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

SPONSOR Rawson

ORIGINAL DATE

LAST UPDATED

2-2-06

HB

SHORT TITLE

LOWER CERTAIN UNEMPLOYMENT

CONTRIBUTION RATES

SB 19

ANALYST Lucero

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

FY08

(7,340.0)

(7,340.0) Recurring

Unemployment

Insurance

Benefit Trust

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with HB584 titled ELIMINATE UNEMPLOYMENT BENEFIT WAITING PERIOD,

and HB482 titled UNEMPLOYMENT CONTINGENCY RATES & DATES

SOURCES OF INFORMATION

LFC Files

Responses Received From

Labor Department (LD)

SUMMARY

Synopsis of Bill

Senate Bill 19 amends the unemployment compensation law to provide an employer contribution

rate of 0.0% for employers with a reserve ratio of 15% or higher, provided the employer has

been subject to benefit charges for the 36-month period preceding the contribution date. The

0.0% rate applies only to tax schedules 0, 1, 2, and 3.

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 or deposits the employer has made. The resulting

calculation is known as the employer’s reserve ratio.

Senate Bill 19 – Page 2

FISCAL IMPLICATIONS

The Labor Department provided the following statement:

The new tax rate will cost the state’s unemployment compensation trust fund approximately

$7,340,022 annually. Because the fund’s structure is dynamic and is designed to automatically

increase tax schedules to replace the lost revenue, employers in other tax brackets will subsidize

the zero tax rate of these employers.

SIGNIFICANT ISSUES

There are several unemployment compensation bills this legislative session which affect the bal-

ance of the unemployment compensation trust fund.

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 No-

vember. 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 and job growth among the highest in the nation and

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

to consider statutory changes.

Last legislative session, certain enhanced benefits and reduced employer tax rates where passed

into law with a contingency or sunset clause. The contingency stated in effect that if the unem-

ployment compensation fund is less than two and one-half percent of total payrolls then the en-

hanced benefits and reduced tax rates would expire. The effective date for benefits and reduced

tax rates to expire is the January 1st following the certification that the unemployment compen-

sation fund fell below the contingency of less than two and one-half percent of total payrolls.

This bill and HB584 could “trigger” the sunset clause. If the unemployment trust fund falls be-

low two and one-half percent of total payrolls, then the reduced tax rates may expire.

The Labor Department provided the following statement:

During the 2005 legislative session, tax schedule 0 and the 2.0% tax rate for new employers were

passed into law. According to that legislation, those provisions would sunset in 2008 or when the

trust fund reserve ratio fell below 2.5 SB 19 appears to make permanent these changes, as no

sunset language is included in the bill.

PERFORMANCE IMPLICATIONS

None

ADMINISTRATIVE IMPLICATIONS

Modifications to the Department’s computer systems to implement the new tax rate would have a

Senate Bill 19 – Page 3

significant cost, as well as a modification to the form mailed to employers for reporting purposes

would have to be reengineered. No federal funds are available to the state for this purpose;

therefore, a state general fund appropriation would be necessary.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Conflicts with HB584 titled ELIMINATE UNEMPLOYMENT BENEFIT WAITING PERIOD,

which eliminates the one-week waiting period before individuals seeking unemployment insur-

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

benefits (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.

Conflicts with HB482 titled UNEMPLOYMENT CONTINGENCY RATES & DATES. HB482

amends Laws of 2005, Chapter 3, Section 11 to remove the contingency and effective date for

certain enhanced unemployment benefits and replaces it with an effective date of January 1,

2008. The contingency stated in effect that if the unemployment compensation fund is less than

two and one-half percent of total payrolls then the enhanced benefits would expire. The effective

date for benefits to expire is the January 1st following the certification that the unemployment

compensation fund fell below the contingency of less than two and one-half percent of total pay-

rolls.

TECHNICAL ISSUES

The Labor Department should determine the cumulative effect on the trust fund balance if all

unemployment legislation introduced this session passed.

This bill may make permanent the reduced tax rates, while the enhanced benefits may still be

subject to the sunset clause. Should HB482 pass, which eliminates the sunset, then the reduced

taxes and enhanced benefits become permanent. Finally, the Labor Department should deter-

mine if the effect of this bill reducing the trust fund $7,300.0 per year combined with HB584 re-

ducing the trust fund another $5,084.0 per year. Will the trust be fiscally sound if it loses over

$12,000.0 per year hereafter.

OTHER SUBSTANTIVE ISSUES

Employers with a reserve ratio of 15% or greater, have few if any claims against their unem-

ployment compensation account, should be rewarded for having a good experience rating; how-

ever certain enhance benefits may be jeopardized.

ALTERNATIVES

Combine HB482, 584 and SB19 into one bill.

Senate Bill 19 – Page 4

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Certain employers who have high reserve ratios may have to continue to pay unemployment

taxes in certain circumstances.

DL/yr