Opinion: California’s unemployment debt crisis mirrors Washington’s Employment Security Department failures

Mark Harmsworth says Washington and California must learn from each other or face continued decline

Mark Harmsworth
Washington Policy Center

As we approach the end of 2025, California’s staggering $21 billion unemployment insurance (UI) debt serves as a stark warning for states like Washington, where similar government mismanagement has burdened businesses and taxpayers. According to recent reporting from KCRA, California’s debt stems from a $20 billion federal loan taken in 2020 during the COVID-19 shutdowns. While every other state except New York repaid their loans using 2021 Biden administration stimulus funds, California lawmakers and Governor Newsom diverted those resources elsewhere, missing the repayment window.

The cash diversion triggered automatic payroll tax hikes on employers, jumping from $42 per employee a few years ago to $130 today, with further increases projected to $63 in 2027 plus $21 annually until the debt is paid off.

The state now pays $700 million in annual interest, exacerbating budget deficits amid a 5.9% unemployment rate.

This “hidden tax” discourages job growth and business expansion, as noted by business leaders who call it a deliberate choice to saddle employers with the bill.

If this sounds familiar it should. Washington’s Employment Security Department (ESD) faced its own catastrophe during the pandemic, losing up to $1.1 billion to fraud and improper payments, including $647 million in confirmed misappropriations.

ESD’s vulnerabilities, from inadequate fraud detection to internal theft, such as a former employee stealing benefits for kickbacks, depleted the unemployment trust fund.

The fallout? Higher unemployment taxes on businesses to rebuild the fund, driving up costs and contributing to Washington’s stubbornly high 4.5% unemployment rate, worse than most states.

In both cases, government failures, prioritizing other spending over fund stability, have shifted the fiscal burden to private enterprise and ultimately consumers. Washington’s ESD commissioner resigned amid the chaos, yet transparency issues persist, with the department accused of hiding records.

The loss of 14,500 jobs in September will only put more pressure on the unemployment fund in Washington.

These debacles highlight the need for urgent reforms: stronger fraud protections and accountable leadership. Without change, states risk economic stagnation, pushing businesses to flee to more stable environments. Washington and California must learn from each other or face continued decline.

Mark Harmsworth is the director of the Small Business Center at the Washington Policy Center.