Business and labor bargain over UI and WC

By JOHN E. WILLIAMS

IN 1975 the benefits under both unemployment insurance (UI) and worker's compensation (WC) were liberalized by the Democratic controlled 79th General Assembly. Illinois businesses have been complaining ever since about skyrocketing costs. Employers say UI and WC costs, along with high taxes in Illinois, are discouraging the expansion of existing businesses and the attraction of new ones. The cheaper cost of doing business in other states, they argue, is impeding the state's economic growth. Illinois ranked 41st among the 48 continental states in "attractiveness of business climates" and 46th in "manufacturing jobs won and lost," according to a study commissioned by the Illinois Manufacturers Association (IMA). The IMA said that latter translates into 140,500 manufacturing jobs lost within the past 10 years. Caterpillar Tractor Company, which employs 55,000 persons in Illinois, reported its WC costs in Illinois have risen from $3.4 million in 1975 to $9 million in 1978. As a result Caterpillar's per hour WC costs in Illinois are twice those in Wisconsin, three times those in Ohio and nine times those paid in Iowa. At the height of committee debate on what to do about business costs in Illinois, a Caterpillar spokesman said that high taxes and WC costs in the state could force the company to go elsewhere for a plant that would employ 15,000 persons.

Businesses in the state with a good employment record will receive a break in their UI costs under the UI "agreed bill," S.B. 1331. Passed by the 81st General Assembly and sent to the governor July 26, the bill is expected to be signed into law. It will become effective October 1. No action has been taken by the governor as of August 2. He has 60 days in which to sign or veto the bill, otherwise it will automatically become law.

Under the agreed bill process, conflicting parties sit down together and hammer out compromises whichare then introduced into the legislature as bills which should fly through to the governor's desk. At the request of Democratic legislative leaders, the governor adopted the agreed bill process in April to reputedly show employers that state government is very much concerned with providing a better climate for business and more jobs in Illinois. The governor appointed three business and three labor representatives to both the UI and WC advisory bodies. The UI body also contained three members representing the public.

The process worked for UI, but negotiations broke down in the 6-member WC committee and no compromises were made. The breakdown will be particularly costly to business, since Illinois' rates for WC exceed those in other industrial states and especially in surrounding states (see June 1978). In regard to UI tax rates, Illinois is much more competitive. The percent of total wages that Illinois employers pay for UI

is presently in line with the national average and well below the tax rate for industrial states, according to Les Kuczynski, legal counsel for the Bureau of Employment Security (BES) within the Illinois Department of Labor. Despite the prodding of the governor to reconvene talks between labor and management, the WC committee failed to meet again before the legislature adjourned. The breakdown in WC negotiations stemmed, at least in part, from the fact that the agreed bill process for WC is not statutorily mandated as it is for UI.

In contrast, the 9-member Employment Security Advisory Board did manage to produce a compromise bill for UI. But the provisions of S.B. 1331 were not agreeable to all constituencies and created a schism in the business community. The Illinois State Chamber of Commerce supported the legislation on grounds that it provides the only gains business has been able to make since 1975. The IMA, on the other hand, opposed the bill because the "additional taxes and added drain in the trust fund are not offset by the limited improvements in the bill." Discontented Republicans proposed nine changes on second reading on the House floor that would assist employers, but Democrats blocked them all. The IMA's opposition to the bill was interpreted by labor as bad faith bargaining since the chairman of the IMA's own UI committee was one of the employer representatives on the advisory board.

Backed by labor but lacking united business support, S.B. 1331, sponsored by Sen. Don Wooten (D., Rock Island), passed the House by a shaky (99-72) vote. The Senate concurred with the House version of the bill (37-21). Part of the problem with the agreed bill process was limited time. Since the advisory board wasn't organized until late in April, it had less than a month to do its work.

According to Kuczynski, problems with UI funding began in 1975 and 1976, when the jobless rate quadrupled in Illinois and "there wasn't enough money in the trust fund to absorb the costs." He added that the liberalization of UI benefits in 1975, which business blames as the cause of the trust fund deficit, is really a "distant second" compared to the high level of unemployment. He ranked underfunding as the third cause for trust fund ills. As a result, Illinois (as well as 22 other states for similar and other reasons) had to borrow from the federal government to pay its UI benefits. The state presently owes the feds $946.5 million -- an amount only exceeded by what Pennsylvania borrowed. And, since 1979 is the last year to defer repayment of the interest-free federal loan, Illinois employers in 1980 face an additional 0.3 percent annual federal tax which will be applied on a cumulative basis until the loan is paid off. The State Chamber has pointed out that for each 0.3 percent tax added, employers will have to pay an additional $18 per employee. There's little hope that the existing balance can be built up because present trust fund revenues are about equal to payouts.

Under present federal law, loans to states' UI programs cannot be repaid from their trust funds. In addition to 0.3 percent federal tax rate, employers with poor employment records will pay even more taxes under the agreed bill. As a consequence, some Illinois employers would face two additional UI costs. This apparent no-gain situation for Illinois employers was at the heart of the IMA's opposition to the bill. Enactment of the agreed bill would simply contribute to spiraling overhead costs to business. However, a bill in Congress which the State Chamber and Kuczynski say has a good chance of passage would allow money to be used from a state's trust fund to pay back the federal loan. In light of financing changes of the UI agreed bill, the effect of the federal change would be to funnel the entire cost of the loan through a modified UI tax structure without the imposition of the 0.3 percent tax rate charge. And this would mean the loan payment would be covered by the additional money going into the trust fund from only those employers paying additional taxes. The distinct possibility of the federal change made the UI agreed bill even more favorable to the State Chamber.

According to BES, the changes made in UI eligibility requirements by S.B. 1331 would save $18-19 million in benefits paid out from the trust fund. But the IMA was quick to point out that this savings is wiped out by the $45 million-a-year cost of increased UI benefits. Under S.B. 1331, maximum benefits to claimants with a dependent child will be raised from the present

$135 to $172 per week. The IMA therefore questioned whether this net expense of $26-27 million for the trust fund along with the $160-190 million in additional UI taxes would really help ease the burden of UI costs to Illinois businesses.

Faced with the inevitability of higher UI taxes to refinance the debt-ridden trust fund, the Chamber went along with the agreed bill. Because further eligibility reforms were not made, the IMA, on the other hand, refused to support S.B. 1331, and showed little interest in preserving the integrity of the agreed bill process. Fearing the federal government might take drastic measures to make the state's UI system more solvent, the State Chamber supported the bill as a "positive step in the right direction" toward restoring propitious business conditions in the state.

As noted above, the substantive part ofthe new UI law concerns the financing of the trust fund. (It is interesting to note that none of the bills submitted during the session prior to the agreed bill addressed this aspect of the unemployment program. Furthermore, Sen. Wooten was the only legislator with a bill that could serve as a vehicle who was willing to sponsor the agreed bill provisions.) Changes in the law's financing provisions in S.B. 1331 will kick up the level of taxes and alter the tax structure as follows:

1.  The wage ceiling on which the employers are taxed, i.e., the taxable wage base, will be raised from $6,000 to $6,500 per employee for each year. The application of the tax rate to an extra $500 of taxable wages will produce an additional $60-70 million of revenue in 1980, according to BBS estimates.
2.  The tax rate ceiling will be increased from 4.3 to 5.3 percent of the taxable wage base (up to $6,500). The extra 1.0 percent tax rate imposed upon taxable wages will fall on those employers at the maximum tax rate. BES figures this change alone should generate about $100-120 million of revenue in 1980.
3.  In addition, the minimum tax rate charged to employers will be reduced from 1.0 to 0.4 percent.

To equalize the tax structure, the method of charging employers for thf amount of benefits collected will bf spread over the entire 26-week benefit period. For every week of benefits received by an employee, the employer will be charged 1/26 of the employee's base period wage up to $6,000. Presently, there is no charge to the employer if the claimant collects benefits for only one to two weeks, and if the claimant collects benefits for three weeks or more, the employer is charged a flat $3,000 regardless of the actual number of weeks benefits are received by the claimant. In order to cover the costs of benefits, the flat $3,000 charge to employers will be changed under the new UI law. BES pointed out that the present method for charging employers results in the underfinancing of benefits for all three classes of claimants (those without dependents and those with a nonworking spouse or dependents). S.B. 1331 will cover the costs of benefits paid out to all claimants. As the State Chamber noted, equalizing the tax structure will strengthen the trust fund and, at the same time, will charge employers only for the actual weeks the claimant draws benefits.

The tightening of qualifications for receiving benefits that the advisory board agreed to will result in a $18-19 million savings to the trust fund. Of particular concern to employers is one

provision that would prevent an individual from voluntarily quitting his or her job without good cause, working a few days until laid off, and then immediately collecting benefits. Under the S.B. 1331, the waiting period for a person who voluntarily leaves a job without good cause will be extended from 8 to 12 weeks. The only way a person could get around the time requirement would be to earn six times his or her weekly benefit amount and become unemployed again. The same earnings requirement would apply to individuals who are discharged for misconduct or refuse suitable work. Their waiting period will be extended from 6 to 10 weeks, or until they earn five times their weekly benefit amount.

Claimants will continue to be required to earn wages in at least two quarters of their base period, but the qualifying amounts will be raised. The base period is a 12-month period consisting of four consecutive calendar quarters from which the claimants' benefits are determined. In the highest earning quarter, the required amount will be raised from $1,000 to $1,400. In the next highest quarter of earnings, the qualifying earnings will be upped from $275 to $385. Both of these earning levels must be met to receive benefits.

Claimants with a dependent (non-working) spouse or dependent child will not be able to receive more in benefits than what they earned during their base periods. The intent is to avoid paying out more in benefits than total earning in the base period -- which is presently possible. This provision potentially affects only those who have base period earnings ranging from $1,400 to $4,500 and claim unemployment for the full 26 weeks.

There will be a dollar-for-dollar reduction in the weekly benefit amount for anyone receiving Social Security or other government pensions. From this provision alone, BES figures a savings of $2.5 million per year that will affect approximately 10,000 persons.

The $135 ceiling in the maximum benefits for claimants with a dependent child or children will be lifted, as mentioned earlier. Maximum benefits will be equal to 66 2/3 percent of the statewide average weekly wage (S AWW), or $ 172. Due to a quirk in the present law, unemployed workers without children can receive more benefits than those with children.

The determination of dependents --either children or spouse -- will be figured on a weekly basis rather than

when the claim is filed at the beginning of the benefit year. Claimants who gain or lose dependents during their benefit year will collect either more or less benefits. BES says this change will cut both ways and therefore will only be an added administrative expense. Individuals without dependents will continue to receive 50 percent of the SAWW, those with a dependent nonworking spouse will receive 60 percent and those with dependent children will receive 66 2/ 3 of the SAWW.

Two provisions of the S.B. 1331 will help insure that appeals are filed on time. BES reported that both claimants and employers complained that post office delays were preventing timely filings. Therefore, the time will be extended for a claimant or an employer to appeal an eligibility determination from 7 days (9 if mailed) to 14 calendar days. The time also will be extended to appeal the decision of a hearing's referee from 10 days to 14 calendar days.

The new law represents only a first step in revising the state's unemployment insurance system. As for workmen's compensation, there hasn't been a first step yet -- especially from the point of view of business. Negotiations on WC have reopened, however, since the passage of the UI bill. UI talks are scheduled to continue in October. The agreed bill process has proved productive as a means of getting something done. The continued support of the governor and the legislature will also help. But whether more can be achieved ultimately depends on the parties themselves.

September 1979 / Illinois Issues / 24