UC Trust Fund Interest Another Fiscal Challenge for PA

A recent NY Times piece looks at the impact of states’ borrowing to pay their unemployment compensation (UC), now that the federal government will begin charging interest on these loans. Pennsylvania has borrowed over $3 billion, the 4th highest state total, and will have to pay an estimated $102 million in interest this year (not including UC taxes)—and this does nothing to solve the UC trust fund crisis.

Pennsylvania, one of a handful of states that make both workers and employers pay into its unemployment program, is activating a dormant state “interest tax” to pay the $102 million it expects to owe the federal government this year. It owes Washington $3.1 billion, and officials expect the debt to grow to $3.7 billion by the end of the year. Even with the rising federal tax on employers each year, Mr. Beaty said, Pennsylvania could end up owing the federal government $4.3 billion eight years from now.

In addition to spending reforms to balance the budget, Gov. Tom Corbett will need to look at fixing the state UC system to help solve Pennsylvania’s fiscal crisis.