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Jobless Coffer Shrinks as Payouts Grow

The governor has made fixing the system a key part of his effort to keep firms from closing or fleeing the state.

March 22, 2004|Marc Lifsher | Times Staff Writer

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.

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