Yesterday Rep. Vince Fong (R-CA) introduced H.R. 8892, the “Creating Accountability in Loan (CAL) Repayment Act,” which amends federal law governing loans to states that have exhausted their unemployment insurance (UI) trust funds. The legislation would accelerate repayment by requiring states to use future flexible federal funds to repay loans before they spend that money on anything else.
Many states borrowed federal UI funds during the pandemic, but as of May 18 only California had an outstanding balance, totaling $18.3 billion. That explains Rep. Fong’s shorthand title: the “CAL Repayment Act.” As he said on introduction of the bill,
What was intended to be a lifeline for unemployed workers during the pandemic has now left California with more than $18 billion in unpaid federal unemployment insurance debt. Rather than using the state’s past $98 billion budget surplus to pay down that debt, Sacramento shifted the burden onto employers through automatic payroll tax hikes.
The legislation is broader than the rhetorical focus on California suggests. It requires that whenever the federal government again provides flexible funds that may be used to repay UI loans, states with loans must use those funds to repay the balance before spending the money on anything else. Noncompliant states forfeit all of the flexible federal money. That applies to all states with outstanding UI loans when future flexible federal funds are granted, not just California if it hasn’t repaid its current balance.
Recent events are driving this proposal. Pandemic layoffs resulted in huge claims for UI checks, amplified by the federal government’s adding a $600-per-week supplement to every payment. As a result, two-thirds of recipients collected more in unemployment benefits than they earned from working.
State trust funds were quickly drained. In May 2020, just two months into the pandemic, California became the first state to tap federal UI loans. By October 2020, 19 states had drawn a total of $34 billion. In October 2021, 12 states had loans collectively worth $46 billion. California is the only state still with an outstanding balance.
Many states repaid their loans by using flexible funds provided by the federal government in several pandemic relief laws. As I noted in 2023, according to data from the National Conference of State Legislatures,
23 states used $7.6 billion in federal CARES Act funds to boost their UI trust funds; then 26 states (many for a second time) used $19.2 billion in ARPA funds to do the same, including by paying back federal loans.
Exceptions included New York, which received over $30 billion in flexible federal funds, but spent none of that to repay its former $10 billion loan. Instead, the Empire State subsequently spent $2 billion on unprecedented unemployment checks for illegal aliens. New York finally repaid its loan last year, after first seeing its federal payroll tax on jobs—the system’s collection mechanism for unpaid loans—more than double.
California’s state and local governments received nearly $60 billion in flexible federal funds, which contributed to historic state budget surpluses of $47 billion in 2021‑22 and $55 billion in 2022‑23. As one 2021 article put it, California was “swimming in money.” Yet it spent almost none of those funds repaying federal loans, whose balance peaked at $24 billion. Instead, among other spending sprees, the state sent $12 billion in “Golden State Stimulus” checks to voters as they headed to the polls for Governor Newsom’s 2021 recall election.
As a result, federal UI payroll taxes in California have tripled and will only continue growing as long as the state’s loan remains unpaid. That’s what Rep. Fong means by “Sacramento shifted the burden onto employers through automatic payroll tax hikes.” That understates the scope of the damage, since economists agree that workers bear the burden of higher employer payroll taxes through lost wages.
California’s UI program remains a mess, with benefit spending of $6.6 billion exceeding $5.6 billion in revenue in 2025. In 2023, the state auditor added the Employment Development Department (EDD) to its “high-risk list” because of “its mismanagement of the UI program.” In 2021, Julie Su, who directed the agency over the EDD, admitted California may have lost $31 billion to pandemic unemployment fraud.
Nonetheless, Governor Gavin Newsom said last week, “California is proof that fiscal discipline and progressive values go hand in hand.” That’s only true if your definition of fiscal discipline includes recklessly spending federal funds instead of responsibly repaying massive loans and keeping payroll taxes in check. Rep. Fong’s legislation would inject some real discipline by ensuring taxpayers are better protected from having any future federal generosity squandered again.
