- Report Published -
|Report Document No. 21|
PUBLICATION YEAR 2012
|Executive Summary of Interim Activity and Work of the Virginia Commission on Unemployment Compensation - January 9, 2012|
|Virginia Commission on Unemployment Compensation|
Chapter 33 (§ 30-218 et seq.) of Title 30 of the Code of Virginia establishes the Commission on Unemployment Compensation (Commission). The Commission is charged with:
• Evaluating the impact of existing statutes and proposed legislation on unemployment compensation and the unemployment trust fund;
• Assessing the Commonwealth's unemployment compensation program and examining ways to enhance effectiveness;
• Monitoring the current status and long-term projections for the unemployment trust fund; and
• Reporting annually its findings and recommendations to the General Assembly and the Governor.
The Commission's membership is comprised of Senators John Watkins, Donald McEachin, and Phillip Puckett and Delegates Bob Purkey, Lionell Spruill, Lee Ware, Joseph Morrissey, and Kathy Byron. Senator Watkins chairs the Commission, and Delegate Purkey is its vice chairman.
This executive summary of the interim activity and work of the Commission is submitted pursuant to § 30-224, and is provided in lieu of an annual report.
The Commission met on August 19, 2011 and December 12, 2010. Issues addressed at the meetings include:
1. Status of the Unemployment Trust Fund
The Commission is charged with monitoring the current status and long-term projections for the Unemployment Trust Fund. The Trust Fund's solvency level on June 30, 2010, was negative 8.1 percent. On June 30, 2011, it was negative 6.1 percent. The solvency level is expected to return to a positive balance of ten percent in 2012, 30 percent in 2013, and 51 percent in 2014.
The balance in the Trust Fund reached negative $104 million on June 30, 2010. By June 30, 2011, it had improved to negative $80 million, and is forecast to rise to $159 million in 2012, $459 million in 2013, $802 million in 2014, and over $1 billion in each of the next two years.
The average annual state unemployment tax (SUTA), including the pool tax and fund builder tax, in calendar year 2011 was $207 per employee, which is $41 more per employee than in 2010. The average annual SUTA assessment per Virginia employee is projected to rise to $229 in 2012, after which it will decline to $225 in 2013, $205 in 2014, and $157 in 2015. For calendar year 2010, Virginia's average tax per employee of $162 was the second lowest among the six Fourth Circuit jurisdictions, with only South Carolina ($161 average tax) being lower. The corresponding national average for the 2010 was $356, up from $262 in 2009.
2. Borrowing Federal Funds
The negative balance in the Trust Fund requires Virginia to borrow from the Federal Unemployment Account to pay benefits. Title XII of the federal Social Security Act provides a mechanism by which states may borrow funds to offset shortfalls in their unemployment trust funds. In order to meet its obligations to pay unemployment benefits, the Commonwealth began borrowing from the federal government in October 2009. The state has borrowed about $668 million from the federal government, and between December 2011 and April 2013, Virginia is expected to borrow an additional $196 million. As of July 1, 2011, the loan balance was $347 million. Virginia repaid over $400 million in 2011 on its federal loans.
In May 2012, the VEC expects to repay the outstanding balance of $300 million, and that no further borrowing will occur in 2012. However, Virginia is expected to resume borrowing for the first four months of 2013. In May 2013, these funds will be repaid by a final $70 million payment.
States that borrow from the federal government are required to pay interest on the loans. Virginia is required to make interest payments totaling $15.5 million in September 2011 and 2012. Interest payments cannot be paid from the Trust Fund or federal grants, and are expected to be made from general fund appropriations and the VEC's Penalty and Interest Fund.
Failing to repay the borrowed federal funds within two years has triggered the loss of 0.3 percent of the 5.4 percent credit against an employer's FUTA liability. Coupled with the expiration earlier this year of a 0.2 percent FUTA surtax on employers that was first levied in 1976, the automatic reduction in the FUTA credit will raise employers' rate from 0.6 percent to 0.9 percent of the first $7,000 of each employee's wages. This rate change will increase an employer's annual FUTA liability for each employee by $21, from $ 56 to $77. For each year beyond 2011 that Virginia has an outstanding loan balance, an additional 0.3 percent reduction in the FUTA tax credit will occur. The $82 million generated from the partial loss of the credit will be applied to Virginia's loan balance.
3. Employment Data
Employment statistics continue to show an improving employment situation. Virginia's unemployment rate (not seasonally adjusted) for October 2011 was 6 percent; for October 2010, the rate was 6.5 percent. The unemployment rate peaked in January 2010 at 7.8 percent, which was the highest rate since 8.1 percent in February 1983. The unemployment rates in 2011 have averaged about 10 percent lower than rates from the corresponding months in 2010.
The number of initial claims for unemployment benefits for the first ten months of this year is 269,600, which is down 14.1 percent from the 2010 and 33.2 percent from 2009. First payments of unemployment insurance benefits from January through October 2011 total about 126,000, which is down 14.8 percent from the corresponding period in 2010 and down 36.5 percent from 2009. Final payments of benefits in the first 10 months of 2011 total about 64,000, which is down 21.8 percent from the same period in 2010 and down 33.8 percent from the same period in 2009. The exhaustion rate, which reflects the percentage of unemployment compensation recipients who use up all of the weeks of regular unemployment benefits for which they are eligible, was 46.8 percent in October 2011; in the same month of 2010 it was 50.8 percent.
Virginia's maximum weekly unemployment benefit is $378; the national average is $407. The maximum weekly benefit reflects a weekly benefit replacement rate in 2011 of 41 percent of the state's average weekly wage, down from 42 percent in 2010. The national average replacement rate in 2011 also fell by one percentage point from the previous year, from 47 percent in 2010 to 46 percent this year.
4. Senate Bill 789: Use of E-Verify Program by Virginia Employment Commission
In the 2011 Session, legislation to require the VEC to use the E-Verify program for each individual the agency refers to an employer was introduced as Senate Bill 789. The bill was passed by indefinitely in the Senate Commerce Committee with a letter requesting the VEC to examine the issues raised by the measure.
E-Verify is an on-line tool to assist employers in the employment verification process. Employer participation in the E-Verify program is voluntary. Federal law gives state workforce agencies the option to participate in the E-Verify program. Participation allows the state agency to screen the employment eligibility of workers that the agency refers to employers; the employers would continue to be required to confirm the employment eligibility status of new hires. State workforce agencies that elect to participate in E-Verify are subject to more stringent requirements than those applicable to participating employers. These requirements include mandates that E-Verify be used for every worker referred to employers, that the referred worker complete the I-9 process in a face-to-face meeting with an agency representative before undergoing the E-Verify check, and that the agency provide the employer to who the worker is referred a notice regarding the results of the E-Verify process. In addition, the agency cannot refuse to refer a worker who contests the issuance of a temporary nonconfirmation letter.
VEC participation in E-Verify would have substantial programmatic and fiscal implications. The VEC provides many services by telephone and on-line, including the referral of workers to employers who have posted job vacancies. Requiring the VEC to use E-Verify for all workers who are referred to jobs would end the agency's use of technology in the referral process. The requirement that workers complete the I-9 Form in a face-to-face meeting with agency staff would be untenable given the reduced size of VEC's office locations. In addition, the administrative requirements for participating in the E-Verify program would significantly increase the VEC's operating costs. The costs to the VEC of E-Verify participation could be $2 million annually and involve 40 full time employees. The VEC would not receive any additional federal administrative funding for participating in the E-Verify program. Consequently, the VEC would be required to absorb these costs within funding provided for employment services, resulting in a reduction in employment services to employers and jobseekers.
The VEC's report concludes that the policy changes set out in Senate Bill 789 should not be undertaken without careful consideration of all the consequences to employers, job seekers and state government. Chairman Watkins noted that another consideration raised by the proposal is the high rate of erroneous misclassifications, estimated at eight percent of all individuals.
5. Senate Bill 1460 - Workforce Skills Enhancement Training
The House Appropriations Committee asked the Commission to examine the issues raised by Senate Bill 1460. The bill, introduced by Senator Locke, would have established a program whereby unemployed workers may continue to receive unemployment compensation benefits while participating in workforce skills enhancement training from a potential employer. The proposal is based on the "Georgia Work$" program, which provides employers the opportunity to train and appraise candidates at no cost and with no obligation to hire any given trainee.
At its August meeting, the Commission received a staff briefing on the program described in the bill and the implementation of similar program in other states. Two hurdles to implementation of such a program in Virginia were identified. First, such program must ensure that unemployment benefit recipients are not serving as employees. Implementation of Pennsylvania's proposed "Keystone Works" program was sidelined when federal regulators said draft legislation failed to comply with unemployment laws and the Fair Labor Standards Act (FLSA). On January 29, 2010, the U.S. Department of Labor issued Advisory Guidance Letter 12-09 to provide guidance to states that may be considering implementation of subsidized work-based training initiatives for unemployed workers. The guidance stresses that unemployment compensation (UC) funds may only be paid to individuals with respect to their unemployment and may not be paid as a subsidy or stipend, or to an employer to encourage hiring.
Second, implementation of such a program would require an appropriation of general funds. The Department of Planning and Budget estimated that the bill would require appropriations of $984,400 for each of fiscal years 2011 through 2017. It was also estimated that the VEC would incur additional administrative costs of $103,960 in its first year and $94,538 annually thereafter.
The Commission (with one negative vote) endorsed a motion that the measure should be tabled.
6. Senate Bill 794: Shared Work Program
The Senate Commerce and Labor Committee asked the Commission to examine the issues raised by Senate Bill 1474. The bill, introduced by Senator Whipple, would have established a shared work program. In a work share program, employers are provided the option to reduce the hours worked by employees, while permitting the employees whose hours are reduced to receive partial compensation for lost wages. The concept behind work sharing legislation is that it may be preferable to reduce the hours and earnings to all employees (who will get prorated unemployment benefits), than to lay off some employees (who will get full unemployment benefits). Employees' fringe benefits cannot be reduced or eliminated during the plan.
At its August meeting, the Commission received a staff briefing on the legislation. The primary objection raised to such a program was its cost. The fiscal impact statement estimated that the bill would cost the unemployment trust fund between $3.1 and $4.4 million each year, increase unemployment tax revenues between $1.5 and $12.6 million each year, and require the VEC to incur administrative and management costs of $179,451 in the first year and $155,897 each year thereafter.
Questions regarding the assumptions and methods used in preparing the fiscal impact statement were raised at the August meeting. In response, the VEC provided material explaining that under current law, partial unemployment benefits are not paid to all claimants. Claimants who receive wages greater than their weekly benefit amount of receive an unemployment benefit. Shared work adds to the benefit costs of participating employers because all claimants covered by the plan would receive some benefit. Therefore, even if a claimant receives partial unemployment benefits, he would receive more if his employer has a shared work plan.
The Commission unanimously endorsed a motion that the measure should be tabled.
At its December 2011 meeting, the Commission considered four items of legislation that may be introduced in the 2012 Session. The items of legislation, and the Commission's recommendation with respect thereto, are as follows:
1. Postpone Increase in Minimum Earnings Requirement
This proposal postpones the scheduled increase, from $2,700 to $3,000, in the minimum amount of wages an employee must have earned in the two highest earnings quarters of his base period in order to be eligible for unemployment benefits. The increase will apply to claims filed on or after July 6, 2014; it is currently scheduled to apply to claims filed on or after July 1, 2012. Similar legislation postponing the scheduled increase in the minimum earnings requirement has been enacted in each of the past three years. Senator Watkins indicated that this two-year postponement would be the last.
RECOMMENDATION: The Commission unanimously recommended the proposal.
2. Drug Screening and Testing of Unemployment Benefits Claimants
This proposal would condition a claimant's eligibility to receive unemployment benefits on completion of a VEC screening to determine whether probable cause exists to believe the individual is engaged in the use of nonprescribed controlled substances. If a screening indicates reasonable cause to believe an individual is using illegal drugs, the Commission shall require a formal substance abuse assessment of the individual, which may include drug testing. An individual who fails or refuses to participate in a screening or assessment without good cause or who tests positive for the use of a nonprescribed controlled substance shall be ineligible to receive unemployment benefits.
RECOMMENDATION: No motion was made on the proposal.
3. Drug Testing By Employers
This proposal would disqualify an individual from receiving unemployment compensation benefits if he is discharged from employment as a result of a confirmed positive test for a nonprescribed controlled substance. The test would be required to be part of a U.S. Department of Transportation-qualified drug screen conducted in accordance with the employer's bona fide drug policy. In addition, an unemployed individual who applies for benefits is disqualified if he has been rejected for offered employment as the result of either (i) failing to appear for such a drug screen that is a condition of a job offer or (ii) testing positive for a nonprescribed controlled substance in such a drug screen.
RECOMMENDATION: The Commission unanimously recommended the proposal.
4. Community Service Requirement
This proposal would make eligibility for unemployment benefits contingent on the claimant's performance of at least 20 hours of community service per month.
RECOMMENDATION: No motion was made on the proposal.