|California’s $23 Billion Debt For Unemployment Claims. Employers most likely will pay. |
By Lonce Lamonte - August 14, 2021
The state of California owes looming debt to the federal government for unemployment benefits it paid out during the COVID-19 pandemic. And California lawmakers took their summer break without even addressing it.
Governor Gavin Newson has asked lawmakers to pay off a fraction of the $23 billion it owes right away. Much of the payments are not due for many years, but caution is prudent in getting started right away.
Business owners are concerned because of a debt California in theory could payoff with its budget windfall. But worry goes further with the well-documented unemployment fraud that cost the state around $11 billion.
Some advocates for social services argue California has not been taxing employers enough for unemployment benefits. Oregon, for example, charges businesses more to pay for unemployment claims.
Employers pay into both state and federal pools for unemployment insurance up to almost $500 per employee per year. The state money goes into a trust fund.
California started the year 2020 with $3.3 billion in its trust. It became insolvent by Summer 2020 as the state was hit with a tidal wave of unemployment claims.
California now has a $23 billion unemployment debt. This is twice what it had at the height of the ~2009 Great Recession. It has continued to take out federal loans.
California’s debt is more than 43% of what’s owned to the federal government. 13 other states also have taken out loans. Interest payments could range from $500 million to $700 million a year. California will start accruing interest on the debt in September, and will have to pay those charges out of its general fund.
By 2023, California businesses will be paying $21 more per employee per year unless the state pays off the debt. One analyst forecasted that businesses could be paying as much as $189 per employee per year by 2030, the year the debt is expected to be fully paid.
The federal government did not forgive California’s $10.7 billion unemployment insurance debt as the state came out of the Great Recession. It took until 2018 to pay off.
The latest federal coronavirus relief package, which gave $27 billion to California, allows states to use the money as they see fit. They can use the money to pay down their unemployment insurance debt or they can allocate it to helping Californians pay for their utility bills or in aiding the homeless.
Some feel the debt isn’t urgent. California has time to figure out how to pay for the debt since businesses won’t have to pay until 2023. But pay, in the end, they will most likely do.
Lonce Lamonte, journalist; copyright Lonce Lamonte and adjustercom; all rights reserved