California is first state to borrow federal cash to pay out unemployment benefits

Two states could follow in California’s footsteps soon: Illinois and Connecticut

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California became the first state to borrow money from the federal government so it can pay rising claims for unemployment benefits during the coronavirus pandemic, according to The Wall Street Journal.

The state borrowed $348 million in federal funds after it received approval to draw on $10 billion through the end of July, a Treasury Department spokesman told the Journal.

Two states could follow in California’s footsteps soon: The government has approved loans of up to $12.66 billion for Illinois and up to $1.1 billion for Connecticut to replenish their unemployment-insurance funds. Neither state had tapped the federal cash by the end of April.

STATES DEPLETING UNEMPLOYMENT FUNDS AS CORONAVIRUS CAUSES MASSIVE SURGE IN JOBLESS CLAIMS

More than 30 million Americans have filed for jobless benefits over the past six weeks, depleting state unemployment funds and straining antiquated systems throughout the country. Jobless claims in California alone top 4 million.

Nearly half of U.S. states have reported double-digit percentage declines in their insurance programs since the end of February, the month before the virus outbreak triggered strict stay-at-home mandates and the closure of businesses deemed nonessential. States use the money to administer regular unemployment benefits, while the extra $600 weekly payments for laid-off workers stems from the federal stimulus package signed at the end of March.

Despite the historically long, 11-year economic expansion, 22 states’ unemployment trust funds were unprepared to pay out enough in unemployment benefits in the case of a recession prior to the crisis, according to Labor Department data. The trust funds need to have enough to pay benefits for a full year in order to be considered recession-ready.

CORONAVIRUS LAYOFFS HURTING LOW-INCOME WORKERS THE MOST, STUDY FINDS

But states like California, Massachusetts, New York and Ohio haven’t restored their funds since the Great Recession more than a decade ago. Unemployment insurance trust funds went insolvent in 35 states after the most recent recession, prompting some governments to reduce benefits.

California had about $1.9 billion in its fund in mid-April, the Journal reported, down from $3.1 billion at the end of February.

To obtain the additional federal loans, governors need to submit a letter to the federal government asking for the funds to be placed in their state accounts. They do not require congressional approval. During the 2008 financial crisis, California borrowed nearly $11 billion from the government to continue financing unemployment benefits, but did not fully pay it back until 2018.

HALF OF WORKING AMERICANS MIGHT NOT HAVE A PAYCHECK IN MAY

Republican leaders in Washington have suggested that states in dire financial trouble because of the virus outbreak should declare bankruptcy — a sentiment that President Trump appeared to echo.

“It’s not fair to the Republicans because all the states that need help — they’re run by Democrats in every case. Florida is doing phenomenal, Texas is doing phenomenal, the Midwest is, you know, fantastic — very little debt,” Trump told The New York Post. “You look at Illinois, you look at New York, look at California, you know, those three, there’s tremendous debt there, and many others."

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