When the Great Recession struck California 17 years ago and hundreds of thousands of workers lost their jobs, the state’s unemployment insurance system crashed.

The employer-financed program quickly exhausted its thin reserves, due to a short-sighted political decision six years earlier.

In 2001, the Unemployment Insurance Fund had a $6.5 billion positive balance. But the governor at the time, Democrat Gray Davis, owed big political debts to unions that financed his 1998 campaign. He repaid them by doubling unemployment insurance benefits, contending that the seemingly hefty reserve could cover them without raising payroll taxes on employers.

When recession struck, the insurance fund soon leaked red ink and the state borrowed about $10 billion from the federal government to maintain cash payments. When the state didn’t repay the loan, the feds raised payroll taxes for nearly a decade to retire the loan.

It should have been a lesson for political policymakers about instant gratification and financial responsibility, but it wasn’t.

Shortly after the $10 billion loan was paid off, California was hammered by the COVID-19 pandemic, and upwards of 3 million workers lost their jobs as the state ordered workplace closures.

Once again, the unemployment insurance program had virtually no reserves to cover the sharp increase in claims. Once again it borrowed from the federal government, this time for $20 billion, and once again its failure to repay forced the feds to increase payroll taxes.

In addition to a double dose of financial problems, the Employment Development Department has also experienced managerial failures.

In 2011 Elaine Howle, the state auditor, laid out the department’s shortcomings in a sharply worded report, but when the pandemic hit, they once again became evident. There were massive glitches in responding to legitimate claims for insurance benefits, while the department gave tens of billions of dollars to fraudsters.

Meanwhile employers are still repaying the last loan, and the state’s insurance fund is continuing to run deficits, unable to cover current benefits of nearly $7 billion a year.

With that history in mind, another watchdog agency, the Legislative Analyst’s Office, is urging a complete overhaul of unemployment insurance, declaring the system “is broken.”

Noting that the current state payroll tax cannot fully cover current benefits, much less build reserves, the LAO report projects a “perpetually outstanding federal loan” to keep payments flowing that must be repaid with interest.

The report proposes a four-part tough love approach to a crisis that has been building for more than two decades and cannot solve itself, to wit it advises the state to:

• Increase the taxable wage base from $7,000 per worker to $46,800, tying it to the actual benefits of up to $450 a week. It “would place California among the ten states with taxable wages bases above $40,000 and all other Western states.”
• Adopt two payroll tax rates, one to cover current benefits and another to rebuild reserves. The combined rate of 1.9% would be applied to the $46,800 wage base.
• Base employers’ tax rates on their changes in employment, thus imposing higher costs on employers that reduce their number of workers.
• Refinance the federal loan with a bond backed by payroll taxes and state loans from its internal sources to reduce overall interest costs.

There may be other alternatives, perhaps affecting benefits, but the main thing is that doing nothing will just perpetuate this crisis — even though the politics of the issue are daunting.

It’s been a political stalemate for nearly a quarter-century, pitting unions seeking to protect, or even increase, benefits against employers who don’t want to shoulder increased taxes. Successive governors and legislative leaders have shunned engagement, preferring to kick the can down the road.

SACRAMENTO —  California lawmakers met at the state Capitol Monday to devise a plan to shield the state from President-elect Donald Trump’s conservative policies, including his vows to repeal environmental protections and initiate mass deportations.

The goal of the special legislative session called by Gov. Gavin Newsom is to establish a $25 million fund for legal challenges to federal polices that the governor said could “harm the state,” including when it comes to civil rights, abortion access and immigration.

But with Trump’s return as president, the politics of leading the resistance are trickier as Democrats assess how they lost the White House and grapple with why support for Trump in California increased since the 2020 election despite his felony convictions, pattern of lies and role in the insurrection at the U.S. Capitol after his loss to President Biden.

Legislative leaders — under pressure to prove that the special session is more than just political theater, as alleged by some Republicans — tried to balance their concerns about a second Trump term with state issues important to constituents such as the rising cost of living.

As the Legislature welcomed 35 new members — including a record number of women — Democrats, who maintain a supermajority, said the legal preparation was a necessary precaution. During Trump’s first term as president, California filed more than 100 lawsuits against the federal government, winning protections for undocumented people who came to the U.S. as children and securing clean air rules.

“If Washington, D.C., refuses to tackle climate change in the coming four years, mark my word that California will continue to lead as we always have,” Senate Pro Tem Mike McGuire (D-Healdsburg) said on the Senate floor Monday. “Because here in the Golden State, we fight to lift up every person, no matter your background, no matter your skin color, who you are, who you love and how you identify.”

As lawmakers introduced bills that tighten up abortion rights and further affirm California as the Trump antithesis, California leaders were more tempered in their messaging and put their focus on bipartisan pocketbook issues.

“Our constituents don’t feel that the state of California is working for them,” Assembly Speaker Robert Rivas (D-Hollister) said Monday, pointing to last month’s election, in which voters rejected progressive backed measures and revoked prison reform laws.

Rivas reduced the limit of bills allowed to be introduced and requested that all proposals focus on “affordability and prosperity.”

The speaker vowed to continue to protect Californians from any federal overreach targeting their rights.

“If LGBTQ people come under attack, if hard-working immigrants are targeted, if women’s reproductive freedom is threatened, we will fight back with everything we have,” Rivas said.

California Atty. Gen. Rob Bonta said if the Legislature approves the legal fund, it will be used to pay attorneys and other staff ready to take action in court immediately if Trump does anything the state believes is unlawful.

The proposed $25 million is “a start,” Bonta said.

“If there are no cases for us to bring because the Trump administration is acting completely lawfully, we won’t use any of it. We don’t expect that, based on what he did in the past — what he has said he will do,” Bonta said at a news conference in Sacramento on Monday. “Under Trump 2.0, we believe we will need to use all of it.”

California has been here before. Eight years ago, the legislative session kicked off with a similar motto, as Democratics rushed to thwart Trump’s policies, introducing bills that aimed to protect immigrants from deportation threats similar to proposals coming from the administration now.

“Californians do not need healing. We need to fight,” then-Assembly Speaker Anthony Rendon (D-Paramount) said in December 2016, calling Trump’s appointments then “white nationalists and antisemites” who “have no business working in the White House.”

Republicans tried to block the approval of the special session that kicked off Monday, painting it as an out-of-touch strategy and urging Democrats to avoid panic and resist egging on the federal government.

“The people of California sent a clear message during this election season. They are done with the majority party’s failure to address the most important issues we face and they are ready for a return to commonsense, solution-focused governing,” said Senate Minority Leader Brian Jones (R-Santee). “We are thrilled to see Californians standing up against the Democrat machine and declaring, ‘enough is enough.’”

Even Newsom — an ever-willing Trump foe — has shifted his messaging after Republicans won the White House, Senate and House in the November election. In a statement on Monday, the governor said the special session is about “setting this state up for success” regardless of who is in the White House.

“We will work with the incoming administration, and we want President Trump to succeed in serving all Americans,” Newsom said. “But when there is overreach, when lives are threatened, when rights and freedoms are targeted, we will take action.”

Assemblymember Isaac Bryan (D-Los Angeles) introduced a bill on Monday that would repeal taxes on car seats and baby wipes — a bill he said “pro family” Republicans should support. He said members of his party need to “slow down” as they promise to lead the Trump resistance, and focus on policy that helps people instead of talking points.

“I think it’s different this time. No one’s growing their base attacking Trump right now,” Bryan said. “You can do real policy work and not just play politics with it.”

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Originally Published: December 2, 2024 at 9:00 AM PST