With less than a month remaining until the 2012-13 budget deadline, there are still several unresolved policy issues on the legislative agenda. Such items include pensions, prevailing wage, liquor privatization and property tax independence. While inaction continues to threaten Pennsylvania’s economy, the General Assembly passed and the governor signed both a short and long-term solution dedicated toward making Pennsylvania’s unemployment trust fund solvent once more.
For years, Pennsylvania’s unemployment compensation trust fund has been insolvent. Similar to many other states, Pennsylvania has borrowed billions from the federal government’s unemployment trust fund. While several states have paid off their loans in full, Pennsylvania remains $3.9 billion in debt. The year 2012 marks the beginning of servicing the debt.
This year, employers throughout the commonwealth will pay higher unemployment compensation taxes to cover the $354 million in interest payments and lost federal unemployment tax credits. Each year, until the debt is paid, the federal tax credit continues to be reduced. This places a further burden on employers that already pay $2.5 billion in taxes to the state unemployment trust fund.
When reviewing the commonwealth’s unemployment compensation system, it is no surprise that this dire predicament stifles job creation in a state frequently ranked amongst the worst for business. Despite having some of the highest state unemployment taxes, the program was bound for bankruptcy.
The Keystone state has paid out more in unemployment benefits than 47 other states. While Pennsylvania is the sixth most populous state, its unemployment rate has been lower than the national rate for 60 consecutive months. Nearly 70 percent, the highest percentage in the nation, of the state’s unemployed was eligible for some of the country’s most generous unemployment benefits. The unemployment fund’s mediocre management resulted in a 10 percent payment error rate racking up an additional billion dollars of debt.
The recently passed legislation gives short and long-term solutions to the state’s unemployment compensation fund. First, it pays off the debt to the federal government through a $4.5 billion bond effort. This minimizes tax increases on job creators while at the same time saves $2.3 billion over the next six years because of lower interest charges. It is projected that solvency will be reached by 2019. The plan maintains a benefits freeze until solvency and implements program eligibility reforms for seasonal work and higher income earners.
The legislative reforms to the state’s troubled unemployment compensation trust fund is a step in the right direction toward solvency. The proposal is fiscally responsible as it will restore the fund in the course of six years with more than an estimated $2 billion in savings. The legislation is also mindful of the economy and job situation as it reduced the burden of increased taxes on employers.