When he exits office in 17 months, Gov. Gavin Newsom will leave behind $20 billion in debt to the federal government. The money was borrowed to cover fraudulent unemployment insurance claims during the 2020 COVID-19 pandemic. According to an analysis by the Center Square, UI debt interest payments from the state general fund rose from zero in 2019 to $600 million this year and “will soon reach $1 billion per year.” By now every other state has paid off its UI federal debt.
The payroll surtax could rise from the current $126 per employee to as high as $420. California’s particular debt predicament stems from $32 billion in fraudulent UI claims due to the incompetence of Julie Su, Newsom’s secretary the Labor and Workforce Development Agency from 2019-21. Su was later rewarded for this failure by President Joe Biden, who appointed her to the labor department.
During the 2020 crisis, then-state Sen. John Moorlach proposed a bill to quickly pay down California’s debt, by cutting spending or briefly raising taxes in other areas, to get the liability behind us. Now the director of the Center for Public Accountability at the California Policy Center, he told us opposition at the time was so great, even by the California Chamber of Commerce, the bill never even was given a number by the Democratic Senate leadership.
A prime time to pay down that debt, preventing the current unemployment insurance fallout, would have been 2022, when the state enjoyed a record $97.5 billion surplus. But prudent decision-making requires prudent decision-makers and California is in short supply of those.
“This thing is just getting worse and worse,” Moorlach told us of the current crisis. “Newsom is digging such a deep hole. If you’re in a small business, you really don’t realize the amount until your payroll service tells you.”
The UI debt is part of the reason why, as the Legislative Analyst warned in May, California faces a yearly “wall of debt” from $10 billion to $20 billion through 2028-29. The June unemployment rate released July 18 was 5.4%, tied with Nevada for the highest in the country.
Newsom’s mistakes will cost us for years.
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