The Gift that Congress Needs to Give – Unemployment Insurance Assistance

Happy Holidays to all of our readers. In the spirit of the holidays and charity, I want to discuss California’s unemployment insurance fund (UI) with an eye towards the coming years and the need for federal action.

As many of you know, unemployment benefits have been used as a social safety net to an unprecedented scale during this pandemic. Though federal legislation funded some additional categories of benefits (such as the well-known $600 per week increase and the Pandemic Unemployment Assistance benefits available to gig workers), states still bear the majority of the burden for unemployment payments. As a result, states’ UI funds across the country are deeper into debt than they have ever been.

For a sense of the scale of the present UI fund debt, we can look to the Great Recession, which followed the 2008 subprime mortgage crisis. Though the recession started in 2008, the UI debt didn’t peak until 2012, when California’s UI fund hit $10.3 billion in debt. This translated into increased taxes for California’s employers that continued until the fund returned to solvency in 2018.

Turning to the present – the Employment Development Department’s (EDD) October 2020 UI Fund Forecast estimated California’s UI Fund would be in debt to federal government for approximately $21.5 billion by the end of 2020, with ongoing elevated levels of unemployment continuing throughout 2021. Based on this trajectory, EDD estimates that California’s UI Fund appears very likely to fall $48 billion into debt by the end of 2021, which would bring the total debt to four times the peak of the Great Recession’s debt.

$48 billion dollars of debt is an unprecedented and shocking number – because unemployment was never considered as a systematic response to a nation-wide, multi-industry shutdown of the economy. And if 2008’s recession took until 2018 to pay off, then we can assume that 2020’s shutdown will take far longer. California’s UI fund may remain insolvent for decades, causing increased per-employee taxes on employers for decades.

There is also another side to this unemployment crisis – the recipients who have seen their workplaces closed down and who cannot support themselves as a result of COVID-19. This historic use of UI funds reflects an unprecedented need by recipients. Unfortunately, that unprecedented need is about to grow. Without action from Congress, the majority of Americans receiving UI benefits will lose them on December 26th, 2020 – the day after Christmas. Those benefits will disappear because some additional categories of benefits authorized by federal legislation (Pandemic Unemployment Assistance, as well as federally-funded extensions for traditional unemployment) will expire.

The solution to both of these problems is the same: Congress must act. A nationwide crisis must be met with a nationwide response. Putting aside partisan disputes about what exactly will fall into any relief package, we can only hope that it will address the unprecedented unemployment insurance crisis that COVID-19 has created – both for employees, and employers.

So Happy Holidays. And though I’m generally against opening gifts early – I hope Congress gives us this gift before December 25th.

Robert Moutrie, Policy Advocate