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Another State Fiscal Crisis: Unemployment

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As control of state government switches hands, some old problems continue to haunt: for one, a likely $16 billion in debt to the federal government by 2012, from whom California is borrowing to make unemployment benefit payouts.

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The L.A. Times runs the grim numbers:

the state is borrowing billions of dollars from the federal government to pay benefits at the rate of $40 million a day.

The debt, now at $8.6 billion, is expected to reach $10.3 billion for the year, two-thirds greater than last year. Worse, the deficit is projected to hit $13.4 billion by the end of next year and $16 billion in 2012....

Interest on that debt will soon start piling up, forcing the state to come up with a $362-million payment to Washington by the end of next September.

That's money that otherwise would go into the state's general fund, where it could be spent to hire new teachers, provide healthcare to children and beef up law enforcement.

Continued borrowing, meanwhile, means that employers face an automatic hike in their federal unemployment insurance taxes, pushing up annual payroll costs $21 a year for each worker. Those costs are expected to more than double over the next five years if California continues to borrow from the federal government.

We are not alone; 31 other states have also been borrowing from the Feds to meet their unemployment insurance obligations. The legislature has so far not been interested in either raising taxes or cutting benefits to solve the problem.

Here's how we got here:

California's unemployment insurance program began heading toward insolvency when the state started hemorrhaging jobs in late 2007. The fund took out its first loan from the federal government early last year....Over the last three years, the total of unemployment insurance benefits paid out by the state rose 122% and the number of claims climbed 119%.

As a result, California last year paid out $11.3 billion in regular unemployment insurance benefits while collecting only $4.2 billion in payroll taxes from employers.

The disparity has been exacerbated by a 2001 law that nearly doubled maximum benefits to $450 a week for up to 26 weeks but didn't raise the payroll tax on employers. The average benefit now is $307 a week for 17 weeks.

Only the first $7,000 of Californians wages are taxes directly for the unemployment program. Lawmakers have a more direct $12 billion state deficit in next year's state budget to worry about.

Dan Walters in the Sacramento Bee contextualizes both the unemployment insurance problem and our state's staggering and unaffordable pension obligations in irresponsible decisions made under Gov. Grey Davis.

Image from Flickr user SIR: Poseyal: KINGHT of the DESPOSYNI. Used under user Creative Commons license.

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