scorecardCalifornia becomes the first state to borrow cash from the federal government to pay out unemployment benefits
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California becomes the first state to borrow cash from the federal government to pay out unemployment benefits

Joseph Zeballos-Roig   

California becomes the first state to borrow cash from the federal government to pay out unemployment benefits
Stock Market2 min read
Rick Bowmer/ AP
  • California became the first state to borrow federal cash to finance massive spending on unemployment benefits, the Wall Street Journal reported.
  • Illinois and Connecticut are set to follow in the coming weeks.
  • Over 30 million people filed for unemployment over the past two months. The unprecedented surge has overwhelmed state safety nets.
  • States that borrow money from the federal government have to readjust their budgets down the road, which could lead to tough decisions.
  • Visit Business Insider's homepage for more stories.

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 a 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 CARES Act approved in late March.

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

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

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States will 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 later on, which requires budget adjustments — since states generally can't run deficits.

After the Great Recession that 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.

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