Insolvency Threats California Unemployment Trust Fund

October 8, 2008

Sacramento, CA - California unemployment trust fund, which is funded by employers to cover benefits to unemployed workers, is on high risk of insolvency, according to a report.

California State is paying out up to $27 million in unemployment benefits daily and there could be $500 million in the red by January.

The Employment Development Department forecasted in May, that there will be $1.8 billion fund deficit by the end of 2009, and will rise up to $3.5 billion by 2010.

The forecast was based on an unemployment rate of 6.4 % in 2008 and 6.6 % in 2009.

There is definitely a rapid depletion in the fund and if there will be no changes, insolvency will still remain.

Schwarzenegger administration considers some options to return the fund to solvency, but it would take long months to do so.

Their options include raising the employer-paid unemployment insurance payroll taxes; or cut benefits or eligibility to shrink minimize payouts.

Meanwhile, until such options are done, the California State is seeking a loan from the federal government to help balance the fund through September 2009.

The U.S. government on the other hand, can remove a federal tax credit for California companies and use the extra cash to balance funds, if the state didn’t make the fund solvent for a couple of years.