Happy ($20 Billion in Debt) New Year!
Drowning Unemployment Agency Sinking Further
Thanks again to the California Globe for running this piece. You can visit the website at: https://californiaglobe.com/
Mea Culpa.
In October 2023, the we predicted the total EDD (the Employment Development Department, California’s unemployment agency named with no sense of irony) unemployment trust fund debt – principal and interest – would hit $20 billion. https://californiaglobe.com/fr/fed-unemployment-debt-to-hit-20-billion/
We were wrong – that didn’t happen until January 3, 2024. Even though six of those nine days were weekends or holidays and don’t really count, we were still just a bit off.
That being said, the EDD debt did hit $20 billion – PRINCIPAL ONLY – Monday. The EDD didn’t think that would happen until this coming December and somehow we don’t think the worst government agency in the history of state – including the DMV – will not be saying “oopsy.”
They certainly didn’t say “oops” in the bi-annual fund forecast report issued Wednesday – but they did modify their projected debt for December, though, pushing it up to $20.8 billion.
Considering that the EDD borrowed $26 million dollars-a-day so far this year and projects that it will cost that benefits paid will outstrip unemployment taxes paid by $1.7 billion, that projection is, well, wrong.
In his budget proposal, Gov. Gavin Newsom put aside $231 million general fund dollars to help out the EDD. He also directed that the Employment Training Fund “loan” the EDD another $100 million.
That $331 million dollars will make the September interest payment only and not touch the principal.
Last year, the EDD borrowed $300 million from the disability trust fund to pay the interest.
While there is no set payment schedule for the $20 billion – pay whenever you can, even better get employers pay it for you – the feds are sticklers for the interest.
In other words, think of your local bookie and Newsom is just paying the vig.
A couple of years ago, Newsom and the legislature decided to spend the leftover pandemic windfall on things like fur-bearing trout farms and perpetual motion machines instead of paying off the entire EDD debt which almost every other state did. Instead, the debt – directly caused by the massive pandemic fraud, i.e. it didn’t have to happen and it was the fault of the EDD and its leader Julie Su – is being foisted directly on California businesses through additional federal unemployment taxes.
Typically, a business pays about $21 per employee per year in the federal tax. Mobius strip-ironically, that tax funds the emergency fund California keeps borrowing from.
The EDD says 2024 will see a total fed tax of $42 per, 2025 $63, etc.
After year three (why 2025 is not year three is a mystery, most likely connected to the three different financial calendars the agencies use) there is an automatic “add-on” tax. With the add-on – which is astonishingly not referred to at all in Wednesday’s fund forecast – that would push the annual per employee rate to $273 for 2026, 13 times the rate it would have been if the EDD did its job.
When the debt will be paid – which is when the tax will end – is unclear. If – like the EDD – you don’t consider the “add-on,” it should be about 12 years with the tax rising to at least $411 per year. If the add-on is considered (Newsom has indicated he will work for some sort of exemption and with Julie Su acting as federal labor secretary, he might just get it) that would – taking in about $2.6 billion per year – cut that number in half to maybe seven years.
By the way, those projections are based on not having a recession or anything else terrible happen.
So, I guess they’re wrong, too.
And I guess that’s why they didn’t respond when asked for a comment.