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The Great Heist of California’s Fort Knox

Small business owners will have to dig deep and pay an additional $420 per employee per year because the state drove the UI fund into bankruptcy

By John Kabatek, April 25, 2023 12:59 pm

“Fort Knox gets knocked over!”  

This fulsome headline would surely get worldwide attention and rightly so. Intrigue, speculation and theories about whodunnit and how it all went down would dominate the news cycle for months.  

What if it turned out that estimates ballparked the heist at around $30 billion in gold bars that had been airlifted to an icy mountaintop retreat. Hollywood would be readying funds, cast and crew to bring it to the big screen. By contrast, the “Ocean’s Eleven” crew, flush with swagger and wry wit, only managed to saunter out with a measly $160 million. 

California has experienced its own, roughly $30 billion larceny loss but there hasn’t been much international fanfare about it, much less Filmdom buzz. Unemployment insurance after all, is not a particularly sexy subject compared to gold bullion, Vegas glam and a heap of “A” listers but unfortunately it is all too real. 

In the infancy of the pandemic when we were told that the goal was to, “stop the spread” or to “flatten the curve,” most of the country went along with plan, but fifteen days and change turned into months, then years. Government officials in California decided they had to do more, to control more, and they began to benevolently decide who were to be the economic winners and losers. Many small businesses were deemed “non-essential” and were directed to shut-down operations. Some dissenters were shut down by force. 

Employees lost their jobs and many of them filed for unemployment benefits. As we fast-forward to the end of the pandemic, we’ve learned that nearly $30 billion paid out of the Unemployment Insurance Fund (UI) by the Employment Development Department (EDD) were fraudulent claims, 70% of which are believed to have been filed by criminal organizations intent on doing harm to the country. It is a monetary and criminal debacle on a scale not seen in the United States.  

There were, however, no flashing bulbs, no sweating government officials being questioned in public about why 133 death row inmates received benefits or if cartels were involved or why fraud alert “red flags” were removed from multiple applications. There was some chatter in Sacramento about “owning it” and “aggressively going after criminals who committed fraud” but “owning it” morphed into blaming the Trump administration and “aggressively going after criminals” turned into championing themselves after they caught the criminal who applied and received unemployment benefits in the name of convicted murderer Scott Peterson.   

California is now on the hook to the federal government, which plays the role of the states’ UI bank disburser, to the tune of $20 billion.

To what well will California dip into to begin to restore its own UI fund and pay back the federal government?  – to the same businesses that provided the funding in the first place, of course. Those same small businesses that were deemed to have been “non-essential” and forced to shut down during the pandemic are proving to be pretty darn essential now that the time has come to pay for the $20 billion UI Fund deficit. 

It is a perverse travesty that an inept state agency can shut down small businesses, allow $30 billion in fraudulent unemployment insurance claims and then demand that those once shuttered small businesses foot the bill for its own colossal failure. Controlled economies are failed economies.  

As it stands now, small business owners will have to dig deep and pay an additional $420 per employee per year because the state drove the UI fund into bankruptcy. By shuttering small businesses, the state drove California consumers to big box stores. In tandem with this funneling, those same corporations were also able to borrow vast amounts of available business loans. Record profits ensued.  

If the state wants to right this UI ship, it ought to place the financial burden of the UI fraud disaster more squarely on the favored big corporations and less on the small business community. Additionally, the governor should, at a minimum, stand firm on last year’s pledge to backfill the UI fund in this year’s budget by $700 million and $500 million in tax incentives.

It is a pittance in the great scheme of things, but it would send the right signal to the small and independent businesses that have been punished by the state.  

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11 thoughts on “The Great Heist of California’s Fort Knox

  1. You left out the fact that the head of EDD during this whole debacle was none other than Julie Su, nominated to be new Labor Secretary by Biden.

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