Va. unemployment trust fund facing $750M deficit
Employers could face tax hikes to cover gap
With jobless claims at a record high, the state trust fund that pays for jobless benefits is expected to rack up a $750 million deficit by the end of the year, according to the Virginia Employment Commission. And Virginia employers already hurting from the pandemic’s economic fallout could face tax increases to replenish the state’s Unemployment Insurance Trust Fund, which covers the cost of unemployment benefits for workers who are laid off or furloughed.
“In order to continue paying unemployment benefits, Virginia will need to borrow funds from the federal government,” according to a VEC statement. “Because these taxes are based, in part, on a company’s history of laying off or reducing staff, the businesses most impacted by pandemic-related workforce reductions face the most significant increases in future unemployment insurance taxes.”
Since January, more than 1 million Virginians have filed initial jobless claims and the VEC has paid out $6.9 billion in benefits. More than 37,000 Virginians filed initial jobless claims last week — an increase of more than 5,000 claims from the previous week, according to a VEC statement released Thursday.
The VEC projects that by the end of 2020, nearly 1.5 million initial jobless claims will have been filed.
On Jan. 1, the trust fund had a $1.45 billion balance (or 86% solvency), which was a record balance at the time. But when the pandemic hit, the state had to use the resources to pay out an unprecedented number of jobless claims due to the pandemic using the trust fund. This month, the trust fund has dipped to just $500 million. With an expected $2.6 billion payout by the trust fund and only $376 million in tax revenue from employers, the Dec. 31 balance is expected to be deep in the red by $750 million.
Unless the federal government steps in to cover the anticipated deficit, employers will end up carrying the burden through increased taxes due to the fund builder portion of employer taxes that go toward the trust fund.
“Virginia employers are facing the prospect of significant tax hikes to replenish the trust fund,” VEC spokesperson Joyce Fogg says. “Businesses that have been hardest hit by the pandemic and that have laid off or furloughed the most employees face the highest tax increases.”
The trust fund is composed of three types of funding: the tax base rate, a pool charge and a fund builder, according to the VEC.
The tax base rate is individualistic and based on an employer’s history with layoffs and furloughs; pool charges are used to offset employee loss not at the fault of the employer; and the fund builder is covered by all employers when the trust fund balance solvency drops below 50%. When the fund builder kicks in, employers are taxed an additional 0.2% and pay federal unemployment tax of $420 per employee.
“In 2008, the unemployment insurance trust fund solvency level was calculated at 64%. In 2010, it went into the red as a result of the Great Recession. In the following years, employers replenished the trust fund, and at the start of 2020, it was projected to be at least $1.5 billion, or 86%, which is very near full solvency,” Fogg says. “Now, less than a year later, we anticipate the trust fund will be depleted in less than two months and Virginia will have to borrow funds from the federal government to continue making benefits payments.”