California’s massive budget deficit, coupled with the state’s relatively high level of joblessness, has become a major barrier to reducing the billions of dollars of debt it has incurred to pay unemployment benefits.
The surge in unemployment brought on by the COVID pandemic pushed the state’s unemployment insurance trust into insolvency. And over the last year California’s joblessness has been on the upswing again, reaching 5.3% in February, the highest among all states. The March job numbers come out Friday.
To keep the safety-net program operating at a time when the taxes paid by employers and earmarked for jobless benefits are insufficient, Sacramento has been borrowing billions of dollars from the federal government. The debt now stands at about $21 billion and growing, an increasing burden for state deficit fighters and for the businesses that pay into the jobless insurance program.
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While the pandemic is largely to blame for California’s huge unemployment insurance debt — and there’s been a lot of attention on dollars lost to 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.
“The root problem really is that for decades policymakers haven’t been requiring businesses to pay enough into the [unemployment insurance] fund to support the benefits workers really need,” said Amy Traub, senior researcher and policy analyst at the National Employment Law Project.
“So there’s a structural deficit that underlies this crisis moment with this huge debt to the federal government.”
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Traub, of the National Employment Law Project, said employers have to pay more to make the math work and ensure the unemployment trust system is sustainable over the long haul.
Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee per year. Traub noted that most other states have a significantly higher taxable wage limit — New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500.
“Raising the taxable wage base has got to be part of the solution,” Traub said.
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Read the full LA Times story here.
