The governor has made fixing the system a key part of his effort to keep firms from closing or fleeing the state.
By Marc Lifsher
Times Staff Writer
March 22, 2004
SACRAMENTO — There's another insurance crisis in California: The state unemployment insurance fund is broke.
While elected officials, business executives and labor leaders bemoan
the condition of the workers' compensation system, they are also
struggling to rescue the program that channels money to Californians
who lose their jobs.
Low-profile talks between employers and
unions are being mediated by the Schwarzenegger administration in hopes
of crafting a solution by late spring. Meanwhile, the powerful
California Chamber of Commerce is launching a media campaign this week
to pressure legislators to postpone planned hikes in unemployment
benefits.
Unemployment insurance taxes paid by California
companies will hit $5.10 billion in 2005, according to the state
Economic Development Department, almost double the $2.59 billion paid
in 2002.
The culprits: a rise in unemployment since the late
1990s boom — at least some of it caused by surging workers' comp costs
— and recent increases in benefits paid to laid-off workers.
"It's another nail in the coffin of California business," said Marki Leonard, president of Crystolon Inc., a City of Commerce-based manufacturer of steel department store racks and displays.
Leonard said she was forced to lay off about half her 70 workers in
early 2003 after her workers' comp premiums almost doubled. Then, her
unemployment insurance rates increased to 3.2% of her payroll from
1.2%, raising her bill to $9,000 a year.
Add rising steel prices to the mix and business "gets pretty frustrating," she said.
Gov. Arnold Schwarzenegger has made fixing what he describes as the
"flat broke" unemployment insurance system a key part of his effort to
keep California companies from closing or fleeing the state. Sacramento
has applied for an emergency federal loan of $1.4 billion that would
allow the fund to keep paying benefits during the first half of this
year.
The Economic Development Department projects a
$1.2-billion shortfall by the end of this year — and a $2.3-billion
budget gap by the end of 2005.
Employers are looking to
Schwarzenegger to counterbalance what they consider pro- labor excesses
by the Democratic-controlled Legislature during the administration of
Gov. Gray Davis.
The Legislature raised maximum weekly
jobless checks more than 40% in 2002 to $330, even as a weakening
economy was swelling the unemployment rolls. Benefits jumped again in
2003 and 2004, and a final increase to $450 a week is scheduled for
next January.
"There's a revenue problem because they [the
Democrats] knowingly spent more money than they were going to take in,"
said Allan Zaremberg, president of the California Chamber of Commerce.
Labor unions argue that businesses are paying the price for decades of
neglect of the system. Workers received no boosts in unemployment
benefits between 1991 and 2002 despite a sizable jump in the cost of
living in California.
Before the 2002 increase, labor leaders
say, benefits paid in California ranked with those paid to workers in
Mississippi and other low-wage states. They still rank below 13 other
high-wage, high-cost states such as Connecticut and Massachusetts,
according to the Economic Development Department. Unemployment
insurance taxes, which are paid wholly by employers, are computed by
setting a tax rate and then applying it to a set percentage of a
worker's annual pay.
"The reason we're broke is the financing
structure for unemployment insurance in California is totally
antiquated and has not done anything in terms of keeping up with
inflation," said Tom Rankin, head of the state Labor Federation,
AFL-CIO.
Finding a solution that satisfies both sides won't be easy.
In California, the amount of a worker's pay on which employers pay tax
has been $7,000 — the minimum allowed by the federal government — since
1983. And California is one of only three states whose maximum tax rate
is set at the rock-bottom level of 5.4%. (The rate is temporarily at
6.2% because of a federal surcharge that kicked in after reserves fell
dangerously low this year.)
Unions want both the tax rate and
the amount of wages subject to the tax increased. They also want to
preserve current worker benefits and the scheduled 2005 increase. In
addition, they would like to see the state revive its earlier policy of
stockpiling unemployment funds during good times so more money is
available for benefits when the economy turns bad.
Employers
contend that the state's wobbly economic recovery argues against
raising unemployment insurance taxes or pushing ahead with the next
year's benefit increase.
Instead, business is pushing a
still-sketchy package of bills that would freeze benefits at current
levels, lower levels of minimum earnings for qualifying for benefits,
make it easier to detect fraud and speed the transfer of information
between employers and the state.
"We want to minimize the
impact on jobs and the economy as much as we can," said Carol Evans,
vice president of the California Taxpayers' Assn., a business-oriented
advocacy group.
Getting the system back into balance probably
will mean higher taxes for employers, unless benefit costs are scaled
back to 2001 levels, according to the state legislative analyst's
office.
The Schwarzenegger administration, for now, isn't
endorsing any particular long-term solution, said the governor's chief
negotiator on the issue, Victoria Bradshaw, acting secretary of the
Labor and Workforce Agency. Nevertheless, she stresses that the
governor is not backing the Chamber of Commerce's call for a suspension
of the $40 benefit increase in 2005.
Solving the unemployment
insurance crisis may be "a lot less complicated" than fixing the
workers' comp system, predicted Rankin, the AFL-CIO's top man in
California. Talks on unemployment insurance, he said, have a good
chance of being fruitful because Schwarzenegger "is much more oriented
toward problem solving" than his Republican predecessors.
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