According to the US Department of Labor (DOL) website, the state of California repaid its outstanding federal loan balance of more than $878 million as of May 5, 2017. However, according to a representative of the California Legislative Analyst's Office (LAO), the state is expected to borrow again this year and have a loan balance as of November 10, 2017. As a result, California employers are expected to again face a federal unemployment insurance (FUTA) credit reduction for calendar year 2017, payable in 2018. (Email response to inquiry, May 9, 2017.)

California projected Benefit Cost Rate (BCR) add on reduced to zero

The Department has changed the potential 2017 BCR for California to 0.0%, down from the original projection of 0.1%. The potential BCR for the Virgin Islands remains at 1.1%.

California and the Virgin Islands, which have carried a federal UI loan balance since 2009, are again faced with both the standard FUTA credit reduction and the BCR add on for 2017. Jurisdictions can request a waiver of the BCR no later than July 1, 2017. For the past three years, both California and the Virgin Islands requested and received a waiver of the BCR add on.

The Department's projection of the standard FUTA credit reduction and BCR add-on rate is shown in the chart below.

2017 projected FUTA credit reduction states and rates

It is possible that these rate projections could change over the next several months. (Potential 2017 Federal Unemployment Tax Act (FUTA) Credit Reductions, US Department of Labor, Employment and Training Administration, April 2017.)

California temporarily repays federal loan, but is expected to borrow again during 2017

As of May 5, 2017, the DOL's website shows that California has a zero federal UI loan balance, the Employment Development Department (EDD) having paid off the more than $878 million balance that showed as of May 4, 2017 with first quarter 2017 receipts. However, the state is expected to borrow up to an additional $1 billion during the remainder of 2017 and have an outstanding loan balance as of November 10, 2017, the deadline to repay any outstanding loan and avoid a FUTA credit reduction for calendar year 2017.

The state is expected to again repay its outstanding federal UI loan balance in mid-2018 and not have the need to borrow again, allowing the state's employers to see a minimum FUTA rate of 0.6% for calendar year 2018.

For more information about the FUTA credit reduction, see the EY Guide to Unemployment Insurance. For the FUTA credit reduction states in 2016, see our rates and limits facts.

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ENDNOTES

¹ Estimated BCR courtesy of US Department of Labor, April 19, 2017. The 2.7 add-on could apply if the BCR add-on is waived; however, the Department does not anticipate this to be the case for 2017.

² California paid off its outstanding loan balance as of May 5, 2017, but is expected to borrow an additional $1 billion during the remainder of 2017 and to have an outstanding balance as of the November 10, 2017 deadline to avoid a FUTA credit reduction.

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