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The state’s Unemployment Compensation fund is not only broke, it’s in debt more than $3 billion, and if serious reforms aren’t enacted that number will skyrocket to $7 billion by 2017. Moreover, the federal fund from which Pennsylvania has been borrowing is likewise in deficit, so every additional dollar paid out of the UC Trust Fund grows the $13 trillion-plus national debt.

While the recession undoubtedly contributed to the current distress of the UC Trust Fund, its troubles began long before those of the current economy. The liberalization of benefits has compromised the solvency of the fund to the point of multi-billion dollar debt. In fact, Pennsylvania’s UC benefit payouts rank second only to California – a state with roughly three times the population of Pennsylvania and a much higher unemployment rate.

“If Pennsylvania is paying out the second most in benefits, there’s an issue to be addressed holistically,” PA Chamber Government Affairs Director Sam Denisco said.

The Pennsylvania Chamber was the first stakeholder to advance a proposal aimed at bringing the Fund to a higher solvency level. The PA Chamber, along with other business organizations, advanced the proposal which included contributions from employers and employees along with other measures that would rein in costs over the long run. The process stalled, however, when discussions revolved around how to attract more federal dollars and to expand benefits rather than address the issues of solvency and the Fund’s ability to meet future needs.

Contrary to meaningful reform, policymakers’ current proposals on the table would actually expand the size and scope of the UC system. Some proponents are seeking to utilize federal stimulus funding, which comes with strings attached. To receive the first third of $273 million, the UC system would have to expand benefits at a hefty cost.

“Through the United States Department of Labor’s own admission, the cost would be between four and six percent of benefits annually,” Denisco said. “You’re talking a $160 to $240 million cost to the fund to draw down one-third of $273 million.”

The stimulus dollars represent temporary funds. When that funding is gone, an already insolvent UC Trust Fund would be left to absorb the cost of the newly imposed mandates.

Pennsylvania needs a system that is predictable, fair and based on sound financial principles. To achieve that, the business community stands behind its proposal to spread the burden, including higher taxes for employers, and reforms that will rein in future costs and preserve benefits for those who truly need it.

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Founded in 1916, the Pennsylvania Chamber of Business and Industry is the state’s largest broad-based business association, with its membership comprising businesses of all sizes and across all industry sectors. The PA Chamber is The Statewide Voice of Business.