REPORT STAFF

Buried inside the fiscal year 2022 audited financial accounts that California released this March, almost a year later than expected, was an acknowledgment that the state is still dealing with unemployment insurance fraud stemming from pandemic expenditure programs.

According to California estimates, improper unemployment insurance payments between July 1, 2020 and June 30, 2023, reached $6.08 billion, or a 20.1% overpayment rate, more than double the amount permitted by federal law for invalid payments.

It is crucial to examine federal pandemic unemployment policies in order to comprehend how California got into this problem. The federal government loosened requirements for receiving unemployment insurance benefits and raised benefits during that time. Application materials were no longer required, and candidates did not have to provide evidence that their termination resulted from an “employer action” (e.g., layoff).

A gold rush occurred. A bonus payment of $600 per week was given to the recipients until July 31, 2020, and after that, a bonus payment of $300 per week was given until September 2021, in addition to regular unemployment insurance benefits. For the length of the program, two unemployed parents in California with two dependent children might collect unemployment insurance payments equal to an annual salary of $109,062.

As a result, the state now has one of the highest unemployment rates in the nation. Approximately one-tenth of Californian adults, or 83% of all applicants, were successful in collecting unemployment insurance payments during the epidemic, making California one of the easiest states to access, according to the Bureau of Labor Statistics. Empirical evidence indicates that beneficiaries are apt to postpone returning to the workforce until these benefits expire.

Moreover, state income taxes do not apply to these unemployment insurance payouts. Hence, in addition to receiving substantial advantages from taxpayers, participants made no tax contributions to the public coffers. In California, millions of healthy adults who could have been earning a living by themselves choose to live off public funds. Even worse, foreign nationals have stolen millions of dollars from the scheme.

At the moment, California leads the country in jobless rates. Its unemployment insurance trust fund is depleted in the meantime and depends on federal loans totaling close to $20 billion. In contrast, 26 states—including Utah and Alabama—signed off the pandemic unemployment programs before the 2021 deadline. Many of these states are solvent and have surpluses.

There’s no denying that the Golden State is about to experience a financial earthquake. Tax burdens on businesses to replenish the unemployment insurance trust fund will only hasten the exodus of families and businesses from the state, which is already seeing an unprecedented number of departures. California is thus unable to solve this issue through taxation.

Rather, policymakers need to give unemployment insurance a serious second thought. Adhere to regulations in order to maintain programs’ long-term viability rather than bending them in times of crisis. Think about personal savings accounts for unemployment insurance. Similar to individual retirement plans, these accounts encourage employees to contribute to and develop their balances while they are employed, take money out when they lose their jobs, and get back to work as soon as feasible to replenish their balance.

Workers will want to locate a job so that their personal unemployment insurance savings accounts are not completely depleted, rather than waiting to apply for jobs before benefits expire. A worker’s savings accounts can be used as extra retirement income if they never lose their jobs.

Sadly, politicians in Sacramento and Washington, D.C., have been reckless with public funds and put California on a path toward economic ruin. They have conned the taxpayers out of their gold.