Next Shoe to Drop in Broke California’s Lopsided 'Recovery'

Saturday, December 28, 2013 

If you come to San Francisco or Silicon Valley and look around, you’d arrive at the conclusion that California is booming, that companies jump through hoops to hire people, that they douse them with money, stock options, and free lunches. You’d see engineers spend lavishly and drive up rents and home prices to where landlords react with record evictions of the less-lucky. You’d see Google buses bring in people and trigger mini-demonstrations. You’d see entire layers of long-time residents getting pushed out because it has just gotten too expensive. In San Francisco, you’d see throngs of tourists from China and other places, spending money hand over fist. And there are a few other pockets in California where money is no objective.
But in the rest of the state, the picture isn’t that rosy. Total unemployment, officially, is still 8.5%, though that’s far better than the hellish 12.4% in February 2010. Of those unemployed, 28% have been jobless for over a year. Those receiving unemployment benefits – a fraction of the total unemployed – have dropped from 1.5 million to 712,000, whether they found jobs or just fell off the list. But, as the LA Times reported, there are still 400,000 fewer jobs in the state than there were before the crisis. So finding a job, if you aren’t into software, consumer tracking, or life sciences, is tough.  
The unemployment debacle has been expensive. Employers pay payroll-based unemployment insurance into a fund that then covers the 26 weeks of unemployment benefits that the state pays. But during the crisis, unemployment skyrocketed, and by January 2009, California’s unemployment system became one of the first in the nation to go broke.
California itself went broke; in July that year, it issued IOUs instead of checks to pay its bills. To keep state unemployment benefits flowing, the state had to beg the federal government for a bailout. By now, according to Loree Levy, a spokeswoman for the California Employment Development Department (EDD), the state owes the federal government $9.7 billion for state unemployment benefits.
How can California ever pay this back? Jacking up taxes on employers, raising eligibility requirements, and/or chopping benefits. None of them are palatable. None of them will help the economy. And the Legislature has not yet found, or even looked for, a solution.
Meanwhile, taxpayers – not employers – have paid $870 million in interest on this loan to the federal government. In its out-of-money desperation, the Legislature has been borrowing the interest from the State Disability Insurance (SDI) fund, which is funded by workers through payroll deductions. It’s up to taxpayers to put that money back in, explained to the National Employment Law Project. Shuffling money around like this is a common shell game in broke California.
In addition, unemployed Californians who couldn’t find a job within the 26 weeks of state unemployment insurance started receiving federally funded unemployment benefits under temporary programs Congress enshrined into law during the Great Recession, providing at their peak up to 73 weeks of extended benefits, for a total of 99 weeks, or just about two years. Some of those programs have since lapsed. Federal extended benefits in California are down to 37 weeks. Though average compensation is only $305 per week – “only” because California is expensive – it adds up: these programs have pumped another $45 billion in taxpayer money into the California economy.
Alas, Congress pointedly closed up shop for the holidays without extending these programs for the umpteenth time. And on Saturday, benefits for 222,000 long-term unemployed Californians – and about 1.3 million Americans overall – dissipate into the ether, leaving behind a $3.5 billion hole. Governor Jerry Brown warned two weeks ago that this would have “a ripple effect on the broader economy.”
So the state’s EDD sent out notices to the unlucky ones. It’s not like the EDD has its act together. Over Labor Day it was catapulted to national fame when it launched its super-duper software update, which promptly crashed and left claimants unpaid. Six weeks later, the backlog was still over 100,000 unpaid claimants, according to News10.
The cost of this wondrous project soared from $52 million in 2007 to at least $112 million, according to a legislative report last year. Deloitte Consulting was doing the work. It has already been paid at least $46 million. The IT industry has a stellar record at taking taxpayers to the cleaners with software that doesn’t work; see the fiasco of rolling out healthcare.gov.
The EDD is still processing many claims by hand. Claimants with problems – missing payments, for example – have a hard time getting anyone to help them. The Assembly Insurance Committee raked EDD officials over the coals last month. So just because you’re unemployed and eligible for benefits doesn’t mean you’re going to get paid, even if California has the money.
So on Saturday, an 222,000 people will be cut off. Many of them live inland, don’t write code, and don’t have PhDs in the life sciences. They’re living hand to mouth and have been plowing every dime of their benefits back into the economy. But no more. That $3.5 billion will no longer reach California. And then there are the $9.7 billion that California has to extract from taxpayers, employers, or workers to pay back Uncle Sam.
The newly benefit-less unemployed are going to join the other benefit-less unemployed in California, and they’re going to have to redouble their efforts to find a job. It will be tough, with 400,000 fewer jobs to go around.
But in Silicon Valley it’s easy to lose your sense of proportion when it comes to a few billion bucks. It’s a hotspot for Big Data and associated government spy-services, a juicy market. Investors clamor to get in. Scores of startups have sprung up. The hottest one is Palantir. Its valuation jumped 50% in three months – to $9 billion! Its technologies, designed for the CIA to track terrorists, have transitioned to track you and me. Read..... Silicon Valley Frenzy: Big Bucks, Big Data, and Spying