I. BACKGROUND

Chapter 33 (§ 30-218 et seq.) of Title 30 of the Code of Virginia establishes the Commission on Unemployment Compensation (UC Commission). The UC 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 UC Commission's membership is composed of Delegates Lee Ware, Kathy Byron, Riley Ingram, Joseph Lindsey, and Lamont Bagby and Senators Frank Wagner, Rosalyn Dance, and Glen Sturtevant. Delegate Ware chairs the Commission. Senator Wagner serves as the Commission's vice-chairman.

The UC Commission met on August 8, 2018. Although § 30-220 requires that the UC Commission meet at least two times per year, the second meeting did not go forward as the U.S. Department of Labor was in the process of updating its data systems and, as such, the Virginia Employment Commission (VEC) had no new data to report since the August meeting. The UC Commission plans to meet again in the spring to review the end of year data for 2018.

This executive summary of the interim activity and work of the UC Commission is submitted pursuant to § 30-224 of the Code of Virginia and is provided in lieu of an annual report.

II. ISSUES ADDRESSED

1. Status of the Unemployment Trust Fund

The account of the Commonwealth in the Unemployment Trust Fund in the U.S. Treasury (Trust Fund) is composed of state unemployment tax (SUTA) collected from Virginia employers. Virginia employers are assessed SUTA on the first $8,000 of each employee's wages. Moneys in the Trust Fund are used solely for paying unemployment compensation benefits to eligible unemployed Virginians. Since 1982, Virginia has measured Trust Fund adequacy by use of a statutorily prescribed average high cost multiple approach. Section 60.2-533 of the Code of Virginia requires the VEC to determine the "adequate balance" of the Trust Fund as of the end of each fiscal year. The solvency level, measured by dividing this adequate balance by the actual balance in the Trust Fund, is used, with other factors, in determining employers' SUTA rates.

The solvency level of the Trust Fund increased from 76 percent on June 30, 2017, to 79.2 percent on June 30, 2018. The Trust Fund's June 30 solvency level is forecasted to decrease to 74 percent in 2019 and decrease further to 72 percent in 2020.

The Trust Fund's balance on June 30, 2018, was expected to be $1.345 billion. The balance in the Trust Fund is expected to be $1.3 billion on June 30, 2019, and to be $1.29 billion on June 30, 2020.

After peaking at $236 in 2012, the average annual total SUTA per employee fell to $234 in 2013, to $221 in 2014, to $194 in 2015, to $157 in 2016, and to $134 in 2017. The average annual total SUTA per employee is forecast to decline in each of the next three years ($100 in 2019, $90 in 2020, and $96 in 2021).

Much of the decline is attributable to the suspension of the fund builder tax for years after 2015 and reductions in the pool tax. The increase in the Trust Fund's solvency level triggers the suspension of the fund builder tax, which is assessed at the rate of two-tenths percent of the first $8,000 of each employee's wages (or $16). The fund builder tax is automatically suspended for years when the solvency level exceeds 50 percent. As a result, the fund builder tax was levied from 2010 through 2015 but has not been in effect since then. Reductions in the pool tax account for part of the reduction in the average total state unemployment tax per employee. The pool tax has fallen from a high of $42.40 per employee in 2012 to $2.40 in 2017 and is projected to be $0.80 in 2018 and $6.40 in each of 2019 and 2020.

As a consequence of the countercyclical funding of the Trust Fund, increases in the solvency level of the Trust Fund are expected to occur at the same time that state unemployment tax revenue is declining. In 2018, state unemployment tax revenue is expected to be $421.4 million. In the preceding year, such revenue was $492 million. Part of the decline is due to the shift in the distribution of employers' tax rates. The percentage of employers charged the lowest state unemployment tax rate of 0.10 percent (excluding the pool tax) was 64.5 percent in 2017 and is expected to reach 68.5 percent in 2018.

2. Claims, Unemployment, and Payment Data

Commissioner Ellen Marie Hess of the VEC reported that the total number of initial claims for unemployment benefits filed in 2018 is projected to be 134,000, a 45-year low. In 2017, initial claims totaled 150,450. Virginia's unemployment rate (not seasonally adjusted) for June 2018 was 3.3 percent. This level is lower than the corresponding rates for the previous two years.

Virginia's statewide labor force participation rate in June 2018 was 66.2 percent. Virginia's statewide unemployment rate of 3.3 in June 2018 was the lowest among the Fourth Circuit jurisdictions. This level was lower that the corresponding rates for the previous two years.

Virginia's maximum weekly unemployment benefit is $378. The national average maximum weekly unemployment benefit in 2018 was $445. Virginia's maximum weekly unemployment benefit is lower than those of Maryland ($430), Washington, D.C. ($432), and West Virginia ($424), but higher than those of North Carolina ($350) and South Carolina ($326). In 2018, Virginia's weekly benefit replacement rate was 36 percent of the state's average weekly wage; in 2017, the corresponding rate was 37 percent. The national average weekly benefit replacement rate for 2018 was 43 percent.

3. Program Updates

The UC Commission received updates on two relevant programs. The Treasury Offset Program (TOP), which is administered by the U.S. Department of the Treasury's Bureau of the Fiscal Service, is a centralized offset program used to collect delinquent debts owed to federal agencies and states by intercepting federal tax refunds. Pursuant to § 2.2-4806 of the Code of Virginia, which requires state agencies to use TOP to collect eligible debts, the VEC uses the TOP to collect eligible unemployment benefit overpayment debts and unpaid unemployment tax debts. Debts are eligible to be referred to the TOP if they are the result of fraud or the claimant's failure to report earnings while collecting unemployment benefits, or if they are more than 90 days delinquent and the debtor is not in appeal, repayment, or bankruptcy. Between February 2017 and July 2018, the VEC collected over $12.5 million through the TOP, which sum was collected against 18,909 records that had overpayments due to fraud. All sums recovered through the TOP are required to be deposited in the Trust Fund.

The military trailing spouse (MTS) program was enacted pursuant to Senate Bill 18 (2014). The MTS program provides that good cause for leaving employment exists if an employee voluntarily leaves a job to accompany the employee's spouse, who is on active duty in the military or naval services of the United States, to a new military-related assignment established pursuant to a permanent change of duty order from which the employee's place of employment is not reasonably accessible. Commissioner Hess reported that from July 1, 2017, through June 30, 2018, $652,705 in benefits were paid to 223 claimants. During the preceding fiscal year, the VEC paid out $722,720 in unemployment benefits to 245 claimants.

III. CONCLUSION

Delegate Ware noted that the VEC reports represented very good news, as fewer Virginians needed to avail themselves of unemployment compensation benefits in 2018. This has allowed the unemployment taxes paid by employers to be reduced accordingly.

Materials provided by speakers at the UC Commission's meetings in the 2018 interim may be found on the UC Commission's website at http://dls.virginia.gov/commissions/ucc.htm?x=mtg.