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 22, 2017, and January 4, 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 68.5 percent on June 30, 2016, to 76 percent on June 30, 2017. The Trust Fund's June 30 solvency level is forecasted to reach 78 percent in 2018 and return to 76 percent in 2019.

The Trust Fund's balance on December 31, 2017, was expected to be $1.124 billion. The balance in the Trust Fund is expected to be $1.231 billion on June 30, 2018, and to be $1.218 billion on June 30, 2019.

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 $147 in 2016, and to $122 in 2017. The average annual total SUTA per employee is forecast to decline in each of the next three years ($101 in 2018, $100 in 2019, and $98 in 2020).

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 2017, state unemployment tax revenue is expected to be $493.4 million. In the preceding year, such revenue was $566.1 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 68.4 percent in 2018. The percentage of employers for whom the tax rates are computed, rather than assigned, at the highest state unemployment tax rate of 6.2 percent decreased from 6.0 percent in 2016 to 5.2 percent in 2017 and is expected to be 4.1 percent in 2018.

2. Claims, Unemployment, and Payment Data

Commissioner Ellen Marie Hess of the Virginia Employment Commission (VEC) reported that the total number of initial claims for unemployment benefits filed in 2017 is projected to be 151,000, a 44-year low. In 2016, initial claims totaled 178,422. Virginia's unemployment rate (not seasonally adjusted) for November 2017 was 3.6 percent. One year earlier, Virginia's corresponding unemployment rate was 3.8 percent.

Virginia's statewide labor force participation rate in October 2017 was 65.1 percent. This rate was the third-highest among the six jurisdictions comprising the area within the Fourth Circuit Court of Appeals (Fourth Circuit jurisdictions), with the District of Columbia (70.2 percent) and Maryland (68.2 percent) having higher rates. The labor force participation rate varies within Virginia, with the average rate in Southwest Virginia being 48 percent. The VEC responded to questions about the calculation of the rate by noting that part-time workers are counted as participating in the labor force. Virginia's statewide unemployment rate in October 2017 was the lowest among the Fourth Circuit jurisdictions.

Virginia's seasonally adjusted unemployment rate for November 2017 of 3.7 percent was tied with Indiana for 20th lowest among all states. Virginia's corresponding ranking for November 2016 was 17th lowest. The national seasonally adjusted unemployment rate for November 2017 was 4.1 percent, down from 4.6 percent a year earlier. The state with the lowest seasonally adjusted unemployment rate in November 2017 was Hawaii (2.0 percent), and the state with the highest rate was Alaska (7.2 percent).

The rate of year-over-year growth in total nonfarm employment in Virginia, determined on the basis of seasonally adjusted data, was nearly one percent at the end of 2017. The corresponding national rate was approximately 1.5 percent. Virginia's rate of year-over-year job growth outpaced the national level from 2008 through 2011. From 2012 through mid-2015, Virginia's rate was lower than the national rate. Since then, the Virginia rate and national rate each have been ranked higher at times, though the rates for both were lower at the end of 2017 than they were in mid-2015.

The number of final payments, which reflects those claimants who received benefits for the maximum number of weeks for which they were entitled (and thus did not return to work while eligible to receive unemployment benefits) in November 2017 was approximately 2,100. Final payments of benefits in the first 11 months of 2017 were down 14.5 percent from the same period in 2016 and down 22.9 percent from the same period in 2015. 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 39.1 percent in November 2017, which is slightly higher than the same month of the previous year when it was 38.9 percent.

Virginia's maximum weekly unemployment benefit is $378. The national average maximum weekly unemployment benefit in 2017 was $436, which is the same as the preceding year. Virginia's maximum weekly unemployment benefit is fourth-highest among the six Fourth Circuit jurisdictions. In 2017, Virginia's weekly benefit replacement rate was 37 percent of the state's average weekly wage; in 2016, the corresponding rate was 38 percent. The national average weekly benefit replacement rate for 2017 was 43 percent. The average state unemployment tax per employee in Virginia for calendar year 2016 ($149) was the lowest of the six Fourth Circuit jurisdictions. The national average for the same period was $329, and the highest among the six Fourth Circuit jurisdictions was $375 in North Carolina.

3. Program Updates

The UC Commission received updates on two relevant programs. The Treasury Offset Program (TOP) 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. Through November 2017, the VEC has collected $8.6 million from the IRS through TOP. The sum was collected against 13,226 records that had unemployment benefit overpayments due to fraud. Recovered debt is deposited in the Trust Fund.

The military trailing spouse (MTS) program was enacted pursuant to Senate Bill 18 (2014). The 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. According to VEC data, 180 claimants were paid $302,782 in benefits during the period July through November 2017. During fiscal year 2017, the VEC paid out $722,720 in unemployment benefits to 245 claimants. The payment of benefits under the MTS program reduced the Trust Fund solvency level by 0.1 of a percentage point and had no effect on either the 2017 base tax rates or the pool tax rate.

4. Legislative Preview

Staff briefed the members on three bills that had been prefiled for the 2018 Session of the General Assembly that relate to the unemployment program. Senate Bill 51, introduced by Senator John Edwards, is a recommendation of the Virginia Code Commission. The bill repeals Virginia Code § 60.2-114.1, which requires an employer to request each new employee to disclose whether the employee has an income withholding order. This requirement has been superseded in practice by requirements that an employer submit information about new hires to the Virginia New Hire Reporting Center within 20 days of the employee's hire date. Under the current system, relevant data in the State Directory of New Hires and the National Directory of New Hires is used by the Division of Child Support Enforcement to issue orders enforcing child support obligations.

House Bill 120, introduced by Delegate Sam Rasoul, provides that the weekly unemployment benefit to which an eligible individual is entitled shall be reduced on a dollar-for-dollar basis by any wages in excess of $100 that the individual earns in that week. Currently such benefit is reduced dollar-for-dollar by wages in excess of $50 earned in a week. The threshold for the dollar-for-dollar reduction in unemployment benefits has not changed since 2005 when it was increased from $25 to its current level of $50.

House Bill 133, introduced by Delegate Mark Cole by request, seeks to exclude classification of home health care workers and home adult care service providers for purposes of several state programs, including the unemployment compensation program. The VEC observed that it has received notification from the U.S. Department of Labor that excluding these persons from the unemployment compensation program would be inconsistent with the requirements of the federal Social Security Act and would result in a loss of the federal income tax credit for employers who are determined to have failed to comply with the requirements of the program.

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 2017. 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 2017 interim may be found on the UC Commission's website at http://dls.virginia.gov/commissions/ucc.htm?x=mtg.