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Unemployment fund depleted: State needs fix

July 29, 2013 12:00:00 AM PDT
As the economy slowly recovers, Governor Jerry Brown is looking at ways to fix the state's ailing unemployment insurance program. But his current proposal, raising the payroll tax, is facing stiff opposition.

The state budget deficit is finally zero, but there's one account that still has a negative balance: the unemployment fund. Brown wants to solve the problem before lawmakers break for the year in mid-September.

Normally, up to 26 weeks of unemployment benefits are available. But as the recession worsened, Congress loaned out money to states extending that period people can receive a check to 99 weeks.

"What we have now is something that's very antiquated," said Loree Levy, deputy director, California Employment Development Department (EDD).

Now the tab is due, and EDD says the balance is $10 billion.

"What happened was we just couldn't collect enough from employers to offset what was getting paid out to unemployed workers," said Levy.

With the program insolvent, Governor Jerry Brown's Labor Secretary is meeting with business groups and employee unions for input on how to solve the deficit.

One idea is to raise the payroll tax. Employers contribute about 6.2 percent on a worker's first $7,000 of wages into the unemployment fund, a figure that hasn't changed in nearly three decades.

The Brown Administration won't detail its proposal but California could follow 48 other states and raise that $7,000 wage threshold.

"When you look at the size of the debt, that means that there's going to be for all businesses, large and small, at least a $25-an-employee increase over the next couple of years at a minimum," said Rob Lapsley, president of California Business Roundtable.

While California's economy is improving with more jobs being created, the California Small Business Association says this is hardly the time to raise taxes on employers.

"The thing we worry the most about today is that they will downsize on the number of jobs because they have to pick up the amount of money from someplace to pay the increased tax," said Betty Jo Toccoli, president, California Small Business Association.

"The aim here is to get to a point where you can continue to cover the cost of regular unemployment benefits to eliminate that deficit and the interest payments being paid and to come up with a rainy day fund," said Levy.

To get rid of the deficit state leaders could also cut benefits, which in California is up to $450 per week. But that too is an unpopular idea, especially since the maximum time period has just been lowered to 73 weeks.


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