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Horse trading key to solving unemployment deficit

March 23, 2009

So far this month, work at the Statehouse has seemed to languish a bit.

This is to be expected, because only a limited number of bills moved to the other chamber, and the first few weeks following the changeover typically see only limited activity, as committee chairs decide which bills to hear and work begins behind the scenes toward the end game.

Never in at least a generation has the end game been more important than it has become this session, and, as a result, there has been much more work than usual below the tip of the iceberg that the public sees.

As bills switched chambers at the ostensible midway point, one measure that was deemed mission-critical didn't make the journey from the House to the Senate. That was the bill replenishing the Unemployment Insurance Trust Fund, which died in the House after Democrats refused to call for the inevitable tax increase Republicans would not vote for. Instead, they deferred to the Senate, where Senate Republicans would be stuck authoring the rescue package.

IBJ reporter Peter Schnitzler outlined the imperative to shore up trust fund finances in these pages more than a year ago. Yet lawmakers and the executive branch chose to ignore reality, and when the economic downturn hit, the cost of the fix soared exponentially. The first half of the 2009 session slid by without any proposal from the Democratic House or the Republican administration.

While many lawmakers were taking a break in early March, some did not, working with (or at least communicating with) assorted elements with skin in the game on a solution to the unemployment financing issue that would allow the state to stop borrowing to pay benefits, get out of hock to the federal government for recent assistance, be able to pay unemployed Hoosiers in the future, and begin to rebuild trust fund solvency.

Doing so, however, is a political and policy balancing act easier to propose in concept than gain approval for and execute.

Brandt Hershman, R-Wheatfield, chairman of the Senate Tax and Fiscal Policy Committee, was given responsibility by the Senate Majority Caucus to work with Senate Pensions and Labor Committee Chairman Dennis Kruse, R-Auburn, to devise a solution. The two hit upon a formula that they brought before Hershman's committee March 17, advancing it to the Senate floor on a 9-3 vote.

The only extant proposal raises the wage base upon which unemployment insurance fees are collected, and changes the tax rates, boosting them for businesses whose employees rely more on the system and trimming taxes for smaller businesses with better experience records. These moves would raise the largest revenues. Firms that tend to employ on a seasonal basis, annually furloughing workers, would be slapped with a high-usage surcharge.

On the employee side, key changes include higher initial benefits tempered by a sliding scale reducing weekly payouts over time (although those enrolled in a certified training program would be exempted), and vacation, severance, bonuses and related income also would affect benefits. The unemployed would be required to apply for at least three jobs per week.

The state also would be able to more easily deny unemployment benefits to workers who were let go due to misconduct. For this year (until some of the new changes kicked in during 2010), employers would also face a 10-percent surcharge.

So how will these proposed changes fare?

There will be a hue and cry from both business and labor about how unfair the proposal is, but the package should encounter little difficulty passing the Republican Senate.

The construction industry will push back against the higher rates charged to seasonal employers (or to change definitions), and organized labor in general won't be pleased with ultimately reduced benefit levels for those out of work for lengthy periods.

Democrats will suggest that, as unemployment soars, lower-wage workers will be hurt the most by the proposed changes and overall benefit cuts. They also don't like changing standards for construction workers and are wary about a break for firms that rarely lay off workers.

In the end, this issue will be wrapped up with horse trading on a multitude of other items, and will not be decided in isolation on its own merits.

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Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached at edf@ingrouponline.com. 
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