Commission on Unemployment Compensation
July 19, 2004
Status of the Trust Fund and
The deputy commissioner
of the Virginia Employment Commission (VEC) briefed the commission on
the status of the unemployment trust fund (his testimony is linked to
the commissions website at http://dls.state.va.us/SB889.htm). Virginia
has the third lowest tax rate in the country; the average duration of
benefit receipt in Virginia in May 2004 was 14.1 weeks, compared to a
national average of 16.7 weeks; final payments are down 28 percent from
last year; and total initial claims are down nearly 31 percent from last
year. Virginia, unlike six other states, has no outstanding balances on
loans from the federal account.
The trust funds
solvency rate is projected to be 34.3 percent as of June 30, 2004. The
fund-builder tax was activated January 1, 2004, and is expected to continue
into 2005. Interest revenue is predicted to decline given the overall
decline in the fund levels. Importantly, however, the projected solvency
rate is higher than that projected for June 2004 last year, in part due
to fewer claims and lower benefit payment levels.
Among other items
in the VEC report:
- The National Association
of State Workforce Agencies is seeking $9 billion in additional Reed
Act funds, to be distributed proportionally among the states. The proposed
legislation has not yet been introduced given its expense, and the Bush
administration opposes any such legislation.
- The majority of
jobs are being added in the general services sector in Northern Virginia.
- Nine to 10 weeks
is the usual duration for benefit payments; the average duration calculated
for May 2004 of 14.1 weeks is relatively high for Virginia. That higher
duration rate indicates that jobs are not readily available, and job
seekers require more time to find work and are more frequently exhausting
their unemployment benefits.
- The six states
requiring loans had to borrow because the recession affected them more
severely because of the types of industry in those states. The reasons
necessitating the loans were not limited to departure of industry due
to an onerous tax burden.
- On July 15, 2004,
the House Appropriations Committee approved appropriations for the Wagner-Peyser
Act. Funding has been flat for the last decade, but the current appropriations
bill would actually cut job service funding by approximately $91 million.
The VEC estimates the impact on Virginias program as ranging from
$1.8 million to $2.4 million, which may force staff layoff and office
- The full House
passed a bill addressing SUTA (state unemployment tax) dumping. SUTA
dumping is an attempt by employers to fraudulently assume a new experience
rating (by purchasing a new shell for their business) in order to lower
their unemployment insurance tax rate. The bill has strong bipartisan
support and will require all states to enact legislation addressing
of the Workforce Investment Act is stalled in Congress. The House and
Senate versions of the bill differ, and a conference committee has not
yet been appointed. The act is funded at prior year levels. Other federal
issues include an unemployment insurance reform measure being floated
by the Bush Administration, and a possible Reed Act distribution.
Senator Watkins asked
that the VEC prepare a white paper on SUTA dumping for presentation to
the commission at the November meeting. The paper will describe the extent
of the problem in Virginia, and will offer models for approaches to address
SUTA dumping. Senator Wagner requested that VEC examine the extent to
which the taxes of law-abiding employers are increased as a result of
Virginia Statutes Enacted
The VEC does not
expect that House Bill 288 (defining benefit disqualifying misconduct)
or Senate Bill 665 (requiring that bills enhancing benefit payments must
contain estimates of potential revenue losses) will significantly affect
the unemployment compensation program. Senate Bill 130 increases the penalty
assessed against employers for filing a late report from $30 to $75. The
percentage of late-filing employers has increased from 12 percent to 18
percent (in the first quarter of 2004) in the last two years. VEC expects
this bill will have a significant impact in encouraging compliance with
the deadline for report submission.
In response to a
question from Senator Watkins, the VECs director for taxation noted
that it would be difficult to calculate the exact percentage of administrative
funds dedicated to enforcement but that field staff had been increased
by 20 percent.
Three other bills
made needed technical corrections: Senate Bill 3 abolished the Workforce
Development Training Fund, among other dormant programs; Senate Bill 9
eliminated a redundant workforce plan requirement; and Senate Bill 363
transfers the Migrant and Seasonal Farmworkers Board from the Department
of Labor and Industry to the Virginia Employment Commission, which has
federal funding available to support staffing the board. Labor and Industry
personnel now support the board without dedicated funding or staff. Senate
Bill 363 also transfers the Interagency Migrant Worker Policy Committee
from Labor and Industry to the Virginia Employment Commission.
A senior planner
with the VEC provided an overview of the regulations governing benefits
charging. There are two primary ways that benefit charges can be assessed.
One is on a proportional basis, under which every taxable employer in
the applicable wage period is charged for benefits in proportion to the
salary paid an employee. Approximately 36 states use this approach. The
other approach charges only the last taxable employer for benefits. This
is the approach that Virginia and five other states use. Another approach
is inverse proportional charging, under which the most recent taxable
employers pay more than other employers in the claimants base period.
expressed concern over the fact that under a proportional approach, an
employer that was not responsible for discharging an employee would be
charged for unemployment benefits, and that proportional charging would
be more expensive to administer. Federal law requires that reimbursable
employers be charged benefits for any claimant employed by them during
the claimants base period.
Virginia Workforce Council
At the councils
last meeting in 2003, it focused on the effective performance of workforce
training programs. Demand plans, which structure individualized
workforce training in accordance with the needs of local employers, will
be developed and implemented in Roanoke and Smyth County. The local workforce
investment boards (WIBs) must demonstrate that local employers need any
training they propose to provide.
In June 2004, Governor
Warner approved three marketing pilots for the WIBs to improve one-stop
shopping by establishing coordinated economic relief centers. These
are more intensive approaches that go beyond what the WIA requires to
help communities recover from economic hardship. Virginias unemployment
compensation program has a strong work search component that accounts
in part for the programs relatively low costs and resilient trust
House Bill 1288
would have authorized payment of unemployment compensation to individuals
who became unemployed when they followed their spouse to a new military
posting. Any benefits paid would have been charged against the pool. The
bill passed the House but was carried over in the Senate. Senator Watkins
noted that the commission must examine this issue very closely. The costs
associated with implementing the change to the program must be considered
in light of the potential benefits.
A VEC survey of 16
states with large military populations showed that of the nine responding
states, three (South Carolina, Kentucky, and Maryland)) do not pay benefits
to trailing spouses. Of the six that do, four were able to detail the
methodology they use to estimate the costs associated with paying benefits
to trailing spouses. Applying those methodologies to Virginia results
in estimates for adding this benefit to Virginias program that range
from a low of $253,000 (using Oklahomas methodology) to a high of
$14.1 million (using Floridas methodology). Of the four states whose
methodology Virginia applied, only Oklahomas program was actually
in operation; the other three states methodologies came from recently
passed legislation. Many states, while not specifically authorizing payments
to trailing spouses, do not disqualify them from receiving benefits.
VEC staff advised
the commission that a technical amendment is needed to Senate Bill 179,
passed in the 2004 General Assembly Session, which provides that unemployment
benefits paid because of temporary work closures due to natural disasters
will be charged against the pool rather than against the employer. The
problem is in the reference to the temporary work closure.
Having to track whether a business reopened subsequent to the natural
disaster would impose an enormous administrative burden on the VEC. A
technical amendment will be prepared for consideration in the 2005 General
questioned the VEC regarding the issue of seniors returning to the work
force. Such returns often are motivated by economic necessity. Under current
law, if a senior employee is laid off and receives unemployment compensation,
those benefits may be reduced by up to 50 percent of any Social Security
or Railroad Retirement benefits the senior employee may be receiving.
Prior to 2003, benefits were offset by 100 percent. The 2003 legislation
lowered the offset to 50 percent on the basis that employee contributions
made up a portion of those benefits, and accordingly should not be offset.
In accordance with that rationale, there should be no offset for unemployment
benefits paid by an employer who made no contributions to the senior employees
The commission heard
public statements from AARP Virginia and the Virginia Poverty Law Center.
Their statements are available on the commissions website. The commission
requested that staff send the work plan out for approval by commission
The Hon. John C. Watkins
Division of Legislative Services
of Legislative Services > Legislative
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