Did you know that the state of California is currently having a difficult time shouldering the weight of an astronomical amount of unemployment debt?
To help put the size of this problem into the proper perspective, take a minute to think about the fact that the amount of unemployment California currently owes is equal to the unemployment debt of every other state in the country…combined. Wow!
How is That Possible?
The problem with unemployment debt in California dates back to before anyone had ever heard of COVID-19. In fact, the state had the worst unemployment situation in the country in the first few months of 2020, leading into the pandemic.
The massive influx of unemployment claims during the pandemic worsened an already bad situation.
Unemployment claims are supposed to be funded from a pool of taxes collected from employers, but with so many people out of work during the pandemic, the federal government began loaning states money to make up the deficits in those pools.
Between having more people collecting and less and less paying in as California remained closed longer than most states, that pool of funds has been long-since depleted. The amount of money the state needed to borrow has ballooned to a current balance sitting around $20 billion.
Then There’s the Broken Math
With most of the state finally getting back to work, an optimist would like to believe that California will now be collecting enough unemployment taxes from employers to pay down those loans and rebuild the pool for future unemployment crunches. However, there is some broken math behind that optimism.
California only taxes businesses on the first $7,000 in wages for each employee every year, while unemployment benefits cover 50% of an employee’s wages.
With many high-paying software and entertainment jobs located across the state, it just isn’t possible for the government to take in so little and be expected to pay out so much when claims are filed.
How Are We Going to Pay That Debt?
One bit of good news that Californians can hang their hats on is that the state does have a projected budget surplus this year, and Governor Newsome has already proposed putting $3 billion of that surplus towards the unemployment debt over the next two years.
In addition to utilizing the budget surplus, there have also been discussions about raising the maximum salary and the percentage of the unemployment tax moving forward.
There are also federal COVID relief funds available that California may be able to use towards repaying what it owes for those unemployment loans.
Another angle that many legislators would like to pursue is putting more effort into making sure that all of the unemployment claims being paid by the state are legitimate. Cracking down on even a fraction of fraudulent claims could add up tremendously in a state as big as California.
With numbers this big, it’s no wonder that there has been so much cause for concern in Sacramento these past few months. However, with a combined effort of everyone working for the state’s best interest, there is no reason that California can’t pull itself together and get back on track sooner than you might think.
