PA Relies on Federal Bailout of Unemployment Fund

A tsunami of debt is scheduled to hit the state in the next two years. One aspect, the pension bomb, has been well publicized, but the $3 billion in borrowed unemployment compensation (UC) funds is less well known.

Pennsylvania already owes $3 billion to the federal government for UC ($879 million more than the state owed just six months ago), and continues to borrow to keep unemployment payments flowing. Come 2011, the Feds will start collecting on that loan – with interest.

So what are officials at the Department of Labor and Industry proposing to make the fund solvent? Expand eligibility, so that more people can receive of course!

A Patriot News article highlights the warped thinking of DLI officials who deny that extending eligibility will exacerbate the debt.

Patrick Beaty, deputy secretary for the unemployment compensation fund, offered a couple of proposals:

  • Work-sharing, where companies cut workers hours in place of layoffs. Those with reduced hours can collect partial unemployment benefits, with the goal to keep the unemployment rate lower. The program doesn’t improve economic conditions, but masks economic conditions.
  • The second proposal is to expand unemployment eligibility to qualify for an additional $273 million in stimulus funding.

Beaty said the change could add up to an additional $65 million to $70 million in costs every year to get the one-time stimulus funds. What happens next year when Pennsylvania finds itself with more unemployment claims and no federal bailout?

Sam Denisco at the Pennsylvania Chamber of Business and Industry gives a more realistic cost of increased claims, he estimates $140 million to $250 million.

Beaty added “We think it’s worth doing because, in addition to the money, it’s a fairness issue.” Raising eligibility to get a short term infusion of cash that will lead to a long term tax hike on job creators is hardly fair. The state unemployment system is bankrupt, and can only return to solvency by enacting true reforms that seek to address cost-drivers, not bailouts from Washington.