Unemployment Insurance

State Forecasts $20.2 Billion Year-End Deficit in Unemployment Insurance Fund

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California’s unemployment insurance (UI) fund will end the year with a $20.2 billion deficit, the Employment Development Department (EDD) projected in its latest Unemployment Insurance Fund Forecast.

While the projected deficit is an improvement from May’s forecast of a $24.3 billion deficit, it remains bad news for employers, who will be forced to pay higher employment taxes to repay federal loans that are being used to allow the state to continue providing benefits to unemployed Californians.

California’s UI fund ended 2019 with a $3.3 billion surplus, but COVID-19 and the subsequent economic downturn quickly wiped out the money. The fund was deemed temporarily insolvent April 29, 2020, and permanently insolvent June 3, 2020.

California began taking the federal loans in 2020. The UI Fund ended 2020 with a deficit of $17.8 billion, and the EDD’s latest projection expects the deficit to continue, reaching $21.8 billion by the end of 2022 and $21.5 billion by the end of 2023.

Unless the governor and Legislature approve legislation to repay the federal loans, California employers will be forced to pay higher taxes to retire the debt.

Employer contributions to the UI fund were $4.6 billion in 2020, and are estimated to be $4.6 billion in 2021, $4.7 billion in 2022, and $5.2 billion in 2023. The EDD noted that its estimates are subject to change based on employment levels.

The EDD expects unemployment to decrease in the next few years. Unemployment totaled 1,913,000 in 2020, and is projected to fall to 1.4 million by the close of this year, 1.1 million in 2022, and 892,000 in 2023.

Citing a Legislative Analyst’s Office estimate that California will have a $31 billion surplus next year, political columnist Dan Walters of CalMatters recently called for government action to prevent employers from footing the bill.

“Since it’s the season for proposing ways to spend the state’s embarrassment of riches, let’s add one more – doing something about the state’s $20-plus billion debt to the federal government for unemployment insurance payments during the recession,” Walters wrote, adding that “the debt should be fairly shouldered by the state as a cost of fighting the pandemic, rather than by employers still struggling to recover from recession.”

The UI system has been the subject of significant controversy during the pandemic. The California State Auditor’s Office discovered – and the EDD later corroborated – that an estimated $31 billion in benefits were paid to scammers.

Asked during a Sacramento Press Club event whether California will be able to recover the money sent to con artists, Attorney General Rob Bonta said this week that there are “challenges to retrieving all of it,” but “some of it could be secured and returned.” Bonta said his office will try to recover every dollar, but it will be difficult since some of the scammers apparently were based in other countries.