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F I S C A L I M P A C T R E P O R T

SPONSOR Stewart

ORIGINAL DATE

LAST UPDATED

1/31/06

2-7-06 HB 584/a HLC

SHORT TITLE Eliminate Unemployment Benefit Waiting Period

SB

ANALYST Lucero

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06 FY07 FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

(5,084.0) (5,084.0) (15,252.0) Recurring Unemployment

Compensation

Trust Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SM19, HB482

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Labor (DOL)

SUMMARY

Synopsis of HLC Amendment

The House Labor and Human Resources Committee amendment changes the effective date of

the legislation to January 1, 2007, from July 1, 2006. As mentioned under significant issues be-

low, this amended date will give the Department sufficient time to modify its computer systems

to address the elimination of the waiting week.

Synopsis of Original Bill

Eliminates the one-week waiting period before individuals seeking unemployment insurance

benefits are entitled to payment. Presently, individuals claiming unemployment insurance bene-

fits (claimants) are entitled to a maximum of 26 weeks of benefit payments. Before the first

payment is made, however, a claimant must “wait out” one week. Claimants who exhaust bene-

fits by claiming all 26 weeks of payments are ultimately compensated for the waiting week be-

cause that week is paid out at the end of the claim, rather than at the beginning. A large percent-

age of claimants, however, do not exhaust their claim and are consequently never compensated

for the waiting week at the end of the claim. Accordingly, an individual employer’s account is

not charged for that week of benefits. This bill makes the first week compensable at the begin-

ning of the claim, rather than at the end of the claim.

The bill contains no appropriation.

House Bill 584/aHLC – Page 2

The employer’s tax rate is determined by calculating the amount of benefits charged to its ac-

count relative to the amount of tax payments. This results in the employer’s reserve ratio. If the

waiting week becomes compensable, more charges will be made to employer accounts, lessening

the employer’s reserve ratio and potentially triggering a higher tax rate for that particular em-

ployer.

FISCAL IMPLICATIONS

The Department estimates the annual cost to the unemployment insurance trust fund will be

$5,084,097.

The unemployment compensation trust fund has a sunset clause or “trigger” for certain enhanced

benefits and employer taxes which is tied to the balance of the trust fund. Currently, if the trust

balance falls to less than two and one-half percent of total payrolls then the enhanced benefits

and reduced tax rate expire

.

Eliminated the one week waiting period may have an effect on the

trigger, which may cause the enhanced benefits and reduced tax rates to expire; however, recent

economic data is worth noting:

New Mexico’s seasonally adjusted unemployment rate dropped to 4.8 percent in

December 2005, which is below the national average of 4.9 percent and is down

from 5.1 percent in November. This is the lowest the state’s unemployment rate

has been since the summer of 2001.

New Mexico’s rate of over-the-year job growth was 2.2 percent in December.

Jobs have been added in all 13 of the state’s industries and overall, the state has

added 17,500 jobs over the last year. New Mexico ranks among the 10 highest

states for job growth.

With the lowest unemployment rate in years, job growth among the highest in the nation, and

having one of the most solvent unemployment trust funds in the nation; New Mexico seems well

poised to consider statutory changes.

SIGNIFICANT ISSUES

This bill may increase tax rates of some employers, with the most significant impact on small

business owners.

The Labor Department sampled employers from each tax rate and estimated the impact of elimi-

nating the waiting week. An average of 8.3% of employers in each tax bracket would experience

a tax rate increase.

The Labor Department recommends amending the effective date of the legislation to January 1,

2007, to provide sufficient time to modify its claims processing computer software.

ADMINISTRATIVE IMPLICATIONS

The Department’s computer system would have to be modified at an estimated cost of between

$150,000 and $200,000.

House Bill 584/aHLC – Page 3

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Conflict with SB19 titled “LOWER CERTAIN UNEMPLOYMENT CONTRIBUTION

RATES” which seeks to make permanent certain reduced employer tax rates expiring either on

January 1, 2008 or if a sunset or “trigger” is reached.

Conflicts with HB482 which seeks to eliminate the sunset or “trigger” clause for certain en-

hanced benefits and reduced employer tax rates.

TECHNICAL ISSUES

Some employers may experience an unemployment tax rate increase due to the elimination of the

waiting period. Employers’ tax rate is a function of their reserve ratio. NMDOL has estimated

that by paying benefits without the wait period will affect slightly less than 10% of the reserve

ratios.

Some employers may experience an additional unemployment tax rate increase should the cumu-

lative $5 million annual impact reduce the overall trust fund balance below the trigger, then cer-

tain reduced tax rates will expire.

OTHER SUBSTANTIVE ISSUES

If the unemployment compensation trust fund falls below two and one-half percent of total pay-

rolls then the enhanced benefits and reduced tax rate expire. While the trust fund is among the

most financial sound in the country, a severe economic downturn could affect the soundness of

the fund. With the enhanced benefits, reduced employer taxes, and this bills elimination of the

waiting period, the fund could slip to a less sound state.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Status Quo

DL/yr:mt