California's solution for its high unemployment:
- ask the Feds for more money to pay unemployment, and
- not repay the $15B they have already borrowed.
Its a good thing Nancy is no longer the Speaker because California's request won't be tacked onto a spending bill for defense or some other "essential" piece of legislation or will it?
There are currently 30 other states that have also borrowed from the Federal Government to pay the first 26 weeks of unemployment. The primary reason these states don't have the money is because the unemployment is so high in some states that there is not enough money coming in to pay all of the unemployment claims. But in some cases like New Jersey, the state legislatures "borrowed" (i.e. robbed) the unemployment fund so they could pay for other things without having to cut spending or raise taxes to close budget deficits in years past.
I am quite sure that some of those other states mentioned in the editorial are Red states and that their dually elected Representatives in Congress will want to make sure that their constituents continue to get paid unemployment. Why? Because all politicians both Republican and Democrat fear one thing....unemployment.... for themselves.
But when does it stop? It doesn't and that you see is the root of the problem. The Federal government will continue to borrow from foreign nations until those nations lose all confidence in the dollar, which will mean the Federal Reserve will have to buy all of our debt not just the $600B they promised to do last week.
Ladies and Gentlemen when that happens it is game over for America.
Bell tolls for unemployment insurance fund
It doesn't get as much attention as the state's massive budget deficit, but the red ink threatening to bankrupt California's unemployment insurance fund is almost as big, estimated to be more than $15 billion by the end of the year. If state unemployment continues at 11 percent to 12 percent, as expected, the UI fund deficit will balloon to $21 billion by the end of 2011.
Whatever legislators do to address the growing shortfall will be painful for the state's unemployed workers, employers and California's battered economy. And yet doing nothing is not a smart option. The state has borrowed billions from the federal government to keep unemployment benefits flowing. If that money is not repaid by 2012, Washington could recoup the money automatically by raising the federal unemployment insurance tax on employers.
In its new report, "California's Other Budget Deficit," the Legislative Analyst's Office lays out the stark options facing state lawmakers: reduce benefits to unemployed workers or raise the taxes of employers or both. The latter is the most responsible solution.
California legislators clearly miscalculated in 2001 when they doubled unemployment benefits without raising taxes to pay for them. Still, while California's maximum benefit of $450 a week is high, the average actually paid is less – $307 a week, just $10 more than the national average. And, when California's high wages and high cost of living are factored into the calculation, state benefits replace a smaller share of a laid-off worker's wages here than in most other states.
As the debate rages about whether benefits or taxes are too high or too low, what's indisputable is that the tax revenues and benefit levels as they currently stand are hugely out of whack. Something needs to be done to bring them into balance.
The LAO report recommends sensible but politically difficult solutions. Among its recommendations, raise the taxable wage base from $7,000 to $10,500 a year and increase employer tax rates. Decrease the maximum benefit from $450 a week to $338 and increase the minimum level of wages paid to qualify for benefits from $1,125 in 12 months to $3,680.
The proposal advanced would require an equitable sharing of the burden. Yet it would require lawmakers to possess a degree of political backbone that isn't yet in evidence.
The tax increase on employers would require a two-thirds vote in the Legislature, something neither Democrats nor Republicans want to approve, not in the midst of a continuing recession. They won't want to cut unemployment benefits either, given the high number of their constituents out of work.
Senate President Pro Tem Darrel Steinberg says he will urge state leaders to lobby California's congressional delegation instead to keep the federal unemployment insurance funds flowing and to delay or forestall repayment of the money the state has borrowed. That's a humane response, but it doesn't do much to counter California's reputation as a "nation state" that can't manage its finances.
In the midst of the worst economic downturn since the Great Depression, Steinberg and other state leaders are hoping the federal government will keep bailing out California and 30 other states that also have huge unemployment fund deficits. It's a gamble, one that could fall hard on the state's employers – and the state's economy – if the federal government insists on repayment and raises the unemployment insurance tax on its own.