Jobless Fund Likely to Stay Insolvent

California’s unemployment insurance fund is currently insolvent and, absent corrective action, will remain so for the foreseeable future, the Legislative Analyst’s Office noted in a report issued Wednesday.

The state’s unemployment rate is above 12%, and that has put the squeeze on the fund. During 2009, the LAO reported, the state paid about $11.3 billion in benefits while collecting only about $4.5 billion from employers.

Absent corrective action, the agency said, the fund deficit is projected to increase to around $20 billion at the end of 2011.

According to the LAO, decreasing unemployment benefits will not address the fund’s insolvency in the near future. Increases in the unemployment insurance tax on employers could “quickly improve the fund condition,” the office said, at the cost of hurting the state’s competitiveness.

The fund’s deficit has been made up with loans from the federal government, and as part of the stimulus package, states have been exempted from making interest payments on those loans through the end of 2010.

But California’s obligations will increase quickly after the interest moratorium expires, the LAO reported.

One option the state has to mitigate those burdens would be to issue bonds.

“Other states have issued bonds rather than seek federal loans when their UI programs became insolvent,” the LAO report said. “This was typically because the debt-service cost on the bonds was less than the interest charged by the federal government.”

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