The EDD continues to have problems [The Orange County Register]

Orange County Register (CA)

Problems just keep getting worse at the Employment Development Department. Based on EDD data, the California Legislative Analyst recently warned the Unemployment Insurance Trust Fund is going into “structural insolvency” this year.

The EDD system borrows from the U.S. Department of Labor to pay out benefits to the unemployed. During times of prosperity, the Unemployment Insurance tax is raised to pay down that debt. The cycle worked during and after the Great Recession. The debt rose to $11 billion during that time, but all that was paid down over the next decade.

Starting when COVID-19 hit three years ago, payments to the unemployed put the fund into debt again, estimated by the LAO at $19 billion for 2022, rising to $20.3 billion for 2024. Interest payments of $300 million a year will come from the state’s general fund. That’s money no longer available for roads, schools or the homeless.

The problem now is unemployment is low, when the fund should be paid down. But not enough money is flowing in. If a new recession hits, the fund will tip back into the payout part of the cycle, with the debt rising even faster, without ever having enjoyed the paydown cycle.

“California will have to increase the state UI tax rate since it cannot change the federal rate of 6% on the first $7,000 of income,” Raymond Sfeir, the director of the A. Gary Anderson Center for Economic Research at Chapman University, told us. “This is going to cost employers a large amount of money over time.”

Other than Gov. Gavin Newsom, the person most responsible for this expensive disaster is Julie Su, when she was the state’s secretary of the Labor and Workforce Development Agency.

Now the acting U.S. secretary of labor, her permanent nomination to that post is in trouble in the Senate and, as we have urged before, ought to be withdrawn by President Biden.

As to the EDD itself, the Legislature needs to advance reforms the LAO outlined last August. It called for minimizing delays and simplifying the application process to reduce the job-loss impact to the economy. Those make sense to us.

But once again, California just can’t seem to get the basics of governance right.