Virginia’s dwindling Unemployment Trust Fund — which dipped into the red this year for the first time since 1981 — presents yet another challenge to Virginia officials already steeling for potential budget cuts. The state has already had to borrow $347 million from the federal government after the trust fund, which comes from employer taxes, ran out of money in October 2009.
As of January 2010, the state’s trust fund was $112 million in the hole, said Don Lillywhite with the Virginia Employment Commission.
The Virginia Employment Commission expects to borrow a total of nearly $1 billion for unemployment benefits by spring 2013. The federal government has waived interest payments on money borrowed through this month, but the state will start to accrue interest on money borrowed starting Jan. 1 if Washington does not extend the moratorium.
The employment commission is set to discuss the matter just days after President Obama announced that he’d cut a deal with congressional Republicans to extend federal unemployment benefits through January 2012. Such a move, though, would not affect the trust fund or the state’s obligations to pay back the loans, Lillywhite said.
A 2009 “tsunami” of unemployment claims helped cause the deficit in the state’s trust fund, Lillywhite said. There were more than 500,000 initial claims for unemployment benefits in 2009, compared with about 260,000 in 2006 and 2007 and 356,220 in 2008. From January to October 2010, Virginia received 313,784 initial jobless claims.
“The recession hit hard, hit long … but taxes automatically react to what’s happening with the trust fund,” Lillywhite said.
Indeed, when the fund is 100 percent solvent, state law sets the lowest employer tax rate at zero, but as the fund dips lower, employer tax rates increase to help cover the difference.
“It’s a tax on jobs,” said Keith Cheatham, a lobbyist for the Virginia Chamber of Commerce. “Because our trust fund is negative, employer taxes will go up and they will continue to go up until the state fund is replenished.”
Once the trust fund falls below 50 percent solvency, it also triggers a partial offset to unemployment benefits that people on Social Security receive.
“Those who are collecting Social Security and staying in the work force full time are folks who really need the money, for the most part,” said David DeBiasi, a lobbyist for AARP of Virginia. “It’s harder for an older American to find work once they’re laid off.”
The state’s Commission on Unemployment Compensation is scheduled to meet Monday at 10 a.m. Included on the agenda are updates on the status of the trust fund, the repayment of interest on federal loans, and the Social Security offset provision.
