Jobless fund on agenda for legislative session

Sacramento —  Gov. Arnold Schwarzenegger moved Friday to bolster the financial health of California’s nearly broke fund that pays unemployment benefits to the state’s jobless.

The governor added the state’s unemployment insurance fund to a growing to-do list for fixing California’s faltering finances that he hopes lawmakers will tackle when he calls a special session of the Legislature next week.

With joblessness at a 12-year high and the economy falling into a recession, the 73-year-old Depression-era program soon will be in the red. The insurance fund, which is financed by taxes paid by employers, is projected to post a $1-billion deficit by the end of March.

If lawmakers and the governor don’t come up with a solution, the fund will be in the hole by $2.4 billion at the end of 2009 and $4.9 billion at the end of 2010, according to a new forecast from the California Employment Development Department. The latest estimate is half again as bad as what the EDD projected as recently as May.

The growing deficits won’t affect payments to out-of-work people. They’re guaranteed by federal law, state labor officials say. But a shortfall would force the state to borrow money from Washington and run up interest charges estimated at $20 million in September 2009 and $133 million more in September 2010.

“Our current economic slowdown has led to unemployment rates in California much higher than economists had predicted,” Schwarzenegger said, “and that has put an additional strain on our unemployment insurance system.”

The fund’s finances have been out of whack for at least the last two decades, the governor said. Sources of revenue -- mainly a tax based on a worker’s first $7,000 of annual wages -- haven’t been revised since 1984.

California’s $7,000 threshold is the minimum amount allowed by federal law and is less than what’s collected by 44 other states, the District of Columbia and the U.S. Virgin Islands.

Benefits were last hiked to a maximum of $450 a week in 2002. Generally, the unemployed are eligible for 26 weeks of benefits. However, some of the current jobless have received a 13-week extension, and Congress now is considering granting a second extension.

Schwarzenegger next week is expected to call a postelection, lame-duck Legislature into special session to deal with a $10-billion-plus budget deficit, a home foreclosure crisis and growing unemployment.

Lawmakers say they’re ready to work. “The Assembly is committed to helping ensure there are enough unemployment insurance funds available to help Californians facing temporary job losses,” said Speaker Karen Bass (D-Los Angeles).

Employers should bear the bulk of the burden for keeping the fund solvent, said Art Pulaski, executive secretary-treasurer of the California Labor Federation. “Employers are failing to hold up their end of the social insurance bargain,” he said. “They’ve been paying the same low rate on the same low wages for more than two decades.”

But business groups counter that it’s not a good idea to boost taxes on employers during a recession, when the economy already is shedding thousands of jobs.

Lawmakers, unions and employers need “to look at the whole picture,” said Michael Shaw, legislative director in California for the National Federation of Independent Businesses, which represents 35,000 small companies. That includes dealing with benefit levels, eligibility and employer taxes as well as finding ways to stimulate overall economic growth, he said.

“The unemployment rate is not going to go down until we create new jobs,” Shaw said.

Republican legislators, who last summer beat back a Schwarzenegger proposal to raise the state sales tax, are not likely to provide the votes needed to raise the unemployment insurance levy, said Sabrina Lockhart, a spokeswoman for Senate Republican Leader Dave Cogdill of Modesto.

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marc.lifsher@latimes.com