Analysis: Pennsylvania’s unemployment trust fund faces insolvency as pandemic continues

Pennsylvania’s unemployment trust fund, the mechanism used alongside the federal CARES Act to provide benefits to unemployed residents amid COVID-19, could face insolvency if the number of claimants remains high into the summer.

According to a recent report from the nonprofit think tank Foundation for Government Accountability, Pennsylvania’s unemployment trust declined 22.1 percent between Jan. 1 to April 16 – a snapshot in time that includes the first month of layoffs after Gov. Tom Wolf placed restrictions on residents' activities, including closing businesses deemed nonessenital.

At the beginning of the year, the state’s unemployment trust had a balance of $3.43 billion, but declined to $2.67 billion by mid-April as claims skyrocketed.

While each state finds itself in the challenging position of unheard of surges in jobless claims, researchers Josh Waters and Jonathan Ingram with the Foundation for Government Accountability said the fiscal health of each state’s unemployment trust varies and is not necessarily corresponding with the number of claimants.

According to figures from the Pennsylvania Department of Labor and Industry, the state’s unemployment rate in April was 15.1 percent. An official tally of the May figure likely will be available the third week of June, but Waters and Ingram estimate it will be around 31.2 percent, or 8.8 percent above the national average of 22.4 percent.

Throughout their report, Waters and Ingram are calling on states to reform how they structure fortifying unemployment benefits programs, tying them more closely to economic conditions at a specific moment in time.

“Indexing will allow max unemployment benefits when necessary, like during a pandemic that forces people of work, but ensure program solvency long-term by getting people back to work more quickly when the economy is strong,” Waters said in a statement.

In late April, Jerry Oleksiak, secretary of the Pennsylvania Department of Labor and Industry, indicated federal financial assistance could be sought as the state’s unemployment trust continues to drain its balance to fulfill the rapid influx of claims.

“Since the beginning of the pandemic, Pennsylvania has consistently been ranked among the top 10 states in the nation with its volume of unemployment claims,” Oleksiak said May 5 at a joint hearing of the Senate Communications and Technology and Senate Labor and Industry committees.

Speaking to the rapid transition from record low to record high unemployment levels, Oleksiak said, “We’ve had a 180-degree on almost every single important economic benchmark.”

This is not the first time Pennsylvania has been faced with an unemployment trust fund balance that went into the red. During the Great Recession more than a decade ago, the state had to borrow funds from the Federal Reserve to cover a shortfall at the time.

In a recent blog post, Andrew Abramczyk of the Commonwealth Foundation also called for changes to how unemployment benefits are accrued once the pandemic is in the rearview mirror.

“After the present crisis passes, policy makers should take steps to prevent a third repetition of state unemployment fund insolvency,” Abramczyk wrote in the post. “A one-time refill of the fund to achieve a prudent solvency ratio should be combined with benefit reform.”

In the Foundation for Government Accountability report, Waters and Ingram highlight three states – Florida, Georgia and North Carolina – that reformed their unemployment trust fund programs after the last economic crisis a decade ago.

Florida’s unemployment trust fund increased 0.5 percent between Jan. 1 and April 16, despite an estimated unemployment rate of 19.7 percent.

Georgia, which has an estimated 34.3 percent unemployment rate, incurred a 7.7 percent decrease in its trust fund balance in the first quarter of the year. North Carolina, meanwhile, has an estimated 20 percent unemployment rate and a 2-percent drop in its unemployment trust balance in the same time period.