Editor’s Note: This story appears today as part of the PA Independent’s Year in Review series. This week, we will re-post several of our top stories from 2010. The article below was originally published on July 30, 2010.
A report issued by the Council of State Governments marks Pennsylvania as fourth among the 31 states suffering from unemployment debt and borrowing from the federal Unemployment Insurance Trust Fund, and fifth among the per capita placed upon the state’s taxpayers.
To date, Pennsylvania has borrowed over $3 billion for its unemployment compensation fund from the federal government, translating to a per capita burden of $238.69, which number would include those who are unemployed and below the poverty line. Adjusted for the unemployed, the per capita cost rises to $262.90, and adjusted for those living under the poverty line, the per capita burden is $271.58.
Adjusted for the expected increase in the debt once tax credits expire and the interest due kicks in, the per capita burden is $555.35.
“We have been trying to do a number of things through the Unemployment Compensation Advisory Committee and those discussions have actually stalled, and we’re left with no resolution to this issue yet” said Troy Thompson, press secretary for the state Department of Labor and Industry, which handles the loan.
He said if the current level is not addressed, by 2018 the unemployment debt fund could grow to $7 billion.
“The problem is that we would need to continue borrowing and then the employers’ financial burden would be significantly increased, beginning in 2011, because that’s when the unemployment waiver on loans goes away. Right now we don’t have to pay any interest on loans. When you combine the fact that, the employers would lose the Federal Unemployment Tax Act Credit (FUTA), a surcharge of sorts, and then the interest payments impose an extra $ 4 billion tax burden,” Mr. Thompson said.
Pennsylvania’s unemployment debt size comes after California, Michigan and New York, and the per capita burden is smaller compared to Michigan, Indiana, North Carolina, and Wisconsin. But Mr. Thompson agreed the situation was “daunting” and admitted right now, there is no plan of action.
“More than 15 months ago we convened the Unemployment Compensation Advisory Council. We thought that we had an appealing proposal that was brought by [state Sen. John Gordner (R – Columbia)] and we thought that we had the agreement of both business and labor. At the last minute the lobbyist that represented business would not agree to the terms of the proposal, just in principle,” said Mr. Thompson. Nothing has happened since then.
While the full proposal was not available, Mr. Thompson said one provision would have set an equal, gradual increase in the taxable wage base, affecting the tax portion employers pay for employee wages. Currently, employers pay taxes on the first $8,000 of wages for every employee, and as of 2007, taxable wages represented 21 percent of wages compared to 43 percent in 1984. A second provision would slow down the growth rate of the benefits being paid out to employees and to increase the employee contribution. Currently, employees pay an additional tax of about 80 cents on every $1,000, for all their wages.
But as things stand now, an interest rate has not even been set, and Mr. Thompson said the department is unable to project past 2018 and the $7 billion debt the state expects to see.
“There are other states in the same situation where they’ve been borrowing and their funds are insolvent and they have to go about addressing those issues in their states. We do see this being a national problem but our focus is on getting things straight in Pennsylvania. We’ve been a leader in terms of workforce development, creating jobs, and we really need to be able to take control of this issue so it doesn’t get out of hand for our employers,” said Mr. Thompson.
According to the American Enterprise Institute, national spending on extended unemployment insurance benefits since July 2008 has exceeded $131 billion, which the U.S. Congress voted last spring to extend by $18 billion, and again this July to extend through November.
