Unemployment Fund Woes Hit Businesses
By HOWARD FINE
Jennifer Corbett-Shramo got a shock recently when she found out that rising unemployment insurance taxes would cost her janitorial company $16,000 each month.
“We had just raised our rates because of workers’ compensation and other costs,” said Corbett-Shramo, chief executive of Irvine-based Pacific Building Care Inc. “Now we have had to go back to our clients and request another increase. Some of our clients have left us.”
By the end of next month, virtually every employer in the state will have to write a check for a double-blow that’s coming all at once: a hike in unemployment insurance rates, plus an additional 15% surcharge.
The cause: the state Unemployment Insurance Trust Fund, an employer-funded pool established to pay weekly benefits to unemployed workers.
Just four years ago, the fund had a surplus of $6 billion. But clobbered by the recession, the terrorist attacks and three rounds of benefit hikes, the fund just about has run out of money.
“The bills are much higher than many thought they would be,” said Julianne Broyles, director of employee relations and small business with the Sacramento-based California Chamber of Commerce.
The dwindling of funds late last year triggered an increase in the payroll tax rate paid by employers, along with a first-ever surcharge.
The total increase averaged about $136 per worker. But for companies in high-turnover industries,such as janitorial services,the increases were much higher.
Pacific Building Care’s rates rose 70% on its nearly 1,000 janitors who clean buildings in Orange and Los Angeles counties.
So far, Pacific Building Care has had to lay off only one administrative worker. But Corbett-Shramo said that could change unless some relief comes.
For now, help appears unlikely.
Even the recent increases haven’t been enough to stave off the fund’s collapse. And in December, the Schwarzenegger administration had to seek a $1.3 billion emergency loan from the federal government to keep the fund from falling $1.2 billion into the red by the end of this year.
The state faces a crunch this September, when interest on the loan starts to come due. Because employers now are paying the maximum tax allowed by law, the interest must be paid out of the general fund, as would any future shortfalls in the fund.
And with benefit increases slated for each of the next two years, the fund is projected to be in the red at least through 2007.
The only bright spot: a slowdown in the number of unemployment claims rolling in.
“We’ve had slightly fewer claims than we expected last December when we applied for the loan,” state Employment Development Department spokeswoman Suzanne Schroeder said. “That’s allowed the fund to stay in the black a few extra weeks. But barring some miraculous turnaround, the fund still is headed into the red and we expect to start borrowing any week now.”
And the fund’s ongoing problems aren’t helping the overall job situation.
For most companies, rising unemployment taxes by themselves are not likely to cause layoffs or consolidation. But coupled with out-of-control workers’ compensation and healthcare costs, there’s much less incentive to hire.
Although overshadowed by the battle over workers’ compensation reform, efforts are under way in Sacramento to fix the unemployment insurance trust fund.
But the reform effort isn’t proving easy.
Employers and their Republican allies want the future benefit increases put on hold, along with a tightening of eligibility standards for unemployment payouts.
In addition, the chamber’s Broyles said, the Legislature must limit payouts only to those workers who are laid off as companies downsize. Currently, she said, the state is paying benefits to many workers who leave a job voluntarily or are fired with cause. Broyles estimated this abuse is costing the fund at least $250 million a year.
Labor unions and some of their Democrat allies in the Legislature want to leave the benefit increases and current eligibility standards in place. They favor raising the current cap on employer tax rates so that employers would pick up all future shortfalls.
In the past six weeks, both sides have met separately with the Schwarzenegger officials. In addition, a working group composed of labor and employer representatives and led by an official with the Employment Develop-ment Department has been looking for a compromise.
But that may come too late to save several jobs at Pacific Building Care. Corbett-Shramo said she’s now considering layoffs, along with other cost-saving measures.
“Like everything else, all we’ve seen is the cost of this tax going up and up and up,” Shramo said. “Right now, we’re looking for any reduction that we can get.”
Fine is a staff reporter with the Los Angeles Business Journal.
