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RECESSION TRIGGERS AUTOMATIC INCREASES IN JOBLESS FUND CONTRIBUTIONS

RECESSION TRIGGERS AUTOMATIC INCREASES IN JOBLESS FUND CONTRIBUTIONS
 HARRISBURG, Pa., July 31 /PRNewswire/ -- As publicly forecast last month, the ongoing national recession and increased long-term unemployment will trigger automatic increases next year in employer and employee taxes that support the Unemployment Compensation Trust Fund, the state Department of Labor and Industry reported today.
 The increases, the result of a "trigger mechanism" established by a 1988 law strongly supported by business and labor to maintain the solvency of the Unemployment Compensation (UC) Trust Fund, will go into effect Jan. 1, 1993.
 Employers will be required to pay a surcharge of 9.3 percent on the amount of tax they normally pay to the UC Fund. They will also pay an additional tax of 0.5 percent on the first $8,000 of each worker's earnings.
 Workers will pay .15 percent on all wages earned or $1.50 for each $1,000, up from .05 percent this year.
 The increases are projected to generate $465 million in additional income to the fund -- $157 million from the additional employer contributions, $119 million from the surcharge and $189 million from the contribution by workers.
 Despite the recession-driven drain on the UC Trust Fund, the trigger mechanism has worked to keep Pennsylvania employers from having to pay federal penalties, higher taxes and other assessments that would have been required if the state had to borrow federal funds to support the system, as a number of other states have had to do recently.
 In addition, the enactment of the trigger four years ago and early repayment of the state's $2.7 billion federal debt actually reduced taxes on businesses and workers. Through 1992, employers will have saved about $1.1 billion and workers saved approximately $398 million.
 Last month, the Department of Labor and Industry issued a report, the "1991 Actuarial Evaluation, Financial Operations of the Pennsylvania Unemployment Compensation Trust Fund," which predicted that by July 1, the amount in the fund would have fallen to a level that would require increases in taxes paid by employers and workers.
 The actual balance in the fund on June 30 was $997.1 million, which corresponds to a "trigger percentage" of 69 percent. The trigger percentage, used to determine the level of contributions needed for the following year, is a comparison of the fund balance to the average annual benefit payout for the previous three years.
 The report is based upon projections by the Wharton Econometric Forecasting Associates (WEFA).
 The report says that with more Pennsylvanians unemployed during 1991 than at any time since 1983 because of the current recession, the state's U.C. program provided more than $1.7 billion in benefits to more than 699,000 unemployed workers. In the process, the Fund balance dropped by $469 million to about $1.2 billion at the end of 1991.
 Projections in the report call for the balance to fall to $770 million by the end of 1992 before beginning a modest rise, in response to the increased worker and employer contributions and what WEFA predicts will be a slow economic recovery through late 1993 and 1994.
 Under the 1988 bipartisan plan, the solvency of the Trust Fund is maintained through automatic "triggers" which adjust taxes and benefits as the Fund's balance grows or decreases. The "trigger mechanism" is designed to keep the Fund balance from becoming either dangerously low or excessively high.
 At the height of the 1980's recession, Pennsylvania was indebted to the federal government for more than $2.7 billion, because of borrowing necessitated by rising unemployment rolls.
 During the current recession, a number of states have been experiencing problems paying UC benefits, and some states, including Massachusetts, Michigan and Connecticut, have found it necessary to borrow federal funds. Borrowing federal funds to pay unemployment benefits requires states to pay interest on the debt and employers in those states may have to pay additional penalty taxes to help retire the obligation to the federal government.
 /delval/
 -0- 7/31/92
 /CONTACT: Jack McGettigan or Susan Hensel of the Department of Labor and Industry, 717-787-7530/ CO: Pennsylvania Department of Labor and Industry ST: Pennsylvania IN: SU:


MK -- PH026 -- 5705 07/31/92 15:01 EDT
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Date:Jul 31, 1992
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