California Unemployment Fund declared Insolvent after $55 Billion Overpayment Fraud During Covid
Sacramento, CA: The unemployment insurance fund in California is currently facing a state of “structural insolvency” as a result of fraudulent activities amounting to $55 billion and overpayments made during the COVID-19 crisis.
Consequently, the state is burdened with an increasing $21 billion unemployment benefits loan from the federal government.
California Democrats have proposed an increase in unemployment insurance taxes and a nearly twofold increase in unemployment benefits. This is in response to the state’s request for loan forgiveness from the Acting United States Secretary of Labor, who served as California’s Secretary of Labor during the COVID-19 era and was responsible for overseeing the state’s fraudulent payments, including nearly $1 billion to felons in prison who filled out fraudulent paperwork.
California obtained a loan of $17.8 billion in 2020 to sustain its unemployment insurance fund payments. It is anticipated that this amount will escalate to $20.8 billion by the conclusion of 2024 as a result of inadequate payments.
According to projections, the number of unemployed individuals in California is expected to increase from 804,000 in 2022 to 930,000 by 2025. Consequently, it is anticipated that benefits payments will also increase, assuming no legislative modifications, from $5 billion in 2022 to $6.8 billion by 2025.
California’s unemployment insurance fund, which was already in a precarious financial situation prior to the COVID-19 problem, has been deemed “structurally insolvent” by the state’s non-partisan Legislative Analyst’s Office due to $55 billion in fraudulent activities and excessive payouts.
In the event that a state’s unemployment insurance fund accumulates a debt to the federal government for two consecutive years, it is mandated by federal legislation that employers be subject to a progressive tax hike in order to repay the outstanding loan. The tax hike equates to $21 per employee annually, resulting in a $105 rise in the tax for the fifth year of tax hikes compared to the initial level.
The annual increase of $21 per worker results in a corresponding annual income gain of $400 million. Nevertheless, despite the increasing contributions, they remain insufficient to diminish the outstanding principle owed to the federal government.
Must Read: Assisted Suicide Bill Dropped in California after Bipartisan Outrage
This is mostly attributed to the fund’s incapacity to finance current claims, let alone settle outstanding debts. This situation presents the state with two potential courses of action: seeking debt forgiveness from the federal government or surpassing the automatic federal increases by raising unemployment taxes as per The Center Square.
In late 2023, the office of Acting U.S. Secretary of Labor Julie Su made an announcement regarding the possibility of waiving state repayment to the federal government for ineligible benefits. The California state auditor observed that in February 2024, the state had submitted a letter to Su, who was responsible for administering California’s $55 billion paid in ineligible benefits, seeking federal approval for debt forgiveness.
In the event that federal forgiveness is not implemented, the state is contemplating a quintupling of unemployment tax rates from 0.1% to 0.5%, as well as a roughly twofold increase in weekly maximum benefits from $450 to $700. These measures would necessitate a two-thirds vote in both chambers of the legislature for approval.
The bill’s initial hearing has been canceled by State Sen. Maria Durazo, D-Los Angeles, the author of SB 1434, potentially in response to the pending decision letter from the U.S. Department of Labor.
