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Employers could face higher taxes if state doesn't pay back unemployment loans to feds

California is facing a $20 billion unemployment fund reserve deficit by year's end. Now the California Taxpayers Association is calling on the state to pay for it.

SACRAMENTO, Calif. — The most recent forecast shows California's unemployment insurance fund is at a $20.2 billion deficit by year's end.

If the state does not pay back the money to the federal government, it could fall on employers.

The state is paying out too much in unemployment checks, and employers are not putting enough into the reserve. So the state is borrowing money from the federal government to make sure people are still getting paid. 

The question is, what’s going to happen if the federal government wants their money back? 

Dan Walters is a reporter with CalMatters. He’s been covering state politics and the uninsurance fund for four decades. 

He said 20 years ago that the state had a huge unemployment surplus tucked away. 

“The governor at the time, Gray Davis, and the legislature decided just to increase unemployment insurance benefits, which threw down the reserve, and then when the last recession hit in 2007, the state didn't have reserves to cover it and had to borrow from the federal government,” he said.

It took employers nearly a decade to pay back billions in extra taxes. 

Leading up to the pandemic, the state still hadn’t built up its reserves. Walters said the state was collecting roughly $5 billion from employers every year and dishing out roughly $5 billion. 

“In fact, the federal government, which charts such things, said it had the worst reserves of any state in the United States”

So when the pandemic hit and millions of Californians lost their jobs, it was time to borrow money from the federal government again. 

“When it (the state) does not repay the debt, the federal government comes in and taxes employers directly to pay for the debt,” Walters said.

That’s why California's Taxpayer's Association is calling on the governor and legislature to take responsibility.

“It was not because employers were doing the wrong thing," said spokesperson David Kline.  "It’s because they had to close down to do the right thing to try and stop the pandemic"

"So we are saying it should be a state-shared responsibility to now pay off the debt to the federal government so that employment taxes don't go up,” he added. 

He said CalTax is not asking for a government bailout, but rather to protect jobs, job creation and the business climate in California. 

Kline said his team met with the governor’s office and he’s hopeful that when the next budget comes out in the next session this will be included in it. 

Political Reporter Morgan Rynor reached out to the governor’s office for comment and to confirm Monday afternoon, but did not heard back at the time of publication.

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