California's debt to the U.S. for covering its unemployment checks the last two years could reach $13.4 billion by the end of the year. If the loans aren't repaid by November, a payroll tax will kick in. It starts at $325 million next year and could rise to $6 billion.
California employers could face an annual payroll tax increase of as much as $6 billion if California's unemployment insurance program fails to repay a federal government loan that has kept benefits flowing.
The warning came in a critical state audit of the California Employment Development Department, which distributed $22.9 billion in unemployment benefits last year.
The report concludes that for a decade, the EDD "has consistently failed to perform" at a level the U.S. Labor Department "considers acceptable regarding its timely delivery of unemployment benefits," State Auditor Elaine M. Howle wrote in a letter to the governor and legislators.
The unemployment insurance fund, insolvent since January 2009, relies on federal loans to pay jobless benefits. The debt is expected to hit $13.4 billion by the end of this year unless state lawmakers and the governor agree to raise payroll taxes, cut benefits or do some combination of both. An interest bill of $362 million is due in September.
By law, the state, which faces a $26-billion general budget deficit, must repay the federal loans to the EDD by November.
EDD's failure to repay its loans by then would trigger a $325-million federal tax hike next year on employers. That payroll tax bite would rise incrementally to a maximum of about $6 billion if the loan goes unpaid and the state misses interest payments over several years.
Information about the growing deficit in the agency's funding first arose in 2004, but it hasn't been high on the Legislature's or the governor's priority lists.
"At this point, we can only deal with one deficit at a time," said Mark Hedlund, a spokesman for state Senate President Pro Tem Darrell Steinberg (D-Sacramento).
Who is he kidding, they can't even deal with one deficit at a time.
The Bubble State Blues just continue. Facing large cuts in spending by June 2011 and Gov. Brown hopes voters support the continuing of "temporary taxes", and like it or not, The Bubble State might raise taxes on businesses.
Not to cure their budge deficit, but to cure the deficit with Uncle Sam!
At a time when the nation needs the world's 8th largest economy helping to pull the national economy out of a nose dive, The Bubble State could erode economically later this year. Big spending cuts from the state, with layoffs, most cities and counties have their own layoffs and cuts to impose soon in 2011, and now we might tax businesses more!
The Bubble State Blues...................It could impact the entire economy later this year or next!
Hope all is well.
J.D. Rosendahl, Rosey