$20.9 billion shortage in unemployment funds predicted

As California’s estimated $20 billion budget deficit looms, even more devastating to the state’s economy could be a $15.3 billion shortfall in unemployment funds predicted to occur by the end of 2010 and a $20.9 billion shortfall expected by the end of 2011.

A record number of Californians – 1.4 million – registered for unemployment benefits in November 2009 and the state’s Employment Development Department (EDD) paid a record $20.2 billion in unemployment benefits in 2009. The previous record had been set just one year earlier, when EDD paid $8.1 billion in benefits. State unemployment reached 2.153 million in 2009 and is projected to reach 2.2 million and 2.029 million in 2011.

According to the U.S. Department of Labor, California unemployment claims are twice as high as those of the next highest state in the nation – Pennsylvania. The state’s unemployment fund is financed by payroll taxes on employers, but that money is long gone. Total payroll tax receipts were $4.8 billion in 2009 and are projected to be $4.9 billion in 2010 and $5.4 billion in 2011, far less than the benefits paid. That shortfall is being made up by billions of dollars the state is borrowing from the federal government.

Interest on that debt begins to accrue in January 2011, and repayment is due no later than September 30, 2011. Unless, as some predict, the federal government forgives those loans, expect increases in employer payroll taxes to cover repayment.

Employer payroll taxes are currently based on the “F” contribution rate schedule plus a 15 percent surcharge required when the unemployment trust fund balance falls below specified levels. While that contribution rate is not expected to change in 2010 or 2011, the shortfall in benefits and repayment of the billions owed to the federal government will have to be addressed soon.

by Pam Gruebnau, Editor, Southern California Contractors Association magazine