The Private Sector Cannot be California’s Safety Net

Accident. Illness. Old age. Unemployment.

During the Great Depression, Dr. I.M. Rubinow, a leading theorist on social insurance, a social progressive, and mentor to President Franklin Roosevelt, described these four troubles as the Four Horsemen of the Apocalypse.  To adequately protect citizens against these ills, he argued that only the government can serve as the safety net for its citizens.

That lesson is as true today as it was 85 years ago.  For nearly 10 years, California’s private sector provided the state with record surpluses and a rainy-day fund surpassing $20 billion dollars. California’s budget continued to expand each year following the Great Recession and unemployment reached all-time lows. Then, the coronavirus came to the golden state and non-essential businesses were ordered to shut down and residents forced to shelter-in-place to flatten the curve and protect our healthcare system. The overwhelming majority complied, but in doing so, the once flush-with-cash California economy was bankrupted.  National brands, such as J. Crew and Neiman Marcus, have filed for Chapter 11 protection, and many small businesses likely will not survive.  And as these critical employers faltered, so has California’s economy. The state deficit is estimated at $54.3 billion and the unemployment rate reaching well into double digits.

Now, some state legislators are ignoring Dr. Rubinow’s advice and forcing the private sector to serve as both the tax base and the social safety net.  These five bills currently pending in the California Legislature would require the private sector to absorb the financial devastation stemming from state and local orders shutting down the California economy.

  • AB 196 (Lorena Gonzalez; D-San Diego) Significantly increases workers’ compensation costs for employers by “conclusively” presuming (non-rebuttable) that contraction of COVID-19 by all “essential workers” is a workplace injury. Establishes an extremely concerning precedent for expanding presumptions into the private sector for COVID-19 issues, which the Workers’ Compensation Insurance Rating Bureau (WCIRB) recently estimated will add billions in costs to California’s workers’ compensation system.
  • AB 398 (Chu; D-San Jose) Punishes California employers who create jobs and discourages hiring and employment growth by imposing a headcount tax of $275 per employee.
  • AB 1436 (Chiu; D-San Francisco) Requires residential and commercial lessors to absorb potentially years without rent by allowing tenants to withhold 100% of the rent for the entire duration of any state or local state of emergency relating to COVID-19, which could persist for years, plus an additional 15 months after orders are lifted.
  • AB 2501 (Limón; D-Santa Barbara) Requires lenders to maintain home and auto loans for an extended length of time with no payments from borrowers. This strain imposed on financial institutions will limit the availability of credit in the future and harm California’s economic recovery.
  • AB 3216 (Kalra; D-San Jose) Provides for unlimited job protected leave for all employees of employers of any size for family and medical leave due to COVID-19. This new mandate is in addition to numerous COVID-19 leave requirements recently enacted at the federal, state and local levels. The bill creates additional burdens on California employers at a time they can least afford it.

Two of the Four Horsemen knock on California’s door: illness and unemployment.  California’s businesses cannot stop these horsemen – particularly after many were compelled to shut down for months.  Only the state can function as the safety net for the health and welfare of all Californians.

Adam Regele, Policy Advocate