California is borrowing federal government money to pay for unemployment

California is the first state to borrow money from the federal government to keep paying unemployment claims during the coronavirus outbreak. Yahoo Finance’s Kristin Myers joins Zack Guzman to discuss.

Video Transcript

ZACK GUZMAN: Of course, Texas was the major focus of our show yesterday and last week following Georgia's moves to reopen the economy. But now California is also slated to join them in regards to opening their economy. But also-- the first state to tap federal government funding here to make sure that they have enough money on hand to supply unemployment claims and unemployment insurance for the citizens of that state. And for more on that and plans to reopen the California economy, I want to get to our own Kristin Myers, who has the details. Kristin?

KRISTIN MYERS: Hey, Zack. So I'm going to get to California reopening in just a second. But I want to touch on that really big headline news that you were just sharing-- that California, essentially, is the first state to have to borrow money from the federal government in order to pay off those unemployment benefits and those unemployment claims. So it's now borrowed about $350 million but has been given a line of credit of up to $10 billion for that specific purpose of paying out those unemployment claims through the end of July.

Now, the unemployment numbers-- I was just looking at them moments ago. They seem to peak at around the beginning of April. But the numbers are still incredibly high. So I want to [AUDIO OUT] those figures for you.

So when it was at its peak, it had about 1 million claims that were processed. But just last week-- that's the week of April 25-- they processed about 330,000 claimants. They had to count $1.4 billion just in that week alone for unemployment benefits. And 4.1 million claims have been processed since March 15-- just since March 15, Zack. And $4.5 billion's been paid in benefits since March 14 now.

As you mentioned, they are the first state to have to borrow money from the federal government to pay out for those unemployment benefits. But they probably are not going to be the last. Illinois, and also Connecticut, has also been granted lines of credit from the federal government to pay out unemployment benefits.

Now, I want to mention here that they have not yet accessed any of those funds. But $12.6 billion has been granted to Illinois. $1.1 billion has been granted to Connecticut for paying out those unemployment benefits. And that's also through the end of July to finance those unemployment funds.

Now, I want to remind everyone here that that extra $600 that the federal government approved for unemployment claims is actually going to be paid for in a separate program that's being funded by the federal government. So what we're talking about here is strictly those unemployment benefits that each individual state provides for folks that are now out of a job.

Now, to your point about reopening the states, California Governor Gavin Newsom actually announced that they're going to be reopening part of the states actually as early as this week. This Friday, some businesses are going to be allowed to reopen. Those include things like book stores, clothing stores, toy and sporting goods stores, and then also music and florists.

However, malls, offices, sit-down purposes like restaurants, bars-- those are going to have to stay closed. But some of these other stores are going to be allowed to reopen. So we're going to have to see how that's going to impact-- not only the unemployment claim there, but also the number of cases of coronavirus in the state.

ZACK GUZMAN: Yeah. You highlight the cases there. And that's kind of the issue that we heard, even here in New York, from Governor Andrew Cuomo. When we think about the trade off here, you're highlighting the issue on the economy front when we think about the unemployment claims. But as we do reopen, they're going to be tracking that in an interesting new study out from the University of Washington highlighting that issue.

Of course, we heard from the White House with President Trump hoping that death count wouldn't surpass 100,000. He gave that update to Fox News over the weekend. But what's the study saying about what the implications of reopening right now might be?

KRISTIN MYERS: Right, Zack. So the University of Washington has this predictive modeling-- deaths per week, but also deaths just over a long tail over the next three months until the beginning of August. And we've talked about those figures before. Previous numbers have been around 73,000, 74,000 deaths by the beginning of August. And now that number has been revised upwards-- up to 134,000 deaths, Zack. And that's not even just on the top end.

I want to mention that there's a range that we're given due to uncertainty. So the range goes from about 95,000 on the low end-- so that's still much higher than that 73,000 deaths that they had been predicting by the beginning of August-- up to 243,000 deaths. And again-- just the beginning of August. And the reason they decided to do that-- I want to requote here why they decided to change their modeling.

They said, "This new modeling approach will allow for a more comprehensive examination of how COVID-19's toll could unfold in the coming months, taking into account these underlying drivers." They're referencing there this easing and these reopening of the states. They go on to continue to [AUDIO OUT], "This is particularly important as many locations ease or end prior distancing policies without having a clear sense of how these actions could potentially affect COVID-19 trajectories given current trends in testing and mobility among others."

So again, the University of Washington had to change their own modeling to take into account that many states are either doing a partial reopen or even a full reopen of their state-- states like Texas, like Georgia, and now California. So again, we're going to have to see if those numbers in the end fall in line with some of those models.

ZACK GUZMAN: All right. Kristin Myers, bringing us the latest from out there as California moves to reopen their economy. Thank you so much for bringing us that.