Unemployment fund faces billions in deficit

October 20, 2010 7:32:28 PM PDT
We're used to hearing about California's serious budget problems, but there's another deficit that lawmakers have largely ignored. It's the shortfall in the state's unemployment trust fund which is used to pay unemployment benefits and it's a costly problem.

California's unemployment fund plunged into insolvency in January 2009, but it keeps paying out weekly benefits thanks to several loans from the federal government.

Two reports out, one from the Legislative Analyst Office, estimates by the end of next year, the account will be have a $20 billion deficit; the other report, from the state employment office, says the deficit will be more than $13 billion -- either way, they spell trouble.

"Had we acted sooner, though, the deficit wouldn't be as bad," says Todd Bland from the Legislative Analyst Office.

California's Employment Development Department has been sounding the alarm to lawmakers for years. The agency warned them of the looming gap when the Legislature approved doubling benefits without raising the employer tax that funds the unemployment account. Add to that the record number submitting claims.

"We've ended up with a very big imbalance that cannot recover on its own. It needs Legislation to address it," says Loree Levy from the California Employment Development Department.

But lawmakers haven't had the courage to address the problem because it would mean possibly cutting benefits or eligibility -- unpopular ideas at the unemployment office.

"My benefits are already low each month as it is. I think it's unconscionable that they would do that," says unemployed worker Nora Fitzsimmons.

Or they could raise employer contributions for each worker, but that's another thumbs down idea.

"Increasing any tax on employers right now, particularly small business, is not going to help us recover from this recession," says Michael Shaw from the National Federation of Independent Business.

Or lawmakers can do a combination of both. The unemployment fund deficit is just one of many problems facing the new governor and Legislature in January; $400 million in interest on those federal loans come due in a year.

If California continues to ignore the problem, the federal government does have the power to raise business taxes to fund unemployment insurance.


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