Overview
- The bill was filed Tuesday and would compel states with outstanding federal unemployment loans to use eligible federal funds for repayment within five business days or reimburse the federal government for any misused money.
- California is the only state with an unpaid COVID-era UI loan and the state projects the balance will reach roughly $22 billion by the end of 2026.
- Because California missed the two-year repayment window, federal rules have imposed employer payroll tax surcharges that equal $42 per employee in 2026 and are scheduled to rise to $63 in 2027 and increase thereafter until the loan is repaid.
- Federal and state audits prompted the Department of Labor to deploy a 'strike team' after finding widespread fraud risks and weak fraud controls in California’s unemployment system, and the state has paid about $1.8 billion in interest since 2021 while principal remains unpaid.
- Gov. Gavin Newsom has proposed about $668.3 million for interest payments and ordered workforce agencies to develop options, but the governor’s budget does not include principal repayment and the bill would shift pressure back to Sacramento while triggering a partisan fight over past budget choices.