OLYMPIA — Lawmakers have reached bipartisan agreement on legislation they hope will resolve a years-long feud over the state's unemployment-insurance program.

The deal, brokered by Democratic and Republican leaders, passed the House late Thursday, 97-1, and is expected to clear the Senate by Saturday.

Business and labor leaders called it a fair compromise.

But unlike most compromises, it appears both sides got their way on the biggest points of dispute. The legislation is expected to raise benefits for laid-off workers while reducing unemployment-insurance taxes for businesses.

Lawmakers could afford this cake-and-eat-it-too approach largely because of a bulging surplus in the state's unemployment-insurance trust fund.

"This is one where everybody can declare victory and go home," said Jeff Johnson, a lobbyist for the Washington State Labor Council.

The agreement would undo the most controversial provision of a bitterly disputed unemployment-insurance overhaul approved three years ago.

In 2003, when the state was vying to win Boeing's 787 project, business leaders persuaded lawmakers to sharply cut unemployment benefits.

Before 2003, a laid-off worker's benefit was based on his or her highest two quarters of earnings for the year. Under the 2003 legislation, the state began moving to a new formula based on four quarters.

The change was projected to save businesses hundreds of millions of dollars. But it also had a big impact on laid-off workers.

On average, it reduced benefits by $40 to $50 per week. Some seasonal workers saw much larger cuts.

"In 2003, labor unions felt strongly that they got rolled by the business community," said Rep. Steve Conway, D-Tacoma.

Last year, union leaders persuaded lawmakers to temporarily return to the old two-quarter system for calculating benefits but continue charging employers based on a four-quarter average.

That formula would be made permanent under the agreement announced Thursday.

Combined with an assortment of other benefit cuts and unemployment-tax reductions still in place from the 2003 overhaul, the new agreement is projected to save businesses more than $300 million over the next eight years.

There are a few possible hitches, including concerns about whether the new benefit-calculation formula complies with federal law.

But a jubilant House Speaker Frank Chopp said he is confident the agreement will hold.

"Labor gets its bottom line and business get theirs," said Chopp, D-Seattle.

The two sides seemed deadlocked last week. But that began to change when the Employment Security Department gave lawmakers new projections that indicate the trust fund is growing much faster than previously thought.

The state has not yet calculated what the new agreement would do to the surplus.

But Gary Chandler, vice president of the Association of Washington Business, said there should be no problems if last week's estimates are accurate.

"This [agreement] should last a long time," he said.

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com

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