USE OF CONTINGENCY FUNDS FOR STATE SALARY INCREASES

Mr. Bernstein, we will be glad to hear your statement.

Mr. BERNSTEIN. Thank you. My name is Samuel C. Bernstein, and I am commissioner of unemployment compensation for the State of Illinois, and regional vice president of the Interstate Conference of Employment Security Agencies as well as a member of its grants committee.

We are here, Mr. Chairman, to indicate the State's need for the funds which have been recommended by the Budget Bureau and the Bureau of Employment Security in its supplemental request to you. And I don't believe that I need to call your attention to the unemployment situation that we are having today and the unprecedentedly emergent burden that the States have been called upon to handle. Mr. BUSBEY. We had some testimony a few days ago regarding that situation.

Mr. BERNSTEIN. And I realize that in all the committee meetings which you have been holding that that subject would always be in the fore, and that you were taking that into consideration.

In addition to the things that you already know about, we feel very strongly the necessity of calling to the committee's attention the problem that was created by the removal from the contingency fund of the right to use those funds for the payment of salary increases for State employees. The requirement to absorb those increases created an unprecedented burden upon our State agencies; so that we had tremendous difficulty in handling the workload items which Congress expected us to handle and which we were required to handle because of the uncontrollable nature of that aspect of our operations. They are foisted upon us. We don't develop them.

The unit times for those workloads had to be cut in order to provide for the funds necessary to take care of salary increases in the various State agencies. When we consider handling a continued claim in 5 minutes, which includes the taking of the claim, the processing of it behind the claims counter, the handling of it in the central offices of State agencies in order to get the check issued; it is obvious that the quality of the job must suffer if we must cut this unit time in order to provide the funds necessary to take care of the absorption of the salary increases. This indicates one aspect of the seriousness of that absorption.

We are subject to constant criticism throughout the country by employer groups because of the fact that we are not screening our claims adequately enough and that people are being paid benefits who are not legitimately entitled thereto. We have made studies which' indicate that there are numbers of individuals who do get benefits to which they are not entitled. Every State agency prosecutes any number of them. But we also know there are many who are getting by merely because we haven't got the time to more adequately police those claims.

And we cannot stress too strongly to this committee that in its consideration of the problem of our future budgets-not talking only of the supplementary but of the fiscal 1955 budget-that it restore the provision which authorized, as was the case prior to fiscal year 1954, the payment of salary increases from the contingency fund. As long as the contingency fund principle has been a part of our program, it

has always been recognized that the contingency fund would be used to take care of salary increases at the State level. The granting of salary increases is not a thing that is generally left to the discretion of the State agencies. It has to conform to State policy; it has to conform to State practice; and the States, therefore, are compelled to grant those increases.

And when they do that, the program has to suffer, because the moneys have to be made available from somewhere else. We differ from governmental agencies at the Federal level because we operate on the basis of budgeting by workload. We do not have a line item budget. The workload must be accomplished. It costs so much to take care of that workload. To the extent that we are called upon to absorb any other cost, the unit times on that workload have to suffer.

And what we are pleading with this committee to do is to recognize that basic principle and provide that the contingency fund may continue to be used as it was prior to the fiscal year 1954, namely, for salary increases.

Do you wish to add anything, Mr. Cash?

Mr. BUSBEY. Please identify yourself, Mr. Cash, for the record. Mr. CASH. I am Harold A. Cash, comptroller, Indiana Employment Security Division, and chairman of the administrative grants committee of the Interstate Conference of Employment Security Agencies.

I think Mr. Bernstein has covered the subject quite well. I can only reiterate that when the action occurred which removed permission to use the contingency fund for salary increases, it had the effect of giving the States an approved program but not providing funds for the people to operate that program.

And that has, as we have stated in our letter for the record, created tremendous embarrassment in the States. It has contributed to the backlogs of benefit payments which have occurred and which have caused much criticism of State operations on the part of labor organizations and the claimants themselves.

I cannot emphasis too strongly that this absorption of some millions of dollars of salary increases by the States has been a heavy contributing factor to that. It hasn't been the only one, but it has been a major one. We understand that the 1955 appropriation request does contemplate the use of the contingency fund for some types of salary increases, principally those passed by a State legislature, as for example the statewide increase to all employees, or some type which is applicable to all employees under a State civil service system. It does not provide for within-grade or the merit type of increase which is a basic type of increase long recognized in industry and government as being a must.

If you cannot recognize differences in work between people by giving them salary increases at reasonable intervals, you don't keep those people, and the morale in whatever type of business you have, including governmental agencies, is reduced to a point where you have trouble with them. That is all there is to it.

Now, we would hope that the Congress would recognize this situation and permit the States to use these contingency funds as in the past.

Mr. BUSBEY. Thank you, Mr. Cash. And thank you, Mr. Bern

stein.

At this time, without objection, I will insert into the hearings a copy of a letter dated January 22, 1954, addressed to me and signed by Mr. Harry E. Kendall and Mr. Harold A. Cash. (The letter above referred to is as follows:)

INTERSTATE CONFERENCE OF
EMPLOYMENT SECURITY AGENCIES,

January 2, 1954.

Hon. FRED E. BUSBEY,

Chairman, Subcommittee on Labor-HEW,

Committee on Appropriations,

House of Representatives, Washington 25, D. C.

DEAR CONGRESSMAN BUSBEY: On the morning of Thursday, January 21, 1954, the following members of the Interstate Conference of Employment Security Agencies met with you and Mr. Robert Moyer in your offices:

Henry E. Kendall, president

Samuel C. Bernstein, regional vice president

Newell Brown, Chairman, legislative committee

Harold A. Cash, chairman, administrative grants committee

The immediate purpose of our visit was to apprise you of the difficulties of the State employment security agencies in financing all types of salary increases from basic appropriations and to attempt to enlist your support in measures designed to alleviate the conditions for both fiscal year 1954 and in succeeding years.

Until fiscal year 1954 all types of State salary increases were financed from the contingency fund which was also used for financing additional benefit workloads and changes in State laws. For fiscal year 1954, however, the Congress changed the language of the Appropriation Act to prohibit payment of salary increases from the contingency fund. No compensating increase in the average annual salary for the year was made in the basic budget, with the result that State salary increases estimated to be $6-$7 million are being financed from funds which were intended for other program purposes. The Congress, in effect, approved an employment-security program for the States but did not provide the funds for the personnel necessary to operate the program at the approved level.

Employment-security agencies are State departments and operate under the close supervision of State officials as well as being required to meet certain personnel standards prescribed by the Department of Labor. Salary increases within the State employment security agencies are a matter of State law and State practice and are guided by Federal policy. Generally, therefore, the State employment-security agencies must pay salary increases if they are to follow their own State law or practice. Experience over the years, and especially noteworthy in the current year when contingency funds were not available, clearly shows that States do grant these increases.

If such increases are not specifically provided for by the budgetary process, they cannot be paid except at the expense of the work to be performed. Unlike most Federal agencies, the State employment-security agencies are budgeted on work-load accomplishments and cannot use lapsed funds for salary increases. they must create "lapsed" funds by failing in some part or all of their service. Salary increase funds can be specifically provided to the States by either projecting a figure of expected average annual salary or by restoring the principle of payment from the contingency fund. Estimation of an average annual salary is accompanied by the hazard of forecasting the action of State legislatures not yet in session, of anticipating the amounts to be granted and of weighing the effect of levels of employment within the agency.

We believe it to be far more desirable and effective to restore the principle of payment of State salary increases from the contingency fund. Under this pro

cedure the exact amount of salary increases will be paid-no more. The work program approved by the Congress need not be restricted by any necessity to divert funds from it for salary changes and States could operate with confidence that they could use the proper number of employees and pay them the proper salary established in their States.

Abandonment of the principle of payment of State salary increases from the contingency fund has caused substantial damage and embarrassment to the employment security program. The earliest possible correction of this situation

is believed imperative. We urgently request that you and your committee at your earliest convenience give favorable consideration to the use of the contingency fund for salary increases of all kinds in fiscal year 1954 and will permit the same procedure for fiscal year 1955 and thereafter. We believe the principle to be a good one.

A joint resolution amending the contingency fund language of the present appropriation act to correspond to that in the 1953 Appropriation Act would effect the ends immediately in view; that is, reestablishment of the salary increase principle as outlined above and prompt relief of countrywide underfinancing of a critical nature. We would like to make it clear that such a resolution, if passed, would not provide the amount of financing relief necessary for the longer run. A request for a supplemental appropriation covering the remainder of the year is, we understand, being prepared by the Department of Labor.

We would very much appreciate an opportunity to appear before the subcommittee when it considers this matter for the purpose of further clarification and answering any questions which may arise.

On behalf of all members of the Interstate Conference of Employment Security Agencies we wish to thank you and Mr. Moyer for the friendly consideration accorded us.

Yours very truly,

President.

HENRY E. KENDALL,
HAROLD A. CASH,

Chairman, Administrative Grants Committee.

Mr. BUSBEY. Personally I want to state for the record that I appreciate the testimony of men such as yourself who are working with this at the State level. I think it will be very valuable to the committee.

WEEKLY VERSUS BIWEEKLY CLAIMS TAKING

What is your thinking on this question of taking claims weekly or biweekly?

Mr. BERNSTEIN. Well, Mr. Chairman, by reason of the pressures of the restrictions of the budget for the fiscal year 1954, Illinois did go to biweekly reporting. We had been on weekly reporting. We would have remained on weekly reporting if we had had the funds to continue the weekly reporting program.

Labor in Illinois does not like biweekly reporting. The employers in Illinois do not like biweekly reporting. Labor does not like it because it means a delay in benefit payments to groups who are in immediate and urgent need of those funds and industry does not like it because workers are not being screened often enough against available job opportunities when they are required to report once in 2 weeks rather than once every week. Under those circumstances and speaking, therefore, as an administrator representing the interested groups in Illinois, all interested groups, I would say we in Illinois definitely advocate the return to weekly reporting.

Mr. BUSBEY. The biggest objection is the delay in making the payments to the people who are entitled to it; is that correct?

Mr. BERNSTEIN. Well, that is the biggest objection that comes from the labor group. But from the industry group the biggest objection is the fact that workers are not being screened often enough against available job opportunities in the local office.

In other words, if they come in once a week, Mr. Busbey, it is obvious that the available job opportunities in the office at that time will be made available to this individual when he reports. If he comes in only once every 2 weeks, it means you have just that much less screening of the applicant.

Mr. BUSBEY. Mr. Fogarty?

Mr. FOGARTY. Mr. Bernstein, I think I should mention that I heard your name mentioned by the chairman of this committee the other day when Mr. Goodwin was here, and he said some very nice things about you and the way your program has been run in Illinois. Mr. BERNSTEIN. Thank you very much, sir.

HISTORY AND USE OF CONTINGENCY FUND

Mr. FOGARTY. I think you have explained this situation thoroughly as far as I am concerned; because I happen to believe the way you believe. I remember when the contingency fund was established by this committee in 1949 or 1950. It was for the specific purpose of meeting salary increases that could not be foreseen and increased workloads, and the changes in State laws which likewise could not be foreseen. I think it was recognized by the employment services and the Congress that those were things that we could not foresee, and we should have some provision in each year's appropriation to take care of it.

I have often wondered whether we should make this an open-end appropriation or not; because I have always maintained that for all practical purposes this is not an appropriation out of the Treasury of the United States.

This fund is in the Treasury of the United States because of this three-tenths of 1 percent special tax. It therefore is not a drain on the regular funds of the Treasury of the United States. It is something that belongs to the States that have contributed that threetenths of 1 percent into this fund. I do not know why we in Congress should be so stingy about the appropriations in a thing like this. I have often wondered why some serious thought has never been given to making it in open-end appropriation. It would certainly make sense and would help you in the position you find yourself in today with unemployment rising, especially in the last 3 or 4 months, something you people could not foresee 18 months ago when you had to present your budget to the Department of Labor regional offices, or when they presented the budget to Washington. It was about 18 months ago that you presented that budget, wasn't it?

Mr. BERNSTEIN. That is right.

Mr. FOGARTY. I mean the budget for 1955.

Now, we are talking about a supplemental for 1954, this fiscal year that we are in now. I don't know whether it makes any difference to you when you get this money or not; but the way it looks to me, unless the Senate adds it onto a supplemental that we just passed a couple of weeks ago, there may not be another supplemental up for a couple of months. That is not the fault of the Congress; that is the fault we went into it thoroughly the other day-that is the fault of the Budget Bureau we believe, because they did not get these estimates up here to this committee or to Congress in time to hold hearings on them before the last supplemental bill was acted on in the House.

I don't think I have any questions; because I think you have covered the ground pretty thoroughly. I think you have done a good job in presenting the case of the States to this committee. Mr. BUSBEY. Mr. Fernandez?

Mr. FERNANDEZ. I have no questions.