Wolf administration says unemployment compensation needs funding reauthorization
While it’s unclear what the Pennsylvania General Assembly will ultimately accomplish during the next few weeks of its fall session, Gov. Tom Wolf’s administration hopes one of those items is a reauthorization of funding for the modernization of the state’s unemployment compensation system.
Calling it a “time-sensitive matter,” Labor and Industry Secretary Kathy Manderino urged members of the House Labor and Industry Committee Sept. 19 to move expeditiously to ensure Act 34 of 2013 does not sunset on Dec. 31 of this year.
The current law, which created the Unemployment Compensation Service and Infrastructure Improvement Fund, was designed to supplement federal funding for the administration of unemployment compensation by transferring funds from currently existing unemployment compensation revenue to assist with processing claims. The money comes from existing employee tax contributions as mandated by law.
Under the act, a total of $40 million was transferred for Calendar Year 2016, with a total of $150 million transferred during the four years of the act. The Labor and Industry Department has been using this money to both operate and modernize its 40-year-old legacy unemployment compensation benefits system, but more work remains.
Federal funding to assist states has been declining, and there’s no money coming from Washington D.C. this year for modernization efforts, increasing the importance of the continuation of the Act 34 transfers, said both Manderino and Kevin Cicak, Deputy Secretary for the Unemployment Compensation Program.
“The legislation was moving much earlier in the year over in the Senate, we thought it would be over to the House before you recessed for the summer,” said Manderino of the legislation reauthorizing Act 34. “You guys know, as well as I do, how sometimes the best laid plans don’t happen that way – and it didn’t make its way over.”
In June, Senate Bill 1335 was introduced in the Senate by Sen. Tina Tartaglione, D-Philadelphia, to extend the funding deadline for the Service and Infrastructure Improvement Fund to the end of the 2020 fiscal year. The bill was referred to the Senate Labor and Industry Committee on June 28, but has not moved since then.
“I asked Leader Reed during the summer if the House would consider – since you are in a week earlier than the Senate – if the House would consider also introducing and moving this bill while there’s a bill in the Senate, so we can just see that we get one of them over the finish line by the end of the year,” added Manderino.
And what happens if Act 34 isn’t reauthorized? Without the transfers, the Department of Labor and Industry will not have the funding necessary to invest in better technologies to assist processing unemployment claims in a timely manner.
“Successful completion of the benefit modernization in the upcoming three years will bring significant efficiencies to Pennsylvania that will reduce our operating costs and the replacement of our current manual-heavy processes will allow for additional reductions in personnel,” said Manderino. She noted U.C. system personnel have been reduced from 1,400 in 2012 to a current total of 800, all through attrition.
To make up for lost funding, if that’s even possible, would likely result in significant unemployment compensation service center personnel furloughs and the closure of multiple call centers, all of which would impact the ability to serve unemployed Pennsylvanians, Manderino and Cicak said.
When asked what would happen if the department stopped the modernization project and didn’t furlough staff, Cicak said, “I literally don’t know where we would get the money to operate, I believe by April we would be running red ink with no end in sight, and no potential bailout from the federal government … the only viable alternative would be to reduce staff.”
Manderino said the Commonwealth will soon receive the bids generated by a request for proposals to supply the state with a “customized, off-the-shelf product” that is an upgrade over the current Unemployment Compensation Benefits legacy system. According to the RFP, bids must be in by Sept. 21, and those bids will be opened on Sept. 22.
When asked about the projected cost of the product being sought, Manderino and Cicak said to offer any figures during an ongoing RFP could impact the entire bidding process.
“Some vendors may not have submitted their proposals, and I wouldn’t want them to overcharge us,” said Cicak.
“So maybe we shouldn’t put a number on it,” added Manderino.
The “off-the-shelf” software search is a switch from past policy, which sought a solution developed in-house specifically for the department. Such an effort was terminated in 2013 after the planned modernization project, as part of a $106.9 million contract awarded to IBM in 2006, was 42 months late, more than $60 million over budget and had not produced a workable solution to replace the state’s archaic system.
That 2006 project, and its overruns, burned through all the money the state had been receiving from the federal government for modernization efforts, so at the end of that failed effort the state didn’t have “the cushion” it would have otherwise had “for times like now,” said Cicak, which was the impetus for Act 34.
While lawmakers were sympathetic to the department’s need, a few also noted the need for “an exit strategy” from the Act 34 transfers.
“In Act 34, we were talking about a temporary resolution to get you to a point where your operation [works] and everybody at home waiting for an unemployment comp check is served well,” said Committee Chairwoman Maureen Gingrich, R-Lebanon. “I’m kinda remaining focused on how we’re going to get to that exit strategy, if there is a way that we can help you with this.”
“I think the benefit modernization will be a significant reduction in the reliance on this fund,” Manderino responded. “To get to a total exit strategy, I think we need to have a hard discussion about some things, and what do we want Pennsylvania’s unemployment compensation system to look like.”
Manderino listed examples of other states that have cut back on the number of days per week individuals can file their claims, limited those claims to being filed online (as opposed to over the phone or in-person), or only use one centralized call center for claim filing.
Pennsylvania hasn’t imposed as many of the limitations other states have, said Manderino.
Pennsylvania did eliminate its walk-in operations for filing claims, but still maintains a telephone system, in addition to its online system, with multiple call centers “strategically located around the state,” Manderino explained. And the Commonwealth did reduce the number of days during which claims can be filed, but Pennsylvania’s limit is four days, while other states are down to three days, or less, a week, she said.
Manderino said those are the types of difficult decisions that have to be made to get system operation costs to a point where the department no longer needs the funding transfers.
“And that’s where we need to get to,” agreed Gingrich.