Financial Crisis Continues To Have Major Impact on Virginia

COMMONWEALTH OF VIRGINIA
Office
of the Governor

Timothy M. Kaine                                         FOR IMMEDIATE RELEASE
Governor                                                          September 15, 2009

GOVERNOR KAINE ANNOUNCES MEASURES TO MEET OBLIGATIONS OF UNEMPLOYMENT COMPENSATION PROGRAM

~ Commonwealth will request federal loan for October-December 2009; mandatory fund builder tax to take effect January 2010 ~

RICHMOND —Governor Timothy M. Kaine today filed a request with the U.S. Department of Labor for a repayable advance of $252 million from the Federal Unemployment Account to meet the obligations of the Virginia Unemployment Compensation Program through December 2009. With increased demand for benefits and reduced employer contributions to the state’s unemployment insurance trust fund, a federal loan is now required to help meet the needs of the nearly 69,000 Virginians currently receiving unemployment benefits. The economic downturn and resulting increase in demand has also driven Virginia ’s Unemployment Compensation Trust Fund to levels that activate triggers for a Fund Builder Tax to replenish the account.

“The stresses placed on our unemployment compensation program reflect the stresses placed on many Virginians who have been swept up in the worst economic crisis in generations,” said Governor Kaine. “ Virginia will take advantage of every available resource to help citizens who lost their jobs through no fault of their own get through these difficult times.”

Based on the most recent data, Virginia assesses the lowest unemployment tax rates in the region and the third lowest unemployment tax rates in the nation. Current projections indicate Virginia ’s Trust Fund will be depleted in mid-October, requiring advances at that time.

Virginia will repay the federal advances with interest. The American Recovery and Reinvestment Act (ARRA) waives interest accrued through December 31, 2010, but interest will resume on outstanding balances on January 1, 2011. If Virginia maintains an outstanding federal loan on the first day of two consecutive calendar years, as is expected in 2010 and 2011, Virginia employers will be assessed an additional federal tax of $21 per employee beginning in 2011. If Virginia had been eligible for the second tranche of assistance from the ARRA, approximately $125 million, the state’s compensation fund might have been able to delay requesting loans until after January 1, 2010, which would have delayed the additional federal tax until 2012.

Federal loans for each month will be authorized individually, with the possibility of requesting supplemental advances. Actual disbursement of the loans occurs daily, ensuring that no excessive loans are made. With national economic forces straining unemployment compensation funds across the country, 19 states have already requested loans from the Department of Labor, and more are expected to seek federal assistance.

The unprecedented demand placed on Virginia ’s unemployment insurance trust fund by current economic conditions has pushed the fund below legally mandated solvency levels. When the fund falls below 50% of the level deemed “sufficient” by the state code, as is expected to occur, a mandatory fund builder tax is automatically added to all employers’ contribution rates. This additional levy will begin January 2010 and remain in place until the fund is rebuilt to at least 50% solvency. The projected employer contribution for 2010 is approximately $171 per employee. Virginia currently has the least expensive unemployment tax rates in the region, and this increase would still leave its rates lower than all but two regional neighbors.

The activation of the mandatory Fund Builder tax also adjusts unemployment benefits for some recipients. Those who receive unemployment benefits and Social Security will have their weekly unemployment benefit reduced by 50% of their Social Security Act payment. If, for example, someone received $250 from Social Security and $200 from unemployment, they will still receive $250 from Social Security, but will receive $75 from unemployment.

The measures announced today will be another effort to assist unemployed Virginians as they weather the current economic downturn.  The Governor convened an Economic Crisis Strike Force in February to coordinate the state’s efforts to meet the needs of the unemployed. The Strike Force is about to launch a series of resource fairs throughout the state to provide job seekers with advice and techniques they need to stand out to potential employers. Virginia has also opened six new unemployment express offices and two new re-employment services offices to get displaced workers the assistance they need as quickly as possible. Additionally, Virginia has extended unemployment benefits up to 72 weeks, and extended health insurance benefits through COBRA from 3 to 9 months for small business employees who are laid off.

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