Newsom and Legislature Backtrack on Promise; California Employers Will Soon Pay the Price
Governor Newsom and the Legislature have reneged on assistance to California employers to deal with the Unemployment Insurance (UI) deficit, says Tom Sheehy, principal and founder of the Sheehy Strategy Group.
In March 2020, the COVID-19 pandemic shutdown created an extraordinary economic situation. Overnight, there were millions of unemployment benefit seekers, which wiped out California’s UI fund. Under federal law, when a state's unemployment fund becomes insolvent, the federal government will step in and loan money.
By summer 2022 the federal government had loaned California close to $20 billion, and three years later, the State of California still owes the federal government $18 billion. Because the state has not paid off the loan, employers in California will bear a significant tax burden until the loan is paid.
Sheehy notes, “For perspective, the average employer pays $42 per employee per year in UI taxes, but that will increase automatically for the next ten years until it gets as high as $442 per employee per year.”
The state can pay down the deficit. In 2022 a $250 million payment was made with the promise to earmark additional funds in the 2023 budget — $750 million towards the deficit and an additional $500 million allocated so small businesses could apply for tax relief.
However, due to a 2023 budget shortfall the Governor and Legislature have rescinded the commitment to pay-down the UI deficit and earmark funds for tax relief.
Sheehy says, “This is really unfair from a policy standpoint because, after all, it was the state that forced California employers to shut down their businesses and lay off all their employees. And not only did the state force it upon the employers, but unfortunately, the EDD also paid out billions in fraudulent claims.”
California could allocate funds to help ease the tax burden on employers, but so far, it’s choosing not to do that.
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