THE D.C. CITY COUNCIL took belated action last Wednesday to check the sharply growing deficit in the city's unemployment benefit program. These benefits are financed by a tax on local employers and paid to unemployed workers under terms set by the District. Raising employer taxes and curtailing benefits for the unemployed--both of which are required by the stopgap legislation--are not easy things to do when local unemployment is on the rise. The mayor and the council recognize, however, that further action will be needed next year to keep the deficit from growing and to begin repaying the more than $50 million already owed the federal government for loans to cover past deficits.
Like many of the District's present difficulties, the unemployment benefit deficit has its origins in past years of neglect. In 1972, partly at the urging of the federal Labor Department, the city gave a substantial boost to its average benefit for the unemployed. It left in place, however, a variety of other generous features that had compensated in the past for the District's rather low benefits. As a result, the city now pays benefits that--in terms of amount, duration and ease of qualification--are among the most generous in the nation.
While benefit payments rose substantially over the last decade, revenues fell behind. Wages rose substantially, but the amount of an employee's wage subject to the unemployment benefit tax stayed fixed at the $4,200 level set in 1972 until, in 1978, the federal government forced a rise to $6,000. The lag in revenues did not trouble the District because Congress allowed states during this period to borrow interest-free from the U.S. Treasury to cover unemployment benefit deficits.
Last year, however, Congress began to get serious about collecting the debts owed by the District and several states. If the city does not make a serious effort to put its program on a sound financial footing and begin retiring its debt, it will face an increase in the amount of unemployment taxes withheld by the federal government to cover federal operating costs. Congress also required that interest be paid on loans made after next April. Congress stopped short of imposing interest on past debts, but, as it looks for budget savings next year, such a requirement is not unlikely.
The actions taken by the city council raise the taxable wage base to $7,500, cut back a scheduled increase in the maximum benefit and disqualify most people who leave their jobs voluntarily. These are sensible reforms, and they'll cut this fiscal year's deficit by over $20 million, but the deficit will still be growing, and further action is needed.
This is a matter that needs careful consideration. Higher taxes on local employers--of which this newspaper is one--may well be inevitable. Benefit limits, however, must be considered as well. The tax increase just passed will raise the city's tax considerably above those of surrounding jurisdictions. The unemployment tax is probably not a major consideration for employers of high-salaried people, who have accounted for most of the city's recent growth. It does, however, discourage expansion of the blue- collar and less-skilled jobs that the city needs to reduce its hard-core unemployment and lessen its dependency on the federal government.