Gov. Arnold Schwarzenegger unveiled a plan to fix California's near bankrupt unemployment insurance fund on Thursday by cutting worker benefits, increasing company payroll taxes and borrowing from the federal government.
Alluding to projections that the fund would run a $2.4 deficit in 2009 and a $4.9 billion deficit by 2010 if the current system is unchanged, Schwar-zenegger said his proposals will save the fund from certain bankruptcy and nudge it back into the black by 2010.
"We have a dramatic situation here, and it takes dramatic solutions and immediate action," he said at a news conference.
The plan needs legislative approval. Among its key points:
• Schwarzenegger would borrow from the federal government through 2009 so the state could keep paying benefits to the unemployed. That will cost state taxpayers $20.2 million in interest payments.
• Businesses currently are taxed on the first $7,000 a year that an employee earns. Schwarzenegger would increase that amount to $10,500 and would boost contributions that employers pay into the fund by between $56 and $416 per worker. Companies now pay a maximum $434 per worker. That maximum would rise to $850 a year in January 2010.
• The governor will cut the amount that some unemployed workers receive from 50 percent of their weekly pay to 45 percent.
For example, a worker who earned $800 a week and lost his job currently gets a $400 weekly check. Starting in January 2009, that benefit would drop to $360 a week.
People who earn $52,000 or more a year won't be affected because the $450 maximum weekly benefit is unchanged.
The administration's plan takes a little away from everyone, Employment Development Department spokeswoman Loree Levy said.
"It also allows the state economy a year to rebound a bit before employers pay more," Levy said.
Jim Wunderman, president of the Bay Area Council, a business group, applauded the effort. "Leaders have to do what's necessary, not what's nice," he said.
But California Chamber of Commerce President Allan Zaremberg urged legislators to adopt a go-slow approach.
"The administration's proposal does not raise the tax until 2010. We can better evaluate the impact on the economy and the fund if we wait until later in 2009 to consider this proposal," he said.
Art Pulaski, the California Labor Federation's executive secretary-treasurer, said in a statement that the governor's plan to cut benefits "is nothing short of shameful."
"These are benefits that families desperately need to pay bills and keep their homes," he said.
Call The Bee's Andrew McIntosh, (916) 321-1215.