March 2, 2012 | By | Posted in General News

Unemployment fund’s insolvency continues to burden PA businesses

Debate continues on how to correct long-term problems
By Eric Boehm | PA Independent
HARRISBURG — Pennsylvania businesses are on the hook for $139 million in payments to the federal government this year, because the state’s unemployment trust fund is insolvent and buried in debt.
And those payments will increase to more than $259 million next year and $300 million the year after, if the state does not take on the more than $3.52 billion in debt, said Julia Hearthway, secretary of the state Department of Labor and Industry.  
“This is just to pay the principle on the debt,” Hearthway said. “These are all dollars that are going to Washington, D.C. They are tax dollars that are not staying in Pennsylvania.”
A bill that would allow the state to issue a bond to pay off most of that debt has been passed by the House and Senate, but in different forms.
The state could use the bonded debt to pay off the loan from the federal government and repay the bond with lower interest over 20 years. 
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 repay the private bonds, so net savings will total about $50 million.
While the bill would prevent employers from being hit with additional federal taxes triggered by the state’s unpaid debt, it does not address the funding mechanisms that led to the unemployment fund being insolvent in the first place.
Lawmakers on Thursday pressed Hearthway for guidelines on a long-term solvency solution.
State Rep. Bill Keller, D-Philadelphia, minority chairman of the House Labor and Industry Committee, suggested increasing the tax base from $8,000 to at least $10,000.
“I don’t see how we can get back to solvency without an increase to the taxable wage base,” Keller said.
Labor unions argue that the threshold for employer taxes should be increased, to balance the fact that employees pay taxes on the full value of their paychecks.
The employee taxes are 0.8 percent on the entire paycheck, but employer taxes range between 2 percent and 10 percent on the first $8,000 earned by their workers.
Hearthway said raising taxes on employers was not a good move during this economic recovery.
“I don’t think at this time we want to add taxes on top of taxes,” she said. “If we were to just raise the taxable wage base without a (corresponding reduction in taxes), that would be an additional tax on businesses.”
She said the long-term viability of the fund would require a three-step approach: eligibility reforms, a review of benefits and potential tax increases.
Dave Patti, president and CEO of the Pennsylvania Business Council, which represents business interests in the state, said any changes should be part of a package that includes a more streamlined appeals process.
He emphasized that Pennsylvania pays out the second highest unemployment benefits — behind California — despite having an unemployment rate better than the national average.
 “A lot of that goes to the eligibility standards, and how it differs from other states,” he said. “For people who are seriously unemployed, no one is arguing about that.”
Rick Bloomingdale, president of the Pennsylvania AFL-CIO, a coalition of state labor unions, said a revenue-neutral change to the tax policy would not address the solvency problems and would require businesses to continue to pay higher costs to the federal government.
“If you don’t solve the problem, you have effectively raised taxes on employers,” he said.
A bill that would restrict eligibility to unemployment benefits from individuals who quit their jobs was moved out of the House Labor and Industry Committee last month and will be considered by the full House when it returns to session in March.
Those who quit their jobs because of domestic violence are exempt from the bill, if they previously worked with the accused abuser.
The same committee also moved legislation that would eliminate the statute of limitations on unemployment fraud. 
Hearthway said that because Pennsylvania has some of the most generous unemployment benefits, it has been a target for fraud and abuse.
A report from the U.S. Department of Labor last summer found Pennsylvania made more than $376 million in overpayments for unemployment compensation. The report said those overpayments were mostly due to fraud and clerical mistakes.
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