California is billions of dollars in debt to the federal government to pay for its unemployment insurance trust at a time when the state’s expenses far exceed its income.

The state’s government owes almost $21 billion to the federal government at an interest rate of around 2.6%, according to the Treasury Department. California borrowed the funds after a surge in unemployment which began during the COVID-19 pandemic, which sent the state’s employment trust into insolvency, according to The Los Angeles Times.

The state’s debts are adding more pressure to the California budget, which is already in disarray, paying more than $650 million in interest on the loan already, with another $50 million due in September, according to the state’s Employment Development Department. The state has resorted to hiking payroll taxes paid by employers and increasing a surcharge on both state and federal payroll taxes to cover the difference and pay off debts.

The unemployment rate remains high in California, measuring at 5.3% in February, the highest out of all U.S. states, according to the Bureau of Labor Statistics.

The huge debt accompanies a $73 billion budget deficit that the state is expected to run in fiscal year 2024, following a projected $24 billion decline in tax revenue as people flee the state. California Gov. Gavin Newsom and the state legislature have so far only proposed $17.3 billion in budget cuts, despite the state’s constitution requiring a balanced budget.

The state accounts for 20% of the U.S.’ jobless claims, far greater than the 11% share that California holds in the nation’s labor force, according to the LA Times. Californians receiving unemployment payments also only get 28% of the average wage in the state, which is lower than the national average, and stay on benefits for significantly longer.

California’s economy has increasingly struggled over the past few years as regulations, high taxes and poor governance dampen business activities. The number of jobs in the state increased by 82,000 in the last year, as of February, but added 61,100 government positions, and rampant retail theft in big cities has raised costs and discouraged business operations.

Many states borrowed money from the federal government during the COVID-19 pandemic to pay for unemployment benefits, with California in particular seeing its unemployment rate jump to 14.8%, the LA Times reported. Every other state, excluding New York and California, has paid off its loans.

The California governor’s office did not immediately respond to a request to comment from the Daily Caller News Foundation.