California's unemployment insurance fund is already operating in the red and may not be sufficient to meet the rapidly increasing demand for unemployment benefits.

The rate of the state's unemployed reached a record-breaking 11.5 percent in May. The unemployment rate in San Bernardino and Riverside counties hit 13 percent.

The state Employment Development department projected a $17.8 billion deficit in the unemployment insurance fund by the end of 2010. A $6.2 billion deficit is expected by the end of this year.

A report by ProPublica found that California has been paying more in unemployment benefits while there has been no increase in the amount of money flowing into the fund.

"Obviously, there's things that are out of balance, but of course right now a huge part of that is the fact that unemployment is so high," said Patrick Joyce, spokesman for the California Employment Development Department. "We have a lot more claims than we had two years ago, so that is of course pushing up on the amount of money we're paying out."

California increased benefits in 2001, but only taxes the first $7,000 of wages, which has not changed in 25 years, according to the report.

The governor made a proposal in January to decrease benefits slightly, increase the amount employers contribute and take out a federal loan.

These options are still on the table, Joyce said.

"Because we're borrowing from the federal government we'll have to repay it at some point," Joyce said. "The amount of money collected in taxes in the state isn't enough to cover unemployment claims, so we have to borrow money from the federal government."

If the state borrows the nearly $18 billion from the federal government to fill the gap and does not repay the loan by 2011, it could face paying $600 million annually in interest, according to the report.

"Financially of course the state is in such dire financial straits as it is, the act of borrowing is probably going to increase the pressure on the bond rating of the state, which is already the lowest in the country," said John Husing, a regional economist based in Redlands. "That means interest rates we pay to borrow money will go up."

California was one of the first states to receive an additional $25 a week of stimulus money for the unemployed, according to a governor's office news release.

An additional $415 million in federal stimulus money was also secured to help with job training and job placement.

Numerous extensions have been granted by the federal government.

Some unemployed individuals could receive benefits for up to 79 weeks, Joyce said.

"Those extra weeks are funded by the federal government, not state money, and it's not money we have to repay to the federal government because Congress enacted those extensions," Joyce said.

Maximum weekly payments have grown since 2001 from $230 to $450 and the percentage of a person's weekly wage that can be received has increased from 39 percent to 50 percent.

The governor has mentioned the possibility of bringing the rate down from 50 percent to 45 percent.

"With the unemployment running at the level it's running at, if they shut off those funds it would be catastrophic for the overall economy as well as for the families," Husing said.

There are about 2.1 million unemployed Californians, which is up by 73,000 since April, according to numbers released by the Employment Development Department.

Out of 49 metropolitan areas with 1 million people or more, the Inland Empire is the second-highest with Detroit taking the No. 1 spot, Husing said.

Between 2000 and June 2007, the number of unemployed in the Inland Empire hovered around 90,000. The number is now around 225,000, Husing said.

"So it's gone up by two and a half times and that tells you there's a huge number of people out there who have lost their jobs," Husing said. "That really is a measure of severe economic pain."

Husing predicts the unemployment rate will reach an annual average of 13.2 percent in the Inland Empire before we see a turnaround.

"At this moment, it's completely unknown because we don't know yet what we're going to do to recover from the housing mortgage meltdown, which is continuing unabated," Husing said.

Increasing the amount employers contribute to the fund would have a similar effect to lowering the benefit, Husing said.

The governor's proposal includes pushing the taxable wage ceiling from $7,000 to $10,500.

"If you reduce the flow of funds into this area by whatever amount - that has the effect of causing the economy to perform even worse than it's performing now in this area," Husing said. "We're already in the worse shape of any place in the country other than Detroit."

Raising taxes on businesses would be the wrong thing to do, said Parviz Asheghian, economics professor at Cal State San Bernardino.

Through a fiscal policy, the government would increase government expenses and increase taxes, he said.

"They're already doing part by increasing government expenses - why they would want to increase taxes doesn't make any sense to me," Asheghian said.

The government needs to decrease taxes to encourage businesses to hire more people, he said.

"I'm personally against (raising taxes), but I think the best thing to do is cut inefficiency and the government is notorious of having that," Asheghian said.

The hiring of about 1,150 staff members was approved in April to answer phones in the overwhelmed call centers at the Employment Development Department.

Operating hours have also been extended.

The added staff helped absorb the shock of a 0.4 percentage point increase in Californians requesting unemployment insurance over the last month.

"There are obviously more people out of work and as a result more people are filing for unemployment insurance, but it's already at a high level," Joyce said. "So it's adding onto the amount, but it's not affecting us dramatically as far as unemployment benefits."

Not everyone is qualified to receive unemployment insurance benefits, Joyce said.

People who are self-employed or do not have a long enough work history may be rejected.

"There are a lot of complexities in the whole question of who's eligible so we encourage people to go ahead and file," Joyce said. "There's nothing wrong with filing as long as you give accurate information."