CalChamber Opposes Plan to Divert Unemployment Insurance Funds

​(March 7, 2013) A California Chamber of Commerce-opposed bill that diverts employer-paid unemployment insurance (UI) taxes to a new program to provide income to individuals seeking to start their own business will be considered soon by the Assembly Insurance Committee.

AB 152 (Yamada; D-Davis) seeks to resurrect the Self Employment Assistance (SEA) Program to allow unemployed individuals to collect benefits from the Unemployment Insurance Trust Fund for engaging in undefined “self employment assistance activities” in order to start their own business.

In 1994–the only year in which California operated an SEA program—California’s program yielded no participants successful in starting their own business, but required a significant investment of resources.

Costly Program

The proposed program will be costly because of the functions necessary to develop and maintain it, such as developing regulations, outreach, maintenance, reporting and documentation.

Although the participants receive the same amount of benefits they would have received from the regular UI program, the administration costs of the SEA program must be shifted from other areas of UI program administration to create new functions and provide services to a unique set of beneficiaries. The legislation proposes to use federal grant funding of $5.3 million—which the CalChamber believes is inadequate to fully fund the program—for implementing, administering and promoting the SEA program.

The CalChamber believes the state should not be diverting resources from the mission of delivering timely benefits to eligible individuals to develop and manage a program that has proven unsuccessful in California.

Lacks Oversight

The bill lacks necessary controls to prevent fraud and abuse. Self employment assistance activities are not defined nor are these activities required to be designed to help lead to a successful business.

The bill does not require any particular activity, documentation or verification in order to qualify for the SEA program. Furthermore, the bill waives the requirement to look for work and be available for work. The bill makes it clear that training is not required for program participants and is optional.

The Workforce Investment Boards, which provide training for various programs, including the UI training benefit, will be required to divert funding from regular UI beneficiaries in need of job training and services, to training for the SEA program. Starting and growing a business is difficult even in the best of times and will be more challenging in today’s extraordinarily difficult economy.

Although CalChamber supports the entrepreneurial spirit, studies suggest that as many as 40 percent of new businesses fail in their first year. One of the leading causes of failure is inadequate initial capitalization. This measure, if enacted, could leave a substantial number of program participants worse off than if they pursued more stable employment. State Employment Development Department resources are more appropriately devoted to delivering timely benefits to UI claimants and not expanding into costly program areas.

Action Needed

AB 152 will be considered by Assembly Insurance, but a hearing date has not been set yet. Contact committee members and urge them to oppose AB 152.

Staff Contact: Marti Fisher