As he filled out forms in a re-employment center in the parking lot of his union hall, 61-year-old repairman Albert Hinojosa spoke about his uncertain future after losing a job he held for almost a quarter of a century.

I've applied at several places. No luck, said Hinojosa, one of the 4,700 workers laid off by the New United Motor Manufacturing Inc (NUMMI) auto plant. I'd hate to move my son from a private school but I'd like to keep my house.

Hinojosa's financial worries are being felt across the state, and are adding to an already massive debt California owes the U.S. government.

The Golden State has borrowed $8.8 billion so far to cover jobless benefits during a recession where the national unemployment rate crested above 10 percent. It is not alone. More than 30 states have had to take out similar, albeit smaller, federal loans to keep their unemployment benefit systems afloat.

Their combined debt tops $40 billion and the U.S. Labor Department expects 40 states to be in debt to the federal government by year's end, underscoring the labor market's problems in the deepest recession since World War Two.

To give cash-strapped states a break, the federal economic stimulus program enacted last year suspended interest on the loans to states for two years. Without an extension, interest payments resume next year and Washington could raise payroll taxes on employers in delinquent states if loan balances remain outstanding.

State leaders fear that would derail a jobs recovery which they need so employers replenish bare state coffers and enable states to repay the unemployment loans.

As Connecticut Gov. Jodi Rell in a recent letter told her state's Congressional delegation, It would inevitably have the effect of stifling growth, halting reemployment and dragging out the employment crisis even further.


Three thousand miles away from Rell, Hinojosa can testify to the difficult job market, which is at odds with economic indicators pointing to better times.

Early this month NUMMI workers clocked out for the last time. Hinojosa had worked at the company's plant for most of the 25 years that General Motors and Toyota Motor Corp jointly operated the facility, a landmark joint venture for the auto industry.

I figured, 24 years, it was going to be there for a while -- until at least I retired, Hinojosa said.

On 370 acres on the outskirts of Silicon Valley, the last U.S. car-making plant west of Texas was known locally for job security, high wages and generous benefits, and it lured married couples and extended families as employees.

The number of people who went in there for a summer 20 years ago and now are in their forties says this was a pretty good opportunity, said Lee Schore, a counselor brought in by the United Auto Workers and public officials to help NUMMI's former workers.

They face a bleak labor market in California. Its jobless rate hit 12.6 percent in March, and in counties where most NUMMI workers live unemployment ranged from 11.9 percent to 18.4 percent. The U.S. jobless rate remains above 9.0 percent.

Solar-energy companies near NUMMI may pick up some former employees, but many will never work on an assembly line again.

It may be a long, and for some, a devastating journey to get into a service-sector job that pays half as much, said Harley Shaiken, a professor at the University of California, Berkeley who chaired a state commission on NUMMI's closure. Manufacturing jobs that were well paid, that's something unique you would go to the Smithsonian to find.

Job losses at NUMMI suppliers may also be severe. Shaiken sees 33,000 jobs across California affected by the closure. Tony Castillo, a local official aligning services for displaced NUMMI workers, said the number could reach 50,000.

State officials are bracing for widespread job losses because 29 counties house NUMMI suppliers and companies indirectly linked to its plant, said Rick Deraiche, a deputy division chief at the state Employment Development Department.


San Joaquin County officials east of Fremont worry NUMMI's closure could dash their dreams of a more diverse economy, which had been rooted in farming and primed by construction until the housing crash.

Two or three years ago people said, 'we could really use these parts suppliers and in ten years we'll be able to build cars ourselves,' said Jeff Michael of the Business Forecasting Center at the University of the Pacific in Stockton, San Joaquin County's biggest city.

The county assumed the auto industry's troubles were contained to the Midwest, notably Michigan, home to the three largest U.S. car makers.

Michigan currently has 14.1 percent jobless rate, the worst of any state, and owes the U.S. government $3.9 billion for propping up its unemployment system, the second biggest such debt of any state.

It's the state with the worst problem but nearly all states are in some form of financial distress, said Mark Zandi, chief economist at Moody's Analytics. Perhaps next year the auto industry will start reviving and they could possibly begin weaning themselves off federal aid. But not this year.

Michigan also is the only state where employers are paying higher federal payroll taxes due to a failure to repay U.S. unemployment loans.

Michigan employers may see another hike next year and employers in Indiana and South Carolina may experience increases then too unless state leaders repay the federal government.

By 2012 employers in 25 states, including California, New York and Texas, could face rising federal payroll taxes if unemployment loans remain outstanding, which analysts expect they will, said Rich Hobbie, executive director of the National Association of State Workforce Agencies.

They can't completely solve their problems in the near term, Hobbie said. If we have eight years of sustained growth as we had back in the 1980s then the states have a shot of repaying their loans.

California officials aren't betting on a quick economic miracle to help them repay their debt. In fact, they expect the state to go deeper into debt to continue paying unemployment benefits. They forecast that debt to top $18 billion by year's end and $27 billion by the end of next year.

(Reporting by Jim Christie)