Capitol Alert: Unemployment insurance deficit to hit $20 billion next year

California's budget deficit is estimated at just under $20 billion, but it could be overshadowed next year by the rapidly increasing gap between income and outgo in the state fund that pays unemployment insurance benefits.

A new forecast of the Unemployment Insurance Fund's long-term condition, published by the Employment Development Department, says the UIF's deficit, which was $6.2 billion at the end of 2009, is expected to hit $15.3 billion by the end of this year and $20.9 billion by the end of 2011.

That forecast, believe it or not, contains a nugget of good news. The 2011 year-end deficit had been projected to be even higher, but a slow recovery from recession, the department says, should increase employment over the next year and a half and therefore reduce the outflow of unemployment checks.

There are about 2.3 million unemployed workers in California now, but that should fall as hiring picks up, EDD says, although it will remain above 2 million in 2011.

The state's UIF, which is financed by payroll taxes on employers, was exhausted many months ago. The state has borrowed billions from the federal government for the past year and a half, plus dispatched more billions in extended benefits financed entirely from the federal treasury.

The state is on the hook for interest on that debt beginning next January. Some officials believe that as part of its national recovery efforts the federal government at some point may forgive states' UI loans. But if the loans must be repaid, it may require increases in employers' payroll taxes, which now total $4.4 billion a year, scarcely a third of the $11.4 billion in state-financed benefits being paid out this year.

The full EDD report on the fund can be found here.

PHOTO CREDIT: Job seekers attend the Long Beach Mega Diversity Career Fair at the First Congregational Church on Nov. 20, 2009 in Long Beach. (Photo by David McNew/ Getty Images)