The state’s unemployment insurance debt, which ballooned as a result of the pandemic, is in dire straits with no clear path forward.
California’s unemployment insurance fund is $20 billion in debt, putting the state in a terrible position in case of a recession.
“The administration’s forecast of a UI trust fund deficit adds urgency that may not have existed last year, making this one of the key issues facing the Legislature in the near future,” said Chas Alamo, principal fiscal and policy analyst for the Legislative Analyst’s Office. The fund was solvent as recently as 2018 and 2019, but still below the recommended standard of having enough funds to distribute benefits for a year, according to Department of Labor data analyzed by the Century Foundation, a progressive think tank that advocates for equity in domestic and foreign policy. In 2017, and each year before that going back to 2009, the fund had been insolvent. The last time the state’s unemployment insurance fund met the standard was 1990.
The state’s unemployment fund is funded by a variable percentage tax, currently 3.46%, on employers based on the first $7,000 each employee earns, the minimum taxable wage base required by federal law — a base California has not raised since 1983. That same wage base also applies to employers of both high-wage earners and low-wage earners, even though high-wage earners are eligible for higher unemployment benefits when they lose their jobs.
But Alamo, of the state Legislative Analyst’s Office, said that while the state’s wage base is lower than others, the percentage employers pay on that wage base is actually greater than the percentage employers in many other states pay on higher wage bases. “The amount contributed on behalf of workers is pretty middle of the pack,” he said.
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