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Sticky stimulus cash a bad deal for Virginia

April 8, 2009 2:01 am

WHO SHOULD care about business? Those who work for a living or who know someone who works for a living. That covers most of us.

We want a business that will hire us, provide benefits, and provide raises when we do well. We also want other businesses to succeed so that we can change jobs when and if we wish to do so. But when a company is forced to take on additional financial burdens, its ability to hire and support employees and their families is compromised.

Virginia's small business owners--like their colleagues nationwide--create about 70 percent of all new jobs in the state. But now they are struggling in the current economy. Some of these men and women have seen demand for goods and services decline. Others cannot obtain the needed credit to expand and diversify in order to stay competitive.

In such difficult times, we all want an environment that encourages employers to start putting people back to work. Unfortunately, the federal government has passed legislation that entices states to make the cost of doing business even greater.

The federal stimulus bill stipulates that in order to receive a portion of those temporary funds, state governments must permanently increase their unemployment payroll taxes. Will Virginia be lured into making changes that can damage employment long-term?

The American Recovery & Reinvestment Act of 2009 contains provisions designed to increase unemployment benefit payments. It also provides "incentives" for states to expand the number of individuals who qualify for unemployment.

The "incentives" provision transfers $7 billion in federal unemployment tax funds to state accounts if states enact or already have certain state unemployment insurance laws in place. Of this amount, the Virginia Employment Commission estimates that Virginia could receive approximately $187.5 million if all the conditions are met.

Virginia is already eligible to receive $62.5 million of that total. In order to receive the remaining two-thirds the General Assembly must expand state law by passing at least two of the following four provisions:

Provide benefits to former part-time workers who seek part-time work;

Provide benefits for voluntary separations from work for "compelling family reasons." These reasons must include domestic violence, illness, or disability of an immediate family member, and the need to accompany a spouse to a place from where it is impractical to commute due to a change in the location of the spouse's employment ("trailing spouse" provision);

Provide additional benefits (up to 26 weeks) to individuals who have exhausted their regular benefits but are enrolled in a state-approved training program or in a job training program authorized under the Workforce Investment Act. This benefit must prepare the individual for entry into a "high-demand" occupation;

Provide dependents allowances to UI recipients with children.

VOTE DUE TODAY

Today, the General Assembly will vote on receiving the remaining $125 million via SB 1495. Of the four choices provided in the stimulus offering, the governor will ask the General Assembly to expand our laws to provide two additional benefits--for the first time--one to part-time workers seeking part-time work and the other to those in job training. Without making those changes, Virginia still qualifies for an additional $62.5 million in federal money for its trust fund.

We are not opposed to helping people. If there is a need for expanded family support programs it should be addressed within the context of the array of public assistance and social service programs enacted since 1935--not unemployment insurance.

Unemployment insurance is a program intended to help unemployed workers who are seeking a quick return to full-time employment. That system is already overburdened. Without adding new features, unemployment payroll taxes--a levy on each job created--will rise from $98 per job this year to $159 per job next year and to $199 per job by 2012. That happens without adding new benefits or beneficiaries.

If the federal government simply wanted to help the unemployed, why not provide the stimulus funding with no strings attached and thereby bolster the solvency of state unemployment trust funds?

If Virginia adopts the governor's plan, the commonwealth will remain on the hook for these expanded benefits long after the federal money runs out. A recent op-ed found in The Richmond Times-Dispatch said, "You are asking Virginia employers to accept a permanent tax change for a temporary benefit."

Virginia does offer low tax rates. That is why it has been an attractive place to locate and grow a business. Forbes magazine has repeatedly ranked Virginia as the "Best State for Business." Making a permanent change that will ultimately increase the tax burden on entrepreneurs threatens our state's ability to attract new businesses and new jobs. It also threatens the ability to grow new jobs in existing businesses.

If jobs are important in your family, then this proposal should concern you.

To position ourselves for a strong future, state lawmakers should reject higher unemployment taxes for job creators.

Bob Hagan is president of the Fredericksburg Regional Chamber of Commerce.