As unemployment continues to rise, it comes as no surprise that California now faces the largest unemployment fund shortfall in the nation.  The Legislative Analyst Office has forecast an $18.4 billion deficit by the end of 2010. As of now, California has borrowed $6 billion from the Federal Unemployment Insurance (UI) Trust Fund and will probably borrow more. Unfortunately, 25 other states have also borrowed money from this fund and 40 states are predicted to do so by the end of 2010.

These staggering numbers will continue to rise unless states raise their UI taxes or the Federal Government raises the UI federal tax.  All states that are currently borrowing money from the feds must pay their loans back with interest.  California’s debt comes due in January 2011.  It will include about $1 billion in interest to be paid from the General Fund.  In addition, employers may lose their federal tax credit – a potential increase to them of $320 million in 2011.

As California’s legislature continues to battle the State’s massive budge deficit it must also address this mounting UI debt.  It will be a challenge to raise taxes in this climate and a drastic UI tax increase on employers will be detrimental to businesses and likely result in even more Californians facing unemployment.

For a snapshot of other states click this link:  projects.propublica.org/unemployment/