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Federal stimulus money for unemployment has become a hot political topic in Virginia. But despite all the rhetoric, the money would last Virginia only about five weeks and do little to stave off a projected shortfall in the unemployment fund.
And unemployment taxes paid by employers are expected to go up, no matter whether Virginia gets the stimulus money or not.
According to Virginia Employment Commission research director Don Lillywhite, the fund from which unemployment benefits are paid is expected to go dry by November or December of this year.
That's because, as unemployment numbers have spiked in this recession, the fund is now paying out about $100 million a month in benefits.
That's roughly $25 million a week; a year ago the fund was paying out $6 million to $8 million a week, Lillywhite said.
The result will be an increase in unemployment taxes on businesses, and probably borrowing from the federal government.
"It is anticipated we will borrow many millions of dollars," Lillywhite said.
Other states will be in the same spot--Lillywhite said about 15 states are already having to borrow federal money to cover unemployment benefits.
The unemployment fund is filled by taxes employers pay, currently an average of $95 per employee per year. As of 2010, it will be $165 per employee on average.
Lillywhite said that as the solvency of the unemployment fund goes down, employer taxes go up, an increase that's defined in the state code. The fund is considered solvent at a balance of about $1 billion, Lillywhite said; it's projected to have a balance of just $349 million by the end of this month, which also ends the fiscal year.
The last time the fund went dry was 1982, Lillywhite said.
"This is one of the few times that we're not able to sustain ourselves through a terrible recession," he added.
Currently, Lillywhite expects the unemployment fund to become insolvent around the end of this year, and the state will have to borrow money till it becomes solvent again in 2012, according to current projections.
Unemployment taxes on businesses would increase each year, and wouldn't start going back down until 2013 under that scenario, Lillywhite said.
The politically controversial $125 million in federal stimulus money would come to Virginia only if the state amends the law to provide unemployment benefits to two new categories of workers, those who work part time and those who are in training courses.
House Republicans were instrumental in rejecting the addition of those two groups, and thus the $125 million, during the General Assembly's veto session in April.
Lawmakers can try again in the 2010 session, but since all 100 House seats are up for election this year--as are the top three statewide positions, including governor--that unemployment stimulus money is already becoming a campaign issue.
Either way, the $125 million would go into the general unemployment fund, Lillywhite said, and thus would provide just a short delay in the expected draining of the fund.
"If we got another $125 million, it would take another five weeks at the rate we're going now," he said. "We certainly would be more than happy to take whatever amount in the trust fund. It just causes us to borrow later in the game and borrow less."
Chelyen Davis: 540/368-5028
Email: cdavis@freelancestar.com
| LOSING GROUND
The state fund for unemployment is paying out about $25 million a week. Last year, the figure was $6 million to $8 million a week. At this rate, the fund will be empty before the end of the year. |
