Business

SACRAMENTO (AP) ― California's unemployment rate jumped to 8.2 percent in October, the highest rate in 14 years, just as a state fund that pays unemployment benefits was about to run out of money.

State officials are preparing to ask the federal government to step in with a loan on Dec. 1 so they can continue paying jobless benefits to California's now more than 1.5 million unemployed, nearly a third of whom have lost their jobs in the last year.

The rate announced Friday by the state Employment Development Department was up from 7.7 percent in September, and from 5.7 percent in October 2007.

The largest hit came in the construction industry, which has lost 65,900 jobs in the last year, mostly in new-home building. About 31,500 manufacturing jobs were lost in that time and 31,800 in the financial sector, including banking and mortgage industry jobs, according to EDD.

The department said its monthly survey found 527,918 people were receiving regular unemployment checks in October.

But the fund from which California makes those payments is on the brink of insolvency. The state's unemployment insurance fund is expected to have a deficit of $2.4 billion at the end of 2009, forcing it to borrow from the federal government for only the second time since the program was established in the 1930s.

If no steps are taken to increase the fund's revenue or reduce its payouts, its deficit is projected to hit $4.9 billion by the end of 2010.

Gov. Arnold Schwarzenegger has proposed raising the taxes that employers pay into the fund by $56 to $427 per employee, as well as reducing benefit levels from the current wage replacement rate of 50 percent to 45 percent and raising income eligibility requirements.

The governor used Friday's news to remind the state Legislature that urgent action is needed.

"We've known for years that changes must be made to the fund to keep it solvent, and it is unfortunate that now, when we need it most, it is racing toward the red," he said in a statement Friday.

Schwarzenegger, a Republican, called lawmakers into a special session this month to tackle California's now-$11.2 billion budget deficit.

Democrats and Republicans have so far been unable to reach a compromise on a combination of proposals to increase taxes and cut program spending to fill the gap.

Schwarzenegger's proposals would not take effect until 2010, however, leaving the state on the hook for whatever loan it gets from the federal government.

Labor leaders have slammed Schwarzenegger's unemployment proposals, saying they will do further harm to the slumping economy by hurting the unemployed just when they most need help.

"For these families and those who have already been without work for months, unemployment benefits are a safety net to keep them from falling into the economic abyss," said Art Pulaski, executive secretary-treasurer of the California Labor Federation.

Also Friday, President Bush signed into law a bill that Congress approved to keep unemployment checks flowing to jobless Americans through the holiday season.

That law allows people collecting benefits in California to apply for an additional 13 weeks of federal assistance after their 26-week state benefits run out. California was among several states deemed hardest hit by the current economic downturn, making them eligible for more federal aid.

The additional benefits come on top of a 13-week extension approved in July. Since then, California has processed more than 283,000 unemployment benefit extensions, said Loree Levy, a spokeswoman for EDD.

The Senate passed the measure after a report released Thursday said new claims by laid-off workers for jobless aid had reached a 16-year high and the number of people looking for work had surged past 10 million.

The U.S. unemployment rate hit 6.5 percent in October.

In California, Levy said the number and size of claims being paid out of the state unemployment fund have continued to climb, while employers' payments into it have remained virtually flat, causing the shortfall.

"It's to a point now where the old system cannot sustain what today's economic demands are," Levy said.

If the state is unable to repay its federal loans by September, EDD estimates it will owe about $20 million in interest—money that would have to come out of the strapped general fund.

Further adding to the state's bad economic news, Washington Mutual announced Friday that it will close two San Francisco Bay-area operation centers, cutting about 1,600 jobs.

Levy said her agency also is not seeing the traditional surge in temporary holiday employment.

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