Unemployment Benefits Will Increase Jan. 1

Moving to assist laid-off workers and to stimulate the economy in the aftermath of the Sept. 11 terrorist attacks, Gov. Gray Davis today will sign legislation boosting unemployment benefits by $100 a week starting Jan. 1, the first such raise in nine years.

Davis vetoed similar legislation last year. But heading into a reelection fight in 2002, the Democratic governor, his standing lagging in public opinion polls, is seeking to shore up support from organized labor, which had made an increase in unemployment benefits one of its top priorities this year.

“In the wake of the Sept. 11 tragedy, tens of thousands of Americans have been thrown out of work,” Davis told The Times, noting he will sign the bill in Los Angeles today.

“I want to make sure we have unemployment benefits that allow these workers to survive until the economy recovers.”

Under the legislation, SB 40 by Sen. Richard Alarcon (D-Sylmar), people who are laid off will receive maximum weekly checks of $330 starting Jan. 1, up from $230 per week. There will be additional increases of $40 per week in each year until 2005, when the maximum unemployment insurance check will be $450 per week.

Despite California’s high cost of living, the current maximum of $230 is lower than all but four other states--Arizona, South Dakota, Alabama and Mississippi.

The increase brought about by Alarcon’s bill will push California’s benefits to 16th among all states, Davis administration officials say.

“Signing it is simply the right thing to do,” said Tom Rankin, the main lobbyist for the California Labor Federation in Sacramento. “It is good policy, especially given what happened on Sept. 11.”

As a result of the booming economy in the late 1990s, California’s unemployment insurance trust fund ballooned to more than $6 billion.

Given the size of the fund, state analysts believe they can pay higher benefits without imposing additional taxes on businesses for several years.

However, business groups that opposed the increase warn that the legislation could result in significant tax hikes on employers at a time when profits are down and they are being hit by high electricity costs.

Opponents, including the California Chamber of Commerce and the California Manufacturers and Technology Assn., say the higher benefits will force increases in employers’ payments of $160 million in 2004, and $782 million in 2005, requiring a 32% business unemployment insurance tax hike.

On Sunday, Chamber of Commerce general counsel Fred Main appeared resigned to the governor’s decision to sign the legislation.

“We understand the circumstances,” Main said, citing the economic disruption brought about by the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.

“The governor is a Democrat with a labor constituency and, at some point, we have to accept that as a reality and work with it.”

Main and other business lobbyists are redoubling their efforts to convince Davis to veto organized labor’s second major legislative initiative, one to raise workers’ compensation benefits for injured employees.

Davis has not said what he will do with that measure, although many lobbyists and lawmakers working on the issue assume that he will veto it, in light of his decision to raise unemployment benefits.

“If the workers’ comp benefit bill is vetoed, it would ameliorate the signing of this bill,” Main said. “If both are signed, it would have a very bad impact on businesses.”

Administered by the Employment Development Department, the unemployment insurance program provides minimum checks of $40 per week for 26 weeks, rising to a maximum weekly check of $230.

Under the current formula, unemployment checks can be only 39% of the wages lost, not to exceed $230.

Alarcon’s bill would raise the so-called replacement level to 45% of a worker’s weekly pay after Jan. 1, to a maximum of $330.

Alarcon’s Bill Benefits Part-Time Workers Too

The weekly unemployment check would rise in $40 increments each year after that until 2005, when the maximum benefit will be half the worker’s weekly check, up to $450 per week.

The legislation also expands the right of part-time workers to obtain unemployment benefits, and expands the ability of working students to obtain such benefits.

At Davis’ behest, Alarcon dropped provisions that would have pushed unemployment benefits up automatically as the cost of living increases.

The bill Davis vetoed last year contained the so-called indexing provision.

“It couldn’t come at a better time,” Alarcon said of Davis’ decision to sign his legislation.

“The economy is slowing down.

“The tragedy in New York and Washington has caused a tremendous down-surge in California’s economy.”

The assumption by state officials that there will be no need for an employer tax increase was based on employment numbers before the Sept. 11 terrorist attacks.

Even before the attacks, the economy was slowing. California’s unemployment rate rose to 5.2% in August, a 0.2% rise from the prior month.

State Department of Finance economists had assumed that unemployment would peak at 5.7% next year, before falling to 5.6% in 2003 and 5.3% in 2004.

That could change for the worse because of the terrorist attacks.

Senior Davis administration officials said Sunday that 20,000 airline industry employees, ranging from pilots to airport food service workers, could lose jobs in California because of the decline in air travel since Sept. 11.

“The near-term is very uncertain and probably not very good,” said Ted Gibson, California’s senior state economist.

Trade Group Worries About Employers’ Costs

But despite the terrorist attacks, Gibson said he doubts that California’s unemployment level will approach the 9.7% rate at the peak of the recession in 1992 and early 1993.

In this downturn, Gibson said, employment in aerospace and electronics may rise if the federal government increases military spending and companies increase security precautions.

Willie Washington, lobbyist for the California Manufacturers and Technology Assn., said that with layoffs before and after the Sept. 11 terrorist attacks, there could be 200,000 more Californians out of jobs by the first of the year when the bill takes effect.

If that happens, he said, the unemployment fund could quickly become drained and employers’ costs might increase quickly.