Businesses in 20 states must make the first payment tomorrow on about $35 billion that these states have borrowed from the federal government in recent years to help pay unemployment insurance (UI) benefits.

Most of this borrowing happened because many states kept the business taxes that fund UI benefits too low before the recession, leaving their UI reserves ill prepared for an economic slump.

The U.S. Labor Department recommends that states have enough reserves to cover a year’s worth of UI benefits in a typical recession.  When the recession hit in December 2007, 18 of the 20 states whose first loan repayments are due tomorrow didn’t meet that standard.  Most weren’t even close:  13 of these states had less than half the needed reserves (see graph).

The only states among these 20 that had adequate reserves but still had to borrow from the federal government were Florida and Nevada, both of which were hit exceptionally hard by the bursting of the housing bubble and subsequent economic fallout.