Joint Subcommittee Studying the Unemployment Trust Fund

December 20, 2001, Richmond

The commissioner of the Virginia Employment Commission presented a report to the joint subcommittee of the status of the Unemployment Trust Fund, including an overview of Governor Gilmore’s Executive Orders 84 and 86, both issued this year.

Executive Order 84 was issued September 27, 2001, to help individuals who became unemployed as a direct result of the September 11 terrorist attacks. The order eliminated the waiting week for benefits, allowed backdating of claims to September 9, and waived the work search requirements for displaced employees until Reagan National Airport was reopened. On November 14, 2001, Governor Gilmore issued Executive Order 86, which increased benefits for all recipients by 37.3 percent for claims filed between September 9, 2001, and March 9, 2002. The order increased the minimum weekly benefit from $50 to $69, and the maximum weekly benefit from $268 to $368.

Since March, unemployment rates in 2001 have been higher than the same-month 2000 rates. Total initial claims for unemployment benefits were up 53.9 percent due to layoffs in manufacturing, transportation, communications, retail trade, and services. First payments to claimants are up 52 percent from last year. The average duration of unemployment is 10 weeks. Final payments to claimants in the first 10 months of 2001 are 28.8 percent above 2000 levels.

The VEC advised the joint subcommittee that the projected solvency level of the Unemployment Trust Fund for 2001 was 100.3 percent, a one percent decrease over the final fiscal year 2000 solvency level. The decline in the solvency level was attributed to increased benefits, including both the benefit amount increases in the executive orders and the larger number of employees eligible for benefits. The balance in the Trust Fund as of January 1, 2001, was $1,042,300,000, up from $1,017,500,000 on January 1, 2000. The VEC projected the Trust Fund balance to be about $914.5 million by the end of 2001. The VEC also reported that tax revenue will decrease slightly because of slowing employment and wage growth and lower average taxes.

The report included projections for Trust Fund solvency through 2004 (i) if Executive Order 86 expires, and (ii) if the 37.3 percent increase in benefits is codified. If Executive Order 86 expires March 9, 2002, the solvency of the Trust Fund will drop to 82 percent in 2002, 89 percent in 2003, and 82 percent in 2004. If the benefit increase is codified, solvency will decrease to 77 percent in 2002, 64 percent in 2003, and 49 percent in 2004. A solvency level below 50 percent triggers the fund-building tax on employers. If the Executive Order expires and no legislative change in benefits is enacted, the average tax per employee on employers will be $44 in 2002, $74 in 2003, and $86 in 2004. With a permanent 37.3 percent benefit increase, the average tax per employee would be $44 in 2002, $78 in 2003, and $111 in 2004. These projections are based on an unemployment rate of 4.2 percent.

Members of the joint subcommittee discussed HJR 611, which expanded the scope of the joint subcommittee to encompass a full study of Virginia’s unemployment compensation system. The resolution set aside $100,000 of the cost to be borne by the VEC, and the commissioner confirmed that the money has been earmarked for this study. The joint subcommittee adopted a formal resolution requesting that the VEC hire an actuary or consultant to perform the study and report back to the joint subcommittee any findings and recommendations.

The Honorable John C. Watkins, Chairman
Legislative Services contact: C. Maureen Stinger


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