Because of unemployment insurance (UI) benefit increases adopted by the Legislature in 2001 without a revenue adjustment, California landed quickly in debt to the Federal Unemployment Trust Account (FUTA) in 2009 during the Great Recession. California’s UI Trust Fund continues for the eighth straight year to be in debt to the FUTA. With an outstanding debt forecast at $3.9 billion at the end of 2016, California remains the only state, other than the U.S. Virgin Islands, carrying debt to the federal fund. California’s negative balance is projected to decrease to $1.1 billion by the end of 2017, and to be paid off sometime in 2018, if the economy continues as predicted and if changes are not made to the structure of the state’s UI system.

As a result of the state debt to the FUTA and as required by federal law, California employers are paying a higher federal UI tax in order to pay down the debt. Each year that a balance is owed to the federal fund, California employers pay 0.3 % higher federal UI tax and the state must pay interest on the outstanding debt. It is projected that by the end of 2018, employers will have paid an additional $9.6 billion in increased FUTA taxes and the state will have paid more than $1.4 billion in interest on the loan.

Unemployment Insurance Trust Fund Status

The CalChamber believes that the state must be diligent in its policymaking to improve the business climate in California and strive to combat rising unemployment, which results in a more stable UI Trust Fund.

The CalChamber believes that the state must be diligent in its policy making to improve the business climate in California and create more jobs, while striving to combat increased unemployment and seeking a more stable UI Trust Fund.

The UI system cannot be viewed in isolation from the overall business climate in the state and in surrounding states that compete for California businesses. The state needs a sustainable UI system that protects both workers who are temporarily unemployed through no fault of their own, and employers who spur investments and job creation.

Any solution to resolve the ongoing deficit, to prevent further debt to the federal trust fund and to return the California UI fund to stability must make significant changes to improve system integrity (including dealing with fraud and overpayments); encourage and facilitate the ability of employers and the state to appropriately address claims; and update eligibility determinations in line with today’s wages. Both tax and benefit levels must be consistent with those of other states so that California remains competitive to attract and retain businesses.

Worked with author to make bill requiring electronic filing of unemployment insurance tax returns less onerous than originally proposed (AB 1245 of 2015).

Stopped an unemployment insurance tax increase that would have created a disincentive to hire new employees by tripling the already-high unemployment insurance taxes on California employers without a proper analysis of what is needed to reform California’s broken unemployment insurance system (SB 222 of 2009).