Editor's note: The unemployment rate in Lancaster County has risen to 18 percent. Click here for the full story.
State and federal officials are scrambling to save a network of social safety programs that are in the early stages of an unprecedented wave of demand — one exponentially larger and more acute than they were ever designed to handle.
Mandatory business closures, travel restrictions as well as state-ordered and self-imposed isolation have ground economic activity to a standstill. A record-shattering surge of newly jobless are seeking unemployment benefits, rapidly ramping up demand for services at the same time as the sudden loss of taxable business and personal income strangles state finances.
As Pennsylvania officials seek to loosen restrictions on health insurance and other aid programs, federal lawmakers have crafted a series of emergency measures to keep money flowing to individuals, businesses, and local and state governments that will top $2 trillion, making it one of the most robust federal actions in U.S. history.
“In Pennsylvania, our economy is closed. Except for essential businesses and a very small number of other exceptions, it is not permissible to open your doors, it is not permissible to go to work,” Republican U.S. Sen. Pat Toomey said Wednesday.
“This has never happened before in American history,” he said.
In addition to bolstering unemployment compensation and creating massive loan funds for small and large businesses, the federal stimulus would give Pennsylvania $5 billion to offset rising costs and cratering tax revenue, Toomey said. Experts predict the state faces revenue shortages of $3 billion to $6 billion due to tax losses.
Little more than a week after Gov. Tom Wolf ordered all non-essential businesses closed, the state’s unemployment compensation system received 540,000 new applications, according to Spotlight PA, an investigative journalism nonprofit of which LNP | LancasterOnline is a partner. That's about 8% of Pennsylvania's 6.5 million workers.
The previous record for first-time claims was 168,200 in January 2010 — one-third the claims over three times as many days, Spotlight PA reported.
The last major economic shock — the financial crisis of 2007-2009 — depleted the state’s unemployment trust fund. The state had to take out a $2.8 billion loan to reimburse the federal government for covering unemployment payments after Pennsylvania ran out of money.
“We just finished off paying off that debt,” said Gene Barr, president and CEO of the Pennsylvania Chamber of Business and Industry.
The state had $3.4 billion in its unemployment trust fund at the end of 2019 — $2 billion more than it had on hand before unemployment spiked to 9 percent during the Great Recession. But because of higher wages today, that $3.4 billion isn’t much different in terms of the fund’s total solvency than it was more than a decade ago. At the end of 2019, Pennsylvania’s fund solvency actually ranked 42nd among states, Puerto Rico and Washington, D.C.
Normally, businesses are the sole means of filling that trust fund, said Rep. Frank Ryan, R-Lebanon. But many of those businesses have been forced to shut their doors in recent weeks, cutting off their ability to pay. Keeping the trust fund solvent, he said, will require state and federal governments to step in.
“For business, it is arguably worse than 9/11,” Barr said. “You have something you can’t see, and it’s of longer duration.”
The federal stimulus bill would provide an unprecedented influx of cash into the nation’s unemployment compensation system — $260 billion over just four months — according to Democratic Sen. Sen. Bob Casey Jr.
That still likely won’t be enough to blunt the worst effects the sudden economic shock. Unemployment insurance was built to cushion the blows from small to moderate market downturns. It’s not set up to quickly put money into the hands of hundreds of thousands of people who suddenly can’t make rent.
“These closures and layoffs are going to hurt all, but will absolutely devastate low-income and working-class Pennsylvanians,” said Kevin Boyle, D-Philadelphia. “Any effective economic federal response must provide immediate cash assistance, most especially to those most financially in need. It must also mandate paid sick time. We can't wait any longer for this help to arrive.”
The federal stimulus bill would provide cash payments of $1,200 to individuals who made less than $75,000 last year or $2,400 to married couples who made less than $150,000, plus $500 per child. Treasury officials believe they can get that money out — mostly through direct deposits, rather than physical checks — by the second week of April, Toomey said.
Despite the stimulus' historic size, it fails to address other areas of the social safety net likely to see increased strain during the crisis, such as the Supplemental Nutrition Assistance Program, formerly known as food stamps.
"That's one of the areas of the bill I'm really disappointed about. I could use stronger language than that, but I won't," Casey said. "If there was ever a need for an enhanced dollar amount for food assistance, it's now."
State government, meanwhile, is instituting small-business loan programs and seeking waivers from the federal government to rapidly expand access to health care programs including Medicaid and the Children’s Health Insurance Program — creating potentially billions of dollars in new costs as tax revenue craters.
“Our states are facing significant direct expenses related to fighting this COVID-19 attack,” Toomey said. “They’re doing so at a time when revenue is collapsing.”
Pennsylvania would be in line for about $5 billion from a $150-billion pot of money in the federal stimulus bill that would be handed out to states based on their population, Toomey said. Rather than having states spend that and then seek reimbursement, as previous stimulus packages required, lawmakers want to send states this money up front — possibly within a month — and have them pay back whatever remains unspent by the crisis’ end, he said.
The sudden loss of tax payments in Pennsylvania could create an immediate revenue shortfall of $3.4 billion, or about 10 percent of the state’s budget, according to an estimate by Robert Strauss, professor of economics and public policy at Carnegie Mellon University.
"Nobody has any economic models that can explain what's going to happen in the labor market," Strauss said.
The effectiveness of the stimulus grants for individuals right now ls likewise in doubt while much of the state remains on some form of lockdown, said state House Majority Whip, Kerry Benninghoff, R-Centre County.
"The idea of an influx of money to boost one's economy in any state requires people have the ability to go somewhere in the state to spend it," Benninghoff said.