CHARLESTON, W.Va. — Something West Virginia didn’t have to do in the wake of the 2009 financial crisis, it will apparently have to do because of the 2020 pandemic–and that’s borrow money from the federal government to cover unemployment claims.
State Commerce Secretary Ed Gaunch said Friday the state has received word from the U.S. Department of Labor that the agency will provide a line-of-credit for the state to draw-down a maximum of $375 million to cover the claims. Gaunch said he doesn’t believe the state will need all of that but it will be good to have a backstop.
Gaunch said the Justice administration saw this possibility coming with the more than tripling of the state’s unemployment rate since the pandemic hit.
“We kind of waved the flag saying we need to be prepared for this,” Gaunch said during a Friday appearance on MetroNews “Talkline.”
The unemployment rate is now believed to be close to 20 percent.
More than 164,000 people in West Virginia have filed for traditional unemployment since March 1 and as of Friday, nearly 14,000 additional residents had filed claims under the Pandemic Unemployment Assistance (PUA) program. Gaunch said that’s put a significant strain on the state’s Unemployment Trust Fund.
The trust fund balance, which began the month with a balance of $134 million dipped to $41 million Thursday, which was the last day of the month, but increased by about $30 million Friday when employers submitted their end of month payments. Gaunch said the fund is holding its own but won’t be able to do so without a federal interest-free loan in the months ahead.
“As the unemployment goes up obviously the amount coming in is not sufficient to pay out the claims,” he said.
Gaunch said borrowing the money will guarantee all unemployment claims will be able to be paid throughout the approved weeks to claimants.
West Virginia was one of only a handful of states that did not have to borrow money from the feds for its trust fund to remain solvent during the 2009 financial crisis. The state legislature passed a bill in 2009 that raised the base wage rate from $8,000 to $12,000 a year. It froze the benefit rates and provided a one-time cash infusion.
The trust fund ended 2010 at $76 million coming off the recession. Gaunch said the state will pay back any money it borrows with cash flow from employers. He said that cash flow should improve as the economy ramps back up and fewer residents are on unemployment.
“Obviously the hope is that we’ll be taking in more money than we’re spending,” Gaunch said.
The Associated Press reported Thursday that California, Connecticut, Illinois, Massachusetts, New York and Texas have all notified the federal government that they’ll have to borrow money to cover their trust funds.
If unemployment doesn’t go down, states may be forced to raise unemployment taxes on businesses to stabilize their funds.