California’s unemployment insurance (UI) financing system is facing big deficits, requiring a full "redesign," according to a new report from the state’s nonpartisan Legislative Analyst’s Office (LAO).

The system, meant to be self-sufficient, has fallen short of covering annual benefit costs, resulting in a projected $2 billion annual deficit over the next five years and an outstanding $20 billion federal loan balance.

"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," the LAO report, titled "Fixing Unemployment Insurance" and published Tuesday, stated. 

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Independent analysts project that annual shortfalls will increase California's federal loan, costing taxpayers around $1 billion in interest each year. The system, which is funded by employer payments to the UI Trust Fund, hasn’t been updated since 1984 and "cannot keep up with inflation or provide the intended wage replacement of half of workers’ wages," according to the report.

The current employer tax structure discourages eligible unemployed workers from claiming benefits, while the state’s low taxable wage base hampers hiring of lower-wage workers, analysts found.

One suggestion researchers wrote to fix the gap is to increase the amount of wages taxed for unemployment benefits, raising it from $7,000 per worker to $46,800. Supporters of this change say it would bring in more money to fund the program. The report also recommends reworking how businesses are taxed for unemployment benefits to make the system simpler and encourage more hiring.

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To deal with the massive federal loan, the report suggests splitting the cost between employers and the state government, so that businesses aren’t stuck with all the debt.

"These are significant problems in isolation, let alone in combination," analysts wrote. "The significant changes proposed in this report are an honest reflection of these problems. However, whether or not the Legislature takes action, employers will soon pay more in UI taxes than they do today due to escalating charges under federal law."

Gareth Lacy, a spokesperson for the California Employment Development Department, which administers the state’s unemployment insurance program, called it "a thoughtful report" and noted officials "are reviewing it carefully."

"We agree the issue stretches back for decades and the pandemic compounded it," Lacy told Fox News Digital in a statement.

During the COVID-19 pandemic, the state's UI system was hit hard with an overwhelming number of unemployment claims, resulting in the state borrowing roughly $20 billion from the federal government to cover insurance benefits, which the state still owes. 

"Not only will the state’s tax system fall short of repaying that loan, the balance is set to grow due to the ongoing gap between contributions and benefits," the report noted. "This will become a near-permanent feature of the state’s UI program and a major ongoing cost for state taxpayers."

Leaders from two of the nation's top construction trade groups told Fox News Digital they are looking forward to the new Trump administration with hopes their industry will be burdened by fewer regulations and policies enacted under President Biden that they said stymied additional growth in their sector.

On Monday, the Biden administration touted the addition of 1.6 million new construction and manufacturing jobs. However, Ben Brubeck, vice president of regulatory affairs for the Associated Builders and Contractors, cautioned that beneath this seemingly big announcement, "the growth can be much better if we're in the right economic and policy environment." 

Brubeck said his association's members have broadly indicated disappointment at the opportunities available to them under various Biden administration programs, including the Infrastructure Investment and Jobs Act (IJA), the CHIPS and Science Act (CHIPS), the Inflation Reduction Act (IRA) and the American Rescue Plan Act (ARPA). 

"We survey our members on a pretty regular basis, and the number of members who reported participation in the IJA- and CHIPS- and IRA- and ARPA-funded projects has been pretty — it's been low," Brubeck said. "It's been less than expected."

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Brubeck pointed to the fact that it has taken a long time for the money from these programs to be disbursed due to burdensome regulations, such as permitting requirements. He also pointed to oppressive labor policies, such as project labor agreements and increased borrowing costs as other elements that have added to less growth than could have been seen otherwise under President Biden. 

Brian Turmail, the vice president of public affairs and workforce for the Associated General Contractors of America, also noted the failure of Biden's major construction investments due to regulations and review processes. 

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"Our analysis is [the Biden administration] kind of got in their own way affecting the market, because they couldn't help themselves but to put in so many kinds of social and environmental rules on top of their funding that they slowed down the progress they so desperately wanted to see," Turmail said. He also pointed out that the administration "put a lot of new strings" on semiconductor plant construction that has stymied growth.

Turmail and Brubeck said they have hopes growth in the construction sector will ramp up under the Trump administration as companies manage their way through federal requirements enacted under Biden and see others potentially rolled back. 

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"The irony is that, by the time President Trump comes back into office, we do anticipate a big bump up in infrastructure construction," Turmail said. "Because all those projects where they've announced funding over the last two to three years will finally clear their environmental hurdle and begin construction."

"Our federal contractors are completely on the sidelines right now for these large-scale projects, and this all started at the beginning of the year in January," Brubeck added. "So, they're really excited for the potential of regulatory relief on the horizon as a result of the Trump administration coming in." 

The White House did not provide Fox News Digital with an on-the-record comment in time for publication.

President-elect Donald Trump could quickly work to reform the H-1B visa program after years of the program straying further from its original intent, according to one expert.

"It is not being used as was intended by Congress, so it needs to be reformed," said Lora Ries, the director of the Heritage Foundation's Border Security and Immigration Center, regarding the H-1B visa program in an interview with Fox News Digital.

The comments come as Trump prepares to transition from candidate to president for the second time, with the president-elect already busy announcing his picks for critical Cabinet positions and rolling out an agenda for his return to the White House.

One key area Trump is likely to once again focus on as he re-enters the Oval Office is the country’s immigration system, an issue that became a centerpiece of both of his campaigns for the nation’s highest office.

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While securing the border and carrying out a large-scale deportation operation are two policies likely to top the list of priorities for Trump, the president-elect is also likely to attempt to tackle immigration more broadly in his second term.

One such reform is likely to be the H-1B visa program, Ries argued, noting that it has long fallen victim to fraud and abuse.

"Like so many programs, it has gone away from intent and been watered down and defrauded," Ries said.

Trump attempted to tackle the issue during his previous term in office, introducing several reforms in the hopes of eliminating that fraud and ensuring that the program was not harmful to American workers.

Implementing stricter definitions of what is a "specialty occupation" and making it more difficult to obtain H-1B visas for those who do not meet those requirements was one such reform made by Trump, while the president-elect also sought to enforce stricter minimum wage requirements for H-1B holders.

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Those reforms were meant to tackle what Trump viewed as a threat to American workers, who he believed were being passed over for jobs by companies that preferred to hire cheaper foreign labor. 

"The program needs more work protections for Americans," Ries said. "There are plenty of stories of American high-skill workers who were replaced by lower-wage foreign workers who they then had to train to take their jobs."

Trump has in the past struck a similar tone when discussing the program, including a vow to commit to "eliminating rampant, widespread H-1B abuse and ending the outrageous practices such as those that occurred at Disney in Florida when Americans were forced to train their foreign replacements" on the campaign trail in 2016.

While the program was originally intended to allow American companies to fill gaps in the American workforce with qualified foreign labor, Ries argued it has since strayed away from that goal. Any reforms by Trump are likely to be similar to his first term as president, Ries said, with the goal of making sure American workers are protected.

"Protecting American workers and not replacing them with foreign workers just because you can pay less money, Ries said.

California voters rejected a ballot measure that would have raised the state's minimum wage to $18 per hour; the first failure of such an initiative nationwide in almost 30 years.

The tabulation came two weeks after Election Day due to the narrowing margin, as 49.2% of Californians ultimately supported the wage hike, falling just short.

The vote was geographically disparate, with every Bay Area and coastal county except San Luis Obispo, Orange, Ventura and Del Norte supporting the measure – and every inland county except Alpine and Imperial opposing it.

The current minimum wage in California is $16 per hour, but it includes a $20 per hour exclusion for fast-food restaurants with 60 or more locations. The latter was instituted in 2023 with the approval of Democratic Gov. Gavin Newsom.

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"Californians are sending Gavin Newsom and the SEIU a clear message: They're sick of being lab rats for their pet projects," Rebekah Paxton, research director for the Employment Policies Institute said in a statement.

"Voters saw the devastating economic fallout of the $20 fast food minimum wage law, and for the first time in state history, voted against a statewide minimum wage hike." 

Newsom, however, previously defended his support for wage hikes, saying the fast-food pay increase gave workers a "greater voice in workplace standards."

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"Predictably, this modest law prompted fainting spells from conservatives and their enablers in the media," he wrote in a Fox News Opinion column earlier this fall.

"Even before I signed the bill, they quickly said it would lead to devastating job cuts and cause scores of businesses to close."

"We believe in fairness, equity and the idea that everyone deserves a chance to succeed. And these results dispel the cynics who say we must choose between protecting workers and growing the economy."

California Chamber of Commerce CEO Jennifer Barrera appeared to disagree, telling The Associated Press after the outlet called the tally for Proposition 32 that the economy and personal costs were top of mind in the election, and that that message resonated with the voters.

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State Senate Minority Leader Brian Jones, R-San Diego, told Fox News Digital that basic economics proves raising the minimum wage exacerbates inflation and unemployment.

"[That] predictably hurt[s] workers and families. More inflation and higher costs are the last things we need right now. Californians made the right call to reject Prop 32 and protect financial stability," Jones said.

Millions of dollars were poured into support for the effort, according to CalMatters, which reported startup entrepreneur Joe Sanberg earmarked $10 million while spearheading the Proposition 32 effort. The outlet reported Democratic Los Angeles City Councilman and former state Senate President Kevin de Leon was a second prominent backer.

There have been about two dozen minimum-wage-hike ballot initiatives since 1996; the last time one failed.

In that election, Missourians declined to approve a hike to $6.75 and Montana decided against moving its minimum wage up to $6.25 per hour.

The Associated Press contributed to this report.