California's other budget deficit: the unemployment insurance fund

By CMTA Staff

Capitol Update, Oct. 25, 2010

This week the Legislative Analyst’s Office released a report confirming that California’s unemployment insurance (UI) fund continues to be insolvent. This report looks at the history of the UI program, compares California's program to those in other states, examines different scenarios for addressing the insolvency, and makes recommendations to the Legislature for solving this difficult problem.

California's UI program became insolvent in 2009, ending that year with a shortfall of $6.2 billion. According to the LAO, absent corrective action, the fund deficit is projected to increase to approximately $20 billion at the end of 2011.

The LAO says that solutions must be implemented quickly, yet carefully:

“Because the magnitude of the UI fund insolvency is so great, the Legislature should act quickly to improve the fund condition. Ideally, some changes should be adopted this year. This is because businesses and payroll processing companies need time to prepare for changes in tax rates and/or the taxable wage base prior to the start of calendar year 2011. Mid-calendar year changes pose administrative difficulties for employers. Although not ideal, it is possible to change the tax rates after the start of the fiscal year. As we discuss below, the Legislature may ultimately need to phase in a series of changes over multiple years. Legislative action during the fall of 2010 to improve the fund condition during 2011 would in part lessen the need for stronger action in later years.”

Just last week, CMTA highlighted the gravity of the fund’s situation in an article about the $8 billion outstanding loan now due to the federal government.  To revisit that article, click here: www.cmta.net/legupdate.phpCMTA needs your expertise to continue monitoring the UI fund, discuss potential reform proposals and minimize the tax increase that is now unavoidable.  If you are interested in actively participating as a member of CMTA’s UI Committee please email Cynthia Leon, CMTA’s Director of Labor and Employment, at cleon@cmta.net.

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