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UI & I-601: Big Losses for Business in 2005 |
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Written On: July/August 2005 |
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Written By: by Paul Schlienz |
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Washington’s employers took two big hits in 2005. Changes to unemployment insurance and the suspension of Initiative 601 were major losses for the business community.
The Legislature’s revisions of UI were especially vexing for employers because the system had been reformed just two years earlier in a manner that was largely supported by employers.
Among the 2003 reforms were reductions in the maximum weekly benefit and total benefit amounts. The reasons benefits could be given for a "good cause quit" were narrowed.
Most importantly, before 2003, the weekly benefit amount was based on an average of the highest two quarters of employment. As a result, seasonal workers ended up with more benefits than those who worked year round.
In 2003, the Legislature changed the law so benefits were initially based on three quarters. Then, in January 2005, benefits began being based on four-quarter averaging.
Another significant reform in 2003 was the removal of the requirement that UI statutes should be liberally construed in favor of employees. Following this change, each claim was now being considered on a factual, case by case basis.
The 2003 reforms also made UI financing more equitable. Prior to the changes, many costs for seasonal employers were shouldered by other industries.
Then, in 2005, everything changed. With Democrats at the helm in the governor’s mansion, the Senate and the House of Representatives, organized labor’s hostility towards the reforms carried greater weight than employers’ support.
Late in the 2005 session, the Legislature approved EHB 2255, which repealed two significant parts of the 2003 reforms. To the business community’s dismay, Gov. Gregoire signed the bill, making it law.
Unemployment Insurance: Less Competitive, Less Equitable
EHB 2255 returned the state to two-quarter averaging and revived the presumption that any disputes over UI claims should be liberally construed in favor of employees. While benefits increased for seasonal employees, full-time, year-round workers face a 4 percent reduction in benefits.
The difference in benefits will not be charged to employers’ experience ratings. Instead, federal Reed Act funds that make up a portion of the UI trust fund are now being used to make up the difference.
These measures, however, are scheduled to sunset on January 30, 2007. By then, a task force to study benefit equity and the adequacy of the UI fund will report its findings to the Legislature.
"We moved this state backwards," Sen. Linda Parlette, R-Wenatchee, commented on the repeal of the 2003 reforms. "We’ve shortchanged the process by not allowing the reforms of 2003 to run their course so we would have accurate data on which we could have based future decisions."
Even with the 2003 reforms, Washington’s unemployment insurance costs have skyrocketed to approximately 300 percent of the national average. Even more troublesome, the integrity of the UI fund itself is potentially in jeopardy. Indeed, by 2009, the trust fund will be at least $191 million lower than it would have been had the 2003 reforms remained in place.
"The disparities in the 2005 changes are being underwritten by federal Reed Act money that’s going to cease to exist," observed Rep. Bruce Chandler, R-Granger, who was House minority leader during the 2005 session. "On down the road, in a couple of years, employers are going to have to pay for these changes to the UI system out of their own pockets."
Agriculture faces especially brutal rate increases if the Legislature prevents two-quarter averaging from sunsetting in 2007. Potentially, agricultural employers could face 200 to 300 percent increases in future UI costs.
Over the next several months, all eyes will be on the UI task force, which includes legislators and representatives of business and labor. The task force is supposed to report to the Legislature in January 2006, even though the bill doesn’t sunset until 2007.
"We need to work together," Rep. Cary Condotta, R-East Wenatchee, said of the task force. "Labor is losing, too, when business doesn’t come to Washington or leaves it. I really hope this is the first in a series of studies or forums to bring us together and create a mutually positive business climate."
Initiative 601 Undone
The repeal of the 2003 UI reforms was not the only loss for employers in 2005. The Legislature’s suspension of Initiative 601 was also greeted with little support from the business community.
Passed by the voters in 1993, Initiative 601 required the Legislature to garner a 60 percent supermajority in order to raise state taxes. In addition, I-601 put limits on how quickly spending could grow by tying budgetary growth to an inflation/population growth calculation.
In 2005, however, the Legislature turned its back on Initiative 601’s restraints by claiming a fiscal emergency and removing the 60 percent supermajority requirement for instituting new state taxes. With the supermajority barrier gone, the Legislature then easily passed a budget with state tax increases.
The 2005 Legislature also allowed budgetary growth to occur more quickly by junking I-601’s linking of the budget to inflation/population growth. Now budget growth is tied to personal income growth, and inclusion of the emergency clause makes it much more difficult to put the matter to the voters in the form of a referendum.
Disappointment with the budget, which relied heavily on such devices as "sin" taxes on items like cigarettes, was widespread among the business community and its allies in the Legislature.
"There was very little, if any effort to try to find a way to live within the revenue forecast we had," observed Sen. Joseph Zarelli, R-Ridgefield, the ranking minority member of the Senate’s Ways & Means Committee. "I’d like to see us get back to going through the Priorities of Government budgeting process we had used in the past. When you have less money, you have to focus more on priorities."
Business’s response to the new budget and, particularly, the suspension of I-601’s supermajority requirement, has been swift. The Washington Farm Bureau has already filed a suit in the state’s Supreme Court to invalidate the Legislature’s emergency clause and revive the 60 percent majority requirement for raising state taxes. Last month, AWB filed a friend of the court brief in support of the Farm Bureau’s efforts to revive I-601’s voter approved provisions.
"Initiative 601 was passed by the voting public," Rep. Gary Alexander, R-Olympia, commented. "Any modifications should be referred back to the voters."
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