As of May 10, 2018, the US Department of Labor's website shows that the California (EDD) has repaid its federal unemployment insurance (UI) loan balance with first quarter 2018 receipts.

According to senior EDD staff members, it is hoped that the state will not borrow again this year. If the state retains its zero balance as of November 10, 2018, the state's employers should see a return to the minimum federal unemployment insurance (FUTA) rate of 0.6% for calendar year 2018. (Telephone conversation, deputy director, EDD tax branch, email response to inquiry, chief of media services, May 14, 2018.)

As we previously reported, EDD's October 2017 UI trust fund forecast indicated that the state's UI trust fund is expected to end 2018 with a positive balance for the first time since 2008. Much of what EDD collects from employers in UI contributions is collected in the first part of the year. As of May 11, 2018, the trust fund had a positive balance of approximately $3.2 billion. It is anticipated that by the end of the year, the trust fund will have a positive balance of $1.8 billion.

Therefore, based on the EDD's forecast, and provided that California continues to experience a strong economy throughout the year and does not require additional federal loans to pay benefits, employers should see their FUTA taxes return to the minimum allowed for calendar year 2018.

California and the Virgin Islands had FUTA credit reductions for calendar year 2017

Employers in California and the Virgin Islands paid their FUTA taxes for calendar year 2017 at a higher FUTA tax rate than employers in other states because they failed to repay their outstanding federal UI loans by November 10, 2017. The increased 2017 FUTA taxes were due from employers with their fourth quarter 2017 federal unemployment tax deposit by January 31, 2018.

California and the Virgin Islands began borrowing in 2009 and had outstanding loan balances on January 1 in each of the years of 2011 through 2017. As a result and because a loan balance continued as of November 10, 2017, California and the Virgin Islands had a 2.1% credit reduction for 2017, for a total FUTA rate of 2.7%.

According to a US Department of Labor representative, although California is projected to have a zero federal UI trust fund loan balance as of the November 10, 2018 cut-off date, the Virgin Islands is expected to continue to have a loan balance and FUTA credit reduction for several years. As of May 10, 2018, the Virgin Islands had a federal UI loan balance of $79,397,130. (Email response to inquiry, US Department of Labor representative, May 14, 2018.)

Trump Administration's FY 2018 budget proposal would expand use of FUTA credit reductions

As we previously reported, in addition to a FUTA credit reduction for failing to pay federal UI loan balances, the Trump Administration proposes that the credit reduction also apply?if?a state fails to meet a federally-specified solvency standard for two consecutive years. The proposal states that by expanding the FUTA credit reduction in this way, states would have an incentive to adequately fund their trust funds before they face debt and borrowing.???

The FUTA credit reduction rules would be changed to apply a credit reduction to states that have an Average High Cost Multiple (AHCM) of less than 0.5 on two or more consecutive January firsts. An AHCM of 1.0 indicates that a state has sufficient funds in its trust fund account to pay benefits for one year of an average recession. As of January 1, 2018, the Department estimated that only 24 states and territories had sufficient reserves to weather another recession. (U.S. Department of Labor FY 2019 proposed budget.)

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