Rep. Ryan Mackenzie (R-Lehigh/Berks) today welcomed news of a 30-year record low in the unemployment compensation (UC) tax rate in Pennsylvania, and the revived health of the UC Trust Fund.

“One of the essential elements to Pennsylvania’s future success is the strength of our business community,” said Mackenzie. “Before I was elected a state representative, I served as a policy director for the Pennsylvania Department of Labor and Industry. While there, I worked on legislation to reduce the tax rate business owners were paying for unemployment compensation.

Unemployment compensation provides temporary wage replacement income to eligible workers who have lost their job. The Unemployment Compensation Law requires covered employers to make contributions into a pooled reserve known as the UC Trust Fund. These contributions are used to pay for benefits, for a limited time, for jobless individuals who are able and available for suitable work but are unemployed while looking for another job.

“Several years ago, the UC Trust Fund was saddled with paying back a large debt through the federal government. To address that, we ‘refinanced’ that debt with a bond and also made reforms to the UC benefits system that saved us more than $400 million a year. The 1.1% UC tax rate was ultimately in lieu of higher federal taxes that would have needed to be paid had we not refinanced,” said Mackenzie. “Now, several years later, thanks to Act 60 of 2012 – which in addition to helping craft, I voted for once elected to the House of Representatives – the fund is back on stable ground.”

Act 60 of 2012 included provisions for refinancing Pennsylvania’s federal loans for UC through the sale of bonds to obtain the lowest possible rate of interest. A 1.1% interest factor was assessed for businesses from 2013-19 to repay the UC bonds. The refinancing of Pennsylvania’s UC debt saved employers approximately $57 million in interest costs.

Now that the bond debt has been repaid, the Department of Labor and Industry eliminated the 1.1% tax rate effective Jan. 1, which is expected to save employers $552 million this year.

The UC Trust Fund’s solvency is calculated annually to ensure Pennsylvania is prepared for periods of economic downturn. As of July 1, 2019, the fund’s solvency percentage was 181%, the highest level since 2001. The fund is considered solvent when its level reaches two and a half times (or 250%) the average annual benefit payout over the last three years.

“This is a situation I have obviously followed closely over the years,” said Mackenzie. “It feels good to see that the collective hard work of all those involved has paid off and that the Pennsylvania business community is now stronger than ever.”

 

Information provided to TVL by:
Tricia Lehman for
Representative Ryan Mackenzie
134th District
Pennsylvania House of Representatives

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