Debt Limit Scuffle Could Be “Dire” for Jobless Benefits

California in "uncharted territory" if federal funding does not come through by Aug. 2 debt ceiling deadline.

The state has no back up plan to support millions of Californians whose unemployment checks may cease to exist starting Aug. 2 if the federal debt ceiling is not raised.

For complete coverage of the debt limit crisis go here.

“This is a dire situation,” said Loree Levy with the California Employment Development Department. “We have to plan for the possibility that all (benefits) could come to an end come Tuesday.”

States usually pay for the first 26 weeks of unemployment benefits from a state trust fund, and the federal government picks up the tab for an additional 73 weeks.

California is one of 30 states that rely on federal money to cover both of those time frames.

The state’s unemployment insurance trust fund is $8.5 billion in the red, and if federal funds are not released come Aug. 2, there is a possibility that unemployment checks will cease to go out.

“We’re in uncharted territory,” Levy said. “We’re very concerned that this could happen, and with very little warning.”

The Employment Development Department is updating its website and preparing notices to inform its customers should their benefits stop, but that’s all they can do, Levy said.

There is no contingency plan to take care of the millions of families who rely on state benefits to cover costs, and that could mean more than just scaling back.

People would be unable to eat, pay electric and energy bills, or use public transportation to bring their kids to school, said Christine Cooper, director of economic and policy analysis at the Los Angeles County Economic Development Center.

Lawmakers in the capital have wrangled over raising the $14 trillion debt limit for weeks but, there being no precedent with which to compare, potential effects of not approving the historically routine matter are still murky.

Medicare, Medicaid and Social Security have been among the highest priority of concern, but unemployment, a largely federal program, has not been characterized as such, Levy said.

Stagnant job growth has made it near impossible for Californians to find work comparable to state benefits.

“The vast majority of people want to be employed,” Cooper said. “But there just aren’t enough job openings to find work.”

Since the recession began, unemployment benefits have grown to 99 weeks and 500,000 Californians have already exhausted that extension.

As for that $8.5 billion California owes the government for unemployment loans, Levy said, interest will start accruing in September to the tune of $320 million.

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