Collaboration Among Stakeholders Needed to Review Impact of Options
(October 30, 2008) The California Chamber of Commerce is calling for cooperation in examining options to save the dwindling employer-funded state unemployment insurance (UI) fund from bankruptcy, noting that policymakers need to be mindful of the costs of doing business in the state.
California’s high unemployment rate has accelerated the solvency troubles of the UI fund. The state’s unemployment rate reached 7.7 percent in August, prompting the CalChamber and Employment Development Department (EDD) officials to warn of the consequences to the UI fund at an October 8 Assembly Insurance Committee hearing.
The recent spike in unemployment forced the EDD to update its May projection that the UI fund would be in the red by the end of 2009. EDD now estimates the UI fund could be negative $500 million by January 2009.
If the economy fails to improve, causing demands on the fund to outstrip tax receipts, California would be forced to borrow more money in order to meet its payment obligations to qualified individuals, as it did in 2004 when the fund was on the brink of bankruptcy.
Collaboration
The CalChamber is calling for collaboration in an effort to prevent such an occurrence.
“The business community has been in meetings recently, evaluating not only the problem, but the options,” CalChamber policy advocate Jason Schmelzer told the Assembly Insurance Committee.
The CalChamber has invited the labor community to have a sit-down discussion about moving forward with a plan and looks forward to working with the EDD and Governor Arnold Schwarzenegger’s administration, Schmelzer said.
“We want stakeholder discussions with everyone at the table,” Schmelzer said. A fundamental piece of the negotiations, he said, needs to be a discussion of the overall cost of doing business in California.
Impending Crisis
The housing crisis and its impact on related industries have significantly dampened the California economy.
“That’s not to say that strictly the business climate is to blame for unemployment; that’s clearly not the case,” Schmelzer said. “But to say that there is not a correlation between business climate, tax burden, litigation climate, the cost of industrial space and the unemployment situation in states — I think it is relatively clear that there is a connection there.”
In 2004, California took out an emergency loan of $1.4 billion from the federal government for the first time in the state’s history and increased taxes on employers to the maximum “F” level plus a 15 percent surcharge, the highest allowed by law.
Subsequent economic growth and job creation in California temporarily improved the fiscal health of the fund, which skirted insolvency at the end of 2004 with a razor-thin reserve of $397 million. The surcharge remains in place.
Analyzing Impact of Options
Schmelzer highlighted the need for policymakers to be mindful of the cost burden various proposals place on employers. For example, the 2008-09 state budget includes $5.8 billion in new tax liabilities for employers. Under consideration this year, but vetoed by the Governor, was a proposal (SB 974-Lowenthal; D-Long Beach) that would in essence have placed $500 million in “fees” on imports and exports by imposing an illegal tax on containers moving through the state’s ports.
“Businesses have a finite amount of resources that are available to them to do things such as create jobs and grow in the state. When that money is spent for them, as it is in many cases through these programs, they can’t create jobs,” Schmelzer said.
With the multitude of factors that are going to go into resolving the problem, the CalChamber looks forward to working with all stakeholders to improve the solvency of the UI fund.
Staff Contact: Jason Schmelzer