California State Capitol. (Photo: Kevin Sanders for California Globe)
Trump Labor Department says Gavin Newsom OWES $22 BILLION to the American Taxpayer
Instead of paying down debt when California had higher revenues and the budget ‘surplus’ Newsom and Democrats went on a spending spree
By Katy Grimes, August 31, 2026 10:08 am
California is the only state still carrying a large outstanding federal loan for its unemployment insurance program. The balance? $22 billion.
California’s Employment Development Department May 2026 UI Fund Forecast put the year-end federal loan balance at $21.6 billion for 2024 and $21.7 billion for 2025, with a projection of $22.0 billion by the end of 2026.
Federal Department of Labor solvency data as of early 2026 listed California’s outstanding Title XII advance at about $21.4 billion. Other states that borrowed during the pandemic repaid their balances. California did not.
You may remember that during the Covid statewide lockdowns, death row inmates, life inmates, and life without possibility of parole inmates, rapists, child molesters, human traffickers, and other violent criminals, fraudulently applied for and received unemployment benefits, as well as many out of state recipients.
District Attorneys from across California joined together in 2020 to expose the massive unemployment benefits fraud in jails and prisons in California. “This is perhaps the biggest fraud on taxpayers in California history,” DA Anne Marie Schubert said.
This took place while millions of Californians who were out of work did not rightfully receive EDD benefits. While legitimate workers couldn’t get benefits, officials said the EDD paid a quarter-million dollars in benefits to inmates running a scam inside a Bay area jail, in one case.
The Globe asked Can California’s Broken Unemployment Insurance System Be Saved? in December 2024.
Because what happened in California was that “Instead of paying down debt when California had higher revenues and/or the budget ‘surplus,’ Gov. Newsom and Democrats went on a spending spree of longterm social welfare programs, which the state now cannot afford. Therefore, private sector businesses will be paying off the governor’s debt – debt which could have been avoided had Newsom and his appointees taken their jobs seriously.”
And the Newsom administration left the federal government with a fat $22 billion unpaid bill.
According to a May 2026 report by the EDD, “due to impact of COVID-19, California became insolvent and started borrowing money from the federal government to pay unemployment insurance benefits since 2020, and interest has accrued. However, the federal government via the Biden administration CARES Act and the American Rescue Plan Act waived interest through September 6, 2021. Therefore, no interest was due on September 30, 2020. However, interest started accruing on September 7, 2021, and the first interest payment of $29.2 million was paid on September 30, 2021. California paid a second interest payment of $333.5 million on September 30, 2022, a third interest payment of $301.6 million on September 30, 2023, and a fourth interest payment of $467.2 million on September 30, 2024. A fifth interest payment of $628.3 million was paid on September 30, 2025, and California will continue to owe interest until the loan is paid off completely.”
As the Globe reported:
Gov. Newsom’s administration was so grossly negligent during his lockdown of the state, the EDD, the state’s unemployment agency, allowed tens of billions of taxpayer dollars to be lost to fraud.
The estimate on how much the EDD lost is anywhere between $31 Billion and $40 Billion sent to to illegitimate claimants, state and federal prisoners, international fraud rings, all of whom simply walked right into the department’s completely unprotected system, the Globe reported in 2023.
The House Committee on Oversight and Accountability investigated the California EDD after the Trump administration provided the EDD with over $1.8 billion to cover the department’s additional administrative costs caused by the pandemic.
That money must be paid back. The EDD started to re-pay the $1.8 billion after Gov. Newsom and the state legislature colluded to foist the re-payment of the federal debt onto the backs of California businesses.
The Legislative Analyst reports that employers will pay an additional 1.2% federal surcharge in 2025 (equivalent to $84 per worker).
The LAO continues:
The state’s broken UI system now presents mounting consequences:
- Annual Shortfalls Will Balloon Outstanding Federal UI Loan.
- Loans Will Become a Permanent Feature of UI and a Major Ongoing Taxpayer Cost.
- UI Program Will Be Unable to Build Reserves Ahead of Next Recession.
“Although a federal surcharge on businesses will help repay the federal loan, the surcharge cannot help the state build reserves after the loan is repaid,” the LAO reports. This is because the surcharge turns off once the loan balance reaches zero. Absent the federal surcharge, little or no reserves would be on hand at the start of the next recession, further increasing the state’s reliance on costly federal loans.”
How the debt works:
- States collect their own UI payroll taxes and hold them in a state trust fund used only for regular state UI benefits.
- When that fund is insolvent, the state can borrow from the federal Unemployment Trust Fund (Title XII of the Social Security Act).
- California began borrowing in 2020 after pandemic-related claims (and documented fraud) drained its fund. It ended 2020 with a $17.8 billion federal loan.
- The state general fund is responsible for interest payments. Principal repayment is an employer obligation under federal law once a loan remains outstanding for two consecutive years. That triggers automatic FUTA credit reductions, which raise the federal unemployment tax California employers pay. Those extra collections go toward the loan. California employers have already paid several billion dollars in higher FUTA taxes; the surcharge continues to rise.
The state made one modest principal payment ($250 million from the general fund in 2022) and has covered annual interest. It did not use its large 2021–2022 surplus or remaining flexible federal COVID relief to pay down the principal, unlike other states.
California’s business community has repeatedly asked the Legislature and governor to address the debt, but the state’s elected officials have chosen not to approve repayments.
On May 27, Republican state Senator Suzette Martinez Valladares attempted to amend a Democratic colleague’s transportation-related bill (SB 1166, Arreguin) with provisions requiring the state to repay at least $5 billion per year in UI debt from the general fund, but the amendments were tabled with a party-line vote.
U.S. Representative Vince Fong introduced federal legislation May 19 that would require states with outstanding federal UI debt to repay the debt before spending specified federal funds on any other purpose.
Fong dubbed his legislation the “Creating Accountability in Loan Repayment Act,” or “CAL Repayment Act.”
The Trump Labor Department and its Inspector General have publicly addressed the $21–22 billion figure, California’s status as the last state with an unpaid balance, improper-payment problems, and pandemic-era fraud. The DOL deployed a “strike team” to California in early 2026 citing depleted trust-fund status, rising improper-payment rates, and data-quality issues.
The California State Auditor has separately flagged the UI program as high-risk and documented tens of billions in potentially fraudulent payments during 2020–21.
Whether the state should have used surplus or federal relief dollars to retire the principal faster is a policy choice California’s elected officials made and other states handled differently.
In February of this year, the U.S. Department of Labor announced steps it planned to take to address fraud and improper payment concerns related to California’s Unemployment Insurance program.
However, any path taken will lead to higher costs for employers and taxpayers, making California even less attractive for legitimate businesses.
A California native and Navy mom, Katy lives in Sacramento, CA.
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