Disaster unemployment insurance, needs improvement

In summary

Unemployment insurance, the California program that supports workers who lose their jobs as a result of layoffs, has faltered in the last two recessions. It’s time to fix it.

California’s recent political history is littered with episodes of mismanagement and incompetence.

We are now dealing with one example – years of state water management neglect that we are not prepared to deal with. affected by droughts and periodic floods.

Among many other examples, although not spectacular, is an emergency in unemployment insurance, the program is supposed to mitigate the damaging effects on workers who lose their jobs and their families during the state recession.

It’s a two-headed problem. Not only is the program itself underfunded, it cannot meet the demand for benefits even in a recession, but the Employment Development Department (EDD) provides the benefits are certified disability.

Unemployment insurance and the EDD worked well until politicians took over the system two decades ago. The Legislature and Gov. Gray Davis, bowing to union pressure, greatly increased benefits but failed to raise payroll taxes to pay for them, fearing a backlash from business.

This caused the State Unemployment Insurance Fund to be unable to handle the Great Recession that hit the state later in the decade. The unemployment fund was quickly depleted and the state borrowed $10 billion from the federal government to cover the deficit.

To pay back the debt, the federal government raised payroll taxes for the next ten years. However, California politicians did nothing to improve the economy and when more than 2 million workers lost their jobs in 2020, due to the closure of businesses due to the COVID-19 pandemic, the unemployment fund quickly ran out of money.

Again, the state borrowed from the federal government, this time twice as much, almost $20 billion.

Not only is the state back in debt to Uncle Sam, but the EDD administration of benefits, both the state program and later a set of benefits from the federal government, has become a nightmare. scary

Those who did qualify were left to wait for benefits, often for months, and were put on the rounds of EDD workers, while the agency about $30 billion in additional federal benefits to bogus claimants, some of whom are behind bars in state prisons — incidents that have not been fully explained.

It also left California with a huge debt, currently about $18 billion, and no Unemployment Insurance Fund.

Last year, with the state apparently enjoying a nearly $100 billion budget deficit, Newsom and lawmakers estimated $750 million to cut the debt and another $500 million to pay federal taxes on employers to repay the debt.

Never mind.

The huge surplus has turned into a multi-billion-dollar deficit and the 2023-24 budget which Newsom filed last month to waive all charges. Currently, the unemployment fund is unlikely to make regular benefit payments even in the absence of wealth.

Income taxes generate about $6 billion a year in revenue for the fund while non-deductible benefits account for about $5 billion, according to the latest EDD report. Therefore, it cannot accumulate the reserves needed to meet even a mild recession – as many economists believe is due to the Federal Reserve System’s rising interest rates. fight the economy.

This is a serious matter, not only affecting a lot of money but affecting the lives of employers, especially small businesses, and workers who have been laid off, such as the thousands of workers in Silicon Valley who have been laid off. no jobs.

We have strong evidence over the last two decades that the system is not working as it should. It’s up to Newsom and the Legislature to fix it.

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