California Defaults On $18.6 Billion In Debt

California Defaults On $18.6 Billion In Debt, Saddling Employers With The Expense
BY TYLER DURDEN
SUNDAY, MAY 07, 2023 - 07:00 PM

California's recent decision not to pay back some $20 billion borrowed from the federal government to cover unemployment benefits during the pandemic will fall on the shoulders of employers, according to experts.

"The state should have taken care of the loans with the COVID money it received from the government in 2021," said Marc Joffe, policy analyst at the Cato Institute—a public policy think tank headquartered in Washington, D.C., in a statement to the Epoch Times.

In the state's proposed 2023-2024 budget, $750 million was allocated to start paying down the loans, until Governor Gavin Newsom nixed the provision in early January, leaving businesses in the state responsible for the loans, as mandated by federal regulations - so that the federal unemployment tax rate of .6 percent will increase by .3% per year starting in 2023 until the loan is extinguished.

"California is just not really an employer-friendly state," said Joffe. "This one thing will not be a difference between a business remaining open or closing, but it’s just another burden on top of the many burdens the state puts on employers."

In total, 22 states borrowed money for unemployment insurance from the federal government. All but four, California, Colorado, Connecticut, and New York, have paid back their debts - with California owing the most by far at $18.6 billion as of May 2, followed by New York at $8 billion, Connecticut at $187 million and Colorado at $77 million, according to data from the US Treasury.

Initially, the state borrowed from its reserves to pay the benefits, but after exhausting its coffers borrowed to cover expenses, analysts said.

Exacerbating the situation were unprecedented levels of fraud occurring across the state, due to limited oversight and antiquated computer systems, according to Lee Ohanian, professor of economics at the University of California–Los Angeles.

Analytics firm LexisNexis estimated the total cost of the fraud at $32.6 billion.

Investigations have since uncovered that illegitimate unemployment benefits payments were paid to convicted felons, with one address receiving 60 separate fraudulent payments.

Fraud is a persistent issue historically with the program, and a $2 million federal grant in 2013 sought to address the issue with new computer software systems.

The upgrade successfully stopped instances of fraud, but further improvements stopped with the end of the grant in 2016, reportedly due to the agency’s reluctance to take on the annual expense for the third-party service.

“They were penny wise and pound foolish,” Ohanian told The Epoch Times.

At a cost of $2 million annual investment, the program would have cost $14 million to operate since it was terminated.

“Sadly, this is just a trifecta of bad decisions,” Ohanian said. “The [Employment Development Department] made a bad decision to not renew its lease for the fraud detection software, the state government took out a loan and chose to welch on the debt—which is outrageous—and now businesses are repaying more in taxes for the incredibly unwise decisions and mistakes of the state government.”

Reports that the state is seeking forgiveness from the federal government were met with resistance by policy experts, including Ohanian.

“We’ve made a lot of bad decisions and we expect the rest of the country to pay for it,” he said. “It also raises questions about the future: If the state is going to default on the $20 billion federal loans, how safe are municipal bonds from California?”

At the same time:

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California panel approves $800 billion reparations package
JAZZ SHAW 8:31 AM on May 07, 2023

California is still wrestling with the whole reparations question and has been for quite a while now. But yesterday, the task force assigned to look into the matter took a series of votes and approved several recommendations. None of these are moving immediately into law, but they are intended to inform the legislature so that final proposals can be voted on. They agreed on some form of apology and cash reparations. They didn’t specify an amount, but an earlier version of the proposal called for payments of at least $360,000. Of course, this plan would only apply to Black residents and not any other minorities. And the total bill would add up to more than two and a half times the state’s entire annual budget, even as California faces a significant budget shortfall. (NY Post)

California’s reparations task force voted in favor of multiple recommendations Saturday that could cut a minimum of $360,000 in checks to its eligible black residents.

The nine-member committee gave final approval at a meeting in Oakland to a hefty list of proposals aimed at rectifying racial inequalities across the state.

“Reparations are not only morally justifiable, but they have the potential to address long standing racial disparities and inequalities,” Rep. Barbara Lee (D-Calif.) said during the meeting.

This plan, if it is somehow approved, wouldn’t be nearly as crazy as the one being considered by San Francisco. The City by the Bay is looking at making all Black residents into instant multimillionaires with free homes and freedom from paying taxes for the rest of their lives. But the proposed state plan is still pretty insane.

To be clear, we are still talking about reparations in a state where slavery was never legal that would be given to people who have never been enslaved and paid for by people who have never owned slaves. Since the panel has been reminded of this far more often than they might wish, they expanded the definition of who would be entitled. The list would include Black people if “they or a family member was incarcerated, whether they faced housing discrimination and other prejudicial factors.”

So if you happen to be Black and you went to jail, you’re in for a big payday even if you actually committed the crime you were accused of. And all of your family members get a piece of the action as well. And how many Californians would qualify? They have no idea. Nobody has run the numbers and it will likely be impossible to come up with specific definitions. Would the criteria include “how Black” a person is? For example, would biracial people qualify? What if you had one Black grandparent? Or can you simply “identify” as being Black?

Hispanic people will not be receiving a seat on the gravy train because they apparently have never been incarcerated, oppressed, or faced discrimination. And you won’t hear a word about reparations for Asian Americans, despite the fact that San Francisco was the home of the original Chinatown in the 1850s. (You can read a brief history of the horrifying conditions Chinese settlers in California faced in this report. It was worse than official slavery in many cases.)

But if that’s how you want to spend your money, I suppose that’s your business, California. But while we’re on the subject, where will that money be coming from? Last time I checked, the state budget was in such catastrophic shape that you might not even be able to keep all of the trains and subways running. The proposed budget adds up to roughly $260 billion. The proposed reparations would cost $800 billion. I’m no math expert, but something here doesn’t seem to be adding up.

They should dig a huge trench around that state and push it off into the Ocean ... I think the army has machines that could do that .. If not, they should build them

... Didn't they recently just get (another) huge sum of money for their "bullet train" between SF and LA? .... After squandering the initial funds for it...and getting nothing done?

And they're talking about Newsome for president...Absolutely absurd

Yea, let's give the blacks hundreds of billion$ ...maybe Trillion$ ...SMH .. Ca doesn't have the funds for it ... They supposed to get it from us? ...

I could go on and on (and on) about that reparations bullshit, but I'm not gonna delve into it ... At this time