Establish a Fund to Assist Dislocated Workers

Texas should establish a fund to finance the training of workers for new and existing businesses and for dislocated workers.


Background
Many states now have job training programs to attract businesses to their states and train dislocated workers. Job training programs originated in the southern states, primarily to entice northern industries to relocate. Today, job training programs increa singly focus on job retention as well as recruiting new jobs, often assisting companies with advanced training to adapt their existing work forces to new technologies. Recent job training programs often target specific companies and base their training on market demand. 1

Such programs give states the flexibility to anticipate and respond to economic change. Such responsiveness eases the effects of worker dislocations on communities and individuals. It allows states to stretch scarce state resources to encourage company expansions, modernizations and major capital investments.

Innovative job training programs focus on the actual needs of employers. They encourage educational institutions and businesses to form partnerships to meet longer-term worker training.

North Carolina, South Carolina, Georgia and Virginia are examples of states with innovative job training programs. These programs tend to provide customized training for businesses creating at least ten new jobs, either through a start-up or an expansion; they are funded through state appropriations ranging from $1.5 million to $7 million, and none of them use federal funds because they feel the federal guidelines decrease their flexibility. North Carolina also uses interest from their Unemployment Insuran ce (UI) worker training trust fund. These states do not charge companies for initial training. Instead, a variety of training options are offered through in-house staff or through contracts with educational institutions.

In a successful job training prog ram, eligibility criteria are broad enough to serve a variety of needs. Ongoing training needs often are coordinated through a community or technical college system. The programs operate with a great deal of autonomy, coordinating as needed with other stat e agencies or private training providers.

In addition, many programs require accountability criteria to be outcome-based, so that reimbursements for training are not made until an employee has been working for at least 90 days; sometimes a partial paymen t is made at the beginning of training and final payment is made after the employee has worked for a certain period of time.

North Carolina has one program for existing industries, generally manufacturing, and another for new and expanding industries that primarily serve new businesses coming to the state. Training for existing businesses can be customized for skilled or semi-skilled workers. Its funding source is an annual appropriation plus interest from the UI worker training trust fund a total of $3.25 million. The program for new and expanding industries is funded through a state appropriation of $7 million, with funds awarded on a project-by-project basis at no cost to the companies. It provides customized training for the company, including full prog ram design, manuals, videos and visits to the manufacturers of equipment to be used in a new factory.

South Carolina s program began in the early 1960s. It operates as a separate program within the State Board of Technical Education and receives a state appropriation of $7 million annually. The program works with about 100 companies per month and trained 8,000 workers in 1991. Its program provides training directly through its own staff, contractors and the companies staffs.

Georgia s Quick Start Program was created in 1967 to help recruit businesses to the state. It is funded with an annual state appropriation of $5.8 million and works with 125-150 companies per year. For 20 years, it mainly provided manufacturing training, b ut has started providing training for service jobs. It also assists existing companies if they have been affected by technological change.

Virginia s Work Force Services Program is for new and expanding businesses that are creating at least 15 jobs or making a $500,000 capital investment in the state. This requirement can be waived if the company is locating in an economically distressed area . The program receives $3.5 million annually in state appropriations. Program managers coordinate training on behalf of client companies using existing institutions or consultants and modify the program to meet particular needs.

Many other states have innovative programs with various components designed to give the greatest return on the state s job training funds. Such components include direct links between job training and capital investment, as is required in Michigan and Miss ouri. Others require a direct link to job creation in new or expanding industries, such as in Iowa, Florida and another Missouri program. Still others, such as those in Michigan, focus on retraining for companies that need to modernize or make technological changes to maintain their competitiveness.

Texas does not have a broad job training program, although Governor Richards has supported the concept through her Smart Jobs initiative. This would replace the state s Work Force Development Incentive program, currently funded at $1.9 million per year and administered by the Texas Department of Commerce (TDOC). The Work Force Development Incentive program provides training to attract new businesses to Texas. The proposed Smart Jobs initiative would use one-tenth of 1 percent of the state s Unemployment Insurance Trust Fund, which would yield $50 million per year at current levels. Up to 5 percent of this amount could be used for administrative costs; 50 percent of the newly created fund would be dedicated for existing Texas businesses.

Smart Jobs would provide grants directly to companies for customized training programs. The program would target industries with wages equal to or greater than the state s average weekly rate for manufacturing production workers. Smart Jobs would pay 50 percent of the training costs for qualified businesses. The program s payments to businesses would be performance-based, with half up front and half given upon completion of 90 days of employment in a training-related job.

However, the Smart Jobs program lacks an assured source of funding since the Unemployment Insurance Fund can only be used if the fund remains adequate to cover unemployment insurance demands.


Recommendations
A. The Legislature should establish a Texas Job Training Fund to train workers for new and existing businesses and to retrain dislocated workers. The Legislature should repeal the statutory authorization in the Texas Government Code (Sec. 481.076) for the Wor k Force Development Incentive Program and consolidate this program into the Texas Job Training Fund.

The fund s policies and operations should be directed by the advisory board of the new Texas Commission on Commerc e and Labor recommended elsewhere in this report. The advisory board should work to coordinate the Texas Job Training Fund program with the Job Training Partnership Act and other training programs.

The fund would be a grant program to complement, but not duplicate, existing state training programs. Training under this fund would be driven by labor market demand and would target above-average wage jobs.

Priorities for the training fund should be:
unemployed and potentially displaced or displaced workers;
targeted industries;
production or quality control techniques;
upgrading existing worker skills to meet changes in technology;
job creation through expansion of existing businesses or the relocation of new businesses to Texas;
small and medium-sized businesses, and
businesses that provide an in-kind match or equivalent capital investment to improve their production technology.

The commission s advisory board should develop eligibility criteria and deny funds to applicants not meeting them. The commission s advisory board should establish a marketing program in coordination with other employment, educational and training programs to ensure that Texas employers are informed about the fund.

The fund should make grants for customized training directly to companies, partnerships of businesses and community colleges, the Texas State Technical College and other institutions of higher education, and to consortiums of companies with common trainin g needs or complementary training resources. When educational institutions are involved, financing should be aimed at making the institutions educational offerings and practices more relevant to the requirements of businesses and workers.

Two types of programs should be made available one for potential and actual dislocated workers and one for companies that are new, expanding or upgrading their technology. Training should be tailored to the needs of each individual and company, including on-the-job training for workers in new jobs, skills assessment and testing and in-plant training by company instructors.

Performance measurements for such grants and payments should be based on outcomes, including measures such as training-related employment after 90 days, wage rates and their improvement and increased productivity. Long-term training benefits should be eva luated through reductions in the time workers spend unemployed and in increased wages.

Program administration should work to minimize businesses and workers costs in preparing grant applications and reports. The fund s board should develop standard grant guidelines for payments and procedures that will minimize red tape and provide accountability. The grant application and approval process should minimize time and paperwork so that training ca n be made available in a timely manner. Staff for the fund should be used to administer, monitor and market the program. Research necessary for the program should be done in coordination with efforts of other agencies or through outside contracts.

B. The Legislature should finance the fund by appropriating $5 million for the 1994-95 biennium from the General Revenue Fund and by transferring appropriations for the Work Force Development Incentive Program (funded at $1.9 million for each year of the biennium ) into the fund. In addition, another $4 million ($2 million per year) should be appropriated from general revenue to the Texas Job Training Fund to be used for the retraining of vocational educational teachers to any other skilled profession.


Implications
Such a fund would stimulate economic development without tax giveaways by providing new and existing employers with the means to train workers. It also would help state community colleges and other educational institutions enhance the employment security o f Texas workers and strengthen the state s businesses.

Fiscal Impact
The fund would be financed for the biennium with about $4 million in general revenue from the Work Force Development Incentive Program and $5 million in new general revenue appropri ations. This would raise the total appropriations for the biennium to about $9 million.

TDOC has two and a half budgeted positions and about $100,000 to administer the Work Force Development Incentive Program. 2 An additional four positions and $260,000 in the first year and $225,000 in the second and subsequent years would be needed to administer, monitor, evaluate and market the new program. This staff would consist of a program director, three program monitors and grant administrators and two and a half administrative support personnel, at classifications to be determined by the administering agency within the specified administrative amounts.

After administrative costs, the fund would have about $2.2 million in fiscal 1994 and $2.3 million in fiscal 1995 in new general revenue appropriations for training grants. To ensure a stable source of revenue, the fund should be financed from the General Revenue Fund. If the Unemployment Insurance Fund is adequate to pay unemployment insurance benefits, these funds should be considered as an additional source of training funds to supplement the program.

The costs outlined below do not show the net change resulting from moving $1.9 million per year from the Work Force Development Incentive Program to the Texas Job Training Fund. With this change, the Texas Job Training Fund would have an appropriation of $ 4.5 million in each year of the biennium.

Fiscal Increased Cost to Change in
Year General Revenue Fund 001 FTEs

1994 $(4,500,000) +4
1995 (4,500,000) +4
1996 (4,500,000) +4
1997 (4,500,000) +4
1998 (4,500,000) +4



Endnotes
1 National Governors Association, Center for Policy Research, State Strategies to Train A Competitive Workforce: the Emerging Role of State-funded Job Training Programs, (Washington, D.C., 1987), pp. 1 and 9.
2 Interview with Richard Hall, Texas Department of Commerce, Austin, Texas, January 7, 1993.