There’s been much speculation about the financial damage to California following Elon Musk’s high-profile exit from the Golden State announced Tuesday.
But there’s more — and more deeply — unsettling news about California: A state auditor tells National Review that California’s economic fundamentals are so unstable that he’s unable to predict repayment of a key federal loan.
“Our earlier initial estimates suggested this process could take ten years or more, but we no longer provide a formal forecast of the repayment date,” California’s principal fiscal and policy analyst Chas Alamo told me. “This is because the magnitude of uncertainty looking ahead is too great.”
Alamo was responding to questions about repayment of a $20 billion federal loan to California’s unemployment-insurance fund during Covid.
California went into 2020 with a healthy fund balance. As in other states, all confronted by pandemic shutdowns and spiking benefits claims, California’s unemployment account drained quickly. President Donald Trump sent billions in loans to backstop the wobbly state unemployment offices. As part of that package, California received $20 billion.
Other states repaid their loans quickly. California and New York (along with the Virgin Islands) have not. California suffered additional indignities: It lost $33 billion from its fund to fraud involving international crime gangs and prison inmates, and then watched as Julie Su, the state fund’s feckless manager, got a promotion: She’s President Joe Biden’s acting secretary of labor. She’s also the subject of two congressional investigations for attempting to use her position to mask her part in the California fiasco.
There was good news and still more bad news here: It turns out that even the profligate federal government can be rigorous about collections and that Gavin Newsom is an unreliable debtor. Only one of these is a surprise.
Because he stiffed the federal collectors, Newsom triggered a retroactive December 2023 increase in federal withholding for California employers in the state. That payroll tax will rise every year by 0.3 percentage points until the federal loan is settled.
Now, because of unemployment, declining tax revenue, and reckless state spending, Chas Alamo, the state auditor, can’t say when that settlement will happen. Meantime, California employers will continue picking up the tab for the $20 billion principal. But all California taxpayers will pay the interest, a cost that Alamo figures will range “from $300-$500 million per year.” But that’s a guess, too, of course. In June, Newsom split the 2023 interest payment between the already distressed general fund ($231 million) and the Employment Training Fund ($100 million).
Newsom mentions none of this, of course. He’s busy trolling Musk and Trump and banging the drum for Team Biden while eyeballing his own presidential prospects. But asserting Biden’s expertise in managing the American economy illuminates Newsom’s own shortcomings. So, among California’s other major exports — Hollywood movies, technology, and farm products — let’s now include irony.