The Massachusetts unemployment insurance fund is now borrowing money from the federal government to keep paying benefits.

So far, the state has borrowed just over $40 million, but state officials estimate borrowing will top $1 billion before the Great Recession is over.

As we projected last month, Massachusetts joins 26 other state funds that are also insolvent. So far, they have borrowed a total of more than $30 billion just to keep benefit checks in the mail. (Is your state’s trust fund in danger?)

The mass insolvency has also taken a human toll: unemployment insurance taxes increased for employers in 36 states this year, and a handful of other states have frozen or cut benefits.

Massachusetts businesses have been slated for a hefty tax increase in 2010, which would slow the state's rate of borrowing (but not halt it altogether), but Gov. Deval Patrick recently proposed eliminating the tax increase as part of a job-creation plan that might prove popular, given that the state already has the highest unemployment insurance tax rate in the nation. A cancelled tax increase would likely lead to even more borrowing.

The states, D.C., Puerto Rico and the Virgin Islands operate separate unemployment insurance systems with minimal federal oversight. They are given wide latitude to set tax rates and benefits, and while a few entered the recession with ample reserves, most had far less than the 18 months' worth recommended by the Department of Labor. Likewise, benefit levels range from generous to bare-bones.

Massachusetts entered the recession with just under five months of reserves, and it also has the nation's second highest average weekly benefit, $423.30, which meant that when the number of unemployed workers receiving benefits spiked in early 2009, those reserves were quickly depleted.

The stimulus bill made unemployment insurance trust fund loans interest-free until 2011, but if states don't pay back their loans by then (which most states will not be able to do), they face an interest rate of just over 4 percent, meaning they will have to pay tens of millions of dollars per year in interest out of their general funds.

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