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The Legislature's budget analyst's report on growing deficits in the state Unemployment Insurance Fund is based on outdated information and too pessimistic, the state Employment Development Department says in releasing its own UIF update.

The Legislative Analyst's Office based its report, projecting a $20-plus billion UIF deficit by the end 2011, on EDD's May semi-annual projection. And as soon as the LAO report was released, EDD released its own update projecting that unemployment in California, now approaching 2.5 million workers, will begin to decrease next year.

Instead of a $20-plus billion UIF deficit by the end of 2011, EDD now says it will be $13.4 billion. It also has revised, downward, its 2010 year-end deficit from $15.3 billion to $10.3 billion, largely because the federal government is directly financing extensions of unemployment insurance as part of the "economic stimulus" package

The UIF ran out of money from employer-paid payroll taxes nearly two years ago as payouts, now about $11 billion a year, outstripped income, about $4.5 billion a year. Ever since, the fund has been kept afloat by loans from the federal government, which are interest-free now but without a change in federal law would begin incurring interest next year.

"That's still a large deficit that needs addressing by the Legislature to revise the funding structure for (unemployment insurance), but at least it will lower our expected interest owed to the federal government," EDD spokeswoman Loree Levy said. "Instead of more than $500 million we expected to have to pay at the end of September 2011, it's now looking more like California will owe around $362 million."

The LAO report urged the Legislature to bring UIF income and outgo into balance, which would require raising taxes on employers, lowering benefits or some combination of the two.

The new EDD report on the UIF is available here.



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