Welcome to the December 9-13 edition of the Main Street Minute from your small-business-advocacy team in Sacramento.

It’s Been a Long Time

We forewarn readers of the Main Street Minute that this edition will contain something so rarely written that we’re wondering if we should include a defibrillator with it—Good News!

If you want to know right now, scroll down to the first and last items under the National section of this report. Also, a little bird in a trench coat is whispering in our ears that tomorrow’s SBET/Optimism Index might also have some good news.

Now, on to the normal California news.

Fixing California’s UI Mess

While lawmakers in the new, 2025-2026 session of the Legislature were raising their right hands to take the oath office last Monday (December 2), their Legislative Analyst’s Office (LAO) cast a rain cloud over the proceedings by issuing a report the same day on Fixing Unemployment Insurance.

Like the auto accident up ahead, it’s not a pretty sight once you finally see it. The LAO report wastes no time in getting right to the point. “The State’s Unemployment Insurance (UI) Financing System Is Broken. Tax collections routinely fall short of covering benefit costs. (The state’s fiscal problems are unrelated to the widespread fraud that affected temporary federal UI programs during the pandemic.) Both our office and the administration expect these annual shortfalls to continue for the foreseeable future. Under our projections, deficits would average around $2 billion per year for the next five years. This outlook is unprecedented: although the state has, in the past, failed to build robust reserves during periods of economic growth, it has never before run persistent deficits during one of these periods.”

When Uncle Sam was going through his drunken sailor act to help states deal with COVID-related costs, spending money like there was no tomorrow, NFIB California screamed the loudest for Gov. Gavin Newsom and legislators to use some of the free largesse to pay off the federal UI loans California borrowed to keep its UI Trust Fund solvent and unemployment checks going to those in need of them.

In the months immediately following the pandemic, 22 states took out UI loans to keep their systems working. To date, 20 have paid the federal government back. Only two states haven’t, California ($21 billion still owed) and New York ($6 billion still owed). The U.S. Virgin Islands ($80 million) also remains in arrears.

“Annual Shortfalls Will Balloon Outstanding Federal UI Loan,” the LAO reports. “Anticipated annual shortfalls will add to the state’s looming $20 billion outstanding federal UI loan. We expect the loan to grow by billions of dollars before federal surcharge UI taxes are high enough for the state and employers to begin making progress toward repaying the loan.”

Uh, oh, you knew this was coming.

The LAO’s report makes four recommendations (Page 16 in the link above). Leading the list: “Increase the taxable wage base from $7,000 to $46,800. For those unfamiliar with the concept, the LAO on Page 7 defines “the taxable wage base is the amount of earnings that are taxed to fund benefits. That is, employers do not pay UI payroll taxes on worker earnings above the taxable wage base.”

In NFIB’s latest Small Business Problems & Priorities report, unemployment insurance costs ranked 35th out of the 75 issues the survey measured – nationally — but California’s small business owners ranked it 24th, showing it a bigger problem here than in other states.

Is it time for small business owners to pony up?

NFIB California will remind lawmakers the system was working just fine until a couple of bad political decisions put it on shaky footing, as was recounted by Dan Walters in his December 3 CalMatters column. But will they do anything?

“It’s been a political stalemate for nearly a quarter-century, pitting unions seeking to protect, or even increase, benefits against employers who don’t want to shoulder increased taxes,” writes Walters. “Successive governors and legislative leaders have shunned engagement, preferring to kick the can down the road.”

Related

From the recipients’ points of view, California’s employment safety net is still broken. Will anyone fix it? – CalMatters, December 4

Jobs Reports

On the same day (December 5) NFIB released its monthly Jobs Report, the California Center for Jobs & The Economy issued its Special Report: Fast Food Minimum Wage Results in Loss of 18,700 Jobs through June, showing the toll – so far – on the state’s recent implementation of the $20 an hour minimum wage for fast food chains.

What’s There to Worry About?

From a guest editorial by Catherine Reheis-Boyd, president and CEO of the Western States Petroleum Association in the December 4 edition of The Orange County Register. Of the 75 issues measured by NFIB for its Small Business Problems & Priorities report, California members ranked the ‘Cost of Natural Gas, Propane, Gasoline, Diesel, Fuel Oil’ No. 8.

“We urge lawmakers to meet with us early, ask tough questions, and better understand the challenges of delivering energy to the world’s fifth-largest economy. Together, we can tackle what experts have pointed out are the most urgent issues related to production, ports, pipelines and processing —what we call ‘The Four P’s.’

“Production: With permitting for California oil fields at a standstill, how will the state ensure it can meet the state’s energy demands without increasing carbon emissions and costs?

“Ports: How will California’s already congested ports handle the increased volume of crude oil and fuel imports without risking greater and more frequent price spikes?

“Pipelines: With in-state production sharply declining, how does the state plan to maintain a reliable fuel supply when pipelines require a minimum 30% throughput to remain operational?

“Processing: After 2025, with only eight refineries left, how will California ensure affordable fuel processing for consumers?”

“Our industry is committed to providing affordable, reliable energy while embracing the challenges of a cleaner future. We’re extending an open door to every legislator. California’s energy challenges require collaboration, not conflict.”

Calendar

• December 13, Secretary of State certifies the November General Election outcome.
• January 6, the 2025-2026 session of the California State Legislature opens for regular business.

National

Highlights from NFIB Federal Government Relations Principal Josselin Castillo’s weekly report 

ONE BIG THING: NFIB Blocks FinCEN’s Beneficial Ownership Rule

On other matters

NFIB sent a press release applauding the passage of H.R. 7198, the Prove It Act, which seeks to cut red tape for small businesses by addressing the loopholes in the Regulatory Flexibility Act (RFA), strengthening the requirements for government agencies to analyze the impact of regulations on small businesses.

NFIB commented on the IRS announcement that they will set the threshold for Form 1099-K reporting requirements for annual transactions in 2024 at $5,000 but still plan to mandate the $2,500 threshold in 2025 and the burdensome $600 threshold in 2026 for online platforms like eBay, PayPal, Etsy, Venmo, and CashApp.

ICYMI: NFIB announced a new broad-reaching advertising campaign urging Congress to make permanent the 20% Small Business Deduction. On FOX Business, Larry Kudlow says that President Trump should “extend the Small Business Deduction.

ICYMI: Small Business Lawsuit Stops Overtime Threshold Rule.

Next Main Street Minute December 16.