SACRAMENTO, CA (MPG) —The U.S. Treasury released its guidance on how states can use their share of the State and Local Fiscal Recovery Funds, which were part of the American Rescue Plan passed by Congress earlier this year. Under the guidance provided today, states can use their portion of the more than $350 billion allocated by Congress on myriad COVID-19 related activities, including paying down a state’s Unemployment Insurance (UI) Fund debt.

“While we are all celebrating a record $75.5 billion surplus, we cannot forget the state also has a $20 billion UI Fund debt. Now that we have clear guidance from the U.S. Treasury how the $26 billion in unallocated federal aid California will receive can be used, the California Business Roundtable is calling on Governor Newsom and state leaders to prioritize paying down the state’s record UI Fund debt with these federal funds,” said Rob Lapsley, president of the California Business Roundtable.

California’s UI debt is now more than $20 billion, and it is growing at approximately $1.2 billion per month. The current debt is more than double the debt the fund incurred during the Great Recession. That debt took more than 10 years to pay off. Given the boom-bust cycle of the California budget, it is likely the current debt could not be paid off at our existing pace before another recession would drive the fund into further debt. This situation would result in constantly rising employment taxes just as businesses are struggling to rehire their workers, and undermines the fiscal integrity of a key element in California's income safety net.

“Addressing the UI Fund debt is a critical part of the state’s economic recovery. The massive debt is a looming threat for every business in California. If unaddressed, the debt will lead to an automatic tax increase on every business in the state at a time when they can least afford it. California businesses already pay the highest UI Fund payments, plus a 15 percent premium that was added to pay off the last debt. Businesses did not cause this recession and should not bear the burden of paying off this debt,” Lapsley continued. “Businesses need certainty more than ever right now, not even more threats of higher taxes. The governor and Legislature should take action now and help ensure businesses reopening after more than a year of closure can afford to stay open well into the future.”