Benefits for Ex-Convicts Stir Dispute : State: U.S. says ballot proposition in ’96 to curb jobless aid to former inmates violates federal law and could raise businesses’ unemployment taxes.

A seemingly innocuous ballot measure meant to keep a few hundred ex-convicts from collecting jobless benefits has ignited a federal and state conflict that unintentionally could cause California unemployment taxes to skyrocket.

State officials have been scrambling for a way to resolve the issue ever since U.S. Department of Labor officials advised them that the measure known as Proposition 194 violates federal law and could put California’s unemployment program in jeopardy if it passes.

Proposition 194, a proposal that was so noncontroversial that it was put on the ballot by a nearly unanimous vote, prevents ex-prisoners from qualifying for unemployment benefits by virtue of their participation in an inmate jobs program.

But what was perceived as the simplest of issues now has been complicated by the federal concerns and has left state officials with few options. To make matters worse, it’s too late for the measure to be pulled from the March ballot and, with little opposition at this point, there is small chance that it will be defeated.

“It’s being looked at now by the [California] Department of Corrections, the [California] Employment Development Department and the federal Department of Labor,” said EDD spokeswoman Suzanne Schroeder. “We’re all looking at ways this could be handled.”

For lawmakers, the dilemma is perplexing. Who, asked Joe Wocca, policy director for Senate Republican Leader Rob Hurtt (R-Garden Grove), could quarrel with a proposition that would prevent former convicts who worked in prison job programs from collecting unemployment benefits once they were released?

He said Hurtt proposed the measure when he discovered that ex-prisoners were receiving unemployment pay because they earned wages as participants in the Joint Venture Program, a public-private partnership that provides jobs for inmates.

The last thing lawmakers expected, Wocca said, was a politely worded letter from Labor Department officials warning that Hurtt’s proposal for ending the practice clashed directly with federal law.

“What I can’t believe is that the Clinton administration would be so impolitic about this as to tell Californians they have to give prisoners additional benefits,” he said.

But to John Humphrey, the Labor Department’s regional director for unemployment insurance, the issue is neither politics nor prisoners but a law governing unemployment benefits that he believes he is required to enforce.

“Believe me,” he said, “this has nothing to do with the issue of the prisoners. It could have been people from Mars. It’s just a matter of what the law says.”

And, in this case, it says unemployment benefits can only be denied when a worker’s claim is fraudulent or when a worker has been fired for misconduct.

“Release from prison,” said Humphrey, a 20-year civil servant, “is not construed as misconduct.”

If California approves Proposition 194, the federal officials told the state, the U.S. secretary of labor will convene a hearing after which he could declare the state’s program out of conformity with federal law.

If that happens, they said, employers will have to pay a full 6.2% federal unemployment tax and will no longer be able to use the unemployment taxes they submit to the state as credit toward their federal obligation.

Employers pay both a state and a federal unemployment tax but their state taxes are credited against the federal tax. Without the credit they would be required to pay the full federal tax of 6.2% plus a state tax that can be a maximum of 5.4%.

Humphrey said the federal government is eager to work out a solution with the state and has suggested that under federal law it would be legal to limit ex-prisoners to partial benefits. Others suggested that the state’s congressional delegation could consider passing a law that would remove the conflict with federal statute.

Wocca finds none of the solutions very appealing. Although the state officials do not dispute the federal interpretations, Wocca believes both bureaucracies have misinterpreted the law.

“There is nothing in state law or federal law that demands that a state pay its prisoners unemployment insurance simply because they’ve been paroled out of their prison jobs,” he said.

He would prefer that officials wait until the measure passes and then ask federal officials to waive the law. He predicted that in an election year it would be unlikely that labor officials would allow higher taxes to be imposed on businesses just because of a conflict between state and federal law.

“Until I see that letter from [Secretary of Labor] Robert Reich, I’m not too worried about this,” he said.

Stephen C. Birdlebough, the most visible opponent of the proposition, said he found it amusing that a ballot measure that affected so few people was causing so much trouble.

Birdlebough, legislative advocate for the Friends Committee on Legislation, a Quaker organization, said only about 80 ex-prisoners have applied for the benefits in the last few years.

He said his organization is opposing Proposition 194 because it believes the unemployment benefits provide an economic bridge for ex-convicts between prison and their first job.

“From a public protection perspective, our view is this kind of unemployment insurance protection is very important,” he said.