A framing art gallery is closed in Venice Beach, California' during the COVID-19 novel coronavirus on April 01, 2020. - Another 6.65 million US workers filed for unemployment benefits last week, the most ever recorded, as the coronavirus forces businesses to shut down nationwide, the Labor Department reported on April 2, 2020. (Photo by Apu GOMES / AFP) (Photo by APU GOMES/AFP via Getty Images)
Unemployment office phone lines jammed, websites crashing
08:17 - Source: CNN
CNN  — 

New York has to borrow money from the federal government to pay its state unemployment benefits after more than a million newly jobless residents filed claims amid the coronavirus pandemic, Gov. Andrew Cuomo said Monday.

“That’s why the federal government has to provide funding – because we don’t have the money,” Cuomo, a Democrat, said in a press briefing.

However, New Yorkers are not in danger of losing their benefits. The state is responsible for paying its share of weekly payments, which last up to 26 weeks, and can turn to the federal government for loans if its unemployment trust fund runs out.

The state has applied for and is guaranteed to receive a $4 billion, interest-free loan from the federal government, officials said. It operates like a line of credit so the state can draw down as needed.

The Empire State has processed 1.4 million initial unemployment applications and paid out $3.1 billion since March 9, including the $600 federally funded weekly boost that Congress approved last month as part of its $2 trillion relief package, according to the state Department of Labor.

Cuomo also highlighted that the state is running a budget deficit of between $10 billion and $15 billion, due largely to the outbreak walloping state tax revenue. Cuomo, along with other governors, has asked Congress to provide more federal aid to state governments.

But Senate Majority Leader Mitch McConnell said last week that Republicans are not interested in “revenue replacement for state governments” or “solving their pension problems.” Instead, he suggested allowing states to declare bankruptcy. Democratic congressional leaders, however, have said they will press ahead with yet another relief package that includes funding for state and local governments.

Coronavirus upends the national economy

The coronavirus pandemic has wreaked havoc on the national economy as businesses shutter to try to slow the spread of the illness. American workers have filed 26.5 million initial claims since March 14, according to seasonally adjusted federal Department of Labor numbers.

New York is not the only state in this situation, nor is this the first time states have turned to the federal government for help during an economic downturn.

California has also been approved to borrow from the federal government to pay its state benefits, a spokeswoman for the state Employment Development Department said last week. It has processed 3.2 million claims and paid more than $3 billion over the six weeks ending April 18, including the $600 federal enhancement.

Six states – including California, New York, Texas and Ohio – can only fund up to 10 weeks of benefits before they’ll have to turn to the federal government or other sources for infusions, according to estimate earlier this month from the Tax Foundation. Texas said it may have to request a loan by mid-May, while Ohio said its trust fund could last as long as eight weeks.

Many states have been shortchanging their unemployment insurance trust funds for years, in part because they’ve been reluctant to raise taxes on businesses.

The Great Recession walloped the trust funds, though the job losses were far less severe and were spread out over more time. Still, an unprecedented 35 states and the Virgin Islands had to borrow money from the federal government to pay claims.

The loans totaled a record $42 billion by the end of 2010. Employers in most of these states ended up paying higher taxes to cover the debt.

The impact lingers for some. Ten states cut back the duration of their unemployment programs to as little as 12 weeks to reduce future obligations. (At least three of those states returned to 26 weeks during the pandemic.)

And not all states have sufficiently replenished their trust funds even more than a decade later, said Christopher O’Leary, senior economist at the W.E. Upjohn Institute for Employment Research.

CNN’s Elizabeth Joseph contributed to this story.