California still has $20 billion in unpaid pandemic unemployment debt

Added: 2026-05-22

[00:00:00]State Matters, California is the only state still in debt to the federal government after a pandemic-era loan for unemployment insurance benefits. That outstanding debt is in the billions of dollars, and it's costing the state hundreds of millions of dollars each year in interest alone. ABC 10 State Matters political reporter Jenny Huns here now to break down what experts call a systemic issue.

[00:00:23]The big concern is this, the longer California fails to pay back this debt, the more California businesses will have to pay.

[00:00:30]Well, I think it's completely irresponsible that California hasn't paid its debts, yet the governor can go out there and say, "We balanced the budget."

[00:00:38]>> 20 billion dollars in COVID-19 unemployment insurance debt that California has yet to pay back to the federal government. California is the only state to not have paid that back.

[00:00:48]California leads the way, right? Experts warn the longer that debt is outstanding, the more expensive that debt becomes, especially with hundreds of millions in annual interest. We haven't even started paying back the actual debt itself. It's all just been interest payment. That's right. You could think of it as, you know, for the first 5 years we've made interest-only payments.

[00:01:08]>> So, the 20 billion-dollar debt remains.

[00:01:10]Newsom has allocated about 662 million dollars in his 2026 to 2027 year budget to pay next year's interest on the loan.

[00:01:18]This is his response when asked about it.

[00:01:20]>> It's uh got to be addressed. It's real.

[00:01:22]It's something we had to deal with during the Schwarzenegger administration, and only comparable example, and we were able to pay it back claw back over the course of years. And I don't want to leave the next governor without those considerations, so there's going to be a series of of recommendations and proposals. So, why hasn't California been able to pay back the loan like it did during Schwarzenegger and the Great Recession?

[00:01:43]The taxes that employers pay into the fund have not been enough to pay out unemployment insurance benefits. It's an ongoing systemic issue, experts say.

[00:01:53]California doesn't have the money to pay the federal government back, let alone maintain its own unemployment insurance reserve. The $2 billion in extra repayment that employers are paying is just being used to cover our basics.

[00:02:07]It's just being used right now to cover our normal UI costs. That $2 billion extra is what California employers are paying for a higher payroll tax, a result of the outstanding federal debt, about $100 more per employee. In theory, a portion of that additional money should be used to chip away at the debt, but the money is staying in state.

[00:02:26]>> That creates a huge burden on businesses, frankly, on more on smaller businesses. We spoke to Senate Budget Committee Chair Democratic State Senator John Laird, who said there are ongoing discussions to resolve the debt, but declined to provide specifics. An issue that really needs to be addressed, and it's issue that's gone on for too long.

[00:02:45]The California Employment Development Department, which oversees the UI benefits, says our unemployment insurance fund is expected to continue running a deficit over $20 billion in the coming years. And at the federal level, Central Valley Republican Congressman Vince Fong has introduced a bill that would essentially force California to pay back the debt. Chris, Laura. All right, Jenny Huh, thank you.