Gov. Chris Gregoire signed two bills Friday to extend federally funded unemployment benefits and permanently reduce state taxes on those benefits. The bill signing ended weeks of contentious debate in the Legislature over unemployment insurance.

“I do think this is a historic moment,” Gregoire said, praising both houses, both parties, business and labor for uniting over the issue.

The passage of SB 5135 extends unemployment benefits for 70,000 workers, bringing in $320 million in federal dollars. It reduces tax rates for unemployment insurance from a proposed 36 percent to 5 percent, saving Washington businesses an estimated $300 million this year. Gregoire claimed that some businesses would see a tax reduction of up to 48 percent.

The bill passed the Senate 46 to 1 on Feb. 4. The lone dissenter was Sen. Sharon Nelson, D-Vashon Island, who opposed the bill after a labor-backed benefit expansion failed a Senate vote on Wednesday, with six Democrats joining the Republicans to defeat it. This expansion would have included a benefit extension for workers’ dependents at about twice the cost to the state.

Lawmakers had to work against the clock to pass the bill, which was delivered to the governor on Feb. 9 — just hours after the Employment Security Department’s deadline to begin rewriting tax bills to send to employers. However, Gregoire said that she had directed the department to begin the process the previous day because “we knew we were going to get the bill.”

Gregoire dismissed concerns that benefit expansion would endanger the state’s trust funds, calling them among the most robust in the nation.

“We had no concern that we were going to take (unemployment insurance) to the point that we would jeopardize the health of the trust fund,” she said. “And thank goodness, frankly, that we have the capacity to do this when virtually no other state does. … Some other 35 states are bankrupt. We are not.”

EHB 1091 permanently caps taxes on unemployment insurance, adds an additional $25 to weekly benefits through November 2011 and expands training benefits for dislocated workers, raking in an additional $98 million in federal aid. It passed the Senate 41-4, the dissenters being Senators Jerome Delvin (R-Richland), Doug Ericksen (R-Ferndale), Jim Honeyford (R-Sunnyside) and Mark Schoesler (R-Ritzville).

The House of Representatives passed both bills unanimously, but not before a dramatic deadlock on Feb. 9 over the question of making the benefit expansions permanent in EHB 1091. However, both sides were able to reach a last-minute compromise behind closed doors.

Gregoire acknowledged the interparty wrangling at the signing, stating, “It’s all the art of compromise here. No one got everything they want … but unlike times past, it was done [in an] absolutely bipartisan [manner]. And even sometimes more importantly than that, it was done across the dome … and then business and labor came together, which doesn’t happen all that often. I’m hopeful that this is a great first start.”

The next major item on the Legislature’s agenda will be workers’ compensation reform, which Gregoire said would be a much more difficult and contentious issue. Premium rates for workers’ compensation have risen steadily during the past decade to cover costs, with the latest increase of about 6.5 cents per hour announced on Jan. 28.

“I’m not sitting on the healthiest trust fund … in workers’ compensation,” Gregoire said. “Something has to be done, and any time you start talking about workers’ compensation, there are disagreements; they’ve already surfaced. What I say to them is you don’t have to go with my bill, but you do have to put us on a trajectory that’s going to be sustainable in the near future.”

The Department of Labor and Industries reported the state has the seventh largest workers’ compensation program in the United States.