A 1978 law passed to provide more money for Washington's deficit-ridden unemployment compensation fund instead pushed the account further into the red because of an error in language, a top aide to Mayor Marion Barry said yesterday.
The mistake cost the city's unemployment fund millions of dollars in anticipated revenues, said Ivanhoe Donaldson, deputy mayor for economic development.
The 1978 law approved by the City Council increased the unemployment tax rate paid by employers to increase revenue for the fund. But because of the accounting method required by the law, the new tax, called the solvency tax, ended up giving individual employers a tax credit that had the effect of reducing revenues into the fund, said Donaldson.
Donaldson previously headed the city's Department of Employment Services, which helps administer the fund.
"We got even less revenue than before the solvency tax," Donaldson said.
John R. Tydings, executive vice president of the Greater Washington Board of Trade, said the defective wording in the legislation was a "quirk" that undermined the goal of increasing revenue. "I don't think any of us had foreseen that occurring," Tydings said.
Donaldson said the declining revenue was detected in 1980. When city officials confirmed that the revenue loss was being caused by the wording of the solvency tax law, an emergency unemployment compensation tax measure was passed by the council in 1981 and corrected the problem.
The unexpected loss of revenue from the solvency tax and the high unemployment of the last couple of years are the two main reasons that the fund continues to be heavily in debt, according to Donaldson and other city officials. The fund's total debt is now nearly $60 million. Another factor is the city's liberal unemployment benefits, which are among the highest in the country, Donaldson said.
The debt has forced Barry to ask the City Council to approve a new unemployment compensation bill that would cut benefits to jobless workers and further increase unemployment taxes paid by businesses. The council is expected to adopt the proposal when it comes up for a vote next Tuesday.
While key labor officials have joined business leaders in supporting the proposed changes, a separate dispute has developed over whether the Barry administration fully involved union officials in the discussions that led to the mayor's proposal.
Joslyn N. Williams, head of the Metropolitan Washington Council AFL-CIO and a supporter of Barry's reelection, said the administration failed to fulfil a promise to consult with labor about the proposal.
"We gave union support to the mayor" in last year's election, Williams said. "It's not too much to ask that we be treated with a little courtesy and dignity," Williams said.
Tydings confirmed that he and other business officials were consulted in advance about the proposed changes.
At a news conference last week, Barry said that union officials had been invited on at least six occasions to discuss the proposed changes with city officials.
Williams said the only meeting took place last November when he and other union officials were briefed on the fund's deficit by city employes.
Subsequently, however, labor groups were able to get changes in the proposal that would establish a commission to study the fund's problems and provide that the law would expire in 1985.