SACRAMENTO, Calif. -- California's unemployment rate jumped to 8.2 percent in October, the highest rate in 14 years, just as a state fund that pays unemployment benefits was about to run out of money.

State officials are preparing to ask the federal government to step in with a loan on Dec. 1 so they can continue paying jobless benefits to California's now more than 1.5 million unemployed, nearly a third of whom have lost their jobs in the last year.

"In past recessionary periods, back in the early part of this decade and back in the early '90s, sometimes it was kind of more focused in certain areas. This is really more statewide," said Loree Levy, from the California Employment Development Department.

The rate announced Friday by the state was up from 7.7 percent in September, and from 5.7 percent in October 2007.

"Our economy continues to be difficult, especially for people who have lost their jobs or who have begun looking for one," Gov. Arnold Schwarzenegger said in a prepared statement. "As our state unemployment rate rises, my administration continues to work hard to generate jobs and help re-train people who have lost jobs in our hard-hit industries."

The largest hit came in the construction industry, which has lost 65,900 jobs in the last year, followed by manufacturing.

"It's almost Christmastime, and I can't buy anything for myself or my little sisters. It's sad," laid-off grocery clerk Akilah Jones said.

The department said its monthly survey found 527,918 people were receiving regular unemployment checks in October.

But the fund from which California makes those payments is on the brink of insolvency.

The state's unemployment insurance fund is expected to have a deficit of $2.4 billion at the end of 2009, forcing 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 $4.9 billion by the end of 2010.

Schwarzenegger has proposed raising the payments from employers into the fund by $56 to $427 per employee, as well as reducing benefit levels from the current wage replacement rate of 50 percent to 45 percent and raising income eligibility requirements.

The governor used Friday's news to remind the state Legislature that urgent action is needed.

"We've known for years that changes must be made to the fund to keep it solvent, and it is unfortunate that now, when we need it most, it is racing toward the red," he said in a statement.

Schwarzenegger, a Republican, called lawmakers into a special session this month to tackle California's now-$11.2 billion budget deficit.

Democrats and Republicans have so far been unable to reach a compromise on a combination of proposals to increase taxes and cut program spending to fill the gap.

Labor leaders have slammed Schwarzenegger's unemployment proposals, saying they will do further harm to the slumping economy by hurting the unemployed just when they most need help.

"For these families and those who have already been without work for months, unemployment benefits are a safety net to keep them from falling into the economic abyss," said Art Pulaski, executive secretary-treasurer of the California Labor Federation.

Also Friday, President George W. Bush signed into law a bill that Congress approved to keep unemployment checks flowing to jobless Americans through the holiday season.

The Senate passed the measure after a report released Thursday said new claims by laid-off workers for jobless aid had reached a 16-year high and the number of people looking for work had surged past 10 million.

The U.S. unemployment rate hit 6.5 percent in October.

Reported by: David Bienick and The Associated Press
Web produced by: Jason Montiel and Joe Rosemeyer