v 31.33 | California’s “Hot Labor Summer”
Welcome to Happening in California, a brief look at political news, insights, and analysis of the world’s fifth-largest economy.
California has been the epicenter of the ‘hot labor summer.’ Most notably, there are 171,000 striking actors and screenwriters, but in total there have been 55 labor strikes through August involving more than 287,825 participants in the Golden State.
But while summer gives way to fall, California’s labor strikes show no signs of yielding.
And with only two weeks left in the legislative session, lawmakers are fast tracking a bill to give striking workers a financial boost ... albeit while sinking California’s bankrupt Unemployment Insurance (UI) Fund further into the red.
Here’s a brief summary of California’s snowballing UI crisis...
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Tom Ross | President and CEO | Swing Strategies
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The Big Picture: California’s chronically mismanaged Unemployment Insurance (UI) Fund is another example of fiscal mismanagement.
California’s UI Fund is currently more than $18 billion in debt and a new report by the state’s Legislative Analyst’s Office estimates that the debt will grow to $20.3 billion in 2024 — and that’s without an economic slowdown or recession.
In order to repay California’s UI loan, the federal government has hit California businesses with a payroll tax surcharge that increases each year until the loans are repaid (the earliest estimate is 2030). In the meantime, California will pay interest on its UI debt from the General Fund — about $300 million a year.
California’s history fiscal mismanagement of unemployment insurance dates back two decades, but with COVID, its problems exploded. During the pandemic, 18% of California’s $177 billion in unemployment insurance payments were fraudulent — resulting in a “high-risk” designation by the California State Auditor’s office.
And while all states took loans from the federal government to make unemployment payments during the pandemic, only California and New York have failed to repay the loans.
California is one of five states to experience an increase in unemployment since last August and it now has the second highest unemployment rate in the country.
Yet, despite rising unemployment and $18 billion UI Fund debt, the California Legislature is poised to change the law so striking workers can get unemployment checks.
In essence, California businesses would be paying union members to strike while new labor contracts are negotiated… expect the ‘hot labor summer’ to turn into a ‘fiery labor fall.'
None of this will solve California’s UI crisis which will continue to worsen — increasing payroll costs for businesses and costing taxpayers hundreds of millions in interest payments.
The Bottom Line: California will likely keep kicking the can down the road rather than make the fiscally prudent decision to prioritize repaying its UI debt. The legislature and the governor could make matters even worse by extending UI benefits to striking workers. As a result, California businesses will continue to face higher costs.