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Wednesday, Nov 29, 2023

Editorial–Davis’ Goof Could Hurt Our Wallets

We’ve gotten used to it over the past decade, both in boom and bust years. As August turns into September, the politicians annually suspend all government services as they wage war in Sacramento over the state’s budget.

It’s a late summer ritual that has become as common as back-to-school shopping and two-a-day football practices. The stalemate leading up to the September deadline inevitably grips city halls, school districts and other government agencies with near paralysis, forcing administrators to play cat-and-mouse with such crucial issues as staffing and supplies.

Now there’s talk drifting from the state Capitol of a new issue that could very well one-up the budget late this summer. And much like the annual impasse, it’s an issue that could be put to bed well before it reaches critical mass.

The State Disability Insurance fund could be insolvent by August, according to reports. And Gov. Gray Davis’ administration is bearing the brunt of the criticism because it hasn’t raised payroll taxes enough to cover the costs.

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Legislation went into effect Jan. 1 that Davis signed last fall boosting maximum weekly benefits for disabled workers to $490, up from $336. Problem was, payroll deductions apparently didn’t get a comparable increase to keep the fund solvent.

It appears the calculations made by the Employment Development Department, which oversees the program, went unheeded. The department forecast a tax rate of 0.7 percent of a workers’ income while the adminstration wanted to hold the line at the going rate of 0.5 percent.

The EDD was just about right, with the final contribution rate calculated at 0.8 percent. The governor can increase or lower the tax rate by 1 point based on this figure, but apparently did neither. Now he’s faced with some tough decisions.

It’s unlikely Davis will force legislation to cut SDI benefits. And it’s out of the question to simply let SDI run out of funds come August. That would be political suicide for the Democrats, especially in a crucial presidential election year.

With this year’s budget windfall, the administration could float a loan from the general fund to cover the shortfall, but then workers would be paying interest on a loan for something they couldn’t control. That’s the likely scenario, but if the governor wants to take credit for boosting disability benefits, then he should shoulder the burden for the tax hike that inevitably goes along with it.

The California Chamber of Commerce hollered long and hard against the benefit increase when it was first proposed. Now we’re seeing why.

No one likes a tax increase, but a general fund loan is merely a band-aid fix. It appears the governor’s only option for a long-term solution is to go to the workers in California and take another bite out of their paychecks.


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