Bush Seeks to Shift Burden on Jobless Aid

The Bush administration will ask Congress on Monday to overhaul the nation’s system of unemployment insurance, gradually shifting financial responsibility from the federal government to the states for the Depression-era program that remains a bedrock protection for middle-class workers.

The proposal is part of President Bush’s 2003 budget, which calls for sharp cuts in the federal unemployment tax.

Under the plan, which has been kept closely under wraps, states would assume the unemployment insurance program’s administrative costs. The U.S. Labor Department, however, would continue to oversee the program. And administration officials said there would be no reduction in unemployment benefits.

The plan to reduce the federal government’s financial stake, even when couched as overdue reform, is certain to cause unease among many Democrats and organized labor.

Unemployment insurance is a jointly run program, with the federal government paying for most administrative costs and states financing the benefits, with each part funded by a separate payroll tax levied on employers.

The program has been under attack for years from all sides. State officials contend that red tape from Washington is often excessive. Worker advocates say the modern economy, which has created more part-time and low-paying jobs, requires a broader set of benefits. And many employers say that Washington holds on to too much of their payroll taxes.

“We believe it will make unemployment insurance benefits and employment services more responsive to the needs of employees and business,” said Assistant Labor Secretary Emily Stover DeRocco. “It clearly will give states more flexibility.”

Some argue that the federal government, in fact, should assume an even larger role in the program to ensure that states maintain financially stable, adequate benefit programs.

Just last week, New York and Texas disclosed that they need more than $1 billion combined from Washington to help bail out their unemployment funds. Other state funds also may be in a precarious position.

“The federal government should take more of a role in leading the federal-state unemployment system--not less,” said David Socolow, who follows the issue as a legislative representative for the AFL-CIO.

Unemployment compensation is one of several friction points that are emerging between labor groups and the administration.

In Bush’s budget, to be released Monday, training programs for adults, youth and dislocated workers may face a proposed cut of $875 million, or 25%, according to nongovernmental sources close to the issue.

“Every other day, we hear about thousands of people being laid off from large corporations, and these layoffs always have significant ripple effects,” said Neil Bomberg, a labor specialist for the National Assn. of Counties.

Under the administration’s unemployment insurance plan, the federal government would continue to hold states accountable for making timely and accurate benefit payments to the unemployed. It would retain its role as a lender to shaky state unemployment funds and would continue to participate in the joint program that is designed to provide extended benefits for the long-term unemployed.

In his State of the Union address, Bush reaffirmed his support for a deal in which the federal government would help pay many workers an additional 13 weeks of benefits, on top of the normal 26 weeks.

Amy Coll, a spokeswoman for the White House Office of Management and Budget, emphasized that nothing in the White House proposal would reduce benefits for unemployed workers. “We’re actually going to make it easier for states to extend benefits.”

Indeed, many states have lamented what they see as heavy-handed federal management of their unemployment programs. Some employers and state officials also argue that the federal government has been amassing far too much unemployment tax revenue--more than $38 billion--while sending back insufficient amounts to the states.

The states rely on Washington to pay about $3 billion in annual costs of administering their programs. U.S. Labor officials also have the responsibility of ensuring that benefits are paid out correctly and on time, a role that the Bush administration said it would retain.

To pay for such administrative activities, the federal government taxes employers at a rate of 0.8% on the first $7,000 of each worker’s wages. In recent years of low unemployment, those tax revenues have skyrocketed beyond costs, leading to demands that Washington ship back billions of dollars to the states.

The Bush plan would cut the 0.8% tax to 0.6% in 2003 and ultimately scale it down, perhaps to 0.2% in five years. To help offset that reduced revenue, states would receive a quick infusion of $9.2 billion from the overflowing federal funds. The Bush plan envisions future installments totaling $5 billion, officials said.

“I’m very excited about this,” said Eric J. Oxfeld, president of UWC-Strategic Services on Unemployment and Workers’ Compensation, a business organization that closely monitors unemployment benefit issues. “It’s a very positive step forward dealing with a severe problem and getting rid of an unnecessary tax on payroll. We’re looking forward to seeing the full proposal in detail.”

A potential difficulty with the proposal is that states may face increasing pressure to raise their own payroll taxes on employers. Supporters of the White House approach say that the tax burden on employers could remain below today’s combined state-federal levels because of more efficient management.

But others say the proposal raises significant questions about the financial underpinnings of the venerable New Deal-era program.

For example, some analysts fear that reducing the federal government’s middleman role in administering the state benefits could lead to a situation in which states with the greatest unemployment would end up with the weakest funds. In the current setup, the federal government is able to function as an equalizer between states that are hard hit and those that are booming.

“States will find the proposal attractive in the near term,” said Rich Hobbie, unemployment insurance director at the National Assn. of State Workforce Agencies, noting the administration’s promise to streamline the bureaucracy and White House plans to return $14 billion to the states over the next five years.

“In the longer term,” he said, “they might have to raise state unemployment taxes to cover their costs when they take on this added responsibility--and they might be concerned about that.”