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.
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