State auditors say California's unemployment fund is broke and will face a huge deficit come December. By the end of this year, it's estimated the state's unemployment insurance fund will be $7.4 billion in the red. Some lawmakers say business taxes should be raised to replenish the fund, but a small business advocate says raising taxes will cost more jobs and make the problem worse.
"If you triple the existing taxes you make the existing employment opportunities more expensive. That means, potentially, more people could lose jobs," said smal business advocate Michael Shaw.
"You have a growing imbalance in the system and frankly it's just not going to be able to sustain itself and it can no longer respond to economic conditions today and in the future," said Loree Levy of the state's Employment Development Department.
A few years ago, state lawmakers increased unemployment benefits. But with record-high unemployment and several benefit extensions, the state has borrowed billions from a special federal fund to keep the state system solvent. The state's $5 billion of federal unemployment loans must be repaid, with interest, by the end of 2010.
