California’s Unemployment Insurance Fund ended 2018 with a $2.3 billion balance – the first positive balance after nine years of insolvency – and is projected to have a $2.8 billion balance by the end of 2019 and a $3.2 billion balance by the end of 2020, the Employment Development Department (EDD) reported in its May 2019 Unemployment Insurance Fund Forecast.
The end of insolvency means the end of a tax penalty on California employers. When the UI Fund ran out of money in 2009, California began borrowing from the federal government to pay unemployment insurance benefits. The fund had a deficit of more than $10 billion in 2013, and a $1.1 billion deficit at the end of 2017.
The federal loan triggered a tax increase on employers. As long as the loan and its corresponding interest remained unpaid, the federal government reduced California employers’ Federal Unemployment Tax Act (FUTA) credits, costing employers $2.2 billion in 2017 alone, according to the EDD.
Although the credit reduction has ended, employers will continue paying the highest possible tax rate (“contribution” schedule F, plus a 15 percent surcharge) until the fund reaches a higher reserve level.
The EDD’s latest report includes its traditional warning that “if changes are not made to the current financing structure, the UI Fund may not maintain a balance high enough to withstand an economic downturn.”
In 2018, the fund paid out $5.1 billion in benefits, and had total receipts of $6 billion. The EDD projects that this year’s benefits will total $5.4 billion, and total receipts will be $5.9 billion.
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