Jobless insurance again haunts Legislature

OLYMPIA — Business and labor leaders are gearing up for another round in what has become an almost perennial bout over the state's unemployment insurance system.

Labor unions are pushing to permanently undo a major overhaul approved three years ago that took a big bite out of unemployment benefits, especially for workers in seasonal industries.

Businesses, meanwhile, are fighting to preserve hundreds of millions of dollars' worth of tax cuts and protect against future tax increases.

Caught in the crossfire, lawmakers once again are struggling to get their brains around one of state government's most complex and arcane issues.

Labor leaders are pressing hard to get a bill passed before the Legislature's March 9 adjournment. They don't want to risk the chance that business-friendly Republicans will reclaim control of the House or Senate in next fall's election.

"We've got the votes now, so let's get it taken care of," said Rick Bender, president of the Washington State Labor Council, AFL-CIO.

Business leaders are urging lawmakers to give the two sides more time to come up with a compromise, even if it means waiting until next year.

"We have the time to do it," said Carolyn Logue, lobbyist for the state chapter of the National Federation of Independent Business. "There's no reason we have to jam it through in a 60-day session."

For decades, unemployment insurance — "U.I." in legislative parlance — has been a constant source of bickering and infighting for unions and businesses.

But things really flared up in 2003.

That's when lawmakers — ignoring protest from unions — handed businesses a landmark victory by approving perhaps the biggest benefit reduction since the program was founded nearly a century ago. The changes were part of a package that lawmakers rushed through to help entice Boeing to build its newest jetliner project, the 787, in Washington.

The overhaul was projected to save businesses more than $100 million a year in unemployment-insurance taxes.

Though the legislation was approved with wide bipartisan support, many Democrats now agree with union leaders that it went too far.

The biggest fight is over how the state calculates unemployment benefits.

Before 2003, the state used an average based on a worker's highest two quarters of earnings for the year. But under the 2003 rewrite, the state began phasing in a new formula based on the average of an unemployed worker's previous four quarters of earnings.

On average, the switch cut unemployment benefits by $40 to $50 per week. But laid-off construction workers, farm laborers and other seasonal employees were especially hard-hit.

Under the old two-quarter system, for instance, a laid-off worker earning $25,000 the first half of the year, but only $5,000 in the second half qualified for the maximum benefit of $496 a week. Under the four-quarter system, that same worker would receive $300 a week.

Last year, the Legislature's Democratic majorities voted to temporarily restore two-quarter averaging. The idea was to give labor, business and state officials time to come up with a compromise.

If lawmakers don't approve a permanent fix by July 2007, the state will revert to the 2003 changes.

To help lawmakers craft a compromise, the state brought in Wayne Vroman, a national unemployment-insurance expert with the Urban Institute.

In a presentation to lawmakers last month, Vroman confirmed one of the business community's biggest beefs: that Washington's unemployment-insurance system has some of the richest benefits and highest taxes in the nation.

But Vroman said the system's generous benefits aren't the only reason Washington's system is so costly. Another big factor, he said, is that the state's unemployment rate during the past decade was nearly 20 percent higher than the national average.

Vroman's top recommendation to lawmakers was to permanently restore two-quarter averaging.

Earlier this week, Senate Democrats passed legislation to do that. But their bill didn't include some of Vroman's other recommendations aimed at easing the burden on employers, such as reducing benefits for workers who repeatedly file unemployment claims.

Republicans immediately accused the Democrats of pushing the bill through before business lobbyists had a chance to offer a counter proposal.

Sen. Linda Evans Parlette, R-Wenatchee, said the Democrats' bill is "totally lopsided" in favor of labor.

"We were promised a bipartisan, collaborative process," Parlette said.

Democrats vowed to keep negotiating as the bill moves through the House, where it is scheduled to get its first hearing Monday.

"We're not trying to jam anything through," said House Speaker Frank Chopp, D-Seattle.

The Democrats' plan keeps many of the 2003 tax savings in place. State officials project that, barring a recession, it will save businesses more than $400 million during the next eight years.

"At the end of the day, there's still a net tax cut," said Sheryl Hutchison, spokeswoman for the state Employment Security Department. "Taxes will come down more than benefits go up."

Under the Democrats' plan, the state would absorb the increased benefits largely by dipping into a surplus in the state's unemployment-insurance trust fund, which has a record $2.2 billion balance.

Republicans and business lobbyists warn that, if another recession were to hit, the fund could be drained so far that the state would be forced to drastically increase taxes.

But state projections indicate the fund would remain stable even in a major recession.

"Solvency is not an issue," Hutchison said.

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