Fed Unemployment Debt to hit $20 Billion

The Employment Development Department will be putting $20 billion worth of coal into California’s stocking this Christmas.

On Christmas Day, or thereabouts, the EDD debt to the federal government will reach $20 billion dollars in principal and interest and – at the current borrowing clip of $18,288,482 per day – it will hit $20.3 billion dollars in January, 2024.

Why is that number important? Because it wasn’t supposed to be that high until the end of 2024.

In other words, the abysmal state of the unemployment insurance trust fund is becoming even more abysmal at an even more abysmal pace and that means the extra “temporary surcharge” federal taxes every California business is paying now will most likely continue to be levied for a much longer period of time.

The EDD did not respond to a request for comment as to why the debt is continuing to grow at an even faster rate than expected – or even earlier this year – and why it has yet to release its mandatory “October Fund Forecast” report.

In May, the EDD was borrowing about $139 PER SECOND from the feds just to cover current unemployment claims; that number is now $211 PER SECOND.

The EDD lost somewhere between $32 and $40 billion dollars to preventable fraud during the pandemic, hence the debt.  That and, unlike almost every other state that had unemployment debt at the end of the pandemic, California did not use its “leftover” federal COVID money (remember the $72 billion surplus?) to pay back the debt, a debt that is now costing $867,392 each day in interest alone.

The state is continuing to add to the pile of debt because it is not bringing in enough unemployment insurance tax revenue to cover claims being currently paid.  So while businesses are paying the increased federal portion of the tax, the state is immediately borrowing that back – and then some.  

The state will continue to borrow more money for years to come with the surcharge money only going to actually start paying down the debt (maybe) in about three years when the surcharge shoots up to about $273 per employee per year – https://californiaglobe.com/fl/this-time-governor-newsom-lied-about-the-edd/ .

Originally, the Newsom administration projected it would take about seven years to pay the debt – it will now take at least 15 years to pay the entire debt – barring any serious recession.

Why the state didn’t pay down the debt is now crystal clear: the Newsom administration figured out it didn’t have to and could just let the feds add a surcharge to existing unemployment insurance taxes until the debt was paid. https://californiaglobe.com/articles/is-the-california-edd-pulling-a-pandemic-scam/ 

No muss, no fuss, increase spending like we want, and the people pay for the colossal preventable fraud the EDD let happen without the state having to pass/increase any politically unpopular (potentially illegal) tax.  

The extra money to the feds is a surcharge, not a new tax, you naysayer.  Sorry, nothing we can do about it, it’s the feds, ya know?

The feds do not have to increase the tax rate either.  The Department of Labor – separate from an individual state – is legally authorized to collect up to 6% of the first $7,000 in wages a person earns in unemployment (ironically, the money is used mostly to fill the fund states can borrow from in a time of crisis.)  However, it typically collects only a fraction of that amount so the “surcharge” is just a steady annual “ramp-up” until it tops out at the 6% figure, or $420 per employee, per year, until the debt is cleared.

The EDD has been in disastrous financial condition for decades – https://californiaglobe.com/fl/globe-exclusive-edd-has-paid-billions-to-feds-in-interest-alone/ – especially because the benefit amounts have increased while the tax income has not.  From the year 2000 to about 2011, the unemployment tax revenue went from about $3 billion to about $6 billion per year.  From 2011 until 2021 – a year into the pandemic – that $6 billion per year held about steady.  But since then it has plummeted to $5.3 billion.

From a Legislative Auditor’s Office report:  “Historically, benefit payments have only exceeded contributions during major economic downturns – most recently, during the pandemic and Great Recession. For the first time, the fund is expected to be out of balance during a period of job growth…The structural imbalance anticipated by the administration reflects the continuation of a long-term trend within the UI system: on average, annual UI payroll taxes have grown more slowly than benefit payments.”

In other words, the EDD is broke – https://thomas699.substack.com/p/structurally-insolvent – and will remain broke for a very long time, in part because benefits have been made too generous and the state’s top and bottom – the dwindling number of middle class jobs is hitting the unemployment fund hard – heavy economy cannot keep up.  At the top, there is a great deal of money but even the president of a Silicon Valley venture capital firm only generates $420 for the fund each year, just like the thousands of middle class workers who have fled the state.

Back to the coal – $20 billion dollars would buy 150 million tons of coal – or about one-third of all the coal produced in the country this year.  That’s the wholesale price and would involve hundreds and hundreds of lumps of coal for every California stocking.

If the EDD doesn’t have a big enough backyard to store 150 million tons of coal, it could go online and buy a lump of coal – sold for a joke (or a really bad kid) – for about $7 dollars.  

That means every California could get 71 lumps of coal mailed to them for Christmas.

Merry merry.