Joint Subcommittee Studying the Funding Requirements of the Virginia Unemployment Compensation Act
October 9, 1997, Richmond
Members of the joint subcommittee heard the annual Virginia Employment Commission's (VEC) unemployment insurance trust fund briefing. This briefing provides key unemployment statistics as well as analysis of the relationship between the current employment climate and the solvency of the trust fund. According to the VEC commissioner, unemployment rates in 1997 have been below the same-month 1996 rates. He attributed the low level of joblessness in the Commonwealth to good weather, especially during the winter months, and a healthy economy.
Legislation passed during the General Assembly's 1997 Session (HB 2559, SBs 1018, 1089) increased benefits and eligibility for employees, lowered taxes for employers, and altered the statutory formula used to calculate the trust fund's solvency rate. The commissioner explained that as a result of the lower earnings requirements, approximately 420 new claimants were eligible for benefits after July 1, 1997. Estimates provided by the VEC predict that by 1999 about 6,300 claimants who were not otherwise eligible will receive benefits due to the lowering of earnings requirements.
An individual employer's unemployment tax rate is determined by the employer's experience over the last four years and the trust fund solvency level. By changing the statutory formula used to calculate trust fund solvency, employers in Virginia should save approximately $154 million in unemployment taxes over the next six years. Approximately 89,000 employers, 88,000 of whom are small employers with fewer than 50 employees, will pay no state unemployment taxes for the next four years.
Trust Fund Solvency
The joint subcommittee was advised that the predicted unemployment insurance trust fund solvency rate for 1997 will be 130.9 percent. The solvency rate reported in June of 1996 was 90.5 percent. The VEC provided the data summarizing the trust fund.
Dollar figures in millions of dollars.
Additionally, the VEC predicts that trust fund solvency will exceed 100 percent for the next four years, assuming no further legislated changes in benefits or taxes. The average tax paid by an employer for each employee peaked at $115 in 1995 and is expected to fall to $77 in 1997 and to $42 in 1998 and 1999. This 63 percent decrease in the average tax can be attributed to the tax cut outweighing the benefit increases. All categories of employers saw a decline in their average tax rate as a result of the legislation.
The joint subcommittee also discussed Senate Joint Resolution 380, introduced during the 1997 session of the General Assembly. The resolution calls for an examination of the provisions of law establishing responsibility for employee benefit charges. Currently, an employer is charged for any benefits paid to an employee after that employee has worked for that employer for 30 days.
Testimony by the patron of SJR 380, Senator Stephen Newman, suggested that employers, especially those in the high technology and manufacturing sector, need more time to evaluate employees before making permanent employment offers. Increasing the 30-day period for benefit charges would enable employers and employees to make better and more productive employment decisions. The joint subcommittee agreed unanimously to further study this issue in 1998.
The Honorable Jackson E. Reasor, Jr., Chairman
Legislative Services contact: Robert A. Omberg