Battling Over Unemployment

Tough market conditions have forced Wenatchee motor sports dealer Cary Condotta to reduce his workforce from about 13 people to six. Now, as demand starts to pick up, he wants to hire new employees but has been scared away by high payroll taxes.

“The cost of having people in this state is too high,” says Condotta.

And he’s not just speaking as an employer. Condotta, a Republican member of the state House of Representatives, was on the front lines this year of a high-drama battle in Olympia over unemployment benefits and taxes.

It was, he says, “the hardest-fought situation I’ve been through in the seven years I’ve been there.”

And it looks like the fight isn’t over.Businesses have warned for years that the high payments to unemployed workers are a drag on economic development. According to the Washington Alliance for a Competitive Economy, the state last year was second only to Alaska in taxes paid annually per average full-time worker: $637. Average unemployment benefits, including part-timers, were $343 a week last year—the fifth highest in the nation, although workers here tend to get back into the workforce sooner and, therefore, collect benefits for a shorter period.

The state reduced unemployment benefits six years ago as part of then-Gov. Gary Locke’s effort to persuade Boeing to build its new 787 assembly line locally, a move that infuriated organized labor.

“In 2003, [the state] devastated our UI system, absolutely ripped it apart,” says Jeff Johnson, a lobbyist with the Washington State Labor Council.

“We were run over,” recalls state Rep. Steve Conway, a Democrat from Tacoma.

But in the years that followed, changes were rolled back, and, with the help of healthy economic growth, the unemployment fund grew to be one of the best-funded in the country. At a time when states like California and New York were borrowing from the federal government to pay unemployment benefits, Washington’s fund had grown to $3.6 billion by March, up 360 percent from 2004.

According to the state Employment Security Department, which runs the unemployment system, that’s enough cash to pay nearly 19 months of benefits in a severe recession. Federal guidelines recommend 12 to 15 months, says Mark Varadian, the department’s spokesperson.

Then two things happened, making a showdown all but inevitable. Last June, a state Supreme Court opinion broadened the range of situations in which a worker can quit a job and still qualify for benefits. Until then, state law had listed about a dozen appropriate scenarios, such as fleeing domestic violence. But the court, ruling on the case of two workers, including one roofing company employee who “suffered daily verbal abuse,” granted the department more discretion.

Secondly, the U.S. Department of Labor warned that some of the changes had left Washington with an unemployment system that no longer conformed to federal laws. If not fixed, the federal agency warned, state businesses would lose $300 million a year in federal tax credits.

A tentative deal between business and labor leaders that would have given temporary benefit increases for workers and temporary tax reductions for employers fell apart shortly after Christmas 2008.  Labor then backed a bill that would have boosted benefits by about $45 a week.

“That was a great thing for unemployed workers,” says lobbyist Jeff Johnson. “It’s also a great thing for Main Street.” It was the very first bill signed into law this year by Gov. Chris Gregoire.

Business continued to push for a fix to make the state system conform to federal law, also adding provisions to reduce some employer payments into the trust fund. The business-backed bill also undid the state Supreme Court’s move, explicitly stating that only lawmakers’ list of good-cause quits would qualify for benefits. Gregoire backed the bill, telling lawmakers she wouldn’t let them leave Olympia until they passed it.

Labor groups balked at the prospect of permanent tax breaks for businesses at a time when workers were getting only a temporary increase in benefits. And many lawmakers wanted to preserve some discretion for good-cause quits. They also tried to increase benefits permanently by reverting to an older benefits calculation.

After a weeks-long confrontation, the business-backed version won. A big factor: widespread worries that Boeing might move production of future planes to a more business-friendly state. Shortly before the legislative session ended at midnight April 26, bleary-eyed lawmakers passed the bill. The new law will save businesses $385 million over five years, according to Gregoire.

But labor groups say the issue’s not settled. Ten House lawmakers have already introduced a bill for next year to bring back better benefits for the unemployed—and higher taxes for businesses.

“This is not the end,” says the Labor Council’s Johnson. “They want an unemployment fight? They got it.”

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