Reflecting seasonal factors but likely the effects of the Omicron variant as well, initial claims for the week of January 8 continued rising at a greater rate. Initial claims in California rose 25.5%. Initial claims in the other states were up 34.2%. The reported seasonally adjusted number for the US as a whole was up 11.1% from the revised number from last week.

California accounted for 15.0% of all initial claims and 21.0% of insured unemployed (week of January 1; a proxy for the number of workers receiving unemployment). The US unadjusted total was 94% above the pre-pandemic average in 2019, while California was 56% above.

As reported for the week of January 8, the revised EDD backlog has remained essentially stable. The backlog as currently defined by EDD represents under a week’s worth of processed claims. These numbers, however, only cover current applications, and not the 1 million previously approved PUA claims currently being reviewed as the result of prior actions by EDD to reduce its backlog.

Following a holiday period lull, Call Center activity again began to rise. At an average of 3.5 calls required to reach EDD, this indicator of backlog also began rising back to previous levels.

In the most recent data from the EDD, California paid out a total of $180.0 billion in benefits under all the UI programs since the week of March 7, 2020 and through the week of January 8, 2022. The most current estimate from EDD is that $20 billion of unemployment benefits was paid out to fraudulent claims, much of which was from the federal pandemic enhancements but which also includes the base payments from the regular program that in the absence of budget action will be paid back through higher taxes on employers.

The most recent data from the US Department of Labor indicates California’s outstanding loans as of January 11 from the Federal Unemployment Account were $19.8 billion. EDD’s October projections lowered their previous estimates, but still show a $21.8 billion deficit by the end of 2022, and $21.5 billion by the end of 2023.

As most other states have paid off their pandemic period UI debts using federal assistance funds, California is now only one of nine states still carrying a debt balance. California, however, accounts for 49% of the total, illustrating the extent to which the state relied on this program as a de facto income support to counter the negative effects of the policies adopted in this period.

In the recently released Proposed Budget, state revenues continue to outperform even under pandemic conditions, with a projected discretionary surplus of $20.6 billion general fund. In recognition of California’s lagging recovery rate and its highest-in-the-nation unemployment rate, the budget includes proposals related to economic growth and job creation, specifically an additional $500 million in tax credits over several years to strengthen small businesses along with a number of smaller proposals under GO-Biz.

The budget also proposes $3 billion over two years to pay down a portion of the state’s UI debt. While any relief of this type will reduce the duration of the higher state and federal taxes employers now face as the result of the state’s reliance on this fund during the pandemic period, the practical effects of the high remaining balance will be to: (1) more than cancel out any stimulative effect the other tax credit proposals could have, (2) ensure this critical fund will remain bankrupt for an extended period of time, potentially sinking into the same ongoing-bankruptcy situation as the Virgin Islands should the state encounter another economic downturn in the ensuing period, and (3) risk additional federal penalties on employer taxes in the 3rd and 5th years of the repayment period.

Other states, as discussed in prior weeks’ reports, instead used federal funds to pay off their federal debts in order to prevent higher federal taxes on employers and by restoring state fund balances, prevent increases in the state rates as well. Several states exercised this option using the previous CARES Act funds. The subsequent ARPA specifically authorized states to use the Fiscal Recovery Funds component to pay off the federal debt component and replenish their trust funds to pre-pandemic level, defined as the balances existing on January 27, 2020.

Updating the previously reported Tax Foundation numbers, at least 31 other states have allocated their federal assistance funds to these purposes. California to date has spent $6 million on EDD.

To put California’s debt in context, the combined position of all state UI trust funds (state fund balance less federal debt) in the latest data stood at a negative $10.1 billion at the end of the 3rd quarter of 2021. Without counting California’s debt, the national program instead would have shown a positive balance of $8.9 billion. While California often takes pride in declaring itself as a model for other states, its failure to deal with its debt as other states have instead is having an effect on the solvency of a critical national program.