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UI fund deficit requires multipronged approach

By   /   Friday, January 22nd, 2016  /   Comments Off on UI fund deficit requires multipronged approach

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While California’s political class is salivating over the thought of tax windfalls and a spending spree, the state’s employers are coughing up $1.7 billion in payroll taxes this month to put a small patch over the state’s insolvent unemployment fund.

That enormous haul was enough to close just a fraction of the $8 billion the state owes to the federal government from loans racked up in the Great Recession.

So while Gov. Jerry Brown boasts about a $1 billion surplus this year and reserves that could soon reach $11 billion, the state’s unemployment fund is permanently broke.

That’s because when the catch-up payments are totaled for this January, the fund will still be $5 billion in the hole — with no fix in sight.

Even worse, under the current system, the state is collecting $5.7 billion in UI contributions but paying out $5.8 billion in claims per year. The bottom line is that even in a good year for the economy, the UI fund cannot cover its obligations. And it can never make up for the remaining $5 billion debt to the feds without a major overhaul.

Today, employers contribute to the UI fund with payroll taxes of 1.5 percent to 6.2 percent on the first $7,000 in earnings for each employee. Most of the longer-term fixes involve dramatically increasing payments by employers by either raising the current wage ceiling or increasing the contribution rate.

Our three-part solution is guaranteed to make just about everybody hopping mad. But here goes:

1. Temporarily reduce the benefits. It’s hard to tell that to someone who has just lost their job but face it, the system is overgenerous. It’s been our experience that people laid off max their benefits before they begin looking for work again. Motivating people toward rapid re-employment will help cut costs.

2. Gradually increase the salary contribution to $8,500 from the current $7,000. This will create 20 percent more revenue over time but it is important to do it gradually as employers are already paying the full cost of the catch-up payments.

3. Tap the general fund for the rest. Part of the problem is that the employers who actually survived the recession are paying the costs for companies that shut their doors or left the state. The extraordinary payments of the past several years are hurting the ability of today’s employer to give wage hikes. They are just taxes that don’t help stimulate the economy.

Capps laments intractable house

U.S. Rep. Lois Capps visited for an hour with the Business Times on Jan. 20 and provided a window into the dysfunctional state of the House of Representatives.

Both caucuses are so dug in that it’s virtually impossible to reach across the aisle. Her attempts to develop a bipartisan effort to advance funding for women’s heart health fell short when no one from the GOP stepped up to co-chair.

That’s not the way it was in the past when, for example, the Nixon administration embraced and supported Medicare. Or when the Clinton administration pressed the Democratic caucus to sign on to welfare reform.

Capps is retiring from the Congress this year — she’s endorsed Salud Carbajal and given her party a huge gift by retiring in a presidential election year when Democratic Party turnout will be heavy.

She’s supporting Hillary Clinton and we would not be surprised if there is a role for her in a future Clinton administration.

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About the author

Managing Editor-Pacific Coast Business Times

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