Newsom let CA default on $18.6B in fed unemployment loans

AP Photo/Damian Dovarganes

For a man who likes to play an unctuous super genius in commercials when he’s pinging on more accomplished governors for unsophisticated, lo-information audiences (no doubt on the state’s dime)…


…as California’s GOVERNOR, Gavin Newsom in the flesh is a walking disaster zone.

The population outflow from the state remains unabated.

California’s population continued to shrink over the last year, according to a state report released Monday.

The total population dropped to an estimated 38.9 million at the start of 2023, down from 39.1 million at the start of 2022, a 0.3% decline.

And it’s not just people walking with fewer moving in. It’s money rolling out the door with them. In San Francisco alone, the tax base loss has been staggering.

As San Francisco residents left the city in the early years of the pandemic, they took billions of dollars in income with them.

About 32,000 more people left San Francisco than migrated to the city from 2020 to 2021, according to newly released tax return data from the IRS. That’s slightly less than the 39,000 more who left than came to the city from 2019 to 2020.

Those who left accounted for a hefty sum of income; the income of departing residents in 2020 was almost $8 billion more than the total reported by arrivals. Combined with the net $6.9 billion in loss in reported wages for those who left San Francisco the prior year, people who exited the city in 2020 and 2021 made about $15 billion more than those who arrived.


That doesn’t seem to bother Gov. Hair Gel Shiny Toothed False Prophet. As I wrote this past January, the man brushed off labels of “profligate spender” even as he turned a $98B surplus into a $22.5B deficit in a year’s time.

I mean, that’s practically magic, and I can spend money with the best of them.

And Newsom really is special, because his state was the only one having the kind of trouble he was having – year-over-year tax revenue declines.

…California’s projected deficit comes as many other states are enjoying large surpluses, in large part due to a deluge of federal funds over the past three years to fight the coronavirus pandemic. On Monday, Texas announced a record $188.2 billion in general fund revenue and projected it would have a $32.7 billion surplus over the two-year period ending in August 2023. In West Virginia, Gov. Jim Justice is proposing tax cuts to spend some of the $1.3 billion surplus there.

An October analysis of the 15 largest states by Fitch Ratings showed California was the only state experiencing year-over-year tax revenue declines. While the state’s employment has rebounded over the past 14 months, personal income tax withholding is down, in part because salary bonuses and initial public offerings have declined, according to the LAO, which forecast the deficit in November.


That report was also from this January and a lot has happened since then. Tons of lay-offs in that pricey Silicon Vally corridor, San Francisco continues to implode on itself, the population outflow hasn’t subsided, and businesses across California are shuttering for good or packing up their things and moving to other states.

What’s a man with presidential aspirations to do when it’s melting down all around him, and he needs businesses thriving and making payrolls to get his tax base revitalized?

Well, the man has a budget to massage first, and there’s a little matter of massive federal unemployment insurance loans the state borrowed from Uncle Sam to cover the shortfalls during COVID when their very generous well quickly ran dry. 22 states eventually took part in the program, but by last November all but four of them had cleared their debts, with CA being the largest *gulp* outstanding loan balance by a country mile.

Screencap CRS Unemployment Trust Fund pdf

In the 2023-2024 proposed CA state budget, there had been a $750M set aside to start repaying the feds (just “start” – clock’s ticking, interest climbing) part of the rather hefty balance CA was on the hook for…

Screencap CRS Unemployment Trust Fund pdf

…but – and I am not sure how this escaped anyone’s notice, but it sure seems to have – in January, Newsom withdrew the funding from the budget.


CA just stopped paying on the loans.

And now?

The state of California has defaulted on $18.5B in federal loans. Who’s getting screwed on this deal?

Business owners.

Little did California businesses know that they were cosigners on the state’s nearly $20 billion loan from the federal government that was used to cover California’s unemployment fund shortfall during the COVID pandemic. This ugly truth became apparent when the state recently decided to stop making payments on this loan. When a state defaults on its federal unemployment insurance loan, federal law requires that the state’s businesses repay the loan.

What makes this default even more egregious is that the stone-age-era IT system of the state’s Employment and Development Department (EDD) opened the floodgates to bad actors, permitting more than $30 billion in fraudulent unemployment claims during the pandemic. Those receiving fraudulent payments include incarcerated felons, a person impersonating a one-year-old, and a person impersonating Senator Dianne Feinstein. A single residential address received checks for around 60 separate individuals filing from that address.

This could have been avoided with a competent EDD. But this department’s performance has been deficient for decades, and California businesses, many of which are struggling, are left paying for blatant and costly mistakes that should and could have been solved years ago.


In the frenzied handouts, there was $30B – that’s BILLION with a B dollars – worth of FRAUDULENT claims. Of course, CA stopped paying for fraud detection software. It’s not their money.

…The EDD’s IT system dates back to the 1980s and uses software over 50 years old. After multiple attempts to fix the errors, the scope of the problems became magnified. In 2013, the EDD was granted funding by the Obama administration to purchase fraud detection software from Pondera Systems, which was used until 2016. The software, costing around $2 million per year, was discontinued due to the price, which represented less than 1% of the EDD’s budget.

And it’s going to be no grease off Newsom’s brow.

…The state had several chances to pay off the debt, including a roughly $100 billion budget surplus the previous year, $27 billion in federal COVID assistance, and a budget record of $300 billion-plus for 2022–2023. The state might have resumed payments this year despite failing, lowering the tax burden on businesses as intended in the 2023–24 budget. The state has reneged on its promise to resume payments or offset rising company federal unemployment insurance fees, though, as its financial outlook deteriorates.

He’s just handing the whole mess off to the few suckers left still trying to hack out an honest living in that state.


…With an unpaid federal unemployment insurance loan, the federal government raises the unemployment insurance tax immediately by 0.3 percent on each business within the state, and an additional 0.3 percent each year after that until the loan is fully repaid. The normal federal unemployment insurance tax rate is 0.6 percent per year, which means that California businesses will be paying several multiples of the normal federal tax rate before the loan is retired.

The state’s Legislative Analyst Office predicts that repaying the loan through higher taxes on businesses is not expected until 2029 or 2030 and note that retiring the debt could take longer, depending on the state’s economic performance. A recession would almost certainly delay repayment, and the odds of a recession in the next seven years are significant.

Don’t forget there’s a reparations brangle coming, too.

Get out of Dodge if you can.

If you have to stay, how has this clown not been impeached or whatever mechanism they have? I know, I know, – the machine is too strong to do a thing about him.


But there he shouldn’t be allowed a single moment’s peace in any encounter where he isn’t on the defensive constantly.

Man has a lot to answer for.

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