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Swanson: We need an unemployment fix, fast

By Josh Richman
Tuesday, October 7th, 2008 at 4:46 pm in Assembly, General, Sandre Swanson.

Assembly Labor and Employment Committee Chairman Sandré Swanson, D-Alameda, says lawmakers are going to have to work across the aisle to fix California’s unemployment insurance fund, which will be broke by January.

He apparently means lawmakers should be talking about raising the payroll tax that employers pay on each worker to bankroll the state unemployment fund. And for Legislative Republicans presumably still smug about preventing any tax increases in this year’s budget fiasco, that’s going to be a tall order.

The Assembly Insurance Committee and the Assembly Budget Subcommittee on State Administration held a joint hearing today to examine why we’re in this fix and what should be done about it; Swanson issued a statement soon afterward.

“This fund is critical to ensure that workers who have lost their jobs through no fault of their own are able to pay their bills and put food on the table while they look for work,” he said. “The current funding crisis threatens the solvency of that fund and we must address it as quickly as possible.”

Swanson cited a report showing the state unemployment fund will be $1.6 billion in the red by 2009’s end of 2009 and $3.5 billion short a year after that. But the situation might be even more dire: That report assumed a 6.4 percent unemployment rate and a 6.6 percent rate for 2009, but unemployment already had risen to 7.7 percent as of August.

California has the lowest taxable wage base allowed by federal law — $7,000, a figure that hasn’t changed since 1983 — but 42 states now tax more than the first $7,000 of employee earnings. In fact, federal law requires a base maximum tax rate of at least 5.4 percent for state unemployment insurance taxes; California is right at that federal minimum.

“The testimony by the Employment Development Department presented today candidly admitted that the current funding system is ‘broken,'” Swanson said in his statement. “While the current economic downturn has certainly exacerbated the problem, it is clear that the root of the problem is structural — the current system is not funded properly to get through tough economic times when there is more demand on the fund.”

If the fund runs dry, the state must borrow from the federal government and later pay it back, perhaps with interest — and federal law says that interest can’t come from the unemployment fund, so our already deficit-plagued general fund could be put at risk. That could amount to an $85 million general-fund liability by 2010, Swanson said.

So lawmakers had better find some kum-ba-yah territory on this issue quickly, he said, and the Bush Administration and Congress had better find a way to work assistance for unemployed workers into the next economic stimulus package.

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