The Legislative Analyst's Office compared all 50 states for insight into the insolvency of California's unemployment insurance fund. California's fund ran out of money in 2009 and has been borrowing billions of dollars from the federal government to keep benefits flowing. Thirty-one other states' funds also have become insolvent, mainly because they were hit harder by unemployment rates, the study found.
The analysis of California's unemployment benefits adds to the debate over what the state should do to get out of debt. The question states face is whether to increase taxes on employers to fund the system or reduce benefits to the unemployed. The California Budget Project, for example, favors tax increases on employers, while the California Chamber of Commerce argues that the solution is to improve the overall business climate.
California's tax rate is about average, while the costs of its unemployment insurance program are relatively high, creating an ongoing imbalance, the study found.
This year, 10 states have lowered benefits, while two have increased employer taxes. The majority, like California, "have chosen inaction," said study author Brian Uhler.
A major problem for California is the economic reality: The unemployment rate, hitting 12.1 percent in August, is worse here, putting a heavier burden on the insurance fund.
"We just have more people in the program, and that's a large product of our higher unemployment," Uhler said.
Uhler found that California pays out lower weekly benefits, putting it 43rd in the nation. But the unemployed tend to stay on the insurance rolls longer than in most other states, partly because it's harder to get a job here and partly because the state is more permissive. California lets the unemployed recoup up to 50 percent of their average earnings from when they were employed, whereas many other states have a lower limit.
California also has a bigger caseload than other states, partly because it's easier to get benefits here. Only five other states have a lower threshold, the study found. The state could restrict benefits, it said, but policy reforms may have limited impact due to the state's persistent unemployment problem.
"The demand has really been off the chart," said Loree Levy, spokeswoman for the state Employment Development Department.
More than 538,000 Californians have maxed out on their benefits, with the number growing by about 5,000 every week, Levy said.
Meanwhile, California hasn't updated its formula for funding the insurance program since 1984. The state Legislature raised weekly benefits earlier this decade, without raising revenues to pay for it, Levy said.
"The funding formula itself is antiquated," she said. "It will require legislative action of some kind."
The state paid $303.6 million to the federal government last month with money borrowed from the state fund for disability insurance.
The California Budget Project, a nonprofit that focuses on the working poor, proposes to fix the funding gap by raising the taxes that employers pay into the insurance fund. Executive Director Jean Ross also wants to see increased benefits for the unemployed.
"If you look at all the economic analysis into what's the best way to jumpstart the economy, unemployment insurance has the biggest bang for the buck," Ross said. "That money gets spent with landlords, grocery stores, gas stations. It gets spent on local economies."
The California Chamber of Commerce, on the other hand, opposed previous benefit increases.
"California's (unemployment insurance) system provides the easiest access to benefits; covers more workers – including part-time workers; pays more claims; and pays more weeks of benefits than any other state in the nation," Marti Fisher, chamber policy advocate, said in a statement.
"CalChamber believes that the best way for California to combat rising unemployment, and therefore improve the stability of the (Unemployment Insurance) Trust Fund, is to improve the business climate in California," he said.
Story courtesy of our media partners at California Watch (A Project of the Center for Investigative Reporting)