When the economy was booming, the fund was full. The recession
drained it. Now, just when those who underwrite the costs can least
afford it, they are asked to contribute the most.
When the economy was booming, the fund was full. The recession drained it. Now, just when those who underwrite the costs can least afford it, they are asked to contribute the most.
What we have here – and it’s a familiar pattern for a state-run program – is a failure to look ahead. In this case, the fund that has dried up is the unemployment insurance fund, which pays benefits to people who lose their jobs.
The state projects it will be $1.2 billion in the hole by year’s end. The feds have been asked for a loan. And taxes on employers, which sustain the fund, are at the highest level allowed by law.
The problem is not that the fund has been drawn down in a recession – that’s the point of having it. And no one can be blamed for not anticipating that the downturn in employment would be as deep and as long as it has been.
But that doesn’t let California off the hook. Predictions of trouble were ignored by the Legislature. Now it’s time to set the fund right.
The fund is “pay as you go.” When the fund has built up in times of full employment, employers pay a low tax, because there is no immediate need for more money. When the fund is depleted, in bad times, employers pay much more, to cover benefits to unemployed workers. A funding method that builds larger reserves in good times would spare businesses the higher tax when they can afford it least.
The tax should apply to more of a worker’s wage than it now does. Employers owe unemployment tax on the first $7,000 they pay a worker. The $7,000 hasn’t changed since 1983. Adjusted for inflation, it would be $13,000 today.
On the other side of the equation, the benefits need review. Efforts to reduce fraud should be redoubled. Estimates run as high as $250 million. California is also quick to qualify workers for benefits; they need not have worked very long before being eligible, if laid off.
In 2001, as the Legislature was handing out gifts all around even as the economic boom was busting, benefits were raised. Part of the increase was overdue; no raises had been granted since 1989. But the Legislature and Gov. Gray Davis built in additional year-by-year raises that more than compensated for inflation, without making adjustments in the revenue or in eligibility criteria.
The result was predictable, even before the economy turned sour. But it’s not inevitable.
Here’s one more opportunity for the Legislature to show it has gained from the pain of the last few years. A rainy-day fund that’s structured to have enough money for the rainy days shouldn’t be impossible to devise.
