Effort to save state’s unemployment insurance program is underway

SACRAMENTO — A rescue effort is underway for the state’s financially troubled unemployment insurance program, an economic lifeline that currently provides weekly monetary support for 525,000 jobless Californians.

More than $10 billion in the red, the unemployment insurance fund has been spiraling toward bankruptcy in recent years, even as it continues to provide weekly jobless benefits of as much as $450 for job seekers.

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Unemployment, as it’s best known, is a primary element of the state’s economic safety net. Funded by employer taxes, it’s been providing jobless benefits since 1935. The assistance, both from the state’s basic 26-week program and a number of federal extensions, has been a big help for the long-term jobless and a boon for businesses where they buy gas, groceries and other staples.

But in recent years, California’s unemployment insurance fund has been hammered by the worst economic hard times since the Great Depression.

Fixing the fund requires some politically difficult, but mathematically straightforward, choices by policymakers: raise employer contributions, cut benefits, or both.

None of those options is popular, but major stakeholders agree that an overhaul is inevitable. So top aides to Gov. Jerry Brown are meeting with business and labor representatives in what some participants say is the most serious effort since the early 2000s to stabilize the system and keep benefits flowing.

“We certainly are going to put forth a full-court effort to make some progress,” said Marty Morgenstern, secretary of the California Labor and Workforce Development Agency. “Everyone we’ve met with so far seems to recognize this is a serious problem.... We’ve got to bring in enough money to pay the benefits, pay off the deficit and have a little rainy-day fund so we don’t fall into this problem again.”

Morgenstern declined to say who’s involved in the early talks, other than to describe them as “the usual suspects.” But people with knowledge of the meetings, who asked not to be identified, said they include the California Chamber of Commerce, the California Grocers Assn., the California Retailers Assn., small-business advocates and the California Labor Federation.

In addition to the state jobless benefits that last for 26 weeks, there are additional benefits paid for by the federal government that kick in for an additional 47 weeks. Those extended federal benefits are being trimmed 17.7% starting April 28.

Any reduction in either program could be a disaster for Jesus Mendiola, 36, of West Covina. Laid off in November when the Hostess Brands Inc. bakery in Los Angeles closed, he said he’s struggling to feed his family.

“It’s barely enough to survive but definitely helps out,” said the single father of two young daughters. “Anything less than $450 a week wouldn’t work for me.”

Until now, doing nothing has been the state Legislature’s preferred plan for dealing with an unemployment insurance fund that was financially shaky even before the Great Recession. It plunged into a deficit in early 2009, forcing the state to borrow from the federal government.

That debt ballooned to $10.3 billion, the equivalent of more than 10% of the state’s current annual budget, at the end of last year and is expected to remain about that high through 2013.

Servicing the loan is a drain on California’s finances. The state treasury had to borrow money from the disability insurance fund to make a $303.5-million interest payment to the federal government in September 2011 and $308.2 million a year later. An estimated $291.2 million more will come due in the fall. The loans must be repaid to the disability fund by 2017.

In the meantime, Washington is hitting California employers with automatic federal unemployment tax hikes totaling $290 million in 2012, $581.8 million in 2013 and an estimated $893.8 million in 2014.

“It’s a big hole that was created,” said Loree Levy, spokeswoman for the California Employment Development Department, which administers unemployment insurance benefits. “The fund simply is not going to recover on its own.”

Labor and its allies, including advocates for low-wage workers, say they want to find a compromise with management to make unemployment insurance stable again.

They’re hoping to keep alive the cooperative spirit that led to a deal last summer to overhaul workers’ compensation insurance. The agreement, which was brokered by Brown, saved employers billions of dollars while boosting permanent disability benefits for victims of job-related injuries and illnesses.

But Angie Wei, the chief lobbyist for the California Labor Federation, vowed to make sure that changes don’t come at the expense of already hard-hit, out-of-work Californians.

Labor, she said, won’t agree to a cut in California unemployment benefits, which average $297 a week. They range from $40 to $450, depending on the laid-off person’s previous pay level.

Unions and Democratic lawmakers, who make up more than two-thirds of the members of both the state Assembly and Senate, don’t have the “political will to take benefits away from unemployed workers,” Wei said.

Labor would instead like to see the state collect more money from employers by raising the amount of a worker’s pay, currently only the first $7,000 a year, that is subject to unemployment taxes. California currently bases unemployment insurance taxes on the minimum level allowed by federal law. What’s more, California’s benefits, as a percentage of average wages, rank 43rd out of 50 states, said Maurice Emsellem, co-policy director of the National Employment Law Project.

Employers counter that they’re working hard with all parties, including labor, to find an economical solution to the unemployment insurance crisis.

“The resolution must provide needed reforms and ensure that the competitiveness of California business is not compromised or California’s economic recovery unduly harmed,” Marti Fisher, a lobbyist with the California Chamber of Commerce, said in a statement.

The chamber declined to specify any possible reforms.

There are signs that employers are ready for some increase in costs. Some hikes probably can’t be avoided, conceded Scott Hauge, president of the advocacy group Small Business California and a San Francisco insurance broker.

“We expect some increase,” he said, “but we don’t want all of it to be passed on to business.”

marc.lifsher@latimes.com