On Tuesday, Rep. Vince Fong (R-CA) introduced the California Accountability and Loan Repayment Act (the CAL Repayment Act), which requires California to repay its outstanding $21 billion loan to the federal government before spending federal money on other programs.
Gavin Newsom’s state is the only state that has yet to repay its COVID-era unemployment loans (UI).
The bill would require California to prioritize repayment of its federal UI debt before spending any eligible federal funds on other programs and would require the state to direct available federal funds toward the loan within 5 business days of receipt.
Additionally, if the state diverts funds, it must repay the full misused amount to the federal government.
Newsom’s failure to repay the loans has placed the burden directly on the backs of employers in the state. The debt has led to automatic federal tax penalties on California employers via reduced FUTA tax credits, costing businesses roughly $84 per worker in 2025, with costs expected to rise.
In January, Rep. Fong shared details about the “hidden jobs tax” that Newsom pushed onto the backs of the business owners.
California employers are about to get hit with a massive tax increase — one they never voted on, one lawmakers and the governor never debated, but one Sacramento knew was coming.
At the very moment families and employers should be seeing relief from the Working Families Tax Cuts, which are in effect this year, California is moving in the opposite direction by raising taxes on employees and worsening the cost-of-living crisis already plaguing the state.
California’s unemployment insurance (UI) trust fund—a lifeline for unemployed workers— is drowning in debt, now exceeding $21 billion. The debt was incurred during COVID, when the UI fund social safety net helped countless families. But in the years since, Sacramento has failed to act to address the massive debt incurred during the pandemic, despite having a $100 billion surplus in recent years. As a result of that inaction, California businesses will continue facing automatic payroll tax hikes to repay that debt.
That debt was not driven by legitimate claims alone. California’s unemployment system was riddled with pandemic-era fraud, with billions lost due to outdated systems and weak safeguards—costs the state ultimately shifted onto employers and workers.
Under federal law, states that fail to repay unemployment loans to the federal government lose a portion of the federal unemployment tax credit each year. For California businesses, that means higher payroll taxes and higher costs for everyone.
If California politicians had paid off the debt like every other state in the union has, employers would be paying up to $434 per employee into the state’s fund. But because the state failed to act, employers will be paying $84 more per employee this year, and this all goes to pay off the federal debt. The increases will grow every year until the balance is paid off.
He promised that if California refuses to pay its unemployment insurance debt, Congress has tools to respond, one of which is the CAL Repayment Act.
Fong wrote on X, “California’s small businesses shouldn’t be punished for Gavin Newsom’s mismanagement.”
“Instead of paying off our UI loan, he wasted billions and lost billions more to fraud.”
“My CAL Repayment Act puts an end to this and delivers accountability for CA taxpayers.”
California’s small businesses shouldn’t be punished for Gavin Newsom’s mismanagement.
Instead of paying off our UI loan, he wasted billions and lost billions more to fraud.
My CAL Repayment Act puts an end to this and delivers accountability for CA taxpayers. https://t.co/jIaUQK5EgX
— Vince Fong (@RepVinceFong) May 19, 2026
“Fraud and mismanagement aren’t isolated incidents in Gavin Newsom’s California — they’ve become systemic failures with real consequences,” Fong said in a statement. “Rather than using the state’s past $98 billion budget surplus to pay down that debt, Sacramento shifted the burden onto employers through automatic payroll tax hikes. Enough is enough.”
“My legislation restores accountability, protects our local small businesses and farmers, and prevents California job creators from being punished for Sacramento’s negligence,” he added.
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