California giant budget deficitThat, combined with the state’s relatively high level of unemployment, poses a major obstacle to reducing the billions of dollars of debt raised to pay unemployment benefits.
increase in unemployment The state’s unemployment insurance trust was pushed toward bankruptcy due to the COVID-19 pandemic. And unemployment has increased in California last year on the rise again, reaching 5.3% in February, the highest among all states. March jobs figures will be out on Friday.
to keep safety-net program Operating at a time when taxes paid by employers and earmarked for jobless benefits are inadequate, Sacramento is borrowing billions of dollars from the federal government. now loan is approximately $21 billion And increasingly, the burden is increasing for those fighting state deficits and for businesses paying into the unemployment insurance program.
Payroll taxes paid by employers are increasing not only to cover payments to unemployed workers, but also state surcharges and slowly increasing federal surcharges to help pay off the principal on loans. But tax increases are not enough to deal with the huge debt incurred by the state, or at least not at any time.
Already in California Over $650 million paid out And about $550 million more is due Sept. 30 — in interest on the loan.
“The continued slow decline of businesses will continue to impact their margins,” said Robert Moutry, senior policy counsel for the California Chamber of Commerce.
He said higher taxes would hit small- and medium-sized companies in sectors such as restaurants and tourism particularly badly.
“This increases the burden and costs of operating here and makes companies look to operate elsewhere,” Moutry said.
Although the pandemic is largely responsible for California’s massive unemployment insurance debt — and it’s gotten a lot of attention dollars lost in fraud – Analysts and workers’ rights groups point to another problem: Even during more normal economic times, the state often doesn’t collect enough unemployment insurance taxes to cover jobless claims.
“Really the core problem is that policymakers for decades have not required businesses to pay enough into the (unemployment insurance) fund to support those benefits,” said Amy Traub, senior researcher and policy analyst at the National Employment Law Project. “What workers really need.” ,
“So there’s a structural deficit “That is the basis of this moment of crisis with this enormous debt of the federal government.”
The data also shows that unemployed workers in California be on unemployment Well above the national average, which adds to the total amount paid. And California workers claim unemployment benefits disproportionately high numbers,
The state accounts for about 20% of the nation’s jobless claims, far more than its 11% share of the labor force population. This partly reflects the state’s high unemployment and accompanying increase in layoffs and unemployment claims. technical industry and other regions, but also comparatively easy eligibility rules and low re-employment rates.
Last year, unemployed workers in California received an average of $385 per week, about 28% of the average wage. Both figures are lower than the national average, according to Labor Department data. (The salary replacement The rate is about 50% for minimum wage workers in California.)
from surplus to deficit
But California is also in an extraordinary situation because of the way it has managed, or mismanaged, the program.
When COVID struck in March 2020, US unemployment rose to 14.8% a month later unprecedented jobless claims, California and many other states were forced to borrow from the federal government to continue paying benefits. Nearly all other states have since repaid those loans, some even using pandemic relief money from Washington.
Even today only New York and California, as well as the Virgin Islands have to pay money For Unemployment Insurance Loan.
analysts said California could use Some of the $43.5 billion received from the American Rescue Plan Act to repay state debt. Instead, state officials spent the relief money for other purposes, including sending additional stimulus checks to residents.
“California had a choice, and it chose to spend rather than make the responsible choice,” said Matt Weidinger, a senior fellow at the American Enterprise Institute who has written extensively on the unemployment insurance program. He said higher employer payroll taxes would ultimately fall on workers in the form of lower wages.
Alex Stack, a spokesman for Gov. Gavin Newsom, said, “California distributed relief at a time when people and businesses were struggling, helping those hardest hit by the pandemic — everything from rent and utility bills to small business grants. Stimulated the economy.” Office. “This is on top of paying off the $250 million unemployment fund loan.”
State legislative analysts were careful not to criticize policy choices made during exceptionally uncertain times.
However, some suggested that officials may have felt that the state would get considerable financial support to recover from the pandemic in 2021–22. Then, there was Sacramento full of cash, thanks to the huge tax windfall. And two years ago the interest rate on federal unemployment insurance loans was at a historic low of 1.6%.
But the interest rate on the loan is since increased by 2.6% – And it may increase further. What was once a huge surplus is now a projected record budget deficit of more than $70 billion in 2024-25, according to a february update By the California Legislative Analyst’s Office.
The economic slowdown in the state, decline in technology investment and rising overall unemployment have led to an unprecedented decline in tax revenues.
Under such budget constraints, California officials had no choice but to back out of a plan to spend $1 billion to reduce the principal amount on unemployment insurance loans.
What is the solution?
The California Employment Development Department, which oversees the state’s unemployment insurance program, has said it will rely on increased federal taxes on employers to pay off the loans.
California employers currently pay a 1.2% federal unemployment insurance tax on the first $7,000 of wages per employee, but this will increase incrementally each year as long as California is in debt, topping 3.5% after 10 years. Will go. And analysts estimate it could take at least that long to pay off the debt.
businesses also pay State Unemployment Insurance Tax, Also on the first $7,000 of pay, depending on their layoff history, plus a surcharge if the unemployment benefits fund is depleted.
For example, a new California employer, combining both the state and federal shares, will be looking at paying about $500 in unemployment insurance taxes per employee this year – nearly twice as much as in normal times.
Doug Holmes, former Ohio unemployment director, said, “California’s apparent plan to rely on (federal tax) revenues to repay the debt avoids addressing solvency in the state unemployment insurance law and burdens employers with increased unemployment during the pandemic.” imposes the burden of profit.” Insurance Program and currently Chairman of the consulting firm UWC.
In California, business groups say it is unfair for employers to shoulder the increased burden when they were not responsible for the pandemic or the temporary lockdown imposed on them, resulting in layoffs and higher unemployment claims. They argue that this would increase the state’s already high business costs which has pushed some California companies away from move to texasNevada and other states.
Traub of the National Employment Law Project said employers need to pay more to work out the math and ensure the unemployment trust system is sustainable over the long term.
Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee each year. Traub said most other states have seen significant increases. higher taxable salary limit – New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500.
“Increasing the taxable wage base must be part of the solution,” Traub said.
now a California legislator considering growth, Which many people agree is needed. “It’s very fair,” said Michael Bernick, an employment attorney with Duane Morris in San Francisco.
Bernick was EDD director in the early 2000s when, under Gov. Gray Davis, the state increased the maximum weekly unemployment benefits to $450 a week — but without raising taxes to cover the larger payments.
write in a report Along with Holmes, Bernick recommended several steps the EDD should take to boost the state’s unemployment benefits program, including tightening eligibility standards and modernizing the agency’s computer and communications systems. But the main policy change needed so far is to help unemployed workers move into new jobs faster.
In 2022, California workers remained on unemployment assistance an average of 18.1 weeks, compared to 14.5 weeks nationally. Study By Robert Pavosevich, former chief actuary of the Department of Labor.
In California that year, 47% of recipients took the full maximum 26 weeks of jobless benefits. Nationally, only 27% exhausted all available benefit weeks.
“Those are astonishing numbers and highlight how much reshaping the system needs,” Bernick said. “How can we get people back to work quickly? This is good for both businesses and workers, but also for the unemployment fund.
