California unemployment fund’s growing debt cannot be ignored 

click to enlarge The state’s Unemployment Insurance Fund, which had a $6.5 billion reserve a decade ago, went into the red nearly two years ago. The state has since been borrowing from the federal government to keep it afloat, a debt now approaching $10 billion. (AP file photo)
  • The state’s Unemployment Insurance Fund, which had a $6.5 billion reserve a decade ago, went into the red nearly two years ago. The state has since been borrowing from the federal government to keep it afloat, a debt now approaching $10 billion. (AP file photo)

 

California has well over 2 million unemployed workers, and half of them collect unemployment insurance benefits.

The state’s Unemployment Insurance Fund, which had a $6.5 billion reserve a decade ago, went into the red nearly two years ago. The state has since been borrowing from the federal government to keep it afloat, a debt now approaching $10 billion.

Clearly, unemployment insurance payments are lifelines for millions of Californians, not only the 26 weeks of benefits that come out of the state’s fund, but up to 73 weeks of extended federal benefits.

The Employment Development Department paid more than $20 billion in state and federal unemployment benefits last year, twice as much as the state spends on higher education. Payments will approach that record level again this year as $350 million in benefits go out the door each week.

However, more than a half-million of California’s jobless have already exhausted the 99-week limit. It’s not certain that Congress will continue that extension, due to expire at the end of this year.

Putting all of those numbers together, unemployment insurance represents a major financial dilemma for the state and, implicitly, a political one as well.

The much-battered unemployment fund gets revenue from an employer-paid payroll tax, up to 6.2 percent of each worker’s first $7,200 of annual wages. It’s a revenue system unadjusted for years, even after benefits were nearly doubled a decade ago when the fund had that $6.5 billion cushion.

Unless Congress decides to cancel the debts that California and dozens of other states have incurred, sooner or later the state must repay its loans and rebuild the fund. This probably will mean a sharp increase in payroll taxes, a tightening of eligibility for benefits, or some combination of both.

Employers, who are coping with the effects of the state’s prolonged recession, are not eager to pay more taxes for the fund. Former Gov. Arnold Schwarzenegger, in fact, vetoed one bill to increase them. However, the fund’s deficit cannot be ignored forever.

A new report by the Legislature’s budget analyst points out that while California’s unemployment benefits are fairly low in comparison with other states, its criteria for benefits are relatively easy and the state’s recipients tend to stay on the rolls longer.

Thus, the overall costs for unemployment insurance are relatively high, while the fund’s tax burden is relatively low. The $7,200 per worker limit on payroll taxes, for instance, is the minimum that federal law requires.

Closing the fund’s big gap will be financially painful for someone. But, as the old saying goes, reality bites, and we can’t ignore it forever.



Dan Walters’ Sacramento Bee columns on state politics are syndicated by the Scripps Howard News Service.

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