Pennsylvania’s unemployment fund owes feds $3.87 billion

The fund that pays Pennsylvania's unemployment benefits is running in the red, and lawmakers are grappling with how to remedy that. Compounding matters is that the state owes the federal government $3.87 billion it has borrowed to pay jobless claims because of the recession.

There seems to be little disagreement about how to pay back the money: Legislators are likely to pass a bill that will allow the state to float a bond.

"This is akin to refinancing your house," said Pennsylvania Secretary of Labor Julia Hearthway. "It's the lowest interest rate we're going to have for years to come."

But there is considerable debate about how to solve the underlying problem: that the fund is paying out more than it takes in. Pennsylvania's fund "is structurally insolvent," according to the department's analysis. In 2011, it paid out $3 billion but collected only $2.7 billion.

To fix things, legislators are considering a measure that would reduce the state's payout by denying benefits to an estimated 48,000 unemployed people a year.

The current version of the bill, bound for a vote in the State Senate any day now, would affect nearly 10 percent of the 500,000 people who receive benefits, saving the state $276 million a year, starting in January.

"It looks like we're going to solve the problem by taking it out of the pockets of the unemployed," said John Dodds, director of the Philadelphia Unemployment Project, an advocacy group.

Dodds said that low-wage workers and the newly reemployed would be among the most vulnerable. If the recovery wavered, they might be the first to lose their jobs.

Other options would be to increase the taxes employers pay to underwrite the unemployment-compensation fund — they bear 93 percent of the expense — or add a few more dollars to the average annual unemployment tax of $37 that employees now contribute.

Neither approach seems politically viable in the no-tax culture in Harrisburg.

"A lot of businesses … are ready to hire and bring more people on board. We don't want to stall the momentum," Hearthway said, echoing the viewpoint promulgated by the Pennsylvania Chamber of Business and Industry's vice president for government affairs, Sam Denisco.

Taking even a few more dollars out of employees' checks also would be a burden, Hearthway said.

States pay for the first 26 weeks of benefits through unemployment-compensation trust funds. The federal government lends money to replenish the state trust funds if they get in trouble. Many are, including those of Pennsylvania and New Jersey, which owes $880 million.

Because of the still struggling economy, benefit weeks beyond the first 26 are now funded by the federal government.

To be eligible for unemployment benefits, workers must be "attached" to the labor force, meaning they either have worked enough time or for enough money to qualify. In Pennsylvania, a person must have worked at least three months to begin counting as "attached."

Under the proposed changes, which would take effect in January for new applicants, claimants would not be able to earn more than 49.5 percent of their annual wage in the highest quarter of their base year. Currently, the figure is 37 percent.

Earnings that are spread out over more quarters are an indicator of more regular employment and a deeper connection to the labor market.

If, for example, a steady worker who had been laid off for more than a year landed a job, then lost it eight months later, he or she might not qualify for unemployment benefits. That's because at least the first three months of wages would not count, and most of the rest of the wages would be bunched into one quarter.

"These are individuals who are underemployed," Hearthway said. "They need to have a little more connection than they already do." She said $10 million would be allocated for job training for them.

Floating a bond to pay back the money would save employers nearly a billion dollars by 2019, according to an analysis prepared by Hearthway's department.

The way the federal loan is constructed, the interest rate rises each year there is an unpaid balance, putting an ever-higher burden on employers.

The bond would require higher employer payments the first two years, but those would even out over time.

Contact Jane M. Von Bergen at 215-854-2769 or jvonbergen@phillynews.com, or follow on Twitter @JaneVonBergen. Read her "Jobbing" blog at www.philly.com/jobbing.