Expected to be voted in early December from committee
By Eric Boehm | PA Independent
HARRISBURG — Pennsylvania lawmakers want to borrow money at an anticipated lower interest rate that would pay off more than $3 billion the state owes the federal government — and provide relief to employers.
Employers stand to save about $50 million next year by repaying the private funds instead of the federal government with penalties. The state Senate passed the bill that would authorize the state Department of Labor and Industry to borrow up to $3.5 billion.
Businesses have been repaying the money the state borrowed from the federal government at a high interest rate, after the state’s unemployment compensation fund went bankrupt in 2009.
However, state Rep. Ron Miller, R-York, chairman of the House Labor and Industry Committee, said the bill will provide a short-term break for employers in the hope that the savings will produce more jobs, but not the state’s long-term unemployment fund solvency issues.
“We can borrow at less than half the rate of what the federal government is going to charge Pennsylvania employers,” Miller said. “And when you’re trying to stimulate the economy, every little bit makes it tougher.”
Miller said the bill is expected to be voted out of committee on Dec. 5 and could pass the House before the end of the year or early in 2012.
The bill passed the state Senate with a vote of 33-16 on Nov. 15.
According to the Pennsylvania Chamber of Business and Industry, which represents businesses in the state, those payments toward the unemployment compensation debt constitute a “significant burden” on businesses.
Sam Denisco, chamber vice president, said using the private debt made sense to lower payments charged to employers.
“It’s akin to having a credit card with 20 percent interest and transferring the balance to another credit card with only 3 percent interest,” he said.
The Pennsylvania AFL-CIO, a coalition of labor unions in the state, opposes the bill.
In a notice to members and supporters, the PA AFL-CIO said the bill would provide additional savings to employers, but would continue to discourage solvency in the fund. The AFL-CIO said the solvency of the fund should not be dealt with in a “piece-by-piece process, which really just kicks the problem down the road.”
Denisco said further changes are needed to bring the state’s unemployment fund back into solvency, but the bill is a step in the right direction for the short term.
The state’s unemployment trust fund has been bankrupt since March 2009, drained as a result of the Great Recession that pushed unemployment to a 25-year high of 8.8 percent by early 2010. To continue making expected unemployment compensation payments, the state borrowed more than $3 billion.
The federal government began charging interest on the borrowed funds at the beginning of 2011, which required the state to charge an “interest tax” on employers to cover the $104 million in interest owed this year.
On top of that, employers will lose a portion of a federal business tax credit each year that the state owes a debt to the federal government beginning in 2012. Next year, the loss of those tax credits will cost Pennsylvania employers an additional $110 million, with higher amounts expected, if the debt remains on the books.
The state Department of Labor and Industry estimates that employers will save between $160 million and $265 million, depending on how the repayment of the bond is structured, according to a Senate Republican fiscal note. About $110 million of those savings will go toward repaying the private bonds, so net savings will total about $50 million.
State Sen. Pat Browne, R-Lehigh, supports using the private bonds.
“We can borrow at a lesser cost, but also make sure that the taxes that our employers pay to the federal government for unemployment are lower,” Browne said.
The Department of Labor and Industry and the Corbett administration have not taken a position on the bill, said department press secretary Sean Yeakle.
“We’re interested in paying down that debt as quickly and efficiently as possible without putting down a greater burden on employers, and we’re working with the General Assembly to find a solution,” Yeakle said.
The bill also would increase the taxable wage base — the amount of wages for which employers must pay into the unemployment trust fund — from its current level of $8,000 to $10,000 by 2018. The wage base has not been increased since 1984.
Those increases will be offset by reductions in the formula used by the state to determine an employer’s unemployment taxes. According to the Senate fiscal note, the changes will be revenue neutral.
