RD14 - Annual Report and Executive Summary of the Virginia Commission on Unemployment Compensation


Executive Summary:
[This was modified on 6/1/05 by adding an Annual Report]

COMMISSION ON UNEMPLOYMENT COMPENSATION
EXECUTIVE SUMMARY OF FINAL REPORT
January 12, 2005

I. BACKGROUND

Chapter 33 of Title 30 of the Virginia Code (§§ 30-218 et seq.) establishes the Commission on Unemployment Compensation ("Commission"), authorizing its work through July 1, 2006. 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 Commission's members include Senator John C. Watkins (Chesterfield) (Chairman), Delegate Harry R. Purkey (Virginia Beach) (Vice Chairman), Delegate Terry G. Kilgore (Scott); Senator Yvonne B. Miller (Norfolk), Delegate Samuel A. Nixon, Jr. (Chesterfield), Delegate Lionell Spruill, Sr. (Chesapeake), Senator Frank W. Wagner (Virginia Beach), and Delegate R. Lee Ware, Jr. (Powhatan).

The Commission met three times: July 19, 2004, December 15, 2004, and January 7, 2005. Meeting summaries are posted on the Commission's website at http://dls.state.va.us/SB889.htm. This executive summary of the interim activity and work of the Commission shall be submitted to the Governor and General Assembly and posted on the General Assembly's website no later than the first day of the Regular Session of the 2005 General Assembly; a full report will be completed at the end of the 2005 Session.

II. KEY ISSUES

1. Solvency of the Unemployment Trust Fund

For the years 1997 through 2001, the Trust Fund's solvency level was at least 100 percent. The solvency level dropped to 45.5 percent in 2003, and then to approximately 39.3 percent in 2004. The Fund is earning 5.4 percent on its investments. Projections show that in 2005, the fund will approach, but will not reach, 50 percent.

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 .1 percent increase in the fund builder tax in 2005, but Virginia's employer tax remains the next lowest in the United States.

2. SUTA Dumping

SUTA (state unemployment tax) dumping is an attempt by employers to fraudulently assume a new experience rating by purchasing a new shell for their business in order to lower their unemployment insurance tax rate. Congress passed legislation requiring all states to enact legislation addressing SUTA dumping. Virginia's proposed 2005 legislation takes a minimalist approach to meet federal requirements so as to ensure that legitimate economic development transfers among businesses are not penalized. The proposed legislation will include provisions for "safe harbor" assessments of proposed transfers by the Virginia Employment Commission (VEC). The Commission reviewed the proposed legislation in depth at the January 7, 2005 meeting.

3. Benefits Charging

There are two primary ways that benefit charges can be assessed. One is on a proportional basis, under which every taxable employer in the applicable wage period is charged for benefits in proportion to the salary paid an employee. Approximately 36 states use this approach. The other approach charges only the last taxable employer for benefits. This is the approach that Virginia and five other states use. Another approach is inverse proportional charging, under which the most recent taxable employers pay more than other employers in the claimant's base period. Commission members expressed concern over the fact that under a proportional approach, an employer that was not responsible for discharging an employee would be charged for unemployment benefits, and that proportional charging would be more expensive to administer. Benefits charging issues arise regularly before the Commission, and the Commission will continue to monitor the need for modifications to Virginia's approach.

4. Military Trailing Spouse

Legislation likely will be introduced in the 2005 regular session that would allow trailing military spouses to receive unemployment compensation benefits only if the spouse moves to a state that also permits trailing military spouses to receive benefits. A total of 17 states (AK, CA, FL, HI, IN, KS, ME, NV, NY, NC, OK, OR, PA, PR, RI, TX) have a similar provision. Key concerns with legislation in this area include cost, documenting permanent orders changes, and ensuring that the unemployment compensation program is implemented equitably.

5. Impact of 2004 Laws

Senate Bill 130 increases the penalty assessed against employers for filing a late report from $30 to $75. The percentage of late-filing employers has increased from 12 percent to 18 percent (in the first quarter of 2004) in the last two years. VEC expects this bill will have a significant impact in encouraging compliance with the deadline for report submission.

VEC prepared the procedures to implement the revenue impact statement required at Va. Code Ann. §30-19.03:1.2 (SB 664) with the assistance of the Department of Planning and Budget and the Department of Taxation. An overview of the approach is available on the Commission's website at http://dls.state.va.us/SB889.htm. Both Departments have approved the approach. The Commission reviewed the calculations in detail at the January 7, 2004 meeting. Concerns were expressed about the possibility of having unemployment compensation bills reviewed by the Appropriations or Finance Committees, and about the accuracy of the calculations in determining revenue losses to the Commonwealth.

III. ACTIONS

The Commission reviewed Virginia's proposed legislation addressing SUTA dumping and the proposed approach to development of revenue statements required by SB 664 at the January 2005 meeting. The Commission reviewed and approved a proposed work plan for the Commission in July 2004. The Commission heard public statements from Madge Bush, AARP Virginia (pension offsets) and Steven L. Myers, Virginia Poverty Law Center (part-time employment) in July 2004.


The Honorable John C. Watkins, Chairman
Ellen Bowyer, Staff Attorney, Division of Legislative Services
Nathan Hatfield, Clerk, Senate Committee Operations