Unsolvent Fund Raises Concerns Over California’s Plan to Provide Unemployment to Striking Workers

The summer of unrest in Southern California, marked by a series of work stoppages ranging from hotels to Hollywood, has prompted labor-supporting Democrats within the state Legislature to undertake efforts aimed at amending the existing legislation.

The objective of these efforts is to facilitate the provision of unemployment benefits to striking workers while they engage in picketing activities to advocate for enhanced remuneration and improved working conditions.

This week’s bill introduction would make California the third state to join New York and New Jersey. However, unlike most states, California lacks sufficient funds to pay unemployed workers’ benefits. 

Opponents of the bill argue that expanding eligibility for these benefits will only exacerbate the problem.

Labor unions and progressive policy groups blame businesses for failing to contribute enough to the unemployment benefits fund. The fund is filled by a tax that businesses must pay per each worker.

The tax, however, only applies to the first $7,000 in employee wages, the lowest amount permitted by federal law and which has not changed since 1984.

Since then, the state legislature has twice increased unemployment benefits in 1989 and 2001. It’s why California’s unemployment insurance trust fund “has consistently been one of the most imbalanced in the country,” said Jared Walczak, vice president of state projects for the Tax Foundation, a nonpartisan tax policy group.

The issue could cause one of the biggest fights in the final weeks of California’s legislative session this year, heightened by the ongoing writers and actors strike and future potential work stoppages, including a possible strike of 85,000 health care workers at Kaiser Permanente, the country’s largest nonprofit health care provider.

States usually run out of money to pay unemployment benefits during periods of high unemployment, like a recession or the coronavirus pandemic when governments forced many businesses to close.

But this year, despite three years of record job growth, California estimates benefit payments will exceed tax collections by $1.1 billion. It’s the first time this has happened during a period of job growth, according to the nonpartisan Legislative Analyst’s Office.

Despite the fact that businesses only pay unemployment taxes on the first $7,000 of their employees’ wages, employee pay has increased.

According to Alissa Anderson, a senior policy fellow at the California Budget and Policy Center, California’s average full-time private sector worker earns approximately $67,000 annually.

“Businesses are paying a payroll tax on a smaller and smaller share of workers’ earnings over time and it’s not sustainable,” she said. “You can’t finance a program that way.”

Meanwhile, California still owes the federal government more than $18 billion in unemployment benefits borrowed during the pandemic. The state will almost certainly spend the next ten years repaying that debt, plus interest. 

Most other states repaid their debts with a portion of the billions of dollars in federal coronavirus aid. However, to the dismay of business owners, California did not and instead spent the money on things like tax rebates.

This year, businesses contributed an additional $21 per employee to repay the federal loan. But even with that increase, it’s still not enough to cover the amount of benefits that California is paying to unemployed workers.

This is one reason business groups believe the state cannot afford to extend unemployment benefits to more individuals.

“We are hopeful that the legislators will understand you don’t add things to the credit card when you are deeply in debt,” said Rob Moutrie, policy advocate for the California Chamber of Commerce.

However, labor unions regard unemployment benefits as benefits earned on the job. If the government refuses to allow workers to receive those benefits while on strike, they are “putting their thumb on the scale on behalf of the employer,” Lorena Gonzalez Fletcher, chief executive officer of the California Labor Federation, said.

Fletcher, a former state assemblymember who attempted to pass a similar bill in 2019, believes the Legislature will eventually have to change how the state pays for unemployment benefits.  

But she said the larger issue should not distract the Legislature from supporting striking workers.

“There is a problem, yes, with or without this (bill),” Fletcher said. “Making this set of workers run the risk of homelessness or food insecurity because the employers have not been part of the solution in fixing their underfunding is ridiculous.”

Raising business taxes would be difficult despite California’s reputation as a high-tax state. John Kabateck, the state director for the National Federation of Independent Businesses, stated that business owners in California pay numerous other taxes.

“To allege that small business owners have not been paying their fair share is absurd and frankly insulting,” he said.

Cutting benefits would also be difficult. According to Anderson, a senior policy fellow at the California Budget and Policy Center, unemployment benefits in California cover roughly half of what a worker was previously earning.

“Many people can’t live on half their salary for long,” she said.

Acknowledging Workers’ Struggles

State Sen. Anthony Portantino, a Democrat from Southern California who is also running for Congress, wrote the bill. The state’s unemployment insurance trust fund, according to Portantino, will be discussed as part of the bill. 

But he said it “shouldn’t be used as an excuse for one side or the other.”

“It’s hard to be on strike,” he said. “Some people have this romanticized view of it. There’s nothing romantic about it. This is a life-and-death family struggle for many people in California.”

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Source: Yahoo! Finance