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.

“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.

“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.

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.”

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.

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.

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.

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.”

Aaron LaBerge, chief technology officer of Disney Entertainment and ESPN, announced Monday that he is departing the Burbank-based media giant and will join casino and sports-betting company Penn Entertainment.

LaBerge will step into his new role as chief technology officer of Penn Entertainment in July, according to the Pennsylvania-based corporation, which offers integrated entertainment, sports content and casino gaming experiences. He has spent more than 20 years at Disney, where he specializes in technology and product for the company’s media divisions.

LaBerge will still be affiliated with ESPN because Penn Entertainment is behind ESPN Bet, the sports network’s gambling venture.

“I’m excited to join another talented team at PENN Interactive and lead our technology strategy,” LaBerge said in a statement.

“PENN Entertainment is at the forefront of the fast-changing gaming and sports media industry. I plan to use my experience from Disney and ESPN to help make ESPN BET an essential piece of the sports fan experience. Together, we’ll push the limits and redefine how fans interact with sports and gaming.”

In a memo to his team on Monday, LaBerge explained that he had decided to leave Disney for personal reasons related to his family .

“Disney is more than just a company to me; it’s been my home, my inspiration, and a part of the most rewarding chapters of my life, both personally and professionally,” LaBerge wrote in the memo.

“The true magic of Disney isn’t just in our stories or our technology but in each of you. Your passion, creativity, and brilliance have made my journey unforgettable.”

Disney chairmen Dana Walden, Alan Bergman and Jimmy Pitaro later informed staff that the search for LaBerge’s replacement is underway. Chris Lawson, executive vice president of content operations at Disney Entertainment and ESPN, will assume an interim leadership role in the months ahead of LaBerge’s exit.

Until Friday, the phrase “union victory at Chattanooga” could mean only one thing: the defeat of a Confederate army by forces under U.S. Grant at the Battle of Chattanooga in late November 1863.

No longer. On Friday, the United Auto Workers scored a decisive victory at a Volkswagen plant in Chattanooga, Tenn., as workers voted overwhelmingly to organize with the UAW.

The vote looks like a milestone. It was the UAW’s first victory at an auto plant in the Deep South, following two defeats — in 2014 and 2019 — at the same plant. It comes on the heels of the UAW’s success in negotiating impressive new contracts with the Big Three domestic automakers in October.

The vote opens the door to further votes and organizing drives across the region, where political leaders have kept unions weak in part through anti-union right-to-work laws — all 14 Deep South states, as well as 12 others, have those laws. Next on the schedule is a vote by 5,000 workers at a Mercedes plant in Alabama, scheduled to take place May 13-17.

“The real importance of this election is not just the organizing of this factory,” says labor historian Erik Loomis. “It’s that it announces the South is open to unions…. This has been the greatest struggle for the American labor movement for more than a century. A serious breakthrough in the South is now possible.”

The vote also represents a strong rebuke to the GOP political establishment in the South. Indeed, it turns the history of regional auto worker organizing on its head. In 2014, it may be remembered, Tennessee’s GOP establishment pulled out the stops to discourage workers at the Chattanooga plant from organizing with the UAW.

VW was willing to accept unionization, with an eye toward replicating the labor-management “works councils” common among manufacturing companies at its home in Germany. (“Volkswagen considers its corporate culture of works councils a competitive advantage,” a member of VW’s board had told the Associated Press.)

In response, then-Gov. Bill Haslam threatened the company with retribution, declaring that Tennessee would withdraw incentives for Volkswagen if the UAW was voted in.

Then-GOP Sen. Bob Corker, a former Chattanooga mayor, flew down from Washington to voice an almost certainly specious claim that VW executives had “assured” him that the company would open a new SUV manufacturing line at the plant — if the workers turned the UAW down. A local VW executive disputed that.

With shocking cynicism, Corker co-opted the language of political resistance to discourage workers from voting in the union, stating that if the UAW won the vote, “it’s going to be something we can overcome — we will overcome.”

I marveled at the time that the ghost of Pete Seeger, who had turned a couple of traditional gospel songs into the civil rights anthem “We Shall Overcome,” didn’t rise from the grave and impale Corker on a lightning bolt.

Corker also perverted another protest slogan into an attack on workers by declaring, “the whole world is watching.”

The 2014 organizing campaign failed on a 626-712 vote. After the UAW filed a protest with the National Labor Relations Board over the interference by Haslam, Corker and their cronies, the 2019 revote was held. It was another defeat for the union, but narrower, with 48% of the votes in favor, compared with 46% in 2014.

This time around, the vote was 2,628 in favor versus 985 against — a 72.7% majority.

Early signs that the Chattanooga workers would vote to unionize didn’t stop GOP politicians from trying to place their thumbs on the scale. In a joint statement issued the day before voting began, Tennessee’s current GOP governor, Bill Lee, and the governors of Alabama, Mississippi, Georgia, South Carolina and Texas decried what they hypocritically called “the unionization campaign driven by misinformation and scare tactics that the UAW has brought into our states.”

The governors noted that all three automakers that signed the October contracts with the UAW had announced layoffs since then. That’s true, but it was a lie to ascribe the layoffs to the union contracts: In each case, the companies linked them to an unexpected slowdown in the market for electric vehicles.

What the governors didn’t mention — an inadvertent oversight, you can be sure — several of the non-union foreign automakers with plants in the South, such as Mercedes, Tesla and BMW, all of which are being targeted by the UAW, have also announced layoffs.

Perhaps more to the point, in the wake of the Big Three contract settlements, Toyota, Honda, Nissan and Subaru all announced raises of as much as 11% for their workers — plainly a demonstration that higher pay at unionized companies ripples into the nonunion sector of an industry. All those companies except Subaru have plants in states represented by the governors who issued the statement; Subaru’s only U.S. plant is in Lafayette, Ind.

“In America,” the governors wrote, “we respect our workforce and we do not need to pay a third party to tell us who can pick up a box or flip a switch.” They added, “when employees have a direct relationship with their employers, that makes for a more positive working environment. They can advocate for themselves and what is important to them without outside influence.”

Students of anti-union rhetoric will recognize this spiel as drawn directly from the playbook of intransigently anti-union employers such as Starbucks, including the assertions that union representation is inimical to the smooth operation of a workplace and that unions interfere with the employee-employer relationship.

As almost any experienced worker knows, “direct contact” between the rank-and-file and management almost never works out to the advantage of the workers unless they have the leverage that comes from collective action. The governors’ claim that employees can successfully “advocate for themselves” is virtually pure myth.

The governors also may have failed to read the room, as the saying goes. “The demographics of the South are different than they were 10 years ago,” Loomis told me. “More Latinos and more people moving from the North has been transformational to the South generally — the shift of politics in Georgia due to the expansive growth of Atlanta is one example. Charlotte has become a massive destination for young Black professionals, for another. The South simply isn’t as different from the rest of the nation as it used to be.”

Nor should one overlook the distinct change in labor policies at the federal level. Joe Biden’s stature as possibly the most pro-labor president in American history has been widely noticed. He is the only president to walk a union picket line, as he did during the UAW contract negotiations; he has been sticking with Julie Su, his nominee as secretary of Labor against ferocious opposition from Big Business; and his National Labor Relations Board has fulfilled its role as a guardian of collective bargaining rights.

Whether NLRB oversight of the Chattanooga vote tamped down the company’s efforts to undermine the vote isn’t clear, but it couldn’t have hurt.

The UAW’s success in its contract negotiations may emerge as a powerful argument in favor of organizing at other auto plants. There may be some defeats in the South lurking on the horizon, but there may also be further successes.

It’s worth recalling what happened after Grant’s victory in Chattanooga in 1863. Following the nearly simultaneous Union victories of July 1863 at Vicksburg, Miss., and Gettysburg, Pa., Chattanooga tightened the noose on the Confederacy, opening the door to Sherman’s march to the sea in 1864 and the end of the Confederacy.

Last week’s vote in Chattanooga might, just might, be an equivalent turning point in the long war for worker rights and welfare.