California becomes first state to borrow federal money to pay unemployment claims

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California Gov. Gavin Newsom issues statewide 'stay at home' order

California governor orders entire state to stay at home except for essential needs amid coronavirus pandemic.

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California has become the first state in the nation to borrow money from the federal government to help it pay out the soaring number of unemployment claims tied to the coronavirus pandemic.

The country’s most populous state borrowed $348 million after receiving approval to use up to $10 billion in federal funds until the end of July, a Treasury Department spokesman told the Wall Street Journal on Monday.

Along with California, Illinois and Connecticut have also been approved to tap into federal funds to aid with the unemployment claims -- $12.6 billion and $1.1 billion, respectively – but neither state has yet to borrow the money as of the end of April.

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California, whose economy would be the world’s fifth largest if it was an independent nation, has been hard hit by the coronavirus pandemic – especially when it comes to people’s personal finances. About 3.7 million people have filed unemployment claims in the state since mid-March.

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There is also mounting pressure on Gov. Gavin Newsom to relax the state’s stay-at-home orders and reopen parts of the economy. Protests last week occurred from Huntington Beach to Sacramento against Newsom’s caution to reopen, and some counties in the state are defying the orders and allowing certain business to reopen.

The moves underscore Newsom's challenge as the state enters its seventh week under stay-at-home orders, with only businesses deemed essential allowed to operate. Gyms, bars, shopping malls, restaurant dining rooms and sports arenas all remain shuttered.

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Newsom hinted last week that change was coming soon. He has previously outlined a phased approach in which the economy would gradually return to normal.

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But at the same time he warned of troubling signs, including a lack of testing in rural areas that might be concealing a lurking threat from the virus. He recognized the right of residents to protest, saying he welcomed diverse viewpoints, but also warned that crowding posed a health threat.

Newsom also confirmed the obvious: With its once-roaring economy in shackles and millions jobless, the state will face a funding shortfall that will run into billions of dollars.

“Billions in surplus, in just weeks, tens of billions of deficit,” he said.

The Associated Press contributed to this report.