Capitol Alert

California still owes feds $8 billion for unemployment insurance

Richard Dziedzic, 28, of Elk Grove, speaks to an Employment Development Department employee after having spent two six-hour days trying to get through to EDD in 2009. Unemployment rolls and unemployment insurance claims soared during the Great Recession, and the state still owes the federal government $8 billion from loans to shore up its Unemployment Insurance Fund.
Richard Dziedzic, 28, of Elk Grove, speaks to an Employment Development Department employee after having spent two six-hour days trying to get through to EDD in 2009. Unemployment rolls and unemployment insurance claims soared during the Great Recession, and the state still owes the federal government $8 billion from loans to shore up its Unemployment Insurance Fund. hamezcua@sacbee.com

California borrowed $10 billion from the federal government to shore up its recession-battered Unemployment Insurance Fund. Even though the state’s economy is now booming, it still owes the feds about $8 billion.

California is paying interest on the loan, an estimated $174.5 million this year, according to a new report from the state Employment Development Department, and the balance is shrinking only because in lieu of direct payments, the Department of Labor has raised taxes on employers.

That tax hike – technically a “credit reduction” – has cost employers nearly $2 billion so far and will be $1.3 billion this year and $1.7 billion next year, EDD projects.

That’s on top of the nearly $6 billion in regular unemployment insurance taxes that they pay each year, which are roughly equal to the current level of benefits.

Gov. Jerry Brown has suggested that the state overhaul the UIF and its underlying tax structure to not only pay off the loan but build up reserves that would be needed to pay unemployment insurance benefits in a future recession.

But he has not submitted a specific plan to do so. Employers have said benefit reforms should be part of any overhaul, while labor unions oppose any benefit changes.

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