California Work and Family Coalition Opposes May Revise Proposal To Borrow from the Disability Insurance Fund

Honorable Gavin Newsom Governor, State of California

Honorable Toni Atkins President pro Tempore, California State Senate

Honorable Anthony Rendon Speaker, California State Assembly

Honorable Nancy Skinner Chair, Senate Budget and Fiscal Review Committee

Honorable Phil Ting Chair, Assembly Committee on Budget

Honorable Senator Maria Elena Durazo, Chair, Senate Budget Subcommittee No. 5

Honorable Wendy Carrillo, Chair, Assembly Budget Subcommittee No. 4

Re: May Revise Proposal to Borrow $306 Million from the Disability Insurance Fund to Pay the Unemployment Insurance Loan Interest Payment

To: Governor Newsom and the California State Assembly and Senate,

On behalf of the undersigned organizations, we write to express our deep concerns about the May Revise proposal to borrow $306 Million from the Disability Insurance (DI) Fund to pay the Unemployment Insurance Loan interest payment. The May Revise proposal does not address the longer term issue of ensuring that Unemployment Insurance (UI) is adequately funded by employer contributions or that the annual interest payment on the federal loan is paid going forward. It also misdirects money that is paid for 100% out of workers’ paychecks and that is intended to support sick workers and workers caring for sick family or welcoming new children, and small employers whose employees utilize paid leave.

California was the first state in the nation to have a Paid Family Leave (PFL) program, and our State Disability Insurance (SDI) program has been in place since 1946. Together, these two programs form a critical safety net that is designed to ensure that Californians are able to recover from a serious illness, bond with a new child, or care for a seriously ill family member and still meet their financial obligations. Virtually all private sector California workers contribute a portion of every paycheck to these programs, with contribution rates varying each year depending on the fund’s need.

California workers built the SDI and PFL programs with their own money – the programs are 100% funded by worker contributions. Since 100% of the DI Fund dollars come from worker contributions, 100% of these funds should go towards paying SDI and PFL benefits and improving access to these programs for workers, especially workers who earn low wages and come from historically marginalized communities. Currently, there are a number of crucial and strongly supported proposed improvements in progress to ensure equitable access to SDI/PFL targeted to support LGBTQ+ and immigrant families, older adults, and families that take children in during times of need. While employers do not contribute to the DI fund, California’s SDI and PFL programs benefit California's workers and employers alike by helping workers take the necessary time to recover or provide care without leaving the workforce and by empowering smaller employers to ensure their workers have access to necessary benefits. 

In contrast, Unemployment Insurance is entirely funded by employers. The state has not adjusted employer contributions to meet fund needs and allows employers to pay unemployment insurance taxes only on the smallest wage base permitted by federal law. As a result, unlike other states, California had to borrow federal funds to prop up the UI program during the pandemic, resulting in $306 million annual interest payments being passed on to the general tax base. The May Revision asks to shift this debt directly onto workers instead.

Lastly, the timing of the proposed loan is also miscalculated, given the significant changes to the PFL and DI programs going into effect in 2025. Last year, the Governor signed SB 951, which will expand access to PFL and DI to lower-income families by increasing benefits to 90% of regular wages for lower and middle income workers. To fund that change, the bill deleted the DI contribution ceiling starting in 2024, to ensure adequate funding in 2025. We don’t yet have a clear forecast from the EDD of how this change will impact SDI/PFL application rates. Therefore, the timing of this loan may undermine effective implementation of this critical legislation. This would be a huge setback for California as SB 951 promises to be a model of what effective paid family and medical leave can look like for low wage workers.

The DI fund should go towards improving access to SDI/PFL – ensuring that EDD is able to answer the phone lines and pay benefits in a timely manner (especially as we prepare for SB 951 implementation). The state should not take money out of workers’ pockets and use it to cover costs incurred by a structurally underfunded UI system. We must ensure that the SDI and PFL programs can continue to support California’s families that depend on these benefits to care for themselves and their loved ones during significant times in their lives involving medical crises or family transition while still being able to meet their financial responsibilities. 

Respectfully submitted, 

BreastfeedLA

California Alliance for Retired Americans

California Partnership to End Domestic Violence

California WIC Association

California Work & Family Coalition

Caring Across Generations

Center for Workers’ Rights

Center for WorkLife Law

Central Coast Alliance United for a Sustainable Economy (CAUSE)

Child Care Law Center

Citizens for Choice

Equal Rights Advocates

Family Values At Work

First 5 California

Instituto de Educacion Popular del Sur de California (IDEPSCA)

Legal Aid at Work

Working Partnerships USA

National Employment Law Project

Parent Voices, California

San Diego County Breastfeeding Coalition

UFCW Western States Council

Worksafe