California borrows $40 million a day to pay unemployment

[Pastor Dale Morgan]

Perilous Times

California borrows $40 million a day to pay unemployment

'The deficit is ongoing and will continue to grow'

--Los Angeles Times

The state is borrowing $40 million a day from the federal government to provide assistance to jobless workers, but has resisted changing the formulas it uses to determine and fund those benefits.

November 06, 2010|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — California's fund for paying unemployment insurance is broke.

With one in every eight workers out of a job, the state is borrowing billions of dollars from the federal government to pay benefits at the rate of $40 million a day.

The debt, now at $8.6 billion, is expected to reach $10.3 billion for the year, two-thirds greater than last year. Worse, the deficit is projected to hit $13.4 billion by the end of next year and $16 billion in 2012, according to the California Employment Development Department, which runs the program.

Interest on that debt will soon start piling up, forcing the state to come up with a $362-million payment to Washington by the end of next September.

That's money that otherwise would go into the state's general fund, where it could be spent to hire new teachers, provide healthcare to children and beef up law enforcement.

Continued borrowing, meanwhile, means that employers face an automatic hike in their federal unemployment insurance taxes, pushing up annual payroll costs $21 a year for each worker.

Those costs are expected to more than double over the next five years if California continues to borrow from the federal government.

"It's a fiscal problem for elected officials in our state," said Todd Bland, director of social services at the nonpartisan Legislative Analyst's Office. "The deficit is ongoing and will continue to grow."

The state Legislature has turned away two attempts to raise payroll taxes to fix the deficit and ignored a similar proposal by Gov. Arnold Schwarzenegger.

Now California's governor-elect, Jerry Brown, has to devise a way to minimize the tax burden on employers without drastically slashing benefits for the jobless — and get lawmakers on board.

Neither Democrat Brown nor his Republican opponent in last week's election, Meg Whitman, publicly focused on the bulging deficit in the unemployment insurance fund.

California heads a list of 32 states that have been forced to borrow a total of $41 billion so far from the federal government to pay claims.

Putting the fund back into balance, at least theoretically, shouldn't be overly complicated, experts say.

"You can increase your contributions, decrease money going out of the fund as benefits, or do a combination of both," said Employment Development Department spokeswoman Loree Levy. "But the hole will keep getting bigger the longer that we go without addressing the problem."