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Business Representatives Argue for Unemployment Compensation Solvency
Costs outweigh benefits of federal stimulus money in long-term
AUGUST 9, 2010 | by DARWYYN DEYO
Business representatives on a state advisory board for unemployment compensation say expanding benefits in order to get federal stimulus dollars would cost the state in the long run.
Their claims come as the state has borrowed – and continues to borrow – more than $3 billion from the federal government to bolster its unemployment compensation fund.
A lobbyist for the Pennsylvania Chamber of Business and Industry said that for the state to get the first third of $273 million in federal stimulus funding, it would have to expand benefits at too great of a cost.
“Through the Department of Labor and Industry’s own admission, the cost would be between four and six percent of benefits annually,” said Samuel Denisco. “You’re talking a $160 to $240 million cost to the fund to draw down one-third of $273 million.”
Convened by state Department of Labor and Industry Secretary Sandi Vito, the Unemployment Compensation Advisory Council has stalled on proposals and negotiations regarding the state’s unemployment compensation fund’s solvency. Unless some action is taken before the end of the year, Pennsylvania faces a debt estimated to cost $7 billion by 2018, increased through the loss of tax credits to employers and an as-yet undetermined interest rate.
Mr. Denisco said business representatives suggested increasing employer contributions to the unemployment fund, but other council members nixed the accompanying conditions: compelling individuals to look for work, looking at double-dipping with severance and unemployment compensation, and putting a delay on receiving unemployment compensation until severance pay is gone.
“It is important to note Pennsylvania has paid out the most in unemployment compensation second only to California nationally,” Denisco said. “If we’re paying out the second most in benefits, there’s an issue to be addressed holistically.”
The most recent proposal to address Pennsylvania’s unemployment compensation debt, introduced by state Sen. John Gordner (R -Columbia), includes a similar provision to increase the employer contribution on employee wages but also expands benefits to qualify for the first third of the federal stimulus funding, with the other two-thirds requiring more expansion of benefits. The entire $273 million would be phased out over the next three to five years, after which point the unemployment compensation fund would be serving approximately 25,000 to 30,000 more individuals and the stimulus money would be gone.
Another Chamber representative expressed frustration.
“We were trying to figure out how to make the unemployment fund solvent,” said Geoffrey Moomaw. “We wasted too much time discussing how to pay out more benefits just to get more funding from the federal government via the stimulus package, but the changes that were required could cost anywhere from $70 million to $100 million per year. In our opinion, the General Assembly would not go back, after the funding disappeared, and change the law back. I don’t believe a bill to do that five years down the road would have any chance of getting out of any committee.”
For the first third of the $273 million of stimulus money (approximately $91 million), Mr. Denisco said Pennsylvania would be required to change the “alternative base year,” which is how the state calculates eligibility for unemployment compensation. Currently, the state looks at four out of the five last quarters since “separation from employment,” but the federal government’s stipulation to receive stimulus funds would change that to just the past four quarters.
To receive the remaining two-thirds of the stimulus funds, Mr. Denisco said Pennsylvania would have to expand unemployment compensation to those who leave work for family-related reasons, similar to what is already covered under the federal Family Medical Leave Act, and to expand unemployment compensation to part-time workers.
But with the November elections and the end of the federal unemployment compensation extensions drawing closer, Pennsylvania may have to turn to legislation to handle the solvency crisis, Mr. Denisco said.
“We just want to make sure the proposals are a step toward addressing solvency,” he said. “By 2018, we want to be solvent and pay all the debts off to the federal government.”
See Part I: Pennsylvania Ranks Fourth in Unemployment Debt
Darwyyn Deyo is a reporter for PA Independent. She can be reached at darwyyn@paindependent.com
New State Employee Benefits Might be Trimmed
Future of bill questionable
JUNE 15, 2010 | by JIM PANYARD
New state employees and government school teachers would be forced to accept a new, lowered package of taxpayer funded pension benefits under an amendment passed overwhelmingly by the Pennsylvania House of Representatives Tuesday.
The actual bill, aimed at addressing the public employee pension bomb that will drop an added $5 billion annually on taxpayers beginning in 2013, has yet to be passed by the House. The amendment passed yesterday, 198:1, would:
• Reduce the percentage of salary each employee earns each year towards their pension calculation. Presently, the majority of state employees get 2.5 percent of their three-year-average highest annual salary, multiplied by years of employment. The amendment would change that to two percent per year;
• Require 10 years of state employment before pension benefits are vested. Currently, only five years are required;
• Raise the age for state retirement with full benefits to 65, from the current 62, for teachers and educators. State employees currently eligible to retire at 60 would have to wait until age 65.
• Stop future employees from taking lump-sum payments at retirement.
The pension bill, HB 2497, if and when it passes the Democrat controlled House, faces an uncertain future in the Republican dominated Senate.
House Minority Appropriations Chair William Adolph (R- Delaware) blamed the bulk of the pension crisis on the economy’s continuing tailspin and its impact on the state pension plans. He did not mention the same impact was felt by private sector workers’ plans and the fact it will be the private sector workers footing the bill for continuing the lucrative government plans, while receiving no help for their own difficulties.
The amendment’s primary sponsor, Appropriations Chair Dwight Evans (D-Philadelphia) was praised by several Republicans, including Mr. Adolph, for “reaching across the aisle” in crafting the measure.
The actual pension reform bill itself, critics say, is fraught with problems that merely seek to lower taxpayer costs by extending the length of time to shore up the state employees’ pension funds.
Rick Dreyfuss, an actuary and senior fellow at the Commonwealth Foundation, says the plan will cost taxpayers $52 billion and is based on an unrealistic eight percent rate of return on investments.
Even the Pennsylvania Employee Retirement Commission said three weeks ago the plan is deeply flawed. The commission wrote:
“[I]t must be noted that the temporary collared contribution rates proposed in the bill do not follow generally accepted actuarial standards of practice. The short-term effect of the bill would be to defer the payment of actuarially required contributions to both PSERS (Pennsylvania State Education Retirement System) and SERS (State Employees Retirement System), resulting in the underfunding of both retirement systems. This underfunding will permit the continued growth of the Systems' unfunded liabilities resulting in a steady decline in the funded ratios of both PSERS and SERS.”
Mr. Dreyfuss compared the scheme to someone stopping their mortgage payment, while the interest on the debt continued to grow, in order to increase their disposable income.
Jim Panyard is a reporter for PA Independent. He can be reached at Jim@PAIndependent.com
Public Sector Jobs Seem Recession-Proof
Have grown during recession as private jobs reduced
JUNE 10, 2010 | by ERIC BOEHM
Threats to cut state workers have become a regular part of the annual June budget soap opera in Harrisburg, even after two years of a recession which has cost Pennsylvania more than 200,000 private sector jobs.
In the past two weeks, Gov. Ed Rendell has twice threatened layoffs of public employees.
First, Mr. Rendell said cuts to his proposed budget of $29 billion could result layoffs a a few hundred state employees. On Wednesday he said the failure of Congress to pass an extension of Medicare assistance to states would mean a shortfall in funding that could "only be made up for with layoffs."
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Yet even with those cuts, the state's public sector employees would still be doing better than many of their counterparts in the private sector.
During the two years from September 2007 until September 2009 - a range stretching from a few months before the national recession hit until the most recent data available - the ranks of state government employees grew by nearly four percent. In the same time frame, the number of private sector workers in Pennsylvania, the ones who have to pay for the public sector employees salaries and benefits with their tax dollars, has dropped by more than four percent.
In real numbers, public sector employment grew by more than 4,500 jobs during those two years, while private sector employment fell by 242,000, according to data from the U.S. Bureau of Labor Statistics.
Job reports over the last two months have suggested Pennsylvania is starting to add jobs once again, including a boost of 34,000 jobs during April, the second highest total of any state in the nation. During a conference call with governors from three other states on Wednesday, Mr. Rendell said Pennsylvania's job market was "humming" again, even though the commonwealth remains thousands of jobs behind pre-recession levels.
Administration officials have said growth of the public sector during a recession is a response to greater need from the general public of government services, particularly public welfare.
Growth of public sector jobs consistently trended upwards during 2008 and 2009, with notable cuts occurring in July of both years during budget stalemates. Jobs lost during those months were quickly replaced in both instances.
Meanwhile, in the private sector, job number dipped in 2007 but recovered in 2008 before dropping precipitously at the end of the year.
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While the recession has hit private sector employees harder than government workers, it has also impacted workers' average weekly wages.
According to data from the U.S. Bureau of Labor Statistics, public sector pay was 3 percent higher in the third quarter of 2009 than it was in the third quarter of 2007, while private sector pay dropped five percent during the same period.
On a national level, the story is the same as in Pennsylvania. According to research completed by Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University, public employees have seen wages rise faster than in the five largest sectors of the economy.
In those sectors, public employee pay increased by 1.92 percent in the 12-month period ending in March 2010. In the private sector, wages in those five sectors rose by an average of 1.78 percent.
Eric Boehm is a reporter for PA Independent. He can be reached at Eric@PAIndependent.com
