2009-05-07 / Features

Rising Cost Of Penna.'s Jobless Checks Means Big IOU


HARRISBURG, Pa. (AP) - The hundreds of millions of dollars in unemployment checks that Pennsylvania is sending out this year is no doubt helping to sustain many families through difficult times.

That money, however, has a big IOU attached to it.

With Pennsylvania's Unemployment Compensation Trust Fund broke, more and more of the money for benefits is being borrowed from the federal government. That means that Pennsylvania's businesses and taxpayers face the prospect of higher taxes to repay it, especially after the feds begin charging interest.

Normally, the state's employers and workers pay taxes into the trust fund to finance the jobless benefits. But the size of benefit checks rises with wages each year and has exposed flaws in Pennsylvania's 1988 law that was supposed to ensure the longterm solvency of the trust fund.

The economy's plunge into recession last year accelerated those flaws into an urgent and costly problem that will not correct itself - even when the economy recovers.

"We're out of money,'' said Patrick Beaty, a top official at the state Department of Labor and Industry. "The Legislature needs to take some action.''

In December, Gov. Ed Rendell told the Unemployment Compensation Advisory Council - a panel of legislators, business leaders and organized labor officials - to come up with a recommendation on how to fix the system.

Rendell asked the council to act by March 31. However, labor and business officials appeared nowhere near a consensus after the council last met privately on April 24.

In general, there is division over how to slow the growth of benefit costs and how much more employers should pay into the fund. Senate Labor and Industry Committee Chairman John Gordner, R-Columbia, said the problem now amounts to a structural deficit of $500 million to $600 million a year.

Union officials contend that a robust benefits program helps people when they need it most, and the dollars are spent on items - gas, groceries, clothes and rent - that go right back to business owners.

Business representatives say there are commonsense ways to trim the system's costs - such barring people from getting a benefits check while they are covered by severance - and that lowering taxes will improve Pennsylvania's business climate.

There's no doubt that Pennsylvania is among the most generous providers of unemployment benefits in the country, giving benefits in some situations that do not qualify in most other states.

Federal statistics show that Pennsylvania paid out $2.8 billion in benefits in 2008, the second highest total in the country, while the state's average weekly benefits check was eighth at $335. Overall, the tax burden on an employer was the seventhmost in the country.

Regardless, the trust fund's dropping cash balance will automatically trigger changes to taxes and benefits that take effect Jan. 1. Benefits will drop 2.3 percent - a loss of about $7.70 from a $335 check - while employees and employers will pay more in taxes.

For an employee who earns $40,000 a year, the higher tax rate will mean an extra $8 over the course of 2010. Employers will owe an average of $56 more per employee.

But those measures will not wipe out the fund's structural deficit. Meanwhile, Pennsylvania has borrowed more than $525 million - seventh-most in the country - and Beaty said he expects that the commonwealth will have to borrow another $1 billion this year.

That money is free until 2011, when the federal government begins charging interest on the loans and new tax increases on employers kick in.

Beaty said he expects those additional taxes to cost employers more than $2 billion through 2016 - and even that substantial sum is unlikely to be enough to repay the loans.

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