Newsom’s rosy portrait of economy glosses over deeper problems

Gov. Gavin Newsom often promotes California’s economy as a national leader, particularly highlighting job creation figures but despite these assertions, the state’s May employment report reveals a more challenging economic situation, a new analysis by CalMatters reports. 

In a recent post on X, formerly Twitter, Newsom claimed the state had doubled its job creation from the previous year with over 107,000 new jobs.

California’s unemployment rate in June stood at 5.2%, the highest in the country, tied only with Nevada and significantly above those of Florida (3.3%) and Texas (4%). Since the COVID-19 pandemic, California has consistently reported some of the nation’s highest unemployment rates, with over 3 million jobs lost during the pandemic, largely due to enforced business closures. The state’s economic recovery has been slow, with more than a million workers still unemployed, contributing to sizable budget deficits and an inaccurately optimistic revenue forecast by Newsom’s administration in 2022.

The state’s unemployment insurance fund is also in dire straits, having exhausted its reserves early in the pandemic and borrowed around $20 billion from the federal government—a debt California has yet to repay. The Employment Development Department forecasts that the fund will incur a deficit of $21.7 billion by year’s end, expecting to collect $4.8 billion in payroll taxes but pay out $6.8 billion in benefits.

The issues with the unemployment fund date back decades, worsened by a 50% increase in benefits enacted by the Legislature and then-Gov. Gray Davis nearly 25 years ago, which depleted the fund during subsequent recessions. Efforts to stabilize the fund have been hampered by a political deadlock over whether to increase payroll taxes or reduce benefits, leaving the fund’s financial health in jeopardy.