Interim Joint Committee on Labor and Industry


Minutes of the<MeetNo1> 4th Meeting

of the 2006 Interim


<MeetMDY1> October 19, 2006


The<MeetNo2> 4th meeting of the Interim Joint Committee on Labor and Industry was held on<Day> Thursday,<MeetMDY2> October 19, 2006, at<MeetTime> 9:00 AM, at the University of Kentucky Coldstream Research Facility<Room> . Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Alice Forgy Kerr, Co-Chair; Representative J. R. Gray, Co-Chair; Senators Julian M. Carroll, Julie Denton, Denise Harper Angel, Ray S Jones II, Jack Westwood; Representatives Joe Bowen, C. B. Embry Jr., Bill Farmer, Charlie Hoffman, Joni L. Jenkins, Jim Stewart III, and Brent Yonts.


Guests:  Beth Smith, Commissioner, Department for Workforce Investment; Andrew J. Frauenhoffer, Executive Director, Office of Employment and Training; and James Inman, Director, Office of Unemployment Insurance


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


Co-Chair Alice Forgy Kerr welcomed members and guests to Lexington and thanked the staff at the Coldstream Farm Research Facility for hosting the legislative committee meetings.  She introduced Steve Byers, a representative of Building a Better Bluegrass.  Mr. Byers welcomed the committee and thanked the General Assembly for the support and service to the University of Kentucky, explained briefly the role of the Coldstream Farm Research Facility, and announced that there would be a luncheon at Keeneland following the legislative meetings.


Co-Chair Kerr announced that due to scheduling problems, Co-Chair Gray was unable to attend the meeting. She noted that because of the short timeframe for the meeting, the agenda consisted of only one topic and the topic was unemployment insurance. She commented that the unemployment insurance program is of major importance to every employer and employee in the Commonwealth. She stated that the members of the committee were aware that the financial condition of the unemployment insurance trust fund has been very precarious at best for the past few years and this is a troubling situation because the trust fund is the fund that pays benefits to unemployed workers and is financed by contributions or taxes on employers.


Co-Chair Kerr stated that the last update on the status of the trust fund was provided to the committee in November of 2005. Since the 2007 Regular Session of the General Assembly is rapidly approaching, Co-Chair Kerr said that she and Co-Chair Gray felt it important to have the members of the committee briefed on the status of the trust fund prior to the upcoming session. She noted the committee needs to know if there will be a need for legislative correction or remedy to the financial problems that continue to plague the trust fund and threaten its ability to continue paying benefits to unemployed workers in the commonwealth, and whether employers are likely to see an increase in the contributions they are required to pay to keep the trust fund functioning.


With those remarks, Co-Chair Kerr welcomed Beth Smith, Commissioner, Department for Workforce Investment; James Inman, Director, Division of Unemployment Insurance; and Andrew Frauenhoffer, Executive Director, Office of Employment and Training.  She congratulated each on of their appointments and noted that Ms. Smith and Mr. Inman were recently appointed to their positions and Mr. Frauenhoffer was appointed Executive Director since the committee last heard from him.


Mr. Frauenhoffer thanked Co-Chair Kerr and directed members to the handouts located in their folders.  He began by saying that the Kentucky Unemployment Insurance Trust Fund has shown signs of some stabilization over the past three years.  The current trust fund balance was $333.2 million through August of 2006, which is more than a $20.7 million increase over the balance from August 2005.  Mr. Frauenhoffer noted that Kentucky ended the 2005 calendar year with a balance of $264.6 million. The 2005 trust fund balance, according to KRS 341.270, kept tax schedule “C.”in effect for calendar year 2006. Discussing employer contributions to the trust fund, Mr. Frauenhoffer stated that those have been higher in 2006 than previous years.


Discussing benefit payment amounts, Mr. Frauenhoffer stated that the weekly benefit amount is calculated and determined in accordance with KRS 341.380(2). That amount is equal to 1.3078% of a worker's base period wages, and the average weekly benefit amount in 2006 is $262 a week which is slightly higher than in previous years.  The maximum weekly benefit amount (MWBA) is calculated and determined in accordance with KRS 341.380(3) and is based on 62% of the state average weekly wage for the previous calendar year. Mr. Frauenhoffer noted that as of July 1, 2006, the MWBA increased from $365 to $401, and to date the total benefit payments in 2006 are less than in previous years.


In closing, Mr. Frauenhoffer stated that increased fund revenues plus lower total benefit payments equal to an improved trust fund balance. He then reviewed statistics that reflected increases in the average monthly employment, total wages, and taxable wages, while initial claims, number of benefit payments, fewer claimants exhausting benefits, and the average duration of claims have all decreased.  Expanding on this data, Mr. Frauenhoffer stated that there is an increased number of workers in covered employment whose wages are subject to unemployment insurance contributions which go into the trust fund. There are also fewer people claiming and drawing unemployment benefits, the average duration of receiving unemployment insurance benefits is decreasing, unemployed workers are returnig to work at a faster pace, and fewer claimants are exhausting their benefit periods.


Concluding his presentation, Mr. Frauenhoffer reviewed the Mercer Model Projections for the UI Trust Fund.  He stated that in conjunction with the UK Research Center, the unemployment insurance division maintains the Mercer Model, which is an economic model that projects the potential effects of law and employment changes on the trust fund. The variables included in the Mercer Model are consistent with those of the Office of the State Budget Director. As of October 2006, the Model results are consistent with past runs which indicate that for the short term the trust fund appears to have stabilized.


At this time, Co-Chair Kerr accepted a motion to approve the minutes from the September meeting. The motion was seconded by Rep. Hoffman and adopted.


Rep. Bowen asked that if an employer is always contributing enough to the trust fund to cover his or her employees, how can the fund run low? Mr. Frauenhoffer responded by saying that contributing factors included the fact that benefit payments have exceeded contributions for the past several years, and because the trust fund balance was approximately $700 million prior to 1998, employer taxes were reduced and employee benefits were increased as a result of legislation enacted in 1998.


Sen. Carroll asked if the “maintenance” of the trust fund was in the Office of Workforce Investment. Mr. Frauenhoffer replied that the trust fund is part of the federal unemployment insurance trust fund and Kentucky draws money out of that fund to operate its unemployment insurance program.


Rep. Stewart asked if the Division of Unemployment Insurance has a timeline governing eligibility when a person who receives benefits subsequently takes another job but quits that job because it is not compatible.


Mr. Frauenhoffer replied that in determining whether work is suitable, in terms of accepting a job to get off unemployment, several factors are considered according to the unemployment insurance law, and that a person who leaves a job because the job is not suitable would have to then reapply for benefits.


In response to a question from Rep. Yonts about legislative proposals from the  Office of Workforce Investment for legislation for the 2007 legislative session, Mr. Frauenhoffer responded that his office and the cabinet will continue to monitor the trust fund through 2007, and if conditions change legislation could possibly be proposed in 2008. 

There being no further business, the meeting was adjourned.