Pa. to seek U.S. loan for unemployment fund

HARRISBURG - With Pennsylvania's unemployment compensation fund plummeting by almost $400 million in six weeks, the Rendell administration said yesterday that it would seek federal help before the fund becomes insolvent, as early as next month.

The fund's balance, just under $1 billion at the end of December, slid to $602 million in early February as unemployment claims rose and contributions through payroll taxes decreased.

The unemployment rate in Pennsylvania has climbed to 6.7 percent from 4.9 percent a year ago. The state Department of Labor and Industry has processed an average of 46,000 initial claims a week since Jan. 1, a 52 percent increase over last year.

Sandi Vito, acting secretary of labor and industry, told the Senate Appropriations Committee yesterday that the state might request about $250 million from the federal government, but that the amount was not firm.

Vito also said Pennsylvania could face a $1 billion deficit in the unemployment fund by the end of 2009, and that it would need additional federal loans if no action was taken to resolve the shortfall.

The interest-free federal loan, which officials expect the state to receive, would be repaid in 60 to 90 days, said Troy Thompson, spokesman for Vito's department. The loan would not be part of the economic stimulus bill, but under conditions set by that bill, federal loans to states are tax-deferred until 2010.

Thompson said the loan would not eliminate the possibility of an automatic tax increase in 2010, depending on the findings of the solvency report issued by the Labor Department at the end of the fiscal year in June.

"We need to look at the entire tax structure," Thompson said. "We need to get the fund back in position to sustain itself without borrowing."

Business leaders said yesterday that the state - whose unemployment benefits are among the most generous - should find an equitable solution for rebuilding the fund.

Gene Barr, vice president of government affairs for the Pennsylvania Chamber of Business and Industry, said workers in Pennsylvania were eligible to collect large severance packages and unemployment benefits. He said he also had heard of students who collected benefits after leaving summer jobs to go back to school.

"We don't want to cut benefits to those who truly need them, but Pennsylvania has the 10th-highest unemployment taxes in the country," Barr said. "I would be extremely cautious" about raising taxes.

Meanwhile, state lawmakers, unions, and business leaders are meeting to address issues involving the depleted fund. Gov. Rendell's Unemployment Compensation Advisory council is looking at various scenarios, including increasing unemployment-compensation taxes for employers and employees and changing the benefits structure, said Sen. John R. Gordner (R., Columbia), one of the council's 18 members.

"We need to figure out how to cobble together a solution," he said.

The council will give Rendell its suggestions by April 1, and the Senate will be prepared to act when Rendell makes his recommendations, said Gordner, who is chairman of the Senate Labor and Industry Committee.

Thompson said the administration would not dip into other state funds to pay for unemployment compensation, as Gov. Corzine is proposing in New Jersey.

Because Pennsylvania taxes employers annually on the first $8,000 in salary, the state brings in the highest revenue in the first quarter and will therefore be able to repay quickly, Thompson said.

Corzine has said he plans to replenish his state's unemployment fund, in part, by taking $50 million from the state's disability program.


Contact staff writer Amy Worden at 717-783-2584 or aworden@phillynews.com.