States have the option of using pandemic funding to extend jobless benefits.

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The leaders of the Labor and Treasury departments indicated Thursday that states can use funding from pandemic relief legislation to extend unemployment benefits through a Sept. 6 deadline.

Treasury Secretary Janet Yellen and Labor Secretary Marty Walsh sent a letter to the heads of the Senate finance, and house ways and means committees saying that while benefits initially established by the March 2020 CARES Act are set to expire it may make sense for some states to use federal funding to continue support for the unemployed.

As unemployed people are set to lose an additional $300 per week provided in response to the pandemic Yellen and Walsh said states can use leftover portions of the $350 billion allocated to state and local governments through the American Rescue Plan to supplement unemployment benefits.

“In states where a more gradual wind down of income support for unemployed workers makes sense based on local economic conditions, American Rescue Plan funds can be activated to cover the cost of providing assistance to unemployed workers beyond September 6th,” they wrote.

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A Labor Department official told CNBC that states will not be required to meet specific economic conditions to offer the extra assistance.

Yellen and Walsh also announced the Department of Labor will provide an additional $47 million in new grants to support re-employment services.

The winding down of unemployment benefits comes as the Labor Department on Thursday reported 348,000 U.S. workers filed new claims in the past week, the lowest figure since March 2020.

In the letter, Yellen and Walsh said President Joe Biden believes the pandemic has “exposed serious problems” in the U.S. unemployment insurance system and has called on Congress to reform the system through reconciliation.

“The president has already laid out his principles for such reform: he believes a 21st century UI system should prevent fraud, promote equitable access, ensure timeliness of benefits, provide adequate support to the unemployed and automatically expand benefits in a recession,” they wrote.

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