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Gavin Newsom
California Governor Gavin Newsom. (Photo: Kevin Sanders for California Globe)

California Becomes First State to Borrow from Federal Government to Pay Unemployment Benefits

Illinois, Connecticut follow California’s lead in borrowing billions of federal dollars

By Evan Symon, May 4, 2020 4:48 pm

On Monday, California became the first state to borrow money from the federal government to make unemployment benefits in the coming months.

According to the Department of the Treasury and the Wall Street Journal, California borrowed $348 million to make state unemployment benefits with the go-ahead to borrow up to $10 billion until the end of July. The borrowed money can only be used to pay normal EDD unemployment benefits in the state. The additional $600 per month from the CARES Act will still be paid directly from the federal government and not borrowed from it. CARES Act payments are also set to expire at the end of July.

Benefit claims in California and the U.S. have increased dramatically since the economic effects of the coronavirus ramped up since mid-March. Over 30 million new unemployment claims have been made nationwide since then, with California alone accounting for 3.7 million of them to date.

Governor Gavin Newsom also noted the economic effects of the coronavirus on California, which includes the strain of the growing number of unemployment benefits.

“I’m doing everything I can to work with cities and counties, but we are not going to be in a position, even as the nation’s fifth-largest economy, to provide for the needs of all the cities and the counties without federal support,” said the Governor on Friday. “Last year I did a May revise with a $21.4 billion budget surplus. This year I will be doing a May revise looking at tens of billions of dollars in deficit. We just went tens of billions in surplus in just weeks to deficits.”

California’s federal borrowing also inspired at least two other states, Illinois and Connecticut, for  their own federal loans to meet unemployment payments. The federal government has granted up to $12.6 billion for Illinois and $1.1 billion for Connecticut, with more states expected to ask in the coming weeks as coronavirus lockdowns prevent both tax dollars from coming in and people to go back to work and off unemployment.

“A lot of states are going to follow California’s lead,” noted Detroit-based economist Marvin Olsen. “States are running out quickly. They didn’t expect mass unemployment like this to happen so quickly. It just overburdened the system. With a gradual increase, like we’ve seen during other recessions, states have time to figure things out. Not this time.”

“Other states hit hard might be asking soon. Georgia, New York, Washington, and especially my home state of Michigan. We’re less than two months away from running out of unemployment funds now.”

“California usually leads the way for the nation in something positive. I can’t say the same now, although I admit there was no other option.”

While California was approved for as much as $10 billion by the end of July, it is unknown as of now how much of the offered loan amount California will ultimately borrow.

Evan Symon
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11 thoughts on “California Becomes First State to Borrow from Federal Government to Pay Unemployment Benefits

  1. I am just curious…
    Newsom said, “ I’m doing everything I can to work with cities and counties, but we are not going to be in a position, even as the nation’s fifth-largest economy, to provide for the needs of all the cities and the counties without federal support,” said the Governor on Friday.”

    I may be mistaken but I thought we were the 5th largest economy in the world?

    1. California contributes approximately $3 Trillion to the U.S. GDP. The largest contributor to the total GDP. The United States total GDP is $31.5 Trillion. So the total GDP for the US is 15x what California contributes.

    2. In all fairness to Newsom, I think he meant we are the nation’s largest economy because we are the world’s 5th largest economy.

    3. He meant CA is a wealthy nation-state with 5th largest economy when it increases his power and control. If no personal gain, then we are dependent on the feds, asking for loans to pay for pensions that are intended for unemployed. CA Dems love Newsom! No need to think.

  2. CA shouldn’t get a bailout when it has been within the Governor’s power all along to allow business owners to open their doors! He needs to FEEL the pain – POLITICALLY & FINANCIALLY – that the CA citizens are feeling all because of his personal beliefs. Let’s start with a CUT in spending – starting with HIS SALARY & BENEFITS!! And those of his advisors!!

  3. Last time CA borrowed money from the federal government to cover unemployment the state refused to pay it back. So all the businesses in CA had their FUTA increased to pay it back. So the burden for paying for this free money hopefully once again will not be placed on the backs of businesses in CA. I am getting tired of some politician committing my resources to pay for some project they thought up. If you cannot pay it back this time Gov don’t raise taxes or add new fees or make businesses pay. Be more fiscally responsible. Please learn from the past Governor’s mistakes.

    1. Gave taxpayer money to illegals, and he needs to borrow money to pay unemployment to US CA citizens who lost their jobs because of him. You can’t make this stuff up.

      1. YES, he gave illegals millions of dollars of unemployment money granted by President Trump and YET he needs to borrow money. . . disgusted.

  4. Gavin will use the fed$ to pay all the illegals. None of it will go to tax paying Californians. You are on your own.

  5. California needs to be cut off from all Federal support. Newsom is giving 1 Billion dollars of CA Taxpayer money to China for face masks. Why does he not support USA made products?
    He needs his paychecks cut. He deserves nothing. Let President Trump and the Republican Party run this state and turn it again into the Golden State it was once known to be.

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