California Becomes First State To Borrow Cash From The Federal Government To Pay Out Unemployment Benefits

Joseph Zeballos-Roig

Policy Reporter For Business Insider

California is the first state to borrow money from the federal government to pay unemployment benefits, The Wall Street Journal first reported on Monday.

The Journal reported that the state borrowed $348 million after receiving the green light to draw up to $10 billion until the end of July. The money can be used to pay out regular claims, which are separate from the $600 boost in federal benefits added to weekly checks for jobless Americans under the coronavirus rescue package approved in March.

Two states are set to follow suit in the coming weeks: Illinois and Connecticut.

Over 30 million people have filed for unemployment over the past two months, straining antiquated and understaffed state systems across the country. Many states are quickly depleting the trust funds used to finance the benefits, according to the Tax Foundation.

States can borrow from the federal government when they run out of money to pay claims, a move that doesn’t need congressional approval. But the money has to be paid back, which requires budget adjustments — since states generally can’t run deficits.

After the Great Recession, which ended in 2009, many states borrowed from the federal government to finance spending on their unemployment programs. Afterward, some either scaled back the duration of benefits or the amount paid out, according to the Center on Budget and Policy Priorities.

The National Governors Association has called for at least $500 billion in emergency federal aid for states in the next coronavirus relief package.

Many Democrats have backed implementing another federal lifeline for states. The Washington Post reported house Speaker Nancy Pelosi said last week that Democrats would seek $1 trillion in state aid.