‘Deadbeat’ Newsom Defaults on $20B Federal Loan, Businesses Stuck With The Bill

California stands alone as the only state in the nation failing to repay its massive federal pandemic-era unemployment loan, now ballooning beyond $20 billion and projected to climb higher.

While every other state responsibly used federal stimulus funds to settle their debts, Governor Gavin Newsom (D) and the Democrat-controlled Legislature chose to spend like drunken sailors, leaving employers—large and small—to bear the crushing burden through skyrocketing payroll taxes.

This “greatest hidden tax,” as California Business Roundtable President Rob Lapsley aptly calls it, is driving up costs, stifling job creation, and accelerating the exodus of businesses from the Golden State.

Today, the consequences are severe. Federal law automatically penalizes delinquent states by hiking employer payroll taxes under the Federal Unemployment Tax Act (FUTA). In 2025, businesses face an additional $126 per employee ($84 surcharge plus base), with costs escalating $21 annually until the debt is cleared. Projections warn of surcharges exceeding $400 per worker. Meanwhile, the state shells out hundreds of millions yearly in interest alone—money that could have reduced the principal but instead fuels ongoing deficits.

Huntington Beach City Councilman and small business owner Chef Andrew Gruel reveals that his business gets “hit with a huge increase in payroll taxes” to cover the financial malfeasance of one-party rule.

Correct and every year now, going into the holidays when sales are down, we get hit with a huge increase in payroll taxes (thousands) to cover their ineptitude. https://t.co/hyGm6dAzau

— Chef Andrew Gruel (@ChefGruel) December 22, 2025

The roots of this crisis trace back to the mandatory COVID-19 lockdowns imposed by Newsom for three straight years, which triggered an unprecedented surge in unemployment claims due to forced, business closures. It is estimated that over 2 million Californians lost their jobs due to Newsom’s lockdowns.

As The Globe reported:

By 2023, California had lost 35.9 percent of “non-essential” businesses, which remained closed after being ordered to. More than one-third of restaurants permanently closed. Many owners were unable to pay their bills or feed their families while Home Depot, Costco and Walmart remained open, deemed “essential” by Gov. Newsom.

Due to the unprecedented surge in EDD claims, the state borrowed $20 billion from the federal government to keep benefits flowing, amassing a debt that no other state matched in scale.

Instead of paying off the pandemic-era loan, California Democrats did not. Instead, they squandered the opportunity during budget surplus years, redirecting funds to politically-aligned pet projects, while the Employment Development Department (EDD) hemorrhaged billions—some estimates pegging pandemic fraud losses at over $32 billion.

Councilman Gruel explains while EDD fraud was rampant and the state’s government was excessively spending other people’s money, Governor Gavin Newsom was holding press conferences touting a budget surplus.

Just to be clear:
1. California borrowed heavily from the federal government to cover pandemic unemployment that they “LOST” due to fraud.
2. Unlike every other state, California chose not to pay that loan down
3. The repayment burden was shifted almost entirely onto employers… https://t.co/rFiUyIERDP

— Chef Andrew Gruel (@ChefGruel) December 22, 2025

That budget surplus Newsom was bragging about has quickly plunged to an estimated $18 billion deficit.

Rep. Kevin Kiley (R) chimed in and blasted Governor Newsom, referring to him as a “deadbeat:”

Our governor is literally a deadbeat. Every other state paid back its federal COVID loan. California defaulted. So now our small businesses have to repay the $20 billion through automatic tax increases. https://t.co/Zqv2nAbGVI

— Kevin Kiley (@KevinKileyCA) December 21, 2025

The nonpartisan Legislative Analyst’s Office (LAO) released an Executive Summary in December 2024 of the persistent and unprecedented deficits in the state’s unemployment system:

Under our projections, deficits would average around $2 billion per year for the next five years. This outlook is unprecedented: although the state has, in the past, failed to build robust reserves during periods of economic growth, it has never before run persistent deficits during one of these periods.

(The LAO report is so important–and horrifying–that I have included the PDF below).

The LAO further reports that the Unemployment Insurance (UI) system is so broken that “it fails to cover normal UI costs”:

The UI tax system is supposed to automatically adjust based on the UI trust fund’s condition. Tax rates should increase when a reserve cushion needs to be built and decrease once that’s done.

In actuality, employer tax rates actually decrease when they should be increasing.

This broken system now fails to cover even normal UI costs, let alone the stress of a recession.

Rob Lapsley minced no words in his KCRA interview: This hidden tax “creates another disincentive to be able to scale and grow jobs here.”

With California’s unemployment rate stubbornly among the nation’s highest—recent forecasts predicting rises to 6.1 percent in 2025—employers are hit hardest amid an already hostile business climate marked by high taxes, regulations, and energy costs. Small businesses, the backbone of the economy, are particularly vulnerable, as evidenced by major departures like Chevron’s headquarters relocation.

Chevron is just one of many businesses that have fled the once-Golden State. Space X, X/Twitter, Oracle, Hewlett Packard, Charles Schwab, and Toyota Motor North America, are just a few more of the large businesses leaving California because of Democrats and Governor Newsom.

In October the Globe reported that GAF Energy, which sells solar panels embedded in roof shingles, is leaving California for Georgetown, Texas.

Today, we reported that Leprino Foods, the world’s largest mozzarella cheese maker, is closing its Central Valley dairy processing plant in Lemore and moving to Lubbock, Texas. The company supplies cheese to Domino’s, Pizza Hut and Papa John’s. The closure will result in the loss of more than 300 jobs.

Anheuser-Busch is closing its Budweiser brewery in Fairfield, California.

As the Globe reported earlier this year, California ranks dead last once again in Chief Executive Magazine’s Best & Worst States For Business 2025 – the 14th year in a row. Tennessee ranks #1 once again, and now “The Volunteer State” is getting another of California’s oldest and one of the best known businesses in the country: After 77 Years in California, In-N-Out Is Moving to Tennessee.

In August, Bed Bath & Beyond announced that the company won’t open or operate retail stores in California, saying the decision “isn’t about politics – it’s about reality.”

After 110 years in midtown Sacramento, Blue Diamond Growers recently announced that the Sacramento almond plant had fallen behind the times, and would be shut down sometime between late 2026 and mid-2027, the Sacramento Bee reported.

Legislative leaders offer vague promises of reform, acknowledging the system’s decades-old flaws but defer any corrective action. Since 2021, Senate Pro Tem Monique Limón speaks of working with stakeholders to “improve EDD operations,” while Assembly Speaker Robert Rivas’ office calls it a “decades-old problem” contingent on compromise. Such rhetoric rings hollow as the debt grows and businesses pay the price.

CA needs a new EDD structure that prioritizes Californians. Multiple times, I have joined my colleagues urging Gov. Newsom to improve EDD operations. I will continue to do so while working on legislative solutions in the Legislature.https://t.co/5HQAylftV2

— Senator Monique Limón (@MoniqueLimonCA) February 2, 2021

All talk and no action exemplifies Sacramento’s misplaced priorities under one-party Democratic rule. The unemployment insurance fund has been structurally insolvent for years, exacerbated by generous benefits, inadequate employer contributions, fraud, and overall mismanagement. Rather than reforming the broken systems, Democratic “leaders” kick the can, forcing private-sector job creators to subsidize their failures.

As California grapples with persistent budget shortfalls and an unfriendly business environment, this unpaid debt symbolizes a deeper dysfunction. While Newsom touts economic strengths, the reality is fleeing companies, stagnant job growth, and taxpayers footing the bill for political cowardice shielded by smoke and mirrors. Without bold reforms, the Golden State’s economic foundation will continue eroding, prompting more businesses to vote with their feet.