SJR 77

Joint Subcommittee Studying the Funding Requirements of the Virginia Unemployment Compensation Act

November 18, 1998, Richmond

Members of the joint subcommittee heard the Virginia Employment Commission's (VEC) annual 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 1998 have been below the same-month 1997 rates. Virginia, as a result of a healthy economy, is enjoying the lowest unemployment level in 29 years, with 25 jurisdictions currently experiencing unemployment of less than two percent.

Effects of 1997 Legislation

Legislation passed during the General Assembly's 1997 session (HB 2559, SB 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 VEC commissioner explained that as a result of the lower earnings requirements, approximately 2525 new claimants, who were not otherwise eligible, were monetarily eligible for benefits since the lower earnings requirement became effective on July 1, 1997.

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. As a result of changes in the statutory formula used to calculate trust fund solvency (enacted by the 1997 General Assembly), 93,000 employers, 92,000 of whom have 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 unemployment insurance trust fund solvency rate through June of 1998 is 114.3 percent. The VEC provided the data in Table 1 summarizing the trust fund.

Table 1
Unemployment Insurance Trust Fund
1997 (Actual)
1998 (Projected)
January 1 balance
Tax revenue
Interest revenue
December 31 balance
(actual) 958.2
Solvency level (6/30) 122.9% (actual) 114.3%

Source: Virginia Employment Commission

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.

SJR 380

The joint subcommittee also discussed SJR 380, introduced in 1997, which 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 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 prior to the 1999 General Assembly.

HB 776

The House Labor and Commerce committee referred HB 776 (1998) to the joint subcommittee and requested an advisory recommendation on the bill. Delegate Deeds, the patron of HB 776, explained that the bill would conform the definition of employment within the Virginia Unemployment Compensation Act with the definition contained in the Federal Unemployment Tax Act. The subcommittee failed to recommend the bill, indicating that such a change was too drastic. There was subcommittee consensus supporting a more narrowly crafted approach, specifically legislation recognizing and accepting for state unemployment tax purposes federal determinations regarding whether an employer is responsible for filing and paying unemployment taxes.

The Honorable Jackson E. Reasor, Jr., Chairman
Legislative Services contact: Robert A. Omberg