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If feds let jobless benefits drop, California Dems may 'backdoor borrow' to extend them

On July 27, Democrats in the state Legislature published a bullet point plan to pump an extra $100 billion into the economy. Photo by Andre m/Wikimedia Commons.

The California Legislature rarely plays the hero during economic downturns.

While the federal government can and generally does borrow unfathomable sums of money to goose economic activity during recessions, states have less fiscal wiggle room. California's constitution requires lawmakers to pass a balanced budget each year. As a result, state spending tends to boom and bust with the economy.

But amid one of the sharpest economic contractions in state history, Democrats have found a loophole: "borrowing" federal dollars for the state's unemployed.

Yesterday (July 27), key Democrats from both legislative chambers published a bullet point plan to pump an extra $100 billion into the economy.

Light on details, the proposal promises to scrounge up the extra cash "without raising taxes" by shifting funds, accelerating spending projects and, it seems, asking Californians to pre-pay their taxes.

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But the biggest bit of stimulus, and one of the few proposals that would be ready to go now, comes in the form of expanded benefits to the recently unemployed.

"There are very few ways that we can actually borrow — and unemployment insurance is one of them," said Assembly Budget Committee chairman Phil Ting, one of the authors of the proposal. "It's money that we can really access quickly, and we already have an existing program so we can get money to people quickly."

Congress is now locked in a battle over whether and how to renew expanded benefits to unemployed Americans. In March, President Donald Trump signed the CARES Act, a $2.2 trillion economic relief package that included a $600 weekly boost to the benefits an unemployed person already qualifies for. In California, the pre-pandemic maximum was $450.

But the last of those padded benefit checks went out this week, and many Republicans in Washington D.C. want the feds to rein in the largesse.

Ting, a San Franciscan, says California lawmakers should "stand at the ready" to make up the difference. The plan was the product of the Democratic Legislative Working Group on Economic Recovery, led also by Sen. Bob Hertzberg from the San Fernando Valley, who is the state Senate's majority leader.

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The California Constitution permits state borrowing without voter approval in only a handful of circumstances, said UC Davis law professor Darian Shanske. Those include when the debt is due to be paid from a specially designated funding source or when the spending is mandated by federal law.

Borrowing to pay unemployment benefits "could arguably be under any number of those exceptions," he told CalMatters earlier this year. "As far as I know there's never been a case in California litigating this."

Though experts quibble over the details, many economists agree that raising unemployment benefits is among the more direct ways to provide a short-term economic boost. The idea that legislators in Sacramento may have a secret weapon to prop up the economy has excited some progressives.

"It's a backdoor way of borrowing that is well-timed and appropriate to the situation," said Chris Hoene, executive director of the California Budget and Policy Center, a think tank that focuses on inequality and poverty.

The state's nonpartisan Legislative Analyst Office nodded at — without outright endorsing — this circuitous form of stimulus spending back in April. "The state may want to explore options to expand assistance to unemployed workers," read a report from the office.

Three months later, state lawmakers seem to have taken the hint.

The idea isn't welcomed by all sides. Money borrowed from the federal government has to be paid back. Of even greater concern to some business groups and Republicans is who will ultimately pick up the tab. At a hearing in April, Assemblyman Jay Obernolte from Big Bear argued "come hell or high water, that the burden of repaying this principal is not going to fall on the backs of California's employers" and that the state should be on the hook for the entire loan.

California was the first state to borrow from the federal government this year, taking out $1.8 billion in May to pay out insurance claims.

It's not an unprecedented maneuver. California's trust fund went bust during the Great Recession. Turning to the feds, the state tab maxed out at more than $10.2 billion.

The state only just finished paying off that debt, with an extra $1 billion in interest. Those interest payments were picked up by state taxpayers from the budget's general fund. But the 11-digit principal on all that borrowing was funded by employers through a payroll tax surcharge.

Federal COVID-19 relief legislation forgives all interest payments for loans made to a state's unemployment insurance fund through the end of 2020. Who will pay back the debt after that?

That's a massive political fight for another day.

Email Ben Christopher at [email protected].

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CALmatters.org is a nonprofit, nonpartisan media venture explaining California's policies and politics. Read more state news from CALmatters here.

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If feds let jobless benefits drop, California Dems may 'backdoor borrow' to extend them

by / CalMatters

Uploaded: Wed, Jul 29, 2020, 9:51 am

The California Legislature rarely plays the hero during economic downturns.

While the federal government can and generally does borrow unfathomable sums of money to goose economic activity during recessions, states have less fiscal wiggle room. California's constitution requires lawmakers to pass a balanced budget each year. As a result, state spending tends to boom and bust with the economy.

But amid one of the sharpest economic contractions in state history, Democrats have found a loophole: "borrowing" federal dollars for the state's unemployed.

Yesterday (July 27), key Democrats from both legislative chambers published a bullet point plan to pump an extra $100 billion into the economy.

Light on details, the proposal promises to scrounge up the extra cash "without raising taxes" by shifting funds, accelerating spending projects and, it seems, asking Californians to pre-pay their taxes.

But the biggest bit of stimulus, and one of the few proposals that would be ready to go now, comes in the form of expanded benefits to the recently unemployed.

"There are very few ways that we can actually borrow — and unemployment insurance is one of them," said Assembly Budget Committee chairman Phil Ting, one of the authors of the proposal. "It's money that we can really access quickly, and we already have an existing program so we can get money to people quickly."

Congress is now locked in a battle over whether and how to renew expanded benefits to unemployed Americans. In March, President Donald Trump signed the CARES Act, a $2.2 trillion economic relief package that included a $600 weekly boost to the benefits an unemployed person already qualifies for. In California, the pre-pandemic maximum was $450.

But the last of those padded benefit checks went out this week, and many Republicans in Washington D.C. want the feds to rein in the largesse.

Ting, a San Franciscan, says California lawmakers should "stand at the ready" to make up the difference. The plan was the product of the Democratic Legislative Working Group on Economic Recovery, led also by Sen. Bob Hertzberg from the San Fernando Valley, who is the state Senate's majority leader.

The California Constitution permits state borrowing without voter approval in only a handful of circumstances, said UC Davis law professor Darian Shanske. Those include when the debt is due to be paid from a specially designated funding source or when the spending is mandated by federal law.

Borrowing to pay unemployment benefits "could arguably be under any number of those exceptions," he told CalMatters earlier this year. "As far as I know there's never been a case in California litigating this."

Though experts quibble over the details, many economists agree that raising unemployment benefits is among the more direct ways to provide a short-term economic boost. The idea that legislators in Sacramento may have a secret weapon to prop up the economy has excited some progressives.

"It's a backdoor way of borrowing that is well-timed and appropriate to the situation," said Chris Hoene, executive director of the California Budget and Policy Center, a think tank that focuses on inequality and poverty.

The state's nonpartisan Legislative Analyst Office nodded at — without outright endorsing — this circuitous form of stimulus spending back in April. "The state may want to explore options to expand assistance to unemployed workers," read a report from the office.

Three months later, state lawmakers seem to have taken the hint.

The idea isn't welcomed by all sides. Money borrowed from the federal government has to be paid back. Of even greater concern to some business groups and Republicans is who will ultimately pick up the tab. At a hearing in April, Assemblyman Jay Obernolte from Big Bear argued "come hell or high water, that the burden of repaying this principal is not going to fall on the backs of California's employers" and that the state should be on the hook for the entire loan.

California was the first state to borrow from the federal government this year, taking out $1.8 billion in May to pay out insurance claims.

It's not an unprecedented maneuver. California's trust fund went bust during the Great Recession. Turning to the feds, the state tab maxed out at more than $10.2 billion.

The state only just finished paying off that debt, with an extra $1 billion in interest. Those interest payments were picked up by state taxpayers from the budget's general fund. But the 11-digit principal on all that borrowing was funded by employers through a payroll tax surcharge.

Federal COVID-19 relief legislation forgives all interest payments for loans made to a state's unemployment insurance fund through the end of 2020. Who will pay back the debt after that?

That's a massive political fight for another day.

Email Ben Christopher at [email protected].

CALmatters.org is a nonprofit, nonpartisan media venture explaining California's policies and politics.

Comments

The Business Man
Old Mountain View
on Jul 30, 2020 at 10:27 am
The Business Man, Old Mountain View
on Jul 30, 2020 at 10:27 am
Like this comment

Hood,

If the Feds won't take this seriously, Newsom will.

Talking about a act that would almost guaranty he is presidential material. He will get all of the peoples vote nationwide regarding this act. Anyone with family or friends who lost their job during this crisis will vote for him.

He will be making fools of the Republican Senate.


Dan Waylonis
Jackson Park
on Jul 30, 2020 at 11:17 am
Dan Waylonis, Jackson Park
on Jul 30, 2020 at 11:17 am
6 people like this

Alternatively, cut the spending. There was a whole host of new benefits and programs enacted this year. Cancel them.


The Business Man
Old Mountain View
on Jul 30, 2020 at 2:02 pm
The Business Man, Old Mountain View
on Jul 30, 2020 at 2:02 pm
Like this comment

In response to Dan Waylonis you said:

“Alternatively, cut the spending. There was a whole host of new benefits and programs enacted this year. Cancel them.”

It is time to hold EMPLOYERS responsible for their mismanagement. They exploit “temporary employment” via contractors and employees. They ABUSE it because employees that lose their job BY NO FAULT OF THEIR OWN are punished via unemployment insurance. And this DEPRESSES EARNINGS in all jobs ARTIFICIALLY.

Unemployment insurance should provide 100% of the last recorded wages and it should be allowed until a person can get a job EQUAL to their previous work and recieve the same wages they earned. NO ONE getting unemployment insurance should be required to get a lesser job with lesser wages.

EMPOYERS are RESPONSIBLE to pay their unemployment insurance premiums based on the economic damage they do to the PUBLIC economies. It is time to fix this broken and exploited system.

LETS FIX IT SO THAT WORKERS ARE NOT EXPLOITED BY THIS SYSTEM.

The EMPLOYERS are responsible for their actions. And this crisis is requiring these extreme steps. If you get what you want, the entire economic system will crash even worse. Do you really understand the real MESS we are in right now?


Steven Nelson
Cuesta Park
on Jul 31, 2020 at 12:11 pm
Steven Nelson, Cuesta Park
on Jul 31, 2020 at 12:11 pm
2 people like this

Thank you TBM for some cogent and SHORT comments. Directly on topic! (I don't agree with all BTW). LESS TAHN ONE PAGE OF READING!
Now - please Do Not think that you need to extensively quite entire large sections of others postings (you can start the quotation - then use ellipses ...) or that you need to copy exactly large sections of screed that you could make available through an embedded "link" (love the internet "Hypertext" invention).
Wikipedia link Web Link

best


Steven Goldstein
Old Mountain View
on Jul 31, 2020 at 6:04 pm
Steven Goldstein, Old Mountain View
on Jul 31, 2020 at 6:04 pm
Like this comment

My specific questions are these:

"Should anyone be harmed because they lost a job by no fault of their own?"

Harm defined as a loss of security regarding their life.

"Shouldn't the insurance make one whole under these circumstances?"

Whole means they suffer no ill consequences for losing their work when they din't do anything wrong.

"Why should quality of life be impacted under these circumstances?"

You see my point here, workers are used like cattle or even worse CHATTEL.

And the public policies should not reward this action.


Steven Goldstein
Registered user
Old Mountain View
on Aug 4, 2020 at 12:33 pm
Steven Goldstein, Old Mountain View
Registered user
on Aug 4, 2020 at 12:33 pm
Like this comment

So here comes the real economic disaster.

Hundreds of evictions in the area.

Hundreds of businesses closed forever.

WHY?

Because the situation is that severe. The reality is that COVID is bankrupting everything, people, businesses, city, county state and the federal government.

WHY?

Because we didn't put everything in stasis in April "hoping" to have COVID treatments and vaccines in 1 to 2 quarters. THIS did not happen.

The GOP knows once the people get the rights to 100% unemployment insurance, and that the government has to socialize so much due to COVID, the people will not let it go.

Business leaders will be forced to raise wages and benefits in order to ATTRACT workers again, they have been exploiting workers for decades with an uneven playing field. Using financial trickery to indenture workers in the U.S.

I know because I was taught HOW to do it in business school. This is LEGAL under the laws, but is it ETHICAL?

TIME TO GET IT DONE OR WATCH THE BIGGEST TRAIN WRECK IN HISTORY.


Steven Goldstein
Registered user
Old Mountain View
on Aug 6, 2020 at 5:50 pm
Steven Goldstein, Old Mountain View
Registered user
on Aug 6, 2020 at 5:50 pm
Like this comment

So last week we had 167,000 new hires.

We lost 1,100,000 jobs that same week.

Please refer to the webpage titled " These Charts Put the Historic U.S. Job Losses in Perspective " (Web Link)

That is about twice the job losses we had in the peak period of great recession which was about 600,000 to 700,000 a week.

We lost only about 2.6 million during the peak period of 4 weeks during that disaster, it too to 2016 to recover the jobs from that crisis, that was 9 years.

During this crisis we lost 22,000,000 jobs in a 4 week period. If we try to recover all the jobs like the last time it will take perhaps 80-90 years.

When is everyone going to wake up that this is not fixable via a STIMULUS package, We have to go on LIFE SUPPORT mode now until the COVID crisis is over, and it is better to freeze all money for the time being, thereby all businesses will not have bills to pay along with the people. That is a fair process isn't it?


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