Sheehy Interview: Unemployment Insurance Debt a “Sword of Damocles” Hanging Over Our Heads

Tom Sheehy, Principal and Founder of the Sheehy Strategy Group, recently sat down with GovReport’s Christina Gagnier to discuss California’s massive unemployment insurance (UI) debt and possible solutions.

The Problem

As Sheehy explained, California’s economy is still feeling the effects of the COVID-19 pandemic. The lockdown beginning March 2020 forced many businesses to close, and some had to lay off their entire workforce.

The high demand for unemployment funds quickly wiped out the state’s UI fund. To continue providing support for Californians, the state borrowed more than $21 billion from the federal government, of which it still owes $19.5 billion.

The UI debt must be paid back by January 2023 or payroll taxes will increase as much as 900% on employers state-wide. Sheehy calls it a “sword of Damocles” hanging over everyone’s heads.

After testifying before the State Legislature about the UI debt, Sheehy says that both Democrats and Republicans agree that something needs to be done, but they disagree over what to do.

The Solution

Governor Newsom’s proposed budget has a surplus of $45 billion and counting. He is proposing using $3 billion to pay down the UI debt: $1 billion this year (2022-2023) and the other $2 billion next fiscal year (2023-24).

However, Sheehy is concerned that there will not be a budget surplus next year because of inflation, the war in Ukraine, and rising federal reserve interest rates. He wants the Legislature to consider paying all $3 billion this year before the surplus disappears.  

Regardless of what the Legislature decides, it’s clear that something needs to happen, and it needs to happen soon or California employers will soon experience a massive tax increase.

Do you need help dealing with California lawmakers or regulators? Contact us for a free consultation or information on proposals to represent you.