California’s Dirty Little Secret

Shaun Enders

Have you ever had something unfairly taken from you? Well, I have and it’s frustrating. When 2016 rolled around like a lot of other people I was in good spirits, had a few new resolutions and a belief that this was going to be a great year. Unfortunately we have a lingering problem. No not the endless gas leak at Porter Ranch although that seems to be never ending also. This one involves a little known loan, sort of “a dirty little secret” if you will, that California has been defaulting on for over five years which to my surprise is not getting very much attention.

If you are an employer in the United States, you pay an unemployment tax called the FUTA Tax. This tax pays for the unemployment fund. As it turns out, if a state is in trouble financially, they can legally borrow from this fund without voter approval. In fact, when they borrow and do not repay the loan within the term limits they agreed to, the businesses within the borrowing state will feel the burden by an increase in their FUTA tax rates. In the case of California which owes in excess of $9 billion, yes that’s with a B, that tax rate increase is almost 600% for our California businesses. I know this to be true because sure enough our company was hit for the fifth year in a row with a bill from the federal government in January of this year. These bills are not just hundreds of dollars but can get up to tens of thousands of dollars depending on your size of company.  To put things in perspective, there are a total of eight states plus the Virgin Islands which are in default, totaling roughly $14 billion.

I am not suggesting we stop paying for unemployment benefits to those who truly rely on help during difficult times but let’s first acknowledge that the system is broken. If our current unemployment rate is truly under 6% as reported and our state must continue to borrow money to pay for benefits, what is the likelihood of getting out of this mess? I am not sure how many people are aware of  this challenge our state is facing and given the nature of who really suffers when repayment isn’t made within the terms, what is the true motivation for the state to fulfill its’ obligation?

Let’s explore the repercussions. If employers are absorbing a 600% increase in a line item, you can count on slower hiring and a stronger desire to look at other states for new potential corporate headquarters.

My blogs are typically aimed at helping people find and keep gainful employment but given the circumstances surrounding this continued default status, I just felt compelled to ramble. Thanks for listening.