Rep. Vince Fong, a California Republican, plans to introduce legislation that would bar his home state from spending federal money on other programs until it pays back the $21 billion it still owes Washington for pandemic-era unemployment benefits. California remains the only state in the country that has not repaid its COVID-era borrowing, and the tab keeps growing.
Fong's bill, set for introduction Tuesday, would require California to direct eligible federal funds toward debt repayment within five business days of the money becoming available. If the state violates that provision, it would owe the federal government the full amount of misused funds. The mechanism is blunt by design: Sacramento cannot keep treating federal dollars like a slush fund while employers foot the bill for its negligence.
Fox News first reported the details of Fong's planned legislation, which takes direct aim at what the congressman calls systemic failure under Gov. Gavin Newsom. The bill arrives as federal scrutiny of California's finances intensifies on multiple fronts, from unemployment fraud to Medicaid payments, and as the state's own auditors have flagged the unemployment insurance system as dangerously mismanaged.
During the COVID-19 pandemic, the federal government loaned states money to cover a surge in unemployment claims. Every other state has repaid what it borrowed. California has not. Its outstanding balance sits at $21 billion, and CalMatters projects that figure will top $23 billion by the end of this year.
That ongoing debt has real consequences for the people who create jobs in California. Businesses were forced to pay an extra $42 per employee on their federal payroll taxes this year to help service the unpaid balance, according to KCRA. For a small business with fifty workers, that is more than $2,000 in added costs, not because the economy demanded it, but because Sacramento refused to write the check.
Fong framed the issue in terms of a missed opportunity that borders on fiscal malpractice. In 2022, California had a near $100 billion budget surplus. The state could have retired a massive chunk of the debt. It didn't.
"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."
That surplus is long gone. California now faces growing fiscal challenges, and Newsom has signed a budget that scales back taxpayer-funded healthcare for illegal immigrants, a concession to the budget reality his administration helped create. Allegations of massive financial losses under Newsom's watch extend well beyond unemployment insurance.
The debt itself is only part of the problem. The way it was run up makes it worse. CNN reported that in 2020, thousands of California inmates, including those on death row, participated in an unemployment benefits fraud scheme that cost the state up to $1 billion. That single episode captures the scale of dysfunction inside California's Employment Development Department.
The California State Auditor produced a report finding the state's unemployment insurance program was high risk, citing "inadequate fraud prevention and claimant service." The system's fraud prevention efforts were described as "marked by significant missteps" that may have resulted in billions of dollars in fraudulent payments.
"Fraud and mismanagement aren't isolated incidents in Gavin Newsom's California, they've become systemic failures with real consequences."
The congressman, a former state legislator, has watched these problems compound from both Sacramento and Washington. His bill is built on a simple premise: if a state cannot manage the money it already has, it should not get to spend more until it settles its debts.
Fong is not the only one pressing the issue. In February, then-Department of Labor Secretary Lori Chavez-DeRemer unveiled a federal "strike team" to probe fraud and abuse in California's unemployment insurance program. The Labor Department's strike team deployment followed the auditor's findings and signaled that the previous administration's hands-off approach was over.
Chavez-DeRemer did not leave any ambiguity about the mission's purpose: "Financial issues and potential fraud in California's unemployment insurance program will be fully examined. The previous administration turned a blind eye toward failing Labor programs. This ends now."
The 83-page state auditor report that helped trigger the federal investigation documented a high rate of overturned eligibility decisions, poor administration within the EDD, and a depleted trust fund that forced the state to keep borrowing from Washington. The pattern is clear: California's unemployment system broke down at every level, intake, verification, fraud prevention, and repayment.
Vice President JD Vance addressed the broader issue at a White House news conference, placing the blame squarely on state leadership.
"The simple reason is because the state of California has not taken fraud very seriously."
That assessment tracks with a wider federal push to hold California accountable. The administration announced it would withhold $1.3 billion in federal Medicaid funding to the state, citing fraud concerns among hospice providers. Centers for Medicare & Medicaid Services Administrator Mehmet Oz was involved in announcing a freeze on Medicaid payments to California over those same concerns, part of a pattern that suggests federal officials view fraud in blue states as more than accidental.
The people absorbing the cost of California's failure are not politicians or bureaucrats. They are small business owners, farmers, and employers who had nothing to do with the fraud and mismanagement but are now paying higher payroll taxes because the state will not clean up its own mess.
Fong made that point explicitly.
"My legislation restores accountability, protects our local small businesses and farmers, and prevents California job creators from being punished for Sacramento's negligence."
The $42-per-employee surcharge may sound modest in isolation. Multiply it across the state's enormous workforce, and the aggregate burden is substantial, an invisible tax on hiring in a state already notorious for regulatory costs and high taxes. It is a drag on growth that exists for one reason: Sacramento chose not to pay its bills when it had the money to do so.
Gov. Newsom's office did not immediately respond to a request for comment on Fong's legislation. The governor's record of accountability on fiscal matters has drawn persistent criticism, including questions about fraud tied to members of his own political circle.
Meanwhile, Newsom has faced scrutiny on other fronts. His extensive time spent outside California has raised questions about whether the governor is fully engaged with the state's mounting problems.
Fong's legislation is narrow in scope but pointed in its target. It would require California to redirect eligible federal funds toward repaying its unemployment insurance debt before those dollars can flow to other state programs. The five-business-day window is tight enough to prevent bureaucratic delay. And the penalty clause, requiring repayment of the full amount of any misused funds, gives the provision real teeth.
The bill does not name other states because no other state needs it. California stands alone as the last holdout on pandemic-era unemployment debt repayment. That distinction is not a badge of complexity or compassion. It is a marker of fiscal mismanagement on a scale that dwarfs every other state government in the country.
Whether the legislation can advance through committee and reach the floor remains an open question. But the political dynamics favor Fong's argument. Federal investigators are already on the ground. The administration has already withheld Medicaid dollars over fraud. And every California employer paying that extra $42 per worker knows exactly who stuck them with the bill.
When a state has $98 billion in surplus and still cannot find a way to pay its debts, the problem is not resources. It is priorities. And California's priorities have been clear for years, spend first, account later, and let the people who actually build the economy pick up the tab.
