Currently, California has the highest unemployment rate in the nation. The Bureau of Labor Statistics reports the California unemployment rate at 5.3% as of February 2024. The unemployment rates shown are a percentage of the labor force.
Meanwhile its unemployment insurance trust fund is empty, relying on nearly $20 billion in loans from the federal government. By contrast, 26 states opted out of pandemic unemployment programs before the 2021 deadline and many of them are solvent and have a surplus, such as Alabama and Utah.
By contrast, 26 states opted out of pandemic unemployment programs before the 2021 deadline and many of them are solvent and have a surplus, such as Alabama and Utah.
The Golden State is facing an impending fiscal earthquake. Since families and businesses are already fleeing the state in record numbers, straining businesses with higher taxes to refill the unemployment insurance trust fund will only make people run away faster. Therefore, California cannot tax its way out of this problem.
The State of California finally published its fiscal year 2022 audited financial statements on March 15, 2024, 350 days later than the March 31, 2023 deadline required by the municipal bond market and the federal government. Even worse, the tardy audit revealed that California had overstated its “Net Position” by about $29 billion.
The FY 2022 filing delay of 350 days represents a slight improvement from FY 2021, reversing a trend toward worsening delays. Further, California State Controller Malia Cohen set out a goal of getting back to timely financial reporting by FY 2025. As she stated in her submittal letter attached to the newly released FY 2022 ACFR:
“The SCO [State Controller’s Office] will continue to work earnestly toward the goal of publishing the 2024–25 ACFR in March 2026. The SCO’s statewide ACFR process improvement initiative will increase efficiencies and data quality to advance the fiscal integrity of the state into a position to support our continued economic growth. These efforts include establishing an ACFR compilation governance structure, streamlining manual processes, and optimizing technology. The SCO will build upon our work with partner agencies to provide departments the technical assistance and resources needed to accurately and timely submit financial reports.”
Information technology problems also plague the state’s Economic Development Department (EDD), which is still struggling to address pandemic-era unemployment insurance fraud. The state auditor had to give California a qualified audit opinion because:
“The Employment Development Department had inadequate internal control over its financial reporting for federally funded unemployment insurance (UI) benefits, including not properly estimating the total population of ineligible payments. As a result, the department was unable to provide complete and accurate information for certain accounts within the federally funded portion of the UI program. We were therefore unable to obtain sufficient and appropriate audit evidence to conclude that the department’s balances regarding 100 percent of Other Liabilities, 11 percent of Intergovernmental Revenues, and 12 percent of Health and Human Services Expenditures within the Federal Fund are free from material misstatement.”
The California State government was obliged to add $29 billion of net liabilities to its balance sheet to recognize the amount of improper UI payments that may have to be remitted back to the federal government.
Bureau of Labor Statistics found that California was one of the easiest states to access unemployment insurance during the pandemic, with 83% of all applicants (about a tenth of California adults) successfully receiving benefits. Research shows that recipients are likely to wait to get back to work until just before these benefits run out.