Bubble and Crash

The unemployment insurance fund, which paid out almost $662 million in checks in July as California's jobless rate reached 7.3 percent, is expected to have a deficit of $1.6 billion at the end of 2009.

That shortage will force 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 $3.5 billion by the end of 2010.

Interest on the federal loans could reach nearly $91 million by September 2010 and total millions more before the debts are paid off, adding to the state's fiscal problems as lawmakers grapple with a seemingly endless series of budget deficits.

Since 2002, eight other states have had to borrow money from the federal government to shore up their unemployment funds, according to the U.S. Department of Labor. More appear headed for trouble.

The National Employment Law Project, a New York-based advocacy group for the unemployed, said in May that as many as 18 states, including California, could have trouble maintaining the solvency of their unemployment funds in a recession.