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    Document Summary
    - Report Published -

    Report Document No. 23
    PUBLICATION YEAR 2006
    View PDF Version*

    Document Title
    Annual Executive Summary and Report of the Virginia Unemployment Compensation Commission.

    Author
    Commission on Unemployment Compensation

    Enabling Authority
    30-224

    Executive Summary
    COMMISSION ON UNEMPLOYMENT COMPENSATION
    EXECUTIVE SUMMARY OF FINAL REPORT
    January 11, 2006

    I. BACKGROUND

    Chapter 33 of Title 30 of the Code of Virginia ( 30-218 et seq.) establishes the Commission on Unemployment Compensation (Commission). The Commission has the following responsibilities:

    • Evaluate the impact of existing statutes and proposed legislation on unemployment compensation and the Unemployment Trust Fund;
    • Assess the Commonwealth's unemployment compensation program and examine ways to enhance effectiveness;
    • Monitor the current status and long-term projections for the Unemployment Trust Fund; and
    • Report annually its findings and recommendations to the General Assembly and the Governor.

    The members of the Commission are Senator John C. Watkins of Powhatan County, who serves as chairman, Delegate Harry R. Purkey of Virginia Beach, who serves as vice-chairman, Delegate Terry G. Kilgore of Scott County; Senator Yvonne B. Miller of Norfolk, Delegate Samuel A. Nixon, Jr. of Chesterfield County, Delegate Lionell Spruill, Sr. of Chesapeake, Senator Frank W. Wagner of Virginia Beach, and Delegate R. Lee Ware, Jr. of Powhatan County.

    The Commission met on July 27, 2005 and November 29, 2005. Meeting summaries are posted on the Commission's website at http://dls.state.va.us/uncomp.htm. This executive summary of the interim activity and work of the Commission is submitted for posting on the General Assembly's website pursuant to 30-224. A full report will be completed following the close of the 2006 Session.

    II. ACTIVITIES

    1. Solvency of the Unemployment Trust Fund

    A primary responsibility of the Commission is to monitor the current status and long-term projections for the Unemployment Trust Fund. At the November 29, 2005, meeting, the Virginia Employment Commission (VEC) reported that the Trust Fund's solvency level as of June 30, 2005, was 54.9 %. This level is substantially greater than the 39.3 % reported in 2004 and the 45.5 % reported in 2003. The VEC projected that the solvency level of the Trust Fund will rise to 68 % in 2006 and to 74 % in 2007.

    The average annual tax per employee, which ranged between $48 and $51 between 1998 and 2001, increased to $143 in 2004, and is projected to reach $159 in 2005. Part of the increase is due to the fund builder tax, which, in response to Trust Fund solvency levels, was activated January 1, 2004 and is expected to continue into 2005. There will be a 0.1% increase in the fund builder tax in 2005, but Virginia's employer tax remains the next lowest in the United States.

    As a result of the rise in the solvency level above the 50 % threshold, the 0.1 % "fund builder" tax will not be collected after January 1, 2006. The annual average unemployment tax per employee is projected to decline from $162 in 2005 to $148 in 2006 and to $125 in 2007. Despite the assessment of the fund builder tax, Virginia's average tax per employee in calendar year 2004 ($144) was the lowest of the states in the Fourth Judicial Circuit and was nearly half the national average of $276.

    2. VEC Budget and Strategic Priorities

    All of the VEC's administrative funding is appropriated by the federal government and derived from Federal Unemployment Tax Act (FUTA) payments collected from employers. The FUTA tax is imposed at a rate of 0.8% of each employee's first $7,000 of wages, for a cost of $56 per employee per year. In fiscal year 2004, Virginia's employers paid $192.8 million in FUTA taxes while the VEC received $63.2 million. Of this sum, $40.2 million was earmarked for administration of the unemployment insurance program, $15.4 million is for job services, and $7.6 million is for veterans' programs, labor market information, and postage.

    Virginia ranks 49th among all states in the percentage of FUTA revenue received when compared to the amount paid by its employers. In state fiscal years 2006 and 2007, the unemployment insurance program is projected to face a shortfall of over $8 million. At the same time, the VEC has opened two call centers and faces the need to replace its 20-year-old computer systems at a cost of $45-50 million.

    The Commission wrote to all of the members of Virginia's Congressional Delegation to advise them of the inequity in the FUTA allocation formula and its impact on the VEC and its constituencies. In response to these budget issues, the VEC has closed offices and plans to lay off staff, most of whom are hourly wage employees. At the November 29 meeting, the VEC announced a plan to address budget issues by seeking permission to use $66.93 million in Reed Act distributions that were deposited in the Trust Fund and $5.25 million in penalty and interest funds in fiscal year 2008 to modernize the unemployment insurance (UI) automated systems, procure a Web-based financial management and accounting system, replace the Virginia Workforce Network information system, and provide additional UI and job service administrative funding. The effect of withdrawing money from the Trust Fund to pay for these projects is projected to raise the average annual per-employee UI tax by $2.66 per employee for fiscal years 2008 through 2012.

    The VEC noted that its Trust Fund balance projections anticipate the appropriations to withdraw these Reed Act funds. Though the Commission was not asked to take action with respect to the VEC's projects, the chairman requested that the members be provided with information regarding the requests.

    3. Electronic Payment of Benefits

    The VEC briefed the Commission regarding its efforts to provide UI benefit recipients with an electronic funds transfer into a bank account or into a debit account as part of the Virginia Paycard Program. The goal of the project is to eliminate paper benefits checks, which is projected to save $300,000 in check printing costs while giving the ability to provide more timely payments.

    4. Senate Bill 772

    The Commission was directed to examine the issues raised by Senate Bill 772, patroned by Senator Brandon Bell. The bill provides that an individual earning at least $2,500 but less than $3,500.01 in his base period shall be eligible to qualify for unemployment compensation benefits only if he had earnings of at least $1,250 in each of two quarters in his base period.

    The VEC's analysis of the bill's impact on the Trust Fund indicated that SB 772 would reduce the average annual UI tax per employee by $0.63 over five years. Following a discussion of the issue, the Commission took no action on the matter.

    5. 2005 Legislation

    In the 2005 Session, the General Assembly enacted a pair of bills that increased the minimum amount of wages an employee must have earned in the two highest earnings quarters of his base period (the first four of the five calendar quarters preceding application for benefits) in order to be eligible for unemployment compensation benefits from $2,500 to $2,700. The bills also increased the maximum weekly benefit from $326 to $330.

    The increase places Virginia's maximum weekly benefit level of $330 near the middle of the six area jurisdictions, where the maximum weekly benefit amounts range from $426 in North Carolina to $292 in South Carolina. The national average is $346. Virginia's maximum weekly benefit replacement level is 44% of the state's average weekly wage; the national average is 47%. Among other jurisdictions, the replacement rate ranges from 65% (in North Carolina and West Virginia) to 32% (in the District of Columbia).

    6. Other Issues

    The Commission examined several other issues during the 2005 interim, including:

    • VEC's Hurricane Katrina relief efforts.

    • The establishment of an Acquisition Work Group, which is studying Virginia's implementation of House Bill 2137 and Senate Bill 1201 (2005) and related issues addressing practices used by some employers to artificially lower their state unemployment tax rates.

    • Mark Groves, an attorney from Norfolk, advised the Commission of an issue that impedes his firm's work in collecting court fines, penalties, and costs owed to the city. A valuable tool in collecting debts is the ability to access the debtor's employment history through the VEC's database. However, the VEC's records are based on individual's social security number, and the switch to distinct driver's license numbers has reduced the number of cases when the collectors have access to the social security numbers. Revising the VEC's process for accessing records in a way that does not rely on social security numbers would be expensive.

    • Congress has been considering the Unemployment Compensation Program Integrity Act of 2005, which was submitted to Congress by the Bush Administration in June 2005. The legislation's goal is to reduce improper payments of unemployment benefits. Specific elements would permit states to use a portion of recovered unemployment benefit overpayments for payment control programs; require states to impose a 15% penalty on fraudulent overpayments; permit states to compensate debt collection agencies for recoveries of overpayments and delinquent unemployment taxes by keeping a percentage of the amount collected; require states to charge an employer's experience rating account for unemployment benefits improperly paid due to the employer's failure to provide accurate information; and allow the collection of delinquent benefit overpayments through garnishment of tax refunds. The measure would also allow states to borrow FUTA funds to upgrade their information technology systems.

    III. RECOMMENDATIONS

    The Commission agreed to endorse the following recommendations for the 2006 Session of the General Assembly:

    1. Repeal the provision of 30-225 of the Code of Virginia, which provides that the Commission shall expire on July 1, 2006.

    2. Obtain a line-item appropriation in the 2006-2008 budget for an amount to cover the annual per diems and expenses of the Commission, which are estimated to be $6,000 per year. In the absence of specific funding, the Commission has had to obtain approval from the Joint Rules Committee to meet.

    3. Direct the Virginia Liaison Office, by language amendments in both the "caboose" budget bill for the 2004-2006 biennium and the new budget bill for the 2006-2008 biennium, to work with members of the Virginia Congressional Delegation and federal executive branch agencies to increase the amount of FUTA revenue distributed by the U.S. Department of Labor to the VEC from its fiscal year 2004 level of $63.2 million, which represents 32.8% of the $192.8 million in FUTA taxes paid by Virginia's employers, to an amount not less than 50% of the amount of FUTA taxes paid by Virginia's employers.


    The Honorable John C. Watkins, Chairman
    Frank Munyan, Staff Attorney, Division of Legislative Services