Groups Weigh In On Plan for Unemployment Insurance Fund

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(Sacramento, CA)
Monday, November 17, 2008

The state unemployment fund is near bankruptcy… In fact, state officials say it will be in the red in January.  So how do you fix the system that’s feeling the strain of rising unemployment?   Governor Schwarzenegger says everybody—both employers and employees—should give a bit.

 “I’m asking businesses to gradually pay more while we tighten eligibility and benefits slightly…” 

Employers now pay a tax that’s based on a worker’s first seven-thousand dollars in pay. The Governor wants to raise that—and have them pay the tax on the first 10-thousand-five-hundred dollars in pay.  Schwarzenegger also proposes cutting benefit levels for some workers.  Instead of receiving half their pay—some would get 45-percent.  Michael Shaw is with the National Federation of Independent Business in California-- that represents small business owners.  He says that plan represents increased costs for business. And that would slow an economic recovery by reducing the number of jobs out there. 

“The biggest expenditure in the average business is labor and so if costs are increased, the easiest way to make that up is to cut employment.” 

As for workers, Emily Clayton with the California Labor Federation says cutting their benefits is not the answer.  She says that would mean less money to spend in local businesses. 

“Laid off workers are most likely to spend that money directly on the economy on bread and butter issues like groceries, gas, the mortgage, sending their kids to school.” 

Clayton says the burden of replenishing the fund should be borne by employers—whose contributions have largely remained the same. Michael Shaw—who represents small businesses-- says the key is to control costs—and suggests cracking down on fraudulent benefits. 

It will be up to the state legislature to find the middle ground and hash out an agreement.  In the meantime Governor Schwarzenegger says payments to the unemployed can be maintained by taking out a federal loan.