Combined with a somewhat higher revision to last week’s preliminary number, initial claims in California remained largely stable over the past three weeks while dropping sharply in the rest of the country. California claims dipped 3.7%, while claims in the other states dropped by just over a quarter. The reported seasonally adjusted number was down 10.3%.

California’s share of all initial claims rose to 22.4%, the highest since November, and 20.9% of insured unemployed (week of January 8; a proxy for the number of workers receiving unemployment).

As reported for the week of January 15, the revised EDD backlog rose but still remained below a week’s worth of processed claims. These numbers, however, only cover current applications. Previous actions taken by EDD to deal with the backlog recently led to a retroactive review of 1.4 million previously approved PUA claims. Two months after these notices went out, about 1.1 million of these cases remain unresolved.

Call Center activity remained close to the prior week, still taking an average of 3.3 calls to reach EDD.

In the most recent data from the EDD, California paid out a total of $180.2 billion in benefits under all the UI programs since the week of March 7, 2020 and through the week of January 15, 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 25 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.

The recently released Proposed Budget contains $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 in the Proposed Budget 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.

The most recent job and labor force numbers for December again show the state’s recovery slowing and continuing to lag most of the other states. Even the most recent Department of Finance projections do not expect recovery—as defined by a return to pre-pandemic levels in February 2020—to occur before late 2022, and even this event is not likely until 2023 given that the Finance projections were done in November prior to the Omicron outbreaks and the softening job numbers in the last two months. These higher unemployment taxes will continue to be a barrier as the economy and more critically as individual employers are attempting to recover.

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.