philosophy of this Section of the Bill is consistent with previous action taken by the Congress in 1958 and again in 1961 during periods of widepsread unemployment. The sharing of costs of the plan between Federal and State funds is in line with the partnership status of the two levels of Government in the unemployment compensation system as it now exists. It will conserve employers' contributions for periods of genuine need, in contrast to H.R. 8282, which would have allowed extended benefits to workers regardless of general level of business activity.

H.R. 15119 does not attempt to impose the Federal benefit standards which were proposed in H.R. 8282. The establishing of benefit standards is a matter which is particularly appropriate to State regulation. The Legislatures of the several States are better informed as to local conditions and needs and best situated to introduce improvements and innovations in this area. This is especially so in Michigan, where benefits were increased about 20% last year and whose benefit schedule includes the family allotment concept. To institute rigid Federal controls over benefit standards would damage seriously the present flexible and responsive powers of the States to deal with local problems.

We particularly support Part C of Title I of H.R. 15119, which provides for judicial review of the findings of the Secretary of Labor in connection with his review of State laws or administration of State unemployment insurance plans. It is essential to principles of justice and fair play that the States be given an opportunity to contest any adverse determinations made by the Secretary as to actions which have been undertaken in good faith by the States. Present law provides no means of appeal from such unilateral adverse decisions, and reform in this area has been long overdue.

Of special interest to our Company is a change which is not included in H.R. 15119 but which was proposed in H.R. 8282 and in the latter Bill's Senate counterpart, S. 1991. Section 208 of H.R. 8282 would amend Section 3303(a) (1) of the Internal Revenue Code to the effect that State experience rating requirements would be made permissive rather than mandatory as under present law. The Company was concerned with this proposal to the extent that a formal statement expressing our opposition to the amendment was filed with the Committee on Ways and Means of the House of Representatives in August 1965 while its public hearings on H.R. 8282 were in progress. We enclose a copy of that statement with this letter and hereby incorporate it by reference. We remain unalterably opposed to any amendment which would modify or eliminate employer experience rating in the determination of rates of contribution to State plans. As demonstrated in the accompanying statement, elimination of experience rating would intensify the inequities presently existing between stable employers and those in other industries: it would destroy an important incentive to stabilize employment, and it would abrogate the insurance principle which has been a fundamental concept of the unemployment compensation system for 30 years.

In conclusion, we believe that H.R. 15119 accomplishes necessary and desirable changes in the unemployment compensation system in a manner which is consistent with the fundamental concepts and objectives of the system as originally established. It is a realistic approach to needed reforms, and represents a proper balancing of the equities as between worker and employer. We therefore respectfully urge that their bill be enacted in its present form.

DONALD F. KIGAR, President,

THE DETROIT EDISON CO., Detroit, Mich., August 10, 1965.

Re: H.R. 8282, Employment Security Amendments of 1965.

The Honorable WILBUR D. MILLS,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, D.C.

DEAR MR. MILLS: I hereby submit on behalf of the Detroit Edison Company three copies of the following statement in opposition to H.R. 8282. An additional 60 copies are enclosed for distribution to Committee members, staff, etc.

The Company is a regulated public utility primarily engaged in the generation and sale of electrical energy in the highly-industrialized Detroit and Southeastern Michigan area; it has about 9.500 employes and serves approximately 1,366,000 customers in a service area containing nearly 4 million people. The Company has provided a high level of continuity of employment for its workers, and layoffs are the exception rather than the rule.

This statement is limited to Section 208 of the Bill, which would amend Section 3303 (a) (1) of the Internal Revenue Codt to read as follows:

"a reduced rate of contributions is permitted to a pooled fund;"

The proposed amendment would have the effect of making State experience rating plans permissive rather than mandatory as under present law. The proposed amendment should not be enacted because:

1. Elimination of experience rating requirements is contrary to the philosophy and objectives of original unemployment compensation legislation.

2. Elimination of experience rating requirements results in an inequitable apportionment of aggregate unemployment costs among employers regardless of individual unemployment experience.

CONTRADICTION OF ORIGINAL PHILISOPHY AND OBJECTIVES

When Federal unemployment compensation legislation was under consideration during the mid-1930's, the insurance concept of such a program was established as a fundamental principle. A fund was to be established from the contributions of employers in each State, to be used for the payment of benefits to unemployed persons, which would provide at least some protection against the economic impact resulting from loss of employment. Under principles analogous to those used in workmen's compensation insurance, Federal law was constructed so that no employer could get the benefit of the additional credit against the Federal unemployment tax under present Section 3302(b) IRC unless his State law provided for reduced rates of contribution solely on the basis of experience with respect to unemployment, as under present Section 3303(a)(1).

Accordingly, employers are classified under State law according to unemployment risk. If an employer has favorable unemployment experience, he will receive the benefit of a reduced rate of contribution. He is given an incentive to maintain stable employment. He is encouraged to prevent layoffs whenever possible and to shorten the period of layoffs which cannot be avoided. If a longer range contraction in his working force is indicated, an employer who accomplishes the reduction through normal attrition rather than immediate layoff will receive the benefit of a continuing favorable experience rating.

The proposed amendment to Section 3303 (a) (1) would allow employers the additional credit against the Federal unemployment tax without the requirement that reduced rates of contribution to State funds be dependent upon favorable unemployment experience. It would enable the various States to adopt a method of employer contributions which could be based on a flat rate reflecting the unemployment experience of all employers in the State. The favorable employment experience of individual employers would no longer be recognized, since all unemployment risks would be combined in one rate. The employer who maintains stability of employment would no longer have the incentive of a reduced rate of contribution.

The variation in unemployment risk among typical Michigan industry groups is shown in the following table, summarized from data of the Michigan Employment Security Commission:

It is thus apparent that even in years of good economic conditions (such as 1964-65) there are very substantial variations in unemployment experience among the various industrial classifications. To permit the combining of such widely varying risks in one overall rate of contribution would be a total departure from the insurance concept. The principle of experience rating is essential for -conservation of funds established for unemployment purposes, for effective administration of State unemployment laws, and for the continuance of incentives to employers to maintain stable employment.

65-992-66———45

An important corollary of the insurance principle is the concept that unemployment costs should be properly allocated to industries or employers in relation to their risk experience. The inherent characteristics of certain industries are such that, of necessity, employment therein will contain a certain element of instability: for example, the construction trades, producers of capital goods, and seasonal employers. In the long run, the product pricing of such industries should reflect the unemployment risk attributable to their operations, resulting in a proper allocation of economic cost. Under experience rating methods, fluctuating employment is recognized by assigning higher rates of contribution to high-risk employers. These higher contributions become part of the cost of product and should be so included just as any other elements of cost which are specifically assignable to a given industry's operations.

Particularly in the case of a regulated public utility, there is a close relationship between operating costs and the prices charged to consumers. There is no logical justification for requiring utility customers to pay more for electrical energy because of the unemployment benefit costs of high-risk employers. Adoption of a statewide flat rate method could lead to such a result since, as shown by the preceding data, utility unemployment experience is substantially better than average experience in the State. As will be demonstrated in the following section, the Company has, even under an experience rating method, made substantial contributions to the general solvency of the Michigan unemployment fund. It is difficult to justify a further subsidy to other industries, be it for unemployment contributions or any other element of economic cost which enters into product pricing.

INEQUITABLE APPORTIONMENT OF UNEMPLOYMENT COSTS

Even under the experience rating provisions of the Michigan Act, Detroit Edison has contributed amounts which are far in excess of benefits charged to its rating account. From the inception of the State plan in 1936 to December 31, 1964, the Company has made contributions of $8,921,009, while benefits received by our employes have amounted to only $1,182,395. As a result, 87% of our contributions have been utilized for the benefit of employes of others. The disparity has increased to 92% for the 5-year period ended on December 31, 1964, as shown by the following table:

Source: Experience rating reports of the Detroit Edison Co. as computed by Michigan Employment Security Commission.

The Company's present contributions at the rate of 0.6% are being paid entirely into the State general solvency account; none of the contributions are being credited to our individual rating account. In addition, the Company has made substantial contributions to the financing of emergency unemployment benefits through the additions to the Federal unemployment tax rate paid by all Michigan employers in connection with Reid Bill and TUC advances.

If Michigan were to discontinue experience rating methods and instead adopt a statewide flat rate method, the inequity would become even more severe. We estimate that, over a period of years, the average statewide rate would be about 3% on a base of $3,600 taxable wages. (The estimate is based on the ratio of actual Michigan benefits to a $3,600 taxable wage base during the 7-year period 1958-64, adjusted to recognize a 20% increase in benefits recently enacted.) A 3% statewide rate would increase our present rate of 0.6% by 400% and our annual contributions from the present $210,000 to $1,050,000. The latter amount is 37 times the average annual benefits received by our employes over the last 7 years. Finally, assuming continuation of our favorable unemployment experi

ence, all of our contributions would be used to subsidize the layoff costs of other employers. Such discrimination should not be encouraged by the Congress.

Detroit Edison has diligently worked to increase the efficiency of its operations. Because of the Company's success in reducing costs, rates charged consumers have not been increased since 1948; rather, rates have been reduced three times since 1959, with the most recent reduction becoming effective early in 1965. We have conscientiously attempted to minimize the impact of job reduction arising from increased efficiency of operations. We have followed the express policy that employment continuity be maintained by retaining affected employes through:

1. Permanent placement in another job of the same grade,

2. Temporary placement without reduction in pay in a lower level job pending permanent placement elsewhere in the Company, or

3. Providing training opportunities in order to qualify for other work at the same level.

As a result, most displaced employes have been placed in other jobs made available by normal attrition. The highly favorable unemployment experience, as shown by previous data, bears witness to the success of our efforts in this area, and we have had the benefit of reduced rate of contributions to the Michigan unemployment fund. Elimination of experience rating would in turn eliminate the incentive given to encourage employers to maintan stability of employment and would result in all employers sharing the unemployment costs of those who feel no obligation to their workers.

CONCLUSION

If our national policy is now to be misdirected against experience rating and in favor of some flat rate method, it will result in abrogation of the insurance concept, which has been a fundamental principle of unemployment compensation for 30 years. The product prices of stable employers will be increased to include the unemployment costs of others. Elimination of experience rating will intensify the inequities presently existing between stable employers and those in other industries, and will result in loss of an important incentive to maintain continuity of employment. It is respectfully urged that experience rating methods be continued as a requirement for the granting of reduced rates of contributions to State plans and that Section 208 of the Bill proposing to amend Section 3303 (a)(1) of the Internal Revenue Code be deleted.

DONALD F. KIGAR, President.

SUMMARY OF COMMENTS AND RECOMMENDATIONS OF THE DETROIT EDISON COMPANY RE H.R. 15119, UNEMPLOYMENT INSURANCE AMENDMENTS OF 1966 (Submitted in connection with written statement transmitted to the Committee on Finance of the United States Senate under date of July 18, 1966 in lieu of personal appearance.)

The Company supports enactment of H.R. 15119 without further amendment because this Bill in its present form accomplishes reforms in a manner generally consistent with the basic philosophy and objectives of the unemployment compensation system as a whole. This legislation will continue the fundamental concepts of use of insurance principles in establishing amounts of employer contributions and employe benefits, the preservation of State discretion in areas which are essentially and properly State responsibilities, and the maintaining of proper incentives for employers and employes so that funds contributed under unemployment plans will be conserved for the vast majority of workers whose needs are genuine.

The extended benefit provisions of H.R. 15119 are much more realistic than those proposed in H.R. 8282. Since the extended benefits would be paid during recession periods only, the philosophy of this Section of the Bill is consistent with action taken by the Congress in 1958 and 1961 during periods of widespread unemployment. The sharing of costs and administration of the plan between Federal and State levels of Government is in line with the present partnership status existing in the unemployment compensation system.

H.R. 15119 properly does not attempt to impose Federal benefit standards. The establishing of benefit standards is a matter which is particularly appropriate to State action, since the Legislatures of the several States are better informed as to local conditions and needs and best situated to introduce improve

ments and innovations. Federal control of benefit standards would eliminate the flexible and responsive powers of the States to deal with local problems. The Company particularly supports Part C of Title I of the Bill, which provides for judicial review of the findings of the Secretary of Labor when reviewing State laws or administration of State unemployment compensation plans. Justice and fair play require that the States be given an opportunity to contest any adverse determinations as to actions which have been undertaken in good faith. Reform in this area has been long overdue.

Of special interest to the Company is an amendment to the Internal Revenue Code which was included in H.R. 8282 (and its Senate counterpart, S. 1991). but which is not proposed in H.R. 15119. This amendment would have had the effect of making State experience rating requirements permissive rather than mandatory as under present law when determining rates of contribution to State unemployment plans. We remain unalterably opposed to any such amendment. Elimination of experience rating would intensify the inequities presently existing between stable employers and those in other industries; it would destroy an important incentive to stabilize employment; and it would abrogate the insurance principle which has been a fundamental concept of the unemployment compensation system for 30 years.

INTERNATIONAL BROTHERHOOD OF BOILERMAKERS,

IRON SHIP BUILDERS, BLACKSMITHS, FORGERS & HELPERS, Kansas City, Kans., July 19, 1966.

Hon. RUSSELL B. LONG,

Chairman, Committee on Finance,
U.S. Senate, Washington, D.C.

DEAR SENATOR LONG: As President of the International Brotherhood of Boilermakers, Iron Shipbuilders, Blacksmiths, Forgers & Helpers, AFL-CIO, representing 135,000 members, I wish to advise our organization and our members endorse and fully support the unemployment compensation reform as set forth in McCarthy Bill, S. 1991. The need is long overdue for a proper adjustment to correct the inequities in the unemployment insurance system and to update and equalize the entire unemployment program, commensurate with present day economic conditions.

There are few that recognize or realize the inequities and inadequate coverage of our unemployment system as do the many members of this International Brotherhood who are employed in the construction industry, where the very nature of following the work of our trade requires they be mobile and transitory. They will be employed anywhere from three months to a year or a year and a half on large heavy construction projects such as oil refineries, large power plants, dams, chemical plants, etc. When the job is finished, they of necessity have to move to other parts of the country where other jobs of this nature are starting. Many times there are periods of unemployment between jobs, which certainly gives them first hand knowledge of the unfairness of the unemployment benefits presently existent in the states of this nation and that the reform, as proposed in S. 1991, is long overdue and would be of extreme benefit to them.

As their representative, I urge the speedy enactment of this bill and I request this statement be printed in the record of the Committee hearings. Thanking you in advance for the serious consideration I know you will give this matter, I am,

DEAR SENATOR LONG: As International President of the United Slate, Tile & Composition Roofers, Damp & Waterproof Workers' Association, and on behalf