Deficit looms for California's unemployment benefit fund

sacramento -- With joblessness at a 12-year high and expected to head higher, California's fund for paying unemployment benefits is about to go broke.

The fund, sustained mainly by taxes on employers, is projected to be deeply in the red as soon as March.

And the administration of Gov. Arnold Schwarzenegger is alarmed that it may have to keep the fund afloat by borrowing from the federal government and using state money to pay nearly $100 million in interest over two years.

At stake is the stability of a 73-year-old program that began during the Depression. In July, California paid unemployment benefits worth $567.4 million and received 267,000 new claims for jobless benefits.

Under the program, eligible workers can receive maximum benefits of $450 a week, depending on their previous earnings. Benefits last as long as 26 weeks, and many out-of-work people can qualify for a 13-week extension, recently approved by Congress.

Unemployment checks won't bounce, even if the fund goes bust, the Employment Development Department says. But labor experts warn that growing deficits could prove costly to employers, workers and the state.

According to the latest projections, which already appear optimistic, the hole in the fund could exceed $1.6 billion at the end of 2009 and $3.5 billion by December 2010 -- unless the economy turns around dramatically.

A threat to unemployment benefits is frightening, said John Menou, a union bricklayer from Corona, who's been out of work sporadically because of the drop-off in construction. "I can't believe it's going to be in the red. That's terrible," he said. "There are a lot of people who don't get on unemployment until they really need it."

Right now, the fund is out of whack, said Todd Bland, a labor issues specialist at the nonpartisan California legislative analyst's office. "The current system of benefits and revenues cannot be sustained over future business cycles."

But a long-term fix will require the support of business and labor unions and could involve hiking taxes on employers, cutting benefits, tightening eligibility for workers or some combination thereof.

Policymakers have been reluctant to do any of those since facing a similar but smaller unemployment cash crunch four years ago. They ducked a decision because the fund's reserve began to grow in 2005, as the state recovered from the dot-com bust at the decade's start.