(January 20, 2009) The California Legislature is considering a fast-tracked bill that would put an additional financial strain on the state’s dwindling Unemployment Insurance (UI) Trust Fund by allowing part-time workers to receive unemployment insurance benefits while looking for permanent full-time work.

SBX3 9 (Ducheny; D-San Diego)—to be amended per Legislative Counsel RN 09 02163—further loosens eligibility standards in California’s struggling UI system and will lead to increased costs for California employers.

Employers alone pay the taxes supporting the UI fund, which is already stretched to capacity by the increases in unemployment during the current severe recession. While SBX3 9 loosens eligibility standards and leads to an increased demand on limited funds, it does nothing to increase the financial health of California’s UI fund.

The state Employment Development Department (EDD) currently projects that California’s UI fund will be insolvent in the first quarter of this year. When the fund becomes insolvent, California will have to borrow money from the federal government and pay interest on the principal. Because the interest cannot be paid out of the UI fund, it must come from another source. This will put increased pressure on California’s struggling General Fund and could deprive Californians of vital resources for programs such as job retraining, which ultimately help people stay employed and get back to work.

Compliance with Federal Law

The stated purpose of SBX3 9 is to bring federal funds to California’s unemployed population by adjusting state UI laws to be consistent with requirements under HR 290 (McDermott; D-Wash.)—the Unemployment Insurance Modernization Act.

HR 290 provides for special transfers of federal funds to states as an incentive to loosen UI benefit eligibility standards and make other changes to “modernize” a state’s UI system. HR 290 has only recently been introduced in Congress, however, and it is unclear at this time whether the bill is in its final form.

Make Only Needed Changes

If the goal of SBX3 9 is to attract federal funds to stimulate California’s economy, the Legislature should focus on making only the most effective changes necessary to qualify for those funds. All other issues should be tabled for a more thorough comprehensive discussion aimed at rehabilitating California’s near insolvent UI fund. HR 290 does not require California to increase the income disregard for part-time workers.

More Income Permitted

SBX3 9 increases costs to California’s UI fund by increasing the amount of income disregarded for unemployment benefits. Under current law, a person who is unemployed and receiving UI benefits can earn up to $25 per week while still qualifying for benefits, as long as that person’s weekly benefits amount is more than $25.

SBX3 9 increases that amount to $200, thereby leading to an increase in the number of people who qualify for UI benefits. California already has some of the most progressive eligibility standards in the nation.

The California Chamber of Commerce is pointing out that with the UI fund in significant financial trouble, this is not the time to loosen eligibility standards and create an even greater demand on the fund.

Base Period Calculation

SBX3 9 also adjusts the base period calculation used in determining eligibility for UI benefits by creating an alternative base period calculation that can be used to qualify for benefits. If a person seeking UI benefits does not qualify under current California law, that person would be allowed to use an alternative method for reaching eligibility.

This change in law would lead to additional demand on the UI fund and is not required to conform with federal law and attract stimulus funds.

CalChamber Position

The CalChamber believes that the California Legislature should wait until the contents of the federal legislation have been finalized before the state takes action to comply. By waiting for the final version of the federal legislation, the state can take more time to analyze the options and determine which compliance path provides the greatest benefit to California employees while creating the least amount of financial pressure on California’s near-insolvent UI fund.

The CalChamber appreciates and commends state legislative efforts to bring federal funds to California’s unemployed population and stimulate the economy with $900 million that would not otherwise have been spent in California. However, the estimated $900 million in federal funds would not be spent immediately. Early estimates from Insurance Committee staff indicate that the changes proposed under SBX3 9 would cause only $150 million of the total federal stimulus funds to be spent each year. In short, the $900 million in federal funds would be spent over the course of five to six years.

The CalChamber supports stimulating California’s economy in order to help the state recover from the recession, but is very concerned about making permanent changes to UI laws that will create new financial burdens on the business community once the federal funds dry up.

The CalChamber believes the Legislature should act timely to attract these funds, but should also act deliberately enough to determine if the short-term benefits of this minor stimulus outweigh the long term cost of adding a burden to the state’s UI fund and the businesses that fund it.

Although the CalChamber supports making reasonable adjustments to attract $900 million in federal stimulus money, it cannot support changes that would unnecessarily increase the financial burden on California’s struggling UI fund.

To summarize, the CalChamber believes that the Legislature should wait until the federal law is finalized before seeking conformity; deliberately select a compliance option that puts the least amount of pressure on the struggling UI fund; and seek conformity with federal law only if the short-term benefits outweigh the long-term costs.