It’s doubtful whether more than a relative handful of Californians have heard of the Unemployment Insurance Fund.
It is, however, one of state government’s largest activities – and a case study in political mismanagement.
Currently, California employers pay about $6 billion in payroll taxes into the UIF each year. And currently, the state Employment Development Department annually pays almost that much to jobless workers.
Superficially, that would appear to be a sustainable equation, but in reality, it’s not.
During periods of high payrolls and low unemployment, such as this one, the UIF should be building reserves that could cope with an economic downturn, when claims for jobless benefits increase.
That’s the way it used to work – until political expediency and recession undid it.
In 2001, the UIF had a $6.5 billion positive balance. But the governor at the time, Democrat Gray Davis, owed big political debts to unions that financed his battle with two very wealthy Democratic rivals in 1998.
Davis repaid his debt to public employee unions in 1999 by sharply increasing pension benefits for state workers – a move later emulated by most local governments – on assertions that investment earnings would pay for them without more taxpayer money.
Similarly, Davis repaid his debt to the private sector unions in 2001 by backing a sharp increase in unemployment insurance benefits on the assertion that the UIF, with its $6.5 billion reserve, could easily afford it.