Given this we are asking the Governor and the Legislature to put into their economic stimulus plans the following unemployment insurance benefit changes:

This is a time for us to pump unemployment benefits out as quickly as we can. These dollars will get immediately spent on Main Street and provide a stimulus to the economy.

BACKGROUND -- Unemployment Insurance (UI) is a "safety net" program that provides partial wages on a temporary basis for workers who are unemployed through no fault of their own or who voluntarily leave jobs with good cause. The UI system was created in 1935 as part of a combined federal-state program. The system has two main functions:

Provide workers with some wage replacement when they are involuntarily unemployed. In 2002, the Employment Security Department conducted a "claimant survey" and found that unemployment benefits represented the sole source of income for 38% of claimants in Washington, and that for 60% unemployment benefits represented a major source of their income.

Provide economic stability for communities to counter the effects of unemployment and recession. The U.S. Department of Labor estimates that for every $1 of unemployment benefits, $2.15 of purchasing power is created in the economy. That means that during the recent recession in 2002, $2 billion in state and federal UI benefits paid in Washington state created purchasing power on Main Street of $4.3 billion, keeping a significant number of small businesses afloat.

Washington has historically had a higher unemployment rate than the national rate. Economists attribute that to the mixture of industries in Washington state and the fact that the state is a desirable place to live, so laid-off workers are more likely to stay or move here while they look for a new job. Conservative legislators often argue that the comparatively high state unemployment rate is proof of an "unfriendly business climate," but this is simplistic and untrue. (See the Business Climate position paper for an analysis of Washington’s business competitiveness.)

Because of Washington’s historically high unemployment rate, organized labor and some business interests helped build a relatively high-benefit and high-stimulus unemployment system. Until 2003, Washington was one of two states that allowed up to 30 weeks in benefits, had the second highest maximum benefit and one of the highest minimum benefits, and as a consequence, average benefits were higher than the national average.

In addition, from the mid-1980s through 2001, Washington’s system maintained a trust fund balance of between 12 and 18 months of recession-level benefits. The U.S. Department of Labor recommends that states maintain a 12-month reserve on hand.

What helped build this strong trust fund balance was a forward-funded, counter-cyclical tax structure. UI taxes automatically shifted up or down depending on the level of the trust fund balance, a system that was considered to be one of the best in the country.

There was one problem with the tax system, however. Unfairness had been inadvertently built into the system by setting too low a maximum tax cap on industries that have the highest unemployment rates, such as homebuilders. As a result, these businesses never paid their fair share of taxes and other employers below the cap subsidized them by paying more than their employees took out of the system.

That said, before 2003, Washington state ranked 35th in the nation in subsidized costs. In other words, this "cross-subsidizing" was a greater problem in 34 other states. But what rankled particular businesses, such as Boeing, was that they paid far lower unemployment taxes in other states where they did business, exacerbating the unfairness of having to subsidize other businesses here.

After years of missed opportunities to fix the cross-subsidy issue (see Recent Legislative History), labor and business forged a historic compromise in the form of HB 2901 in 2002. This bill solved a good portion of the subsidy problem and to help assuage the pain of the increased tax on employers at the maximum cap, labor agreed to a two-year freeze on maximum benefits, to slow the rate of growth of maximum benefits for six additional years and -- with these benefit cuts and other changes to the system -- to avoid a UI tax increase in 2004. The legislature passed HB 2901 by 66% in the House and 71% in the Senate.

But the Building Industry Association of Washington and some small business associations opposed HB 2901 and took the bill to referendum. The BIAW called HB 2901 "corporate welfare" for Boeing and urged a "no" vote on the referendum to repeal the law. But the measure was written to leave in place the benefit freezes and cuts that the labor community had bargained in good faith. Ref. 53 failed at the polls, which meant that HB 2901 was thrown out, but the benefit cuts were retained.

So in 2003, it was back to square one in dealing with the tax inequity issue. But the problem gained much more immediacy as the State Legislature sought to approve a package of tax incentives and other legislation to encourage Boeing to choose Washington as the final assembly site for its 7E7 (later dubbed the 787) Dreamliner.

A labor-business bargaining process was set up to address UI changes. Given our desire to save jobs for Boeing machinists and engineers, the labor community along with the employers from the food-processing industry offered a bill that would have once again taken a huge bite out the cross-subsidy issue, saved Boeing $5-7 million a year in UI costs, prevented an automatic tax schedule increase in 2004 and made significant benefit concessions.

But late in the session, it became clear that this proposal and the labor-business negotiations were never taken seriously. Business lobbyists sensed sufficient momentum that they began negotiating directly with the governor and legislative leaders. During a second "overtime" session in June 2003, without so much as a public hearing before the vote, they succeeded in passing sweeping legislation that made dramatic changes to the UI system.

Here’s what 2ESB 6097 did:

In 2005 and 2006, acknowledging that the 2003 UI changes unfairly and unnecessarily harmed laid-off workers, the Legislature took steps to mitigate some of the damage done.

In 2005, the legislature "stopped the bleeding" by temporarily restoring the UI "liberal construction" language and suspending the shift to four-quarter averaging, which was the most severe of the benefit cuts, costing some laid-off workers hundreds of dollars per week. And in 2006, those changes were made permanent and the long-standing two-quarter averaging formula was permanently restored.

But in order to accomplish this, Washington workers were forced to accept a new lower multiplier of 3.85. Prior to 2003, it was 4.0. The change will cost laid-off workers an estimated $40-$50 million a year in benefits.

Meanwhile, many of the other onerous labor-opposed UI changes made in 2003 remain in place, including the maximum benefit freeze, the reduction in maximum benefit duration and the severe misconduct statute.

LABOR’S POSITION -- The radical changes made to Washington’s UI system in 2003 were unreasonable in scope and unfairly punished unemployed workers for the inability of business interests to agree on a fair, equitable tax system. The WSLC is thankful that, since that time, the Legislature has recognized this and taken important steps to repair some of the damage done.

Given the recession we are now experiencing, the Washington State Labor Council is asking the Governor and the Legislature to include the unemployment benefit changes listed above (at the beginning of this position paper) in their economic stimulus plans. This is a time for us to pump unemployment benefits out as quickly as we can. These dollars will get immediately spent on Main Street and provide a stimulus to the economy.

1994 -- A Joint Select Committee on Unemployment Insurance with legislators, labor and business concluded the biggest unresolved UI issue was tax inequity. After great turmoil among the business community over how to resolve this, big business decided instead to push for an across-the-board UI tax cut.

1995 -- SB 5925 reduced businesses’ UI taxes across the board by $340 million. At the time, the WSLC made this prediction: "The political reality behind the trust fund raid was that Corporate Washington wanted to get cash back on the barrel head before any attempt was made to deal with inequitable unemployment tax structures... It doesn’t take a rocket scientist to figure out that if business decides to deal with the tax inequity issue, they will identify the benefit side of the equation as the problem and seek benefit cuts and eligibility restrictions."

1998 -- HB 3031 sought to redefine employee "misconduct" to make it easier to deny fired workers their unemployment benefits. The House passed it 55-41, but the bill died in the Senate.

2000 -- SB 6368 would have allowed workers to collect UI benefits for the duration of an employer-initiated lockout. This would have created parity with the current rules disallowing benefits to striking workers. Though there were more than 50 votes in the House for this Senate-approved bill, it was not brought to the floor for a vote.

2002 -- HB 1248, which allows victims of domestic violence to quit their job for "good cause" (e.g., to protect themselves and their families) and receive unemployment insurance benefits. It passed, and was signed into law.

-- HB 2901 passes, an historic compromise reached by most of business and labor to solve the cross-subsidy problem in the UI tax structure. It is later repealed by Ref. 53.

2003 -- 2ESB 6097 is approved at the end of the second special session, dramatically cutting UI benefits and eligibility, and installing a new, more volatile tax system (see above for details).

2005 -- EHB 2255 enacts two temporarily changes: restoring UI’s "liberal construction" language and two-quarter averaging for calculating benefits. It passed, and was signed into law.

2006 -- EHB ESSB 6885 made permanently the two changes enacted in 2005’s EHB 2255, and allows spouses of military personnel transferred to another base to receive benefits. It passed, and was signed into law.