California has quickly repaid a nearly $1.4 billion loan from the federal government used to fund a massive increase in unemployment claims amid the coronavirus pandemic.
The state had borrowed $348 million in April and nearly $1.1 billion in early May, according to US Department of Treasury and Department of Labor data. But the balance is now $0, according to the federal agencies.
During severe economic downturns, it’s not unusual for states to turn to the federal government for loans to cover their share of unemployment insurance, which typically lasts up to 26 weeks. Nearly three dozen states borrowed funds during and after the Great Recession. By the time California fully repaid the federal government in 2018, the tab totaled $65 billion with $1.4 billion in interest.
California was able to pay back the loan with revenue from employer-paid taxes to cover unemployment, said a state Employment Development Department spokeswoman.
“With this being the highest period for receiving annual employer contributions, we will continue to bounce up and down with solvency for a little while until the contributions slow down and benefit payments outpace that revenue on a more permanent basis,” she said.
The department has requested authority to borrow up to $10 billion between April and June. It only draws down what it needs at any given time and will not pay interest on any loans in 2020, thanks to a coronavirus relief bill Congress passed in mid-March.
California isn’t the only state that has requested borrowing authority from the federal government. It’s one of 10 states, along with New York, Illinois, Ohio and Massachusetts, that have asked for the ability to draw down a total of $42.8 billion between May and July, said a US Department of Labor spokeswoman. At the moment, only New York is borrowing, after taking a loan of nearly $51 million this week.
About 38.6 million Americans have filed first-time unemployment claims since the coronavirus pandemic began prompting states to issue stay-at-home orders and to shutter non-essential businesses in mid-March.
The Golden State has processed 4.7 million claims since outbreak started and paid a total of $12.3 billion in benefits, though not all of that bill is footed by the state. It includes the extra $600 weekly boost and benefits paid to gig workers and others that are both funded by the federal government as part of the $2 trillion Congressional relief package passed in late March.
However, the state is projecting that unemployment benefits will total $43.8 billion for the 2020-21 fiscal year, which begins July 1, up from its original $5.8 billion estimate. They payments will be primarily supported by federal funding, federal loans and employer taxes.
Federal and state spending on unemployment benefits totaled just under $126 billion, as of May 19, up from $12.7 billion at the beginning of March, according to Treasury Department data.