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California in a jam after borrowing billions to pay unemployment benefits

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California in a jam after borrowing billions to pay unemployment benefits

California’s massive budget deficit, coupled with the state’s relatively high level of joblessness, has become a major barrier to reducing the billions of dollars of debt it has incurred to pay unemployment benefits.

The surge in unemployment brought on by the COVID-19 pandemic pushed the state’s unemployment insurance trust into insolvency. And over the last year California’s joblessness has been on the upswing again, reaching 5.3% in February, the highest among all states. The March job numbers come out Friday.

To keep the safety-net program operating at a time when the taxes paid by employers and earmarked for jobless benefits are insufficient, Sacramento has been borrowing billions of dollars from the federal government. The debt now stands at about $21 billion and growing, an increasing burden for state deficit fighters and for the businesses that pay into the jobless insurance program.

Payroll taxes paid by employers are rising not only to cover payouts to unemployed workers but also a state surcharge and a gradually increasing federal surtax to help pay off the principal on the debt. But the tax increases are not enough to deal with the huge loan the state has incurred, or at least not in any timely manner.

California already has paid more than $650 million in interest on the loan — and about $550 million more is due Sept. 30.

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“Businesses are going to continue to see the slow boil eating into their margins,” said Robert Moutrie, senior policy advocate for the California Chamber of Commerce.

Higher taxes will hit small and midsize companies in sectors such as restaurants and tourism especially hard, he said.

“It just adds to the burden and the costs of operating here and makes companies look at operating elsewhere,” Moutrie said.

Although the pandemic is largely to blame for California’s huge unemployment insurance debt — and there’s been a lot of attention on dollars lost to fraud — analysts and workers’ rights groups point to another problem: Even during more-normal economic times, the state often doesn’t collect enough unemployment insurance taxes to cover jobless claims.

“The root problem really is that for decades policymakers haven’t been requiring businesses to pay enough into the [unemployment insurance] fund to support the benefits workers really need,” said Amy Traub, senior researcher and policy analyst at the National Employment Law Project.

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“So there’s a structural deficit that underlies this crisis moment with this huge debt to the federal government.”

Data also show that jobless workers in California stay on unemployment significantly longer than the national average, which adds to the total payout amount. And California workers claim unemployment benefits in disproportionately high numbers.

The state accounts for about 20% of the nation’s jobless claims, far in excess of its 11% share of the labor force population. That partly reflects the state’s higher unemployment and accompanying increases in layoffs and jobless claims in the tech industry and other sectors, but also its comparatively easier eligibility rules and low re-employment rate.

Last year California’s jobless workers received on average $385 a week, replacing only about 28% of the average wage. Both figures are lower than the national averages, according to Department of Labor statistics. (The wage replacement rate is about 50% for minimum-wage workers in California.)

From surplus to deficit

But California also stands out as an outlier in the way it has managed, or mismanaged, the program.

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When COVID struck in March 2020, U.S. unemployment jumped to 14.8% a month later and brought unprecedented jobless claims, forcing California and many other states to borrow from the federal government to keep paying benefits. Almost all the other states have since repaid those loans, some with pandemic relief money they also got from Washington.

Today only New York and California, plus the Virgin Islands, still owe money for unemployment insurance loans.

Analysts said California could have used some of the $43.5 billion the state received from the American Rescue Plan Act to pay down the debt. Instead, state officials spent the relief money for other purposes, including additional stimulus checks to residents.

“California had options and it chose the spending option instead of the responsible option,” said Matt Weidinger, a senior fellow at the American Enterprise Institute who has written widely on the unemployment insurance program. He said higher employer payroll taxes will ultimately spill over to employees in the form of less wages.

“California distributed relief during a time when people and businesses were struggling, everything from covering rent and utility bills to small business grants — helping those hardest hit by the pandemic while stimulating the economy,” said Alex Stack, a spokesman for Gov. Gavin Newsom’s office. “That’s on top of paying down $250 million of unemployment fund debts.”

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State legislative analysts were careful not to criticize policy choices made during the extraordinarily uncertain times.

Some suggested, however, that officials may have felt the state had plenty of financial cushion coming out of the pandemic in 2021-22. Then, Sacramento was flush with cash, thanks to huge tax windfalls. And the interest rate on the federal unemployment insurance loan two years ago was at a historical low of 1.6%.

But the interest rate on the loan has since risen to 2.6% — and may yet rise further. What’s more, once huge surpluses are now a projected record budget deficit of more than $70 billion in 2024-25, according to a February update by California’s Legislative Analyst Office.

An economic downturn in the state, marked by a falloff in technology investment and rising overall unemployment, has resulted in unprecedented shortfalls in tax revenues.

Under such budget constraints, California officials had little choice but to pull back on plans to spend $1 billion to reduce the principal on the unemployment insurance loan.

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What’s the solution?

California’s Employment Development Department, which oversees the state’s unemployment insurance program, has said that it would rely on increased federal taxes on employers to pay down the debt.

Currently California employers pay a federal unemployment insurance tax of 1.2% on the first $7,000 of wages per employee, but that will rise incrementally every year so long as California is in debt, to more than 3.5% after 10 years. And analysts estimate that it may take at least that long to pay off the debt.

Businesses also pay a state unemployment insurance tax, also on the first $7,000 of wages, based on their layoff history, plus a surcharge when there’s a shortfall in the jobless benefits fund.

Combining both state and federal portions, a new California employer, for example, would be looking at paying about $500 in unemployment insurance taxes per employee this year — almost double than during normal times.

“California’s apparent plan to rely on [federal tax] revenue to pay off the loan avoids addressing solvency in the state unemployment insurance law and places the burden of increased unemployment benefits during the pandemic on employers,” said Doug Holmes, former director of Ohio’s unemployment insurance program and currently president of the consulting firm UWC.

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In California, business groups say it’s unfair for employers to shoulder the increasing burden when they weren’t responsible for the pandemic or the temporary lockdowns that were imposed on them, resulting in layoffs and higher unemployment claims. They argue that it will only add to the state’s already higher business costs that have pushed some California companies to relocate to Texas, Nevada and other states.

Traub, of the National Employment Law Project, said employers have to pay more to make the math work and ensure the unemployment trust system is sustainable over the long haul.

Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee per year. Traub noted that most other states have a significantly higher taxable wage limit — New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500.

“Raising the taxable wage base has got to be part of the solution,” Traub said.

California legislators are now considering an increase, which many agree is needed. “That’s very reasonable,” said Michael Bernick, an employment attorney at Duane Morris in San Francisco.

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Bernick was the EDD director in the early 2000s when, under Gov. Gray Davis, the state raised the maximum weekly unemployment benefits to $450 a week — but without increasing the taxes to cover the larger payments.

Writing in a report with Holmes, Bernick recommended a number of steps the EDD could take to shore up the state’s unemployment benefits program, including tightening eligibility standards and modernizing the agency’s computer and communications systems. But by far the main policy change that’s needed is to help jobless workers move into new jobs more rapidly.

In 2022, California workers stayed on unemployment aid for an average of 18.1 weeks, compared with 14.5 weeks nationally, according to a study by the Department of Labor’s former lead actuary, Robert Pavosevich.

In California that year, 47% of recipients took the full maximum 26 weeks of jobless benefits. Nationally, only 27% exhausted all benefit weeks available.

“Those are striking numbers and highlight just how much the system needs to be reshaped,” Bernick said. “How do we get people back to work quickly? It’s both good for businesses and the workers, but also for the unemployment fund.”

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How a worker who suffered a microfracture of his foot ended up with a $58-million payout

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How a worker who suffered a microfracture of his foot ended up with a $58-million payout

For eight years, Lancaster resident Pablo Scipione and his attorneys pushed for compensation the 46-year-old independent contractor said he was owed due to a workplace accident in early 2016.

In that accident, he slipped, fell and suffered a microfracture to his foot, according to his lawsuit, but that was only the start of his troubles.

Scipione sued the company he was providing services for — Osaka, Japan-based transportation and manufacturing company Kinkisharyo — for negligence shortly after the workplace fall, his lawyers said. But he eventually developed a debilitating medical condition due to the injury, according to court documents, leading the skilled tradesman to quit his job. He asked his legal representation to seek a settlement of $3 million in July 2022 to pay mounting medical bills.

The offer was rejected by Kinkisharyo’s defense team, according to Scipione’s attorneys.

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That decision backfired for Kinkisharyo on Tuesday when a Los Angeles County Superior Court jury awarded Scipione $58.35 million in compensatory and punitive damages.

Calls to Kinkisharyo’s legal team, Los Angeles-based Husch Blackwell, were not returned.

Khail Parris is a partner at Lancaster-based Parris Law Firm, and was lead attorney along with Alexander Wheeler for the plaintiff.

Parris said $54.15 million was awarded in compensatory damages for past lost earnings, future lost earnings, future medical expenses and past and future pain and suffering. The jury also awarded $4.2 million in punitive damages.

Parris said he was a little surprised by the payout since juries can be “unpredictable.”

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“I’m happy the jury heard my client,” he said in a phone interview Wednesday. “The defendant took a very aggressive stance on this case and dragged it out for eight years. The jury felt like enough was enough.”

Scipione was employed by railroad contractor Altech Services at the time of the accident, according to court documents. His duties included supervising teams of electrical technicians also employed by Altech, documents say, and his specialty was electrical troubleshooting.

Scipione was dispatched to Kinkisharyo’s Palmdale train yard around 2 a.m. on Feb. 2, 2016, for repair work, according to the lawsuit. He was instructed that it needed to be done within three hours.

Unbeknownst to Scipione, the train he was going to work on was wet after undergoing a recent water tightness test, according to testimony from a Kinkisharyo senior safety manager. That person said the train did not dry for the minimum of two days before Scipione went to work on it.

The Kinkisharyo employee also conceded that there were other safety issues in Scipione’s workspace, including poor lighting.

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Scipione climbed to the top of the rail car and slipped and fell atop the vehicle, causing the microfracture to his left foot, according to court documents. Though Scipione went home after the accident, he came back to work the next day.

Nearly three months after the injury, Scipione was diagnosed with complex regional pain syndrome, court documents say. The Mayo Clinic describes the syndrome as “a form of chronic pain” that usually affects an arm or a leg and typically develops after an injury. The Mayo Clinic added that “the pain is out of proportion to the severity of the initial injury.”

“The defendants fought us at every corner for eight years to help my client receive proper compensation and medical care,” Parris said. “Things didn’t turn until their safety manager conceded that the factory had been unsafe.”

Part of Scipione’s struggle was finding care through workers compensation insurance. Letters were presented in court that showed denials of care as the process of determining if Scipione was an actual employee of Kinkisharyo or Altech dragged out.

“The jurors were 12 little guys and saw a fellow little guy going up against a big corporation,” Parris said. “They stood up for one of their own.”

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Anita Hill-led Hollywood Commission wants to change how workers report sexual harassment

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Anita Hill-led Hollywood Commission wants to change how workers report sexual harassment

In the wake of movie mogul Harvey Weinstein’s 2020 rape trial, a survey of nearly 10,000 workers by the Anita Hill-led Hollywood Commission revealed a sobering result: Few people believed perpetrators would ever be held accountable.

The vast majority, however, were interested in new tools to document incidents and access resources and helplines.

Four years later, the Hollywood Commission is trying to make that request a reality.

On Thursday, the nonprofit organization launched MyConnext, an online resource and reporting tool that will allow workers at five major entertainment business organizations to get help with reporting incidents of harassment, discrimination and abuse.

Homepage of MyConnext.

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(MyConnext)

The website allows those entertainment industry employees to speak with a live ombudsperson, create time-stamped records and submit those reports to their employer or union. (Any entertainment worker can access the site’s resources section to learn more about what it means to report an incident and understand complicating factors such as mandatory arbitration.)

So far, the commission has partnered with the Directors Guild of America, the Writers Guild of America, certain U.S.-based Amazon productions, all U.S.-based Netflix productions and film/TV producer the Kennedy/Marshall Co., founded by filmmakers Kathleen Kennedy and Frank Marshall. The International Alliance of Theatrical Stage Employees is expected to join later this year, according to the commission.

MyConnext is not intended to replace any of these organizations’ individual reporting platforms. Rather, it’s designed to provide an additional option and serve as a one-stop shop for workers seeking help or resources. The commission did not say what the initiative cost.

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One key feature of the MyConnext reporting platform is called “hold for match,” which allows a worker to fill out a record of an incident and instructs the system not to send the report to one of the partner organizations until another report about the same person is detected. At that time, both reports will be sent.

“It is very difficult for an individual to come forward,” said Hill, president of the Hollywood Commission, which was founded in October 2017 to help eradicate abuse in the entertainment industry. “Let’s say, for example, Harvey Weinstein: It was very difficult to prove a case when there was only one person because there was a tendency to turn it into a so-called ‘he-said, she-said’ situation.”

With this feature, however, employers could potentially recognize a pattern of abuse. And that, Hill said, could be a game changer.

“We ultimately hope that [the tool] will elevate the level of accountability, and accountability is ultimately what I think everybody wants,” said Hill. The commission led the 2020 survey, along with a follow-up survey this year that found a similar desire for harassment reporting resources.

“Information, really, is power,” said Hill.

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Advocates say such resources have become even more crucial amid what they describe as a pullback in Hollywood’s promised efforts to create a more inclusive industry for women. Fears of backsliding escalated after Weinstein’s New York sex assault conviction was overturned last month by a state appeals court, which ordered a new trial. Weinstein’s conviction in California remains.

“What’s so important even now, in light of the reversal of a conviction, is making sure that individuals who have suffered harm get to choose what makes the most sense for them,” said Malia Arrington, executive director of the Hollywood Commission. “You need to be informed about what all of your different choices may mean to make sure that you’re entering into whatever path with eyes wide open.”

With that in mind, the platform has a multipronged approach. The resources section helps workers understand their options, including the general process for filing a complaint, as well as where to access counseling and emotional or employment support.

Members of the participating organizations also have access to a secure platform through MyConnext that lets them record an incident — regardless of whether they submit it as an official report — send anonymous messages, speak with an independent ombudsperson and submit reports of abuse.

Speaking with an advocate allows workers to get their questions answered confidentially and by a live human, said Lillian Rivera, the ombudsperson who is employed by MyConnext.

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“It’s a human that’s going to listen to folks, who’s going to be nonjudgmental, who is going to be supportive and is going to be able to point people toward all of their options, and really put the power in the hands of the worker so they can make the decision that’s best for them,” Rivera said.

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Boeing's Starliner capsule stuck on ground after helium leak

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Boeing's Starliner capsule stuck on ground after helium leak

After years of delays, Boeing’s Starliner capsule was set to take off early this month with two astronauts aboard — and now the flight to the International Space Station has been put on hold indefinitely following a series of setbacks.

The original May 6 launch was scuttled hours before takeoff due to a balky rocket valve. It was rescheduled first for May 10 and then a second time for Friday, when it was decided to replace the valve on the Atlas V rocket.

All systems seemed go until yet another problem cropped up, this time with the capsule. A helium leak was detected coming from the spacecraft’s propulsion system.

After two more delays, officials with NASA, Boeing and United Launch Alliance, the rocket maker, said late Tuesday that the flight would be postponed indefinitely — a sequence of events that Boeing didn’t need.

“It’s embarrassing that Boeing was on the verge of launching this mission, and now we do not even have a time for when they are planning to launch,” said Laura Forczyk, executive director of space industry consultancy Astralytical. “On the other hand, we have waited years for this launch, so what’s another couple of weeks. They are relying on this mission to go very smoothly.”

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NASA said Tuesday that it is still reviewing flight safety issues and would “share more details once we have a clearer path forward.”

The delays are particularly nettlesome for the Arlington, Va., aerospace giant because it’s years behind SpaceX in launching a crewed capsule to service the space station.

Both companies were given multibillion-dollar contracts in 2014 to develop the craft, and since 2020 Elon Musk’s Hawthorne company has ferried eight operations crews to the base — while Boeing has managed only two unmanned flights.

The companies were chosen by NASA after the agency had to rely on the Russian program to send U.S. astronauts to the station when the space shuttle program was ended in 2011.

Boeing has reportedly had to eat $1.5 billion in Starliner cost overruns, and it can ill afford a failure with astronauts aboard, especially after the two crashes of its 737 Max 8 jets and a door plug that blew out of a 737 Max 9 flight this year on its way to Ontario International Airport in San Bernardino County.

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“Boeing has so much to prove. They’re just about four years behind SpaceX,” Forczyk said. “They need to make sure they have all their ducks lined up in a row.”

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