With the state's jobless rate approaching a 12-year high of 8 percent, California's Unemployment Insurance Fund is paying out as much as $27 million in benefits each day.
Labor officials are warning the fund could be in the red by January.
"It is running low. We are projecting that the fund will go broke in early 2009," said Michele Sutton-Riggs, California Unemployment Insurance Program.
The money is rapidly running out because the unemployment rates are much higher than projected. The state has asked the federal government for a loan that could probably float the fund until next fall. Still, for the 1.5 million Californians collecting unemployment checks, it's an uneasy feeling to know their only lifeline is on shaky ground.
"It's getting harder by the day. A lot of people are talking about it. Nobody's willing to put their hands out anymore," said Elaine Ramirez, an unemployed single mother.
Lawmakers are already looking for ways to restore the fund's financial health. One idea is to boost the payroll taxes on companies. Company contributions to unemployment are based on annual pay.
In Washington state, employers are taxed on the first $31,000 each worker earns. In Oregon, it's the first $30,000, while in Nevada, it's the first $24,000. California companies only pay taxes on the first $7,000, which is the minimum allowed under federal law.
Businesses don't like the idea because they say they are already heavily taxed.
"They do not have the ability to expand, grow and provide jobs. So it is another cost to employers in the state," said Jason Schmelzer, California Chamber of Commerce.
Other proposals include cutting unemployment benefits. The current average is a little over $300 per week.
The solutions are not popular, but if the state resorts to a federal loan, the interest on that could cost California taxpayers $100 million.