, capable workers will be needed to replace them. 


            Mr. Zimmerman explained that an apprenticeship program has a set curriculum that permits a worker to learn a skill and receive certification in over 2000 areas of training.  However, due to the lack of funding, Kentucky's apprenticeship program is not fully capable of marketing and recruiting workers into available programs. Currently, there is only funding for one state employee to recruit employers and employees for apprenticeship programs. Showing statistics from other states, Mr. Zimmerman emphasized that Kentucky's apprenticeship program is not a priority as it is with other states.


            Rep. Jenkins stated that with only two employees, how can the Kentucky programs truly be evaluated thoroughly?  She also asked if there should be a state-wide look at where future jobs are going to be so that apprenticeship programs could be more effective?. Mr. Zimmerman responded that apprenticeship is an important economic development tool, but right now his office can only focus on employers who are currently enrolled in the program, because current funding levels don’t allow them to do otherwise.


            Rep. Jenkins followed up by noting that there was not an apprenticeship conference at the Labor Management Conference this year.  Mr. Zimmerman stated that hopefully next year there would be one.


            Moving on to the next item on the agenda, Chairman Gray welcomed Mr. Bill Emrick, Executive Director, Office of Workers’ Claims to give an overview of 803 KAR 25:250, relating to mediation of workers' compensation medical disputes. Mr. Emrick made a Power Point presentation and explained that the mediation program must be viewed as a pilot program whereupon the filing of a Form 112, all medical disputes shall be designated for mandatory mediation if the dispute involves workers’ compensation claims which were previously resolved by settlement or opinion and order of an administrative law judge, and the claim is not currently assigned to an administrative law judge for adjudication. 


            Mr. Emrick stated the duties of the mediator were to: determine all pertinent disputed issues between the parties; attempt to mediate an agreed resolution on disputed issues; draft an agreed order listing resolved and unresolved issues; and keep all statements made by parties or parties’ representatives in the mediation process confidential with the exception of information entered into the agreed order. 


            He stated that at the conclusion of a mediation the mediator shall complete a form indicating all issues agreed upon by the parties which shall be binding. All issues not resolved will be assigned to the Frankfort motion docket within ten days of the mediation proceeding.  Mr. Emrick stated that the first mediations are now occurring and Gov. Fletcher signed this emergency regulation in September of this year. Currently, eighty-three medical disputes are in process. To date, approximately 1/5 of all disputes have been fully settled through mediation.


            Sen. Rhoads commended Mr. Emrick on the new mediation program and confirmed that the new program applies only to disputes occurring after a settlement or opinion or award. He also stated that many claimants cannot hire attorneys to represent them in medical disputes because the law doesn't provide attorney fees for such legal representation.


            Chairman Gray stated he appreciated everyone’s attendance and noted the committee will not meet again until the 2006 General Assembly.  There being no further business, the meeting was adjourned.