The COVID-19 pandemic caused job losses causing the state to fall deep in debt to the federal government.
The California Unemployment Insurance Fund (UIF) has racked up a substantial debt to the federal government in its efforts to support residents who lost their jobs throughout the pandemic.
The revised 2021-22 budget published by Governor Gavin Newsom made reference to the debt.
A paragraph in the revised budget on page 180 pointed to the challenge the state now faces regarding its California unemployment insurance fund’s debt. To support Californians who lost their jobs throughout the pandemic crisis, the funds were borrowed from the federal government. By the end of the year, the UIF’s debt estimate is expected to be over $24 billion, unless Congress chooses to forgive some or all of it. If the debt is not forgiven, it will need to be repaid to the federal government with interest.
That said, as large as the number appears, it isn’t nearly as bad as it could have been. Newsom’s own projections from his original budget showed that the state had been expecting that debt to be as high as $48.3 billion by the close of 2021. That said, employment began picking up at the same time that the unemployment rate started to shrink. This made it possible to slash the original estimate in half.
California unemployment insurance loans increased to keep up with the state’s sudden spike in lost jobs.
The rapidity with which the number of unemployed people rose in 2020 as a result of the pandemic quickly drained the UIF. California was responsible for the first payment tier to unemployed people. By the close of 2020, it had borrowed $18 billion to make its payments and meet its obligations.
Borrowing and accumulating debt was California’s choice because the UIF had one of the most withered reserves in the country, according to a recent OC Register report. The problem stems from a political stalemate on the subject which has dragged on for decades.
The revised budget puts forward $1.1 billion for paying down the $24 billion California unemployment insurance debt. That said, Newsom is facing pressure from the Business Roundtable to allocate additional money to pay it down from the state’s budget surplus and/or federal relief funds.