California's unemployment insurance fund

I've been tracking the California unemployment insurance fund for a couple of years. The fund ran out of money at the end of 2008. Since then, it has been insolvent and borrowing from the federal government to pay unemployment claims. The fund appeared to bottom at -$11.08 billion in April, 2011 and has since recovered to -$8.7 billion in August, 2011. Under the original agreement with the federal government, the state was supposed to start paying interest on borrowed funds in January, 2011, but that was deferred until September, 2011.

The first interest payment of $303 million was paid last month. The LA Times covered the unfolding disaster.

It will have to pony up at least a half-billion dollars in 2012 and even more in coming years. The state, which already is struggling to close a massive budget deficit, probably will be forced to make even deeper cuts to schools, law enforcement and other basic services. In the meantime, California employers in January will be hit with a mandatory surcharge of about $25 per employee to begin paying down the principal on the federal loan.

Surcharges for each employee are likely to slow hiring in an already weak employment environment. California is not the only state with an insolvent UI insurance fund. President Obama is proposing further suspensions of interest owed to the federal government and surcharges from the federal government on employers. There is a deep hole to fill to pay for all of the unemployment benefits paid out over the last few years that will be a drag on employers for many years into the future.

Side note: When I started my first business in 1993, I was surprised to learn that I had to pay unemployment insurance on myself as the single employee in my company. I remember talking to the state UI office to confirm that I could collect unemployment insurance if I laid myself off. It never came to that, thankfully.