Dan Walters

By Dan Walters
November 25, 2015

  • California borrowed $10 billion for unemployment insurance
  • Taxes on employers raised to repay big debt
  • However, insurance fund still insolvent

When Jerry Brown returned to the governorship in 2011, he pledged to clean up the state’s finances and pay off a “wall of debt.”

Brown defined the debt rather narrowly, however, as $33 billion borrowed from banks, special funds and school aid to cover budget deficits during the Great Recession.

One of the debts that Brown omitted was the $10 billion that California borrowed from the federal government to keep unemployment checks flowing to jobless workers.

The state’s Unemployment Insurance Fund, or UIF, became insolvent in 2009 and California, like some other states, sought relief from Washington.

Recovery from that recession has been underway for nearly a half-decade, but California still has more than a million unemployed workers and is still paying out about $6 billion a year in benefits to a third of them.

The UIF is still insolvent – nearly $7 billion in the hole – and in 2012 the feds began whittling down California’s debt by raising taxes on the state’s employers, about $3 billion so far and rising, plus hundreds of millions in interest.

It’s expected that the feds will collect nearly $4 billion more over the next two years to reduce the debt further.

The debt will disappear eventually, probably in 2019, 10 years after the UIF went into the red, but that still would leave the fund in precarious position.

The federal tax on employers is on top of the regular payroll taxes they pay to the state. The state taxes are virtually equal to the benefits being paid out – roughly $6 billion a year into and out of the UIF. Therefore, even when the federal debt is paid, the UIF will still be insolvent, or nearly so.

“If changes are not made to the current financing structure, the UI Fund will continue to be in a deficit,” the Employment Development Department says in a recent UIF situation report.

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