By Arturo Castañares
The US federal government has offered loans to states to help them through the COVID-19 crisis and the state of California is now the first state to access those funds.
California borrowed the first tranche of funds this week when it pulled down $348 million to help cover unexpectedly high unemployment benefit payments to more than 3.7 million displaced workers, and the state could access up to $10 billion of loans through July. The state began the year with over $3.1 billion in its unemployment insurance trust fund but has already distributed more than $1.2 billion to unemployed workers.
But other states are also preparing to access federal loans after Illinois was approved for up to $12.6 billion and Connecticut was approved for up to $1.1 billion in loans.
Overall, more than 26 million people in the US have applied for unemployment insurance after either losing their jobs or having their hours reduced during the coronavirus pandemic.
The US Treasury Department expects that most states will request federal loans during or after this crisis.
California’s current year annual budget is $214.8 billion and expected to have a $19.2 billion reserve, including $16.5 billion in a “Rainy Day Fund”, $1.4 billion in a Special Fund for Economic Uncertainties, $900 million in a Safety Net Reserve, and nearly $400 million in a Public School System Stabilization Account.
For far this year, the State has already experienced higher than anticipated costs related to the COVID-19 pandemic, including additional emergency services, health care, unemployment, and education costs as it moved quickly to react to the crisis. The State’s fiscal year ends on June 30.
The federal loans will help ensure the State has sufficient cash on hand to meet immediate costs and will be repaid over several years. California borrowed $11 billion from the federal government during the “Great Recession: after 2008 and didn’t finish repaying the loans back until 2018.