The unemployment money being borrowed by the federal government and then paid out in my home state of California to help those in need has now reached epic proportions. It seems that later this week California will have to send a check for over $300 million dollars to cover the interest due on $8.9 billion it has borrowed to pay unemployment benefits.
Obviously the recession has hit everyone hard; however, California leads the nation in money borrowed to pay unemployment benefits to the jobless. At over $8.9 billion California has almost tripled its closest competitor Michigan at $3.2 billion borrowed from the federal government. Even New York, a state with a bigger population is a just at $3 billion.
California $8.9 billion
Michigan $3.2 billion
New York $3.0 billion
Pennsylvania $2.9 billion
The California state unemployment insurance trust fund that pays out the benefits is funded primarily by employer contributions. However, that fund has been spewing red ink since 2009. Back then the fund only had 4.8 million collected and had to payout unemployment benefits of over $11.3 billion. Currently, the golden state of California has over 1.1 million people who are collecting unemployment benefits.
Unfortunately, because the great state of California is broke, they have to borrow the money to pay the interest on the borrowed money for unemployment benefits (still following?). So the California general assembly have decided that they are going to borrow from the state's disability insurance trust fund, which has $2.1 billion to pay the interest on the money borrowed from the federal government to pay unemployment benefits. This is a clear case of borrowing from Peter to pay Paul.
The sad part is that we Californian's are going to have to go through this all over again next year when the interest payment is due again. However, the interest due next year will be closer to $593 million. And we are not even talking about the actual principal of almost $9 billion dollars we owe to the federal government in the first place.