By Eric Boehm | PA Independent
HARRISBURG – Pennsylvania successfully refinanced more than $3 billion in unemployment debt with the federal government last week, a move the state says will save businesses an estimated $12 million in taxes and penalties over the next seven years.
Because the state was more than $3 billion in debt to the federal government after borrowing repeatedly to cover unemployment compensation payments during the economic downturn, businesses would have had to pay a 1.1 percent effective rate on payroll taxes, instead of the normal effective rate of 0.8 percent.
The increased rate would have cost employers $110 million this year alone, according to an analysis by the Senate Appropriations Committee.
“It was something that really needed to be done,” said Samuel Denisco, vice president of the Pennsylvania Chamber of Business and Industry, which represents businesses in the state. “This was a win for the business community.”
Pennsylvania cleared the debt through interim refinancing with Citibank, Gov. Tom Corbett announced in a statement last week.
“It’s a simple way to save some money,” Corbett said. “Transferring the balance on a high-interest rate credit card to a no- or low-interest card for a period of time allows you to pay off the debt while saving on interest. The private loan is at a lower rate, which provides the savings.”
Businesses, not taxpayers, will still have the responsibility to pay off the debt, though at a lower rate than before.
Denisco said the law that allowed the state to refinance the federal debt included “a hodgepodge” of other changes that would make the unemployment compensation trust fund – the fund which the state uses to pay claims – more solvent in the future.
Among those changes is an increase in the taxable wage base that will direct more dollars to the trust fund starting this year and changes to eligibility that will keep claimants with one high quarter of income from being able to get higher benefits.