Governor. Gavin Newsom tirelessly praises the size and strength of California’s economy, often comparing it to those of other states.
For example, when the monthly jobs report was released in June, Newsom boasted on X, formerly Twitter, that “California continues to lead the nation’s economy, creating good jobs across the state. This year alone, the state created more than 107,000 jobs — more than double … the same period last year.”
In fact, the report, based on data from May, was not all that positive.
While the state’s 5.2% unemployment rate was slightly lower than April’s rate, it was still the highest of any state. It was unchanged in June and remains the highest in the country, though tied with Nevada. It was also significantly higher than the unemployment rates in Florida (3.3%) and Texas (4%), two red states that Newsom often criticizes.
Recent reports on California’s employment are not new. California has consistently had unemployment rates at or near the highest in the country since the COVID-19 pandemic subsided.
About 3 million Californians have lost their jobs during the pandemic, thanks in large part to Newsom’s orders to close businesses. The state’s recovery has been slow compared to other states. More than a million California workers are still out of work.
California’s lackluster economic recovery has had many consequences, including a massive budget deficit. The Newsom administration’s 2022 forecast of a rapid recovery and a glut of state revenues has proven wildly inaccurate, leading to a large gap between revenue and spending.
Another consequence is the truly dire state of the unemployment fund, which provides support payments to the unemployed.
When the pandemic hit and unemployment rose, the unemployment fund quickly ran out and the state borrowed about $20 billion from the federal government to keep payments going.
Not only has California defaulted on its loans, it is one of only two states that has not (New York still owes about $6 billion). And the unemployment fund deficit is growing because the state still isn’t taking in enough money from payroll taxes to cover its current payments.
With California’s persistently high unemployment rate, the Employment Development Department expects the unemployment trust fund to collect $4.8 billion in payroll taxes this year but pay out $6.8 billion in benefits. That leaves the trust’s shortfall, including federal borrowing, at $21.7 billion by the end of this year and $22 billion by 2025.
The underlying problem predates Newsom’s governorship. Nearly a quarter century ago, the Legislature and then-Governor Gray Davis enacted a 50 percent increase in unemployment benefits, relying on what was then a healthy reserve fund to finance it.
But when the recession hit shortly afterward, the fund was drained to pay benefits, and it was barely solvent again when the Great Recession hit the state half a decade later. The state borrowed about $10 billion to keep the benefits flowing, and the federal government raised payroll taxes on California employers to pay off the debt.
The pandemic hit just after that loan was repaid, and employers are once again being taxed to repay the even larger debt. But it’s not enough to keep the fund’s deficit from growing.
The effects of relatively high unemployment are compounded by decades of political stalemate over how to restore the unemployment fund to health, pitting employers against unions over whether to raise payroll taxes or cut benefits.
Newsom’s bragging about California’s economy in the face of such negative data not only undermines his credibility, it’s bad for the state. The growing unemployment fund deficit is a crisis that deserves political attention, not ignored.
CalMatters is a public interest journalism enterprise dedicated to explaining how the California Capitol works and why it matters.
This article originally appeared on the Ventura County Star: Walters: State’s economic picture is different than Newsom paints
