California’s Republican lawmakers are pushing for accountability regarding the state’s failure to manage $20 billion in debt, which Governor Gavin Newsom and fellow Democrats have yet to address.
In response, Congressman Vince Fung proposed the Loan Repayment Responsibility Act. This legislation would require California to settle its debts before it could access certain federal funds, including flexible funding similar to what was provided during the COVID-19 pandemic.
“The fraud and mismanagement isn’t just an isolated case in Gavin Newsom’s California; it’s a systemic issue with real consequences,” Fung stated.
The federal government implemented a payroll tax increase for states that have unpaid unemployment insurance obligations. According to the California Business Roundtable, this has resulted in California employers facing a payroll tax rate of 5.2%, which is significantly higher—about nine times—that of employers in other states without debt.
Republicans contend that every state except California has paid off its debts. State Senator Roger Niello remarked, “Many states have faced similar issues and have cleared their debts. California has simply chosen not to.”
This debt originated from a federal program during the pandemic that was designed to assist states in managing a surge of unemployment claims.
“What was intended to be a lifeline for the unemployed during the pandemic has now left California with a staggering $18 billion in unpaid federal unemployment insurance debt,” Fung explained. He criticized Sacramento for opting to pass the debt burden onto employers through automatic tax increases instead of using the state’s previous $98 billion budget surplus to address it.
Fung’s proposed bill aims to shield employers from the fallout of state mismanagement. Should California violate this law, it would be required to repay any funds that were misused.
Niello highlighted that the unpaid payroll tax penalties could negatively affect the state’s economic health. “This poses a serious threat to our economy, as our labor market is already one of the most vulnerable in the country,” he noted. “It adds extra pressure on employers by elevating the cost of hiring each employee.”
The California Post has requested comments from Newsom’s administration.
Previously, Newsom mentioned having “difficult personal conversations” with lawmakers regarding this matter over the years, noting attempts to reach an agreement during favorable budget discussions. He confirmed that he continues to seek a resolution on the issue.
