The Pennsylvania Unemployment Trust Fund is bankrupt. The Wolf administration says a long-term solution will save taxpayers millions. – The morning call

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HARRISBURG — Pennsylvania lawmakers have failed to pass a policy change that supporters say would bolster the state’s pandemic unemployment program against future spikes in unemployment claims while averting huge levies on taxpayers’ money to support the system.

The states new budget includes money to pay off $42 million in debt that was incurred to keep unemployment benefits going as historic needs exceeded COVID-19-era financial reserves.

But a bill to ensure that these reserves contain enough money to weather future periods of economic turmoil came to naught. This inaction could cost Pennsylvania taxpayers hundreds of millions of dollars in future interest payments, proponents of the policy change say.

“To my knowledge, no work has been done on this bill,” State Rep. Stan Saylor, R-York, chief budget negotiator, told Spotlight PA before the latest plan was approved. government spending on July 8. the first time I hear about it, really.

Saylor was referring to HB 549a sprawling omnibus bill that has sat in committee since February 2021. The Democratic-sponsored bill would update aspects of the state’s unemployment program, including the solvency formula that determines how much money the program should have to cover benefit payments.

Sponsors and supporters of the bill say the more conservative HB 549 measure would better support the system and avoid more taxpayer-funded debt service on loans and interim bonds, but critics say it would unfairly burden business owners already struggling with increased tax burdens.

Solvency is calculated by comparing what is in a given unemployment trust fund reserve to what has come out of the same reserve in a previous time window, with the aim of using past demand to gauge future demand and prepare the chests accordingly.

Pennsylvania’s Unemployment Trust Fund — a fund owned by the federal government and administered by the state’s Department of Labor and Industry — is currently at 0% solvency and hasn’t been fully solvent since 1971, according to state officials. That means a reliance on multibillion-dollar federal loans and the taxpayer-funded interest payments that come with them.

The exact amount of money needed to meet the definition of fully solvent fluctuates, and state officials did not directly answer a question about the current number. It was $6 billion in February 2020, according to the Courier Times. Since July 20 of this year, the fund contents only $104 million.

Currently, the solvency rate dictated by state law looks at the amount of money in the unemployment trust fund against what it has paid out over the past three years. L&I says this approach is perilous if three years of low unemployment are followed by a period of high unemployment, for example.

HB 549 would adopt a formula that aligns with that used by the federal government to determine the solvency of trust funds. It uses the last three recessions – periods of increased jobless claims – instead of the last three calendar years as a benchmark.

According to HB 549 proponents, this change would result in a more fiscally conservative forecast and solvency ratio, ensuring that the revenue-generating mechanisms that feed the unemployment fund – taxes paid by employers, for example – are sturdy enough to cover the costs of owning them.

State Representative Gerald Mullery, D-Luzerne, lead sponsor of HB 549, says the update makes practical sense from an operational perspective. He said ensuring there was more money in the unemployment fund to start with would prevent the kinds of large taxpayer-funded debt and interest payments that are incurred when claims rise and the State turns to Federal Title XII loans and state-issued bonds to cover benefits. costs.

Between July 2013 and January 2020, the state paid more than $570 million in interest on a bond that was used to repay more than $3 billion in federal loans covering unemployment benefits during the Great Recession. (Millions of dollars were also paid in direct interest on federal loans.) That bond was fully repaid in January 2020 — two months before the COVID-19 pandemic hit and undermined the system again.

The state was authorized to take out a federal loan of up to $2.8 billion to meet pandemic demand months later.

But while Mullery touts promised benefits to taxpayers, opponents of his bill and solvency formula change say business owners would be unfairly forced to pick up the slack.

There are consequences of having a less solvent unemployment trust fund for employers and the unemployed. In Pennsylvania, when the rate falls below full solvency — a goal meaning the fund has 250% of the average annual benefit payment over the previous three years — maximum unemployment benefit payments drop and unemployment taxes paid by employers increase.

And because HB 549 would adopt a more conservative formula, the bill would likely make it harder to achieve full solvency, while ensuring that employers’ taxes stay higher for longer, critics say. (State unemployment taxes are currently capped with the solvency rate at 0%).

“We certainly appreciate the need for a solvent unemployment compensation system, but there has to be a balance,” said Alex Halper of the PA Chamber of Business and Industry, an advocacy group with 10,000 member employers across the country. the state. Halper said Pennsylvania employers already bear a disproportionate share of the burden due to the fact that state unemployment taxes are higher than the national average.

“Maybe we also need to look at who gets benefits and if benefits are paid to the people this program was intended for,” Halper added of the job seekers.

The PA Chamber and other business groups have hailed the new state budget’s use of federal stimulus dollars to wipe out Pennsylvania’s mountain of unemployment debt. The move allows the state to effectively dodge federally imposed austerity measures, including an increase in federal unemployment contributions that employers pay in addition to state unemployment contributions.

But the influential lobbying organization remains opposed to HB 549 and the solvency formula change proposed by the bill, and legislative opposition to the plan has largely reflected the inclinations of those groups.

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The Department of Labor and Industry, meanwhile, says the need for an updated formula is acute.

In the wake of the seismic economic disruptions of the COVID-19 pandemic, the existing state solvency formula is a more aggressive benchmark by default, as needs have soared for two consecutive years.

In the long term, however, there are few guarantees, and L&I reports that the program could find itself underfunded without a formula that adopts a more cautious permanent basis.

To demonstrate the difference, the department notes that Pennsylvania’s current formula had the state’s unemployment fund at 183% solvency — a high figure — in 2018.

The federal formula, however, which HB 549 emulates, told a very different story and placed the state well below a related minimum benchmark.

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