Pennsylvania’s unemployment trust fund — a federally held pot of money that’s administered by the state’s Department of Labor & Industry — is at 0% solvency and hasn’t been fully solvent since 1971.

An eroding solvency has led to a reliance on multibillion-dollar federal loans and taxpayer-funded interest payments that come with them.

The exact amount of money needed to meet the definition of fully solvent fluctuates, and state officials are hesitant to say how much is in the trust fund reserve, but it was $6 billion in February 2020 and, as of July 20, has dwindled to $104 million, according to published reports.

A Spotlight PA story in today’s Eagle reports that a bill meant to ensure those reserves contain enough money to weather economic turbulence has gone nowhere. That inaction could cost taxpayers hundreds of millions of dollars in future interest payments, according to backers of the the bill.

Solvency is the ability of the state to meet its long-term debts and other financial obligations. Solvency is one measure of the state’s financial health, since it demonstrates Pennsylvania’s ability to manage operations into the foreseeable future.

State lawmakers have failed to adopt a policy change that supporters say would bolster the pandemic-battered unemployment program against future spikes in jobless claims while also avoiding huge draws on taxpayer money to prop up the system.

Between July 2013 and January 2020, the state paid more than $570 million in interest on a bond that was used to pay off more than $3 billion in federal loans that covered unemployment payouts during the recession of 2008. Millions of dollars also were paid in direct interest on the federal loans, too. That bond was paid off in full in January 2020 — two months before the COVID-19 pandemic hit and sapped the system again.

The state was approved to take out a federal loan of up to $2.8 billion to cope with pandemic demand months later, and the state’s new budget includes money to pay off $42 million in debt that was incurred to keep jobless benefit payments flowing as historic need has outpaced financial reserves in the COVID-19 era.

In the long term, though, there are few assurances of adequate funding for the trust fund, and the Pennsylvania Department of Labor & Industry reports the program could find itself underfunded without a formula that adopts a more cautious permanent footing.

The Labor Department says the need for an updated formula is acute.

House Bill 549, a sprawling omnibus bill that has sat in committee for 17 months, would update aspects of the unemployment program, including the solvency formula that determines how much money the program should have on hand to cover benefit payments.

The bill would adopt a formula that aligns with the one used by the federal government to determine trust fund solvency. It uses the latest three recessions — periods of heightened unemployment demand — instead of the last three calendar years as the baseline.

That change, HB 549′s backers say, would yield a more fiscally prudent forecast and solvency rate, better ensuring the revenue-generating mechanisms that feed the unemployment fund — taxes paid by employers, for example — are robust enough to cover costs on their own.

The bill’s sponsors and backers say HB 549′s more cautious metric would better support the system and avoid more taxpayer-funded debt service on stopgap loans and bonds.

The way to fund the trust fund is broken and needs to be fixed before it dips into red ink.

– JGG