If you think, as most of us do, that all that’s needed to fix California’s problems is a deal between Gov. Jerry Brown and the Republican minority in the Legislature, think again.
Beyond the budget, a perennial circus show that crowds the middle ring of state politics, there are myriad problems that plague the Golden State’s post-recession economy.
A report from the California Budget Project, or CBP, underscores one of them — a $16 billion hole in the state unemployment insurance fund.
With millions of Californians out of work and collecting extended unemployment benefits, the fund that provides those benefits is broke. So broke, in fact, that it has been borrowing money from the federal government and getting “waivers” that allow it to skip interest payments amounting to more than $300 million a year.
Today, all employers pay the highest possible rate — something like $450 per employee per year — to pay for those benefits. We pay on the first $7,000 in wages on all employees.
Typically, in good times, those companies that have not had a history of layoffs achieve a higher rating and pay less. But with the fund this broke, there won’t be any break in the rate for years to come. The federal government’s rules allow Uncle Sam to dip more deeply into the pockets of employers to make up for shortfalls — in a few years a “surcharge” to make up the difference could amount to $400 per employee.
Moreover, the Sacramento-based CBP wants to gradually raise the salary cap on unemployment benefits to fill the hole faster — and to create a bigger base to make up for shortfalls the next time a recession hits.
But if California were to follow the example of Mississippi and boost the salary base to $14,000, employer payments would effectively double unless downward adjustments were made to the base rate.
Unemployment insurance costs are borne exclusively by employers. But tacking an extra $450 per year in current payments, plus federal penalties plus a rising wage base onto every employee, acts as a tax on future employment.
Rising unemployment insurance rates are going to make employers extremely cautious about adding new people to payroll unless absolutely necessary. And gun-shy employers are not the sort of group you want to count on to lift an economy in the short to intermediate term.
A budget deal could set the stage for some stability in California’s economic future. But it will not cure all the ills that California faces in getting back on a growth track.