Today Sen. Suzette Martinez Valladares (R-Santa Clarita) introduced amendments on the Senate Floor that would resolve California's staggering $20 billion federal unemployment insurance debt – a crisis exacerbated by Sacramento's fraud failures and mismanagement. The debt has been silently passed on to California's job creators via a 250% increase in their per employee payroll tax. The amendments died on a party-line vote.
California is the only state in the nation that has not repaid its COVID-era federal unemployment loan. Rather than using a historic $98 billion budget surplus in 2022 to address the debt, the majority party chose to spend the money elsewhere, leaving California employers to foot the bill through automatic federal payroll tax increases.
"Sacramento broke it, and Sacramento should pay for it, not California businesses and workers," said Sen. Valladares. "Sacramento allowed tens of billions in fraudulent unemployment claims to go out the door, failed to repay what it owed, and then turned around and stuck employers with a tax hike."
The amendments introduced by Sen. Valladares proposed an agreement with the U.S. Department of Labor that would do three things:
Freeze federal unemployment tax increases on California employers for fiscal years 2026–27 through 2029–30, providing immediate relief to businesses.
Suspend additional interest charges on California's outstanding federal unemployment debt during the same four-year period.
Require California to pay $5 billion per year from the state's General Fund toward the federal debt over four years, fully eliminating the $20 billion balance.
The Employment Development Department (EDD) confirmed that 9.7% of the $114 billion distributed in 2020 went to fraudulent claims, with an additional 17% flagged as potentially fraudulent. The total fraud is estimated at no less than $20 billion.
According to the California Business Roundtable, California employers currently face a combined payroll tax burden nearly nine times higher than employers in states that have already repaid their federal unemployment debts.
"I have spent my career in the private sector and the nonprofit sector, and I know what these tax increases mean for a small business trying to make payroll," said Sen. Valladares. "Every tax dollar taken from an employer is a dollar that doesn't go toward a raise, a new hire, or keeping the doors open. My district sent me to Sacramento to lower costs and demand accountability. These amendments would have done exactly that."