The California state economy may be on the right track after spending some time on a significant downturn, but the Golden State has yet to leave its financial woes completely behind, as it still owes close to $8 million to the federal government.

The unemployment insurance funding model used in California since the early 1980s simply wasn’t enough to keep the state’s UI coffers fulfilled once the recession slammed the state and its businesses. Because of this, in January 2009, the state began borrowing from the federal government to keep up with UI costs. However, that has left California with a still unpaid balance, and the burden to cover the remaining debt has been placed on businesses’ backs.

“The remaining debt has been placed on businesses’ backs. “

Chipping away at a substantial chunk of debt with employers’ assistance
At the end of 2014, the state owed the federal government $8.6 billion to cover UI funding. That number is expected to drop to $7 billion by the end of 2015, and $5 billion by the closing days of 2016. A couple billion dollars at a time, businesses will hack away at California’s chunk of UI funding debt year-by-year through what is called a “credit reduction.” While effective for managing the state’s substantial debt, this strategy – basically an unemployment tax hike – will have a substantial impact on the state’s businesses.

“California government screw-up,” grumbled one business owner to the Orange County Register in regard to the burden placed on employers to chip away at the state’s debt. “I hope it won’t affect us that much because we have few employees and they are mostly part-time temps. … In thinking about employers with a large number of employees, this could be a nasty shot.”

Businesses will be paying of California’s billions in UI debt for some time
California borrowed from the federal government to fund UI in 2009, and in 2012 the Federal Unemployment Tax Act credit reduction kicked in – something that occurs when the state UI fund is in deficit for two consecutive years, according to the California Employment Development Department.

The FUTA credit reduction has had, and will continue to have, a significant impact on employers, and one that will only grow as the years pass. In 2012, the hit businesses took amounted to $292.5 million, in 2013 they paid $606.2 million and last year employers coughed up $947.1 million to cover California’s UI debt. The rising cost of the Golden State’s UI debt won’t stop there for employers. The EDD estimated that in 2015, businesses will pay $1.3 billion and $1.7 billion by 2016.

At Corporate Cost Control, we work closely with employers across the country to better manage the nuances of unemployment insurance. Legislation changes on the state level could impact you today, and we welcome any questions or concerns you may have on a wide range of topics.


Contact CCC to see how we can save your organization time and money.
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(800) 207-6926

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