Can California’s Broken Unemployment Insurance System Be Saved? –California Globe

“The state funding system for unemployment insurance (UI) is broken. The state unemployment insurance program should be self-sufficient – ​​that is, the system should accumulate enough funds to pay benefits over time.”

That’s the first paragraph of the Legislative Analyst’s Office’s new report on “Fixing Unemployment Insurance” in California.

That doesn’t bode well.

“Unemployment benefits now routinely exceed incoming tax contributions, creating costly reliance on federal loans and limiting the state’s ability to improve the program.”

As the Globe reported in November:

Governor Newsom’s administration was so grossly negligent during the state’s lockdown that the EDD, the state’s unemployment agency, allowed tens of billions of taxpayer dollars to be lost to fraud.

The estimate of how much the EDD lost is somewhere between $31 billion and $40 billion sent to illegitimate applicants, state and federal prisoners, and international fraud rings, all of which simply went straight into the department’s completely unprotected system, reported the Globe in 2023.

The House Oversight and Accountability Committee investigated California’s EDD after the Trump administration gave the EDD over $1.8 billion to cover the department’s additional administrative costs caused by the pandemic.

This money must be paid back. The EDD began repaying the $1.8 billion after Governor Newsom and the state legislature worked together to place federal debt repayment on California companies.

The state’s broken UI system is now having increasing consequences:

• Annual deficits will drive up outstanding federal UI loans.
• Loans will become a permanent part of unemployment insurance and a significant ongoing cost for taxpayers.
• The UI program will not be able to build reserves before the next recession.

“Although a federal subsidy for companies will help repay the federal loan, the surcharge cannot help the state build reserves after the loan has been repaid,” reports the LAO. This is because the surcharge ceases once the loan balance reaches zero. Without the federal surcharge, there would be little or no reserves available at the start of the next recession, which would further increase the state’s dependence on expensive federal loans.”

Instead of paying off the debt when California had higher revenues and/or a “budget surplus,” Newsom and the Democrats went on a spending spree for long-term social welfare programs that the state now cannot afford. Therefore, private sector companies will pay off the governor’s debts – debts that could have been avoided if Newsom and his appointees had taken their jobs seriously.