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Pennsylvania Unemployment Fund to Feel COVID-19 Impact for Years

Pennsylvania’s unemployment compensation fund is not expected to run out, despite the historic number of unemployed workers, but the state may have to eventually repay billions of dollars, which could increase taxes.

(TNS) — Nearly 3.2 million Americans filed new unemployment claims last week, federal figures showed Thursday, as the economic destruction from the coronavirus pandemic has now impacted 33.5 million jobs nationwide in seven weeks, and states are rapidly burning through cash reserves set aside to pay out jobless benefits.

The numbers of new claims have subsided in Pennsylvania and New Jersey from the startling peaks reached in the first weeks after COVID-19 lockdown orders brought the economy to a standstill: More than 1.7 million Pennsylvanians have now filed claims, or 26 percent of the workforce, along with 978,000 New Jersey workers, or 21 percent of the workforce, according to the weekly report from the U.S. Department of Labor.

Economists expect that monthly government unemployment figures due Friday — which will explore job losses more deeply than the weekly reports — to show that erosion of jobs in April was historic. The payroll processing company ADP said on Wednesday that the private sector lost more than 20 million jobs in April, and MarketWatch expects the report to show that 22 million jobs were lost last month.

During the worst month of the Great Recession a decade ago, the nation lost 800,000 jobs. “The greatest losses, not surprisingly, were in the hospitality, construction, trade and transportation sectors,” Joel Naroff, president and founder of Naroff Economic Advisors in Bucks County, said in a note to clients on Wednesday. “However, every industrial sector of the economy and every size grouping was battered by the shutdowns.”

At least 96,603 Pennsylvanians filed a new claim in the week ending May 2 after losing their jobs or getting hours reduced -- down from more than 400,000 claims filed during the worst week ending March 28. In New Jersey, as many as 87,540 workers filed new claims for assistance last week, according to federal data.

The avalanche of claims has overwhelmed state unemployment offices. The Pennsylvania Department of Labor and Industry’s Unemployment Compensation Office, which has called in retirees and workers from other state departments, says it responded to 5,196 emails on Tuesday. Despite the added help, the backlog is now so large that the wait time for an email reply has grown to 34 days.

The unprecedented payouts of billions of dollars in jobless benefits is also rapidly depleting government unemployment insurance coffers, pushing trust funds close to insolvency State officials say the cash-burn rate will not jeopardize payments, but it will force many states to borrow funds, which will need to be repaid with higher unemployment insurance taxes on employers in future years.

“Pennsylvania will be bearing the burden of this on our unemployment compensation system for a long, long, long, long time,” said Gene Barr, president of the Pennsylvania Chamber of Business and Industry.

Pennsylvania has paid out record amounts to unemployed workers — about 9 million payments to claimants totaling more than $5.34 billion in benefits, officials said Monday.

Since the lockdown began, the state has paid out three times more unemployment claims than it did for all of last year. In the last two months, it has paid out more than it did in all of 2009, the worst year of the last recession.

Most of the payouts, nearly $3.9 billion, were regular Unemployment Compensation payments derived from state funds. The state also paid out $1.4 billion in Federal Pandemic Unemployment Compensation benefits, an extra $600 per week. The federal government will pick up the tab for the supplemental benefits.

New Jersey paid out about $1.9 billion in unemployment benefits since the pandemic began. More than half the amount, or $989 million, were distributed under the federal government’s supplemental $600-per-week pandemic payments.

To pay unemployment claims, states set aside money that is held in trust funds managed by the U.S. Treasury. But Pennsylvania and New Jersey had among the smallest reserves relative to their workforces, putting their trust funds under strain.

Some states have already asked the federal government for no-interest loans to shore up their unemployment trust funds. Pennsylvania has reached out to the federal government to begin a process of borrowing money, Jerry Oleksiak, Pennsylvania’s secretary of labor and industry, said on Monday. “The fund is fine," he said.

“Depending on how long this pandemic continues and we have high unemployment that we’re seeing now, there will be some stress on the system,” Oleksiak said. “But we are already working with the US Department of Labor who make sure that the payments that we are obligated to will continue.”

The new crisis comes as Pennsylvania was just emerging from the financial hole into which it fell during the Great Recession, when it was forced to borrow more than $3 billion from the federal government to keep up with unemployment compensation claims.

Though the federal loans initially come without interest, they eventually begin to accumulate fees and penalties. In 2012, the state issued revenue bonds that generated $3.2 billion in proceeds, to repay the interim federal financing and current unemployment claims. The state had just paid off that bond late last year, and was on its way to recovering its cash reserves when the pandemic hit.

“We were well on our way to being a solvent in the spring or summer,” said Oleksiak.

Experts in unemployment compensation say there is no danger of state funds running out, but the consequences will be felt in years to come.

“There’s not an immediate concern because states can borrow money interest free, but long-term if there’s no relief for that, states are going to have to pay it back," said Andrew Stettner, a senior fellow at The Century Foundation. "Often what happens is when they’re feeling the pinch, they don’t want to increase taxes on employers, they end up cutting back the benefits.”

Some in Pennsylvania would welcome that debate.

“Pennsylvania’s unemployment fund was never refinanced after the last recession -- they never got back to the solvency level, and don’t have enough to pay for a normal crisis, let alone this,” said Andrew Abramczyk, a senior analyst, with the Commonwealth Foundation, a conservative think tank.

That will inevitably mean an increase in unemployment insurance taxes on employers, who in 2018 paid on average about 5.1 percent on the first $10,000 in earnings of each employee (the tax rate varies for each employer, depending upon how frequently its workforce taps into the unemployment system). Employers pay the biggest share of the cost, but the state also assesses a small 0.06 percent tax on employee earnings.

Higher unemployment and a greater tax burden in years to come will only slow an economic recovery, said Abramczyk.

“The more viable your economy is, the more jobs there are, the more unemployment tax is being paid, and the easier it is for this fund to get replenished," he said. "Anything that reduces your employment base tends to make unemployment taxes higher, which hurts your unemployment base. It’s vicious cycle.”

©2020 The Philadelphia Inquirer. Distributed by Tribune Content Agency, LLC.

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