Newsom Brags About CA's Economy, but Unemployment Tells a Different Story

Opinion

By Dan Walters, CalMatters Commentary

Published 4 months ago on

August 4, 2024

California's unemployment rate remains the highest in the nation, contradicting Gov. Newsom's boasts about economic strength. (AP/Marcio Jose Sanchez)

California's unemployment rate remains stubbornly high at 5.2%, tied with Nevada for the nation's highest.
The state's unemployment insurance fund faces a growing deficit, expected to reach $22 billion by 2025.
A decades-long political stalemate hinders efforts to address the unemployment insurance fund's financial woes.

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Gov. Gavin Newsom tirelessly touts the size and strength of California’s economy, often contrasting it with those of other states.

Dan Walters

CalMatters

Opinion

When, for example, the monthly employment report was issued in June, Newsom bragged on X, formerly Twitter, that “California continues to lead the nation’s economy & create good jobs throughout the state. Just this year, the state created over 107,000 jobs — more than doubling … the same time period last year.”

Actually the report, based on May data, was not 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. In June it was still unchanged and remains the nation’s highest, albeit tied with Nevada. It also was markedly higher than the jobless rates in Florida (3.3%) and Texas (4%), two red states that Newsom often disparages.

The recent reports on California’s job picture are nothing new. California has consistently had unemployment rates at or near the nation’s highest ever since the COVID-19 pandemic faded away.

About 3 million Californians lost their jobs during the pandemic, thanks largely to Newsom’s orders to shut down businesses. The state’s recovery has been sluggish vis-a-vis those of other states. There are still more than a million California workers without jobs.

Budget Deficit and Unemployment Insurance Fund Woes

California’s mediocre economic recovery has had many effects, one being an immense budget deficit. The Newsom administration’s 2022 projection of a fast recovery and a cornucopia of state revenues turned out to be wildly inaccurate, leading to a wide gap between income and outgo.

Another impact is the truly sorry condition of the unemployment insurance fund, which provides support payments to jobless workers.

When the pandemic hit and unemployment soared, the unemployment insurance fund quickly exhausted its slender reserves and the state borrowed some $20 billion from the federal government to maintain payments.

Not only has California not repaid the loans, but it is one of only two states that have failed to do so (New York still owes about $6 billion). And the unemployment insurance fund’s deficit is growing because the state is still not taking in enough money from payroll taxes to cover its current payments.

Thanks to California’s stubbornly high unemployment rate, the Employment Development Department expects the unemployment insurance fund to receive $4.8 billion in payroll taxes this year but to pay out $6.8 billion in benefits, meaning the fund’s deficit, including federal loans, will reach $21.7 billion by the end of this year and $22 billion in 2025.

Historical Context and Political Stalemate

The underlying problem predates Newsom’s governorship. Nearly a quarter-century ago, the Legislature and then-Gov. Gray Davis enacted a 50% increase in unemployment insurance benefits, counting on what was then a healthy fund reserve to finance them.

However, when recession struck shortly thereafter, the fund was drained to pay benefits and had only barely regained solvency when the Great Recession hammered the state a half-decade later. The state borrowed about $10 billion to keep benefits flowing, and the feds increased payroll taxes on California employers to repay the debt.

The pandemic hit just after that loan was repaid, and employers are again being taxed to repay the even larger debt incurred. However, it’s not enough to prevent the fund’s deficit from increasing.

The effects of relatively high unemployment are compounded by a decades-long political stalemate over how to make the unemployment insurance fund healthy again, pitting employers against unions over whether payroll taxes should be increased or benefits should be curtailed.

Newsom’s bragging about California’s economy in the face of such negative data not only undermines his credibility but ill-serves the state. The ever-growing unemployment insurance fund deficit is a crisis that should demand political attention, not be ignored.

About the Author

Dan Walters has been a journalist for nearly 60 years, spending all but a few of those years working for California newspapers. He began his professional career in 1960, at age 16, at the Humboldt Times.

CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more columns by Dan Walters, go to calmatters.org/commentary.

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