June 7, 2012 | By | Posted in Legislature

PA to borrow $4.5B to pay off fed unemployment debt, change eligibility

Payoff helps employers save

By Melissa Daniels | PA Independent

HARRISBURG — Pennsylvania plans to borrow a $4.5 billion bond to help pay off debt from the federal Unemployment Trust Fund, which stands about $3.9 billion, the third highest in the nation.

But legislators were divided over who would benefit from this bill: employers, employees or both?
Both chambers this week passed Senate Bill 1310, sponsored by state Sen. John Gordner, R-Columbia, a move that will save Pennsylvania anywhere from $175 to $200 million in annual interest payments and prevent it from borrowing federal dollars.
Gordner explained that the amount was larger than the debt to help ensure the state won't have to begin borrowing again. That, combined with other provisions, means "for decades to come, this fund will be solvent,” he said.
The bond will allow the state's unemployment fund to be solvent by 2019, with the bond paid off the following year. Over the next seven years, the bill is expected to net $2.3 billion savings.
To further address the long-term solvency of this safety net, the bill includes changes to eligibility that will save an estimated $276 million annually.
Gordner said the last major attack on the unemployment system was in 1988.
Proponents of the bill say paying off the federal debt will help employers and employees alike.
Eliminating the federal debt removes an interest surcharge employers must pay that’s scheduled to cost billions over the next few years, while the interest rate on the bond is lower than the federal debt.
But changing the eligibility requirements would mean an estimated 48,000 workers will no longer be eligible for benefits, opponents to the bill said.
Estimates from Gordner’s office say the revised requirements won’t affect 90 percent of claimants. Changes to unemployment eligibility will not kick in until 2013, leaving present claimants unaffected.
As the federal debt soared, employers were paying more as the interest rate on the fund brought higher costs, which kicked in this year, Gordner said.
In 2013, the total bill from that interest rate would be $220 million, and $330 million the year after that. In seven years, that charge would total an estimated $4.1 billion.
That charge comes out to $21 per worker this year, doubling annually along with the rate, said Kevin Shivers, president of the Pennsylvania chapter of small business advocacy group National Federation of Independent Businesses. The charge, he added, is a disincentive for hiring while possibly causing businesses to lay off employees.
But Senate Bill 1310 will eliminate that charge. And the interest rate on the bond will be less than the interest on the federal loan.
Shivers said the short- and long-term savings achieved through the legislation helps employers and employees alike.
“This is a plan that helps employees; it helps claimants by fortifying it,” Shivers said. “It sends a message to businesses that we are going to develop a solution that’s responsible and we’re going to do it in a way that makes true business sense.”
But opponents see the changes as an attack on workers because the bill decreases the amount an employee can earn in one quarter before being eligible for unemployment.
Under current law, 63 percent of qualifying earnings can be earned in one quarter, with the balance made up in the other three. The bill lowers that threshold to 50.5 percent, effectively disallowing people who work the majority of the year in one season from collecting.
AFL-CIO President Rick Bloomingdale said in a statement that the bill is not a fair solution to fixing the unemployment system, as it shuts out people who may need unemployment after losing their job through no fault of their own.
“It’s time for businesses to step up and begin shouldering an equal share of the burden, not another free ride and big bailout on the backs of working families,” said Bloomingdale.
Despite the savings it’s expected to generate, the bill did not past quietly. The Senate passed it with a 29-19 vote, while the House responded with a 129-67 vote.
Senate Democrats proposed several changes to the bill, but all failed, including:
  • Reining in eligibility reforms to affect fewer employees,
  • Shifting distribution of employee contributions,
  • Requiring the bonds to be subject to auditor general and treasurer approval.
Senate Minority Leader Jay Costa, D-Allegheny, said the plan merely kicks the problem down the road. 
“The plan would shift more of the cost onto workers and lessen the burden on businesses,” added Costa.
State Rep. Ron Miller, R – York, chairman of House Labor and Industry Committee, said the legislation was the best thing the Legislature could do to help the Pennsylvania business, and the Pennsylvania worker.
“This is a jobs bill,” Miller said. “We help employers; we help workers. We need to get people back to work in this economy, and anything we can do to spur that, we need to do now.”
Gov. Tom Corbett has not set a date to sign the bill, according to the administration press office.
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