California in a jam after borrowing billions to pay unemployment benefits

"California's apparent plan to rely on [federal tax] revenue to pay off the loan avoids addressing solvency in the state unemployment insurance law and places the burden of increased unemployment benefits during the pandemic on employers," said Doug Holmes, former director of Ohio's unemployment insurance program and currently president of the consulting firm UWC.

In California, business groups say it's unfair for employers to shoulder the increasing burden when they weren't responsible for the pandemic or the temporary lockdowns that were imposed on them, resulting in layoffs and higher unemployment claims. They argue that it will only add to the state's already higher business costs that have pushed some California companies to relocate to Texas, Nevada and other states.

Traub, of the National Employment Law Project, said employers have to pay more to make the math work and ensure the unemployment trust system is sustainable over the long haul.

Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee per year. Traub noted that most other states have a significantly higher taxable wage limit — New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500.

"Raising the taxable wage base has got to be part of the solution," Traub said.

California legislators are now considering an increase, which many agree is needed. "That's very reasonable," said Michael Bernick, an employment attorney at Duane Morris in San Francisco.

Bernick was the EDD director in the early 2000s when, under Gov. Gray Davis, the state raised the maximum weekly unemployment benefits to $450 a week — but without increasing the taxes to cover the larger payments.

Writing in a report with Holmes, Bernick recommended a number of steps the EDD could take to shore up the state's unemployment benefits program, including tightening eligibility standards and modernizing the agency's computer and communications systems. But by far the main policy change that's needed is to help jobless workers move into new jobs more rapidly.

In 2022, California workers stayed on unemployment aid for an average of 18.1 weeks, compared with 14.5 weeks nationally, according to a study by the Department of Labor's former lead actuary, Robert Pavosevich.

In California that year, 47% of recipients took the full maximum 26 weeks of jobless benefits. Nationally, only 27% exhausted all benefit weeks available.

"Those are striking numbers and highlight just how much the system needs to be reshaped," Bernick said. "How do we get people back to work quickly? It's both good for businesses and the workers, but also for the unemployment fund."