During the coronavirus pandemic, so many people lost jobs that many of these funds ran out of money. Twenty-two states borrowed from the federal government so they could keep paying unemployment benefits. Those states must pay that money back, plus interest. Most states have already done this. But California is one of five states that hasn’t. The state owes $18.9 billion.
If California doesn’t pay the money back, businesses have to do it through higher taxes. California was supposed to start paying off the debt this year with $1.5 billion — $1 billion toward the debt, plus another $500 million to help small businesses pay their increased taxes.
But that was before California had a $22.5 billion budget deficit. Now, Democratic Gov. Gavin Newsom wants to cancel $1.25 billion of that spending to help cover the state’s budget shortfall. That means businesses will have to pay an additional $21 per employee in federal unemployment insurance taxes this year. That tax will keep increasing by $21 every year over the next decade that the debt is not paid off…
California could have paid off the debt, or at least a sizeable portion of it, in the past two years when it had a combined general fund budget surplus of $119.4 billion. But state officials didn’t do that…
LOL DB2. This is exactly the problem with the rights arguments. All fluff no beef. All hat no cattle. When you dig into it you have to ask where is the default and then they start saying well they didn’t budget money so technically, if you read between the lines and squint really hard they are defaulting. That is hilarious. Don’t you get tired of all the drama? Tell me what exactly are you a doctor of?
That’s my understanding as well. The part that is puzzling is that California hasn’t missed any payments and has a funding mechanism in place to make future payments. So according to the article, California is not defaulting and there appears to be no risk of default either.
But your headline says the opposite, which is why I must be missing something.
"California was supposed to start paying off the debt this year with $1.5 billion — $1 billion toward the debt, plus another $500 million to help small businesses pay their increased taxes. But that was before California had a $22.5 billion budget deficit. Now, Democratic Gov. Gavin Newsom wants to cancel $1.25 billion of that spending to help cover the state’s budget shortfall.
The California LAO (Legislative Analyst’s Office) put out a report on the governor’s budget proposal. As you know, the state is facing a deficit.
In the “How Does the Governor Propose Solving the Budget Problem?” section we read:
“$2.6Billion in Spending Reductions We define a spending reduction as the elimination of an augmentation previously approved under current law or policy. The Governor’s budget includes nearly $3 billion in reductions, the largest of which is withdrawing a discretionary principal payment on state’s unemployment insurance loan…”
This is what I’m thinking. Let’s say your nephew takes out a loan with you as co-signer. He loses his job and stops making loan payments. He has defaulted on the loan, and you are now making the payments.
Default was in the thread title. Since the governor (as noted by the LAO) wants to withdraw/withhold payment by the state on the unemployment insurance loan from the Feds the word seems appropriate. Generally speaking, a default is a missed payment on a loan.
When a state requests a loan from the Feds to keep their unemployment fund solvent, there are two ways that loan can be repaid. The state can budget for the payment from their general funds. Or they can let the Feds collect the payments from employers in the state by raising the Federal Unemployment insurance rate on wages paid.
In either case, there is no default. The payments are being made.
This has happened in California before. From 2011 through 2017, California employers were subject to this additional tax as well. That stemmed from the economic downturn in 2008, which depleted the state’s UI fund.
It’s also important to note that California eliminated the state UI tax on certain employers for 2021 and 2022 in response to the pandemic. So in a way it’s only fair that employers start making up for those years.
There’s also a systemic issue with the whole UI tax system in CA. CA has different rate schedules that apply based on the projected solvency of the UI fund. We’ve been on the highest rate schedule for many years now. (I want to say 20+ years, but I didn’t research that.) IMHO, the issue is the limit on wages that are taxed. CA taxes only the first $7000 of wages paid to an employee. That limit has been in place since the 1980s. There are other states that have much higher limits on the wages that are taxed. While I’m not well-versed in all states, I recall seeing some with a limit in the $20k range.
In some ways, pushing this loan repayment onto employers via increased Fed UI taxes is substituting for fixing the problems with the CA UI tax system. It still puts the tax on employers rather than forcing all Californians to pay higher taxes to pay for unemployment benefits.