Joint Subcommittee Studying the
Unemployment Trust Fund
June 11, 2002
Richmond
2001 Legislation
The joint subcommittee studying
the funding requirements of the Unemployment Trust Fund held its first
meeting of the year on June 11, 2002. Staff briefed members on bills introduced
during the 2002 Session that had a potential effect on the trust fund.
- SB 127 would have added the
failure of a drug test administered (i) by a probation agency or (ii)
pursuant to a court order to the definition of employee misconduct,
resulting in disqualification for unemployment benefits. The bill was
carried over.
- HB 943 and SB 45 would have
eliminated the waiting week for benefits. These bills were both carried
over.
- HB 944, SB 72, and SB 141
codified the 37.3 percent increase in benefits provided by Governor
Gilmore’s Executive Order 86. These bills were rolled into their respective
counterparts, either HB 1336 or SB 663.
- HB 1336 and SB 663, as passed,
codified the 37.3 percent increase in benefit amounts for claims filed
between September 9, 2001, and January 1, 2003. For claims filed in
calendar year 2003, benefits increase by 18.65 percent above their pre-September
9, 2001, levels. After January 1, 2004, claimants will receive benefits
at the pre-September 9, 2001, levels. These bills passed both houses
and were signed by the Governor.
Trust Fund Status
The deputy commissioner of the
Virginia Employment Commission presented a report of the status of the
trust fund. The federal Job Creation and Worker Assistance Act provided
temporary extended unemployment compensation (TEUC) and distribution of
Reed Act funds. TEUC benefits equal up to 50 percent of state unemployment
benefits, expiring December 31, 2002. Nearly $215 million in Reed Act
funds was placed in Virginia’s trust fund, and $30.9 million was appropriated
in the budget for administrative costs.
Benefits paid in 2001 through
2003 are projected to exceed $1.5 billion. The balance in the trust fund
will decrease from $877 million on May 31, 2002, to about $300 million
on March 31, 2004, before it begins to increase once again. The solvency
level in 2002 will be below 100 percent, however, so employers will no
longer pay the zero-tax rate that has been used since mid-1997. Despite
the decrease in trust fund balances, solvency of the trust fund is not
expected to drop below 50 percent in 2004, so the VEC does not expect
employers to have to pay the statutory fund-building tax in 2005. The
fund-building tax has not been paid since 1985. Between 2002 and 2005,
the average tax based on taxable wages increases from $39 to $143. The
average tax rate reached a record high of 2.5 percent in 1984, and is
only expected to reach a high of 1.8 percent by 2005, before it begins
to decrease again.
Members asked for additional
information regarding job growth factors included in these projections,
and the impact of eliminating the waiting week since the passage of HB
1336 and the Reed Act distributions. The information was promised to members
of the joint subcommittee within a week or two.
Urban Institute Study
Dr. Wayne Vroman of the Urban
Institute has been hired to conduct the actuarial study of Virginia’s
unemployment compensation system, as authorized by HJR 611 (2001). Vroman
indicated that the project is in its very early stages, but he expects
a large amount of comparative data from other states to be included. He
has studied the unemployment systems and trends in Florida, Georgia, North
Carolina, and Washington, among others. The project will address each
of the eight charges set out in HJR 611.
As part of the project, Vroman
will examine the formula for determining the adequacy of the trust fund,
including whether the 20-year lookback is adequate. He will use two models:
the current model used by the VEC and a model Vroman is developing for
comparison. Preliminary findings indicate that one of the reasons Virginia
has had historically good solvency levels is its low level of benefit
payments. This is due partially to the statutory formula for determining
benefits, and partially to Virginia’s active administration of the statute
in terms of enforcing eligibility requirements (e.g., the work search
requirement). However, Virginia’s recipiency rate has been rising in the
last five years, and regardless of the unemployment rate, costs will increase
because a higher share of the unemployed will be receiving benefits.
Vroman stated that benefit ratio
systems (such as Virginia’s) are an eminently sensible way to determine
tax rates, because only those employers that have claims against them
will pay unemployment taxes. Through the operation of the benefit ratio
statutes, funds paid in benefits will replenish themselves. In a reserve
ratio system, an employer’s tax rate may increase despite a lack of claims
for benefits.
Members asked Vroman to examine
the changes in Virginia’s industries as part of the study. The Chairman
expressed concern that many jobs are becoming more and more agricultural,
and this is changing the unemployment landscape in Virginia. Vroman indicated
that the change from manufacturing to the service industries has had and
will continue to have the greatest impact, and he will review these trends
as part of his report. A preliminary draft of the report is due September
20, and the joint subcommittee will set its next meeting date for after
that due date.
Chairman:
The Hon. John
C. Watkins
For information,
contact:
C. Maureen Stinger
Division of Legislative Services
Website:
http://dls.state.va.us/hjr611.htm
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