California Misses Budget and Defaults on Federal Loan Repayment
Written by Chriss W. Street
California income tax withholding payments were down -7percent in June, causing the Legislative Analyst’s principal fiscal auditor to admit the state defaulted and may never be able to repay a $20 billion federal loan to California’s EDD unemployment fund.
California’s daily tracking of employers’ personal income tax (PIT) withholding payments is the most unbiased tool to understand the direction of the state’s economy and the financial health of the State of California.
California predicted huge PIT collections increases for the fiscal23-24 year that began July 1, 2023 and ended on June 30, 2024. Despite four budget downward revenue projections last year, PIT withholding for the month of June 2024 came in down -7 percent, or -$607 million, below Governor Gavin Newsom’s 2024-25 May Revision.
The dominant reason for California missing budget again, and again, and again, and again, has been the spectacular over-estimating of the state’s job growth. California reported that 2023 job growth average +25,900 per month, and +311,000 for the year. That would have been second only to the State of Texas in job growth.
But the Mountain Top Times reported that the U.S. Bureau of Labor Statistics made final revisions last month to California’sprojections that revealed actual job growth was overstated by 98%. California’s real monthly job growth averaged +750, or just 9,000 for the year, dropping California to the third worststate for new job growth in 2023.
U.S. Bureau of Labor Statistics California 2023 Job Growth Monthly Revisions
The spectacular lack of employment growth coming out of the COVID-19 shutdown has caused the State of California to burn through the entire $97.5 billion federal pandemic relief grants it received during the pandemic.
Furthermore, California between 2021 to 2023 received $68 billion, or 35%, of the $195.3 billion America Fiscal Recovery Fund (AFRF) federal loans to the 50 states and District of Columbia to pay pandemic unemployment benefits and extensions. California has admitted that $33 billion, or 49%, of the $68 billion in payments were fraudulent.
Despite California Employment Development Department(EDD) director Julie Su managing the mass fraud, President Biden chose her to be his Secretary of Labor. The Senate has angerly refused to confirm Su, but she is currently acting Secretary of Labor. Ms. Su currently is the subject of two congressional investigations regarding use her position to mask her role in California’s $33 billion in fraudulent claims.
The CEO of Lexis Nexis Risk Solutions Government Division Haywood Talcove, told KCRA Sacramento that 70% of the fraudsters were transnational gangs that are known to have used some of the EDD money for “sex trafficking, child extortion.” Talcove argued that California turned off their Thomson Reuters anti-fraud adjudicating system because the EDD department considered the $2 million per year price tag too costly.
The National Review reported that non-partisan LAO principal fiscal auditor Chas Alamo acknowledged California defaulted on the timely repayment of $20 billion in AFRF loans in December 2023, and Alamo warned California may never be able to repay the loan:
In an interview with the president of the California Policy Center Will Swaim, Alamo lamented that: “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.” He added: “This is because the magnitude of uncertainty looking ahead is too great.”
Federal loan collectors are now playing hardball against California by triggering a retroactive December to 2023 federal withholding surcharge of 0.3% on all state income tax withholding, and are charging $300-$500 million per yearinterest on the $20 billion of non-performing debt. The biggest risk facing the state, is federal regulators now have contractual administrative rights to lien and sweep cash in California’s bank accounts.
The systemic corruption at the California State Capitol has been around for decades. It's ironic that perhaps 1% of California voters have any concept of how bad it is. It's also something that voters should seriously consider in light of Camala's start in California Democratic politics, including her roles in San Francisco and Sacramento where she was an "intern" in Willie Brown's office. Willie's office was known as a place to go when you needed political favors.
It was not an accident that his representative on the California Coastal Commission did hard time for extorting funds from those seeking Coastal Commission permits. In some cases his commissioner explained that sex with the wife or girlfriend would secure a permit. There was no political will to examine Brown's luxury lifestyle. The same commissioner was, with Brown's influence , appointed to the Los Angeles county Small Craft Harbors commission which administers the county owned land in Marina Del Rey which is leased to developers on very friendly terms.
California is a lost cause.