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Law reduces unemployment compensation costs for state

| Tuesday, June 12, 2012, 9:38 p.m.

Pennsylvania employers should save at least $300 million a year for the next seven years in unemployment-compensation costs under a new state refinancing plan, experts said.

It will be more difficult, however, for nearly 10 percent of the state's jobless people to qualify for unemployment benefits, starting next year. About 48,000 people could be affected, starting in 2013.

Gov. Tom Corbett signed into law unemployment-compensation reform legislation on Tuesday, authorizing the state to sell as much as $4.5 billion in bonds. The proceeds will repay about $3.9 billion that Pennsylvania borrowed from the federal unemployment-compensation trust fund -- as did 35 other states -- during the Great Recession.

By selling bonds, the state can retire the 2.9 percent, variable-rate debt to the federal government and replace it with bonds that likely would carry a fixed rate of around 2 percent, said Julia Hearthway, secretary of the Pennsylvania Department of Labor & Industry, which oversees unemployment compensation.

"These reforms stay out of workers' pockets; responsibly repay our debt; make the (jobless benefits) system healthy without raising taxes on businesses; and modernize eligibility requirements, making them fair and reasonable," said Hearthway.

The most significant change in eligibility involves the nature of claimants' past earnings. Currently, someone must earn at least 37 percent of his pay outside his highest-earning quarter of the year to be eligible. The new law changes that threshold to 49.5 percent, and should save employers $276 million a year, said secretary Hearthway.

"Under this plan, no longer can someone who worked 18 weeks out of the year collect benefits for 26 weeks," said Kevin Shivers, state director of the National Federation of Independent Business.

The interest alone on Pennsylvania's $3.9 billion debt to the federal government this year is about $244 million, which is a cost borne by the state's employers, said Sen. John Gordner, R-Berwick, who was the primary sponsor of the bill in the state Senate.

In addition, as long as Pennsylvania owes money to the federal fund, employers don't get a federal credit for what they pay into the state fund. That credit would amount to about $110 million this year, Berwick said.

"So, that's an additional cost of $354 million to small, medium and large employers in Pennsylvania beginning Jan. 1 of this year," said Gordner.

Warren Hudak, who owns a payroll-services company in New Cumberland, Cumberland County, said employers such as him are "very excited" about the reforms.

"Pennsylvania was spending money indiscriminately," said Hudak, who sat on the state's advisory committee on unemployment compensation. "We always thought every dollar improperly paid is a dollar less to someone who truly needs it as a lifeline."

Employers paid a total of $2.5 billion into the Pennsylvania trust fund last year.

Until this year, the federal government had waived interest payments for states that borrowed from it to shore up their unemployment compensation trust funds.

The state's unemployment compensation trust fund has been insolvent since 2009. Pennsylvania last year paid out $3.03 billion in jobless benefits but collected $2.69 billion from employers and workers for the fund.

When the state fund is insolvent, Pennsylvania workers pay 0.08 percent of their wages into the fund. The law does not change that formula. The percentage works out to about $37 a year for the average wage of $47,000, said Pennsylvania Chamber of Business and Industry, Harrisburg.

Opponents of the law, though, say it will hurt too many out-of-work Pennsylvanians while it's very difficult to find a job.

"Almost 50,000 Pennsylvania workers are going to be denied critical unemployment benefits at a time when unemployment is high," said Rep. Anthony DeLuca, D-32nd District, which includes Penn Hills, Blawnox, Verona and parts of Plum.

"These are people who lost their jobs and want new ones, and we shouldn't penalize them," said DeLuca, who voted against the bill.

Tightening the requirements for eligibility to collect unemployment benefits are expected to affect about 48,000 people starting next year, according to state figures. That amounts to about 10 percent of unemployed state residents currently receiving benefits.

"Anyone currently receiving benefits will continue to receive them," said Alex Halper, manager of government relations for the state chamber. "No one's getting kicked out of the system."

The law also freezes the maximum benefit at $573 a week through 2019.

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