Gov. Gavin Newsom tirelessly touts the scale and energy of California’s economic system, usually contrasting it with these of different states.
When, for instance, the month-to-month employment report was issued in June, Newsom bragged on X, previously Twitter, that “California continues to lead the nation’s economy & create good jobs throughout the state. Just this year, the state created over 107,000 jobs — more than doubling … the same time period last year.”
Truly the report, based mostly on Might knowledge, was not that constructive.
Whereas the state’s 5.2% unemployment price was barely decrease than April’s price, it was nonetheless the best of any state. In June it was nonetheless unchanged and stays the nation’s highest, albeit tied with Nevada. It additionally was markedly greater than the jobless charges in Florida (3.3%) and Texas (4%), two purple states that Newsom usually disparages.
The current studies on California’s job image are nothing new. California has constantly had unemployment charges at or close to the nation’s highest ever because the COVID-19 pandemic pale away.
About 3 million Californians misplaced their jobs throughout the pandemic, thanks largely to Newsom’s orders to close down companies. The state’s restoration has been sluggish vis-a-vis these of different states. There are nonetheless greater than one million California employees with out jobs.
California’s mediocre financial restoration has had many results, one being an immense funds deficit. The Newsom administration’s 2022 projection of a quick restoration and a cornucopia of state revenues turned out to be wildly inaccurate, resulting in a large hole between earnings and outgo.
One other impression is the actually sorry situation of the unemployment insurance coverage fund, which gives assist funds to jobless employees.
When the pandemic hit and unemployment soared, the unemployment insurance coverage fund rapidly exhausted its slender reserves and the state borrowed some $20 billion from the federal authorities to keep up funds.
Learn Extra: Unemployment insurance coverage: California’s ‘urgent’ $20 billion downside
Not solely has California not repaid the loans, however it’s one in all solely two states which have failed to take action (New York nonetheless owes about $6 billion). And the unemployment insurance coverage fund’s deficit is rising as a result of the state continues to be not taking in sufficient cash from payroll taxes to cowl its present funds.
Due to California’s stubbornly excessive unemployment price, the Employment Growth Division expects the unemployment insurance coverage fund to obtain $4.8 billion in payroll taxes this yr however to pay out $6.8 billion in advantages, that means the fund’s deficit, together with federal loans, will attain $21.7 billion by the tip of this yr and $22 billion in 2025.
The underlying downside predates Newsom’s governorship. Practically a quarter-century in the past, the Legislature and then-Gov. Grey Davis enacted a 50% improve in unemployment insurance coverage advantages, relying on what was then a wholesome fund reserve to finance them.
Nonetheless, when recession struck shortly thereafter, the fund was drained to pay advantages and had solely barely regained solvency when the Nice Recession hammered the state a half-decade later. The state borrowed about $10 billion to maintain advantages flowing, and the feds elevated payroll taxes on California employers to repay the debt.
The pandemic hit simply after that mortgage was repaid, and employers are once more being taxed to repay the even bigger debt incurred. Nonetheless, it’s not sufficient to forestall the fund’s deficit from growing.
The consequences of comparatively excessive unemployment are compounded by a decades-long political stalemate over how one can make the unemployment insurance coverage fund wholesome once more, pitting employers in opposition to unions over whether or not payroll taxes ought to be elevated or advantages ought to be curtailed.
Newsom’s bragging about California’s economic system within the face of such unfavorable knowledge not solely undermines his credibility however ill-serves the state. The ever-growing unemployment insurance coverage fund deficit is a disaster that ought to demand political consideration, not be ignored.
