Posted: March 5, 2010

By Philip Newswanger

philip.newswanger@insidebiz.com

Virginia's business lobby has prevailed again.

A bill by state Sen. John Watkins, R-Midlothian, to extend unemployment benefits for people in job training and who had to leave a job for compelling family reasons was axed in subcommittee.

The vote was six to five opposing the measure. The legislation would have mirrored a federal measure that lawmakers shot down last year.

The federal government promised Virginia $125 million to expand benefits to the unemployed, including those in job training and who had left a job for compelling family reasons.

But Virginia lawmakers rejected the $125 million for 2010, though the state can accept the money in 2011.

Virginia's business lobby has argued that accepting the $125 million would have been an unfunded mandate in later years when the well had run dry.

Michael Cassidy, executive director of the Commonwealth Institute for Fiscal Analysis, said states can modify or appeal their unemployment programs while still keeping the money, according to U.S. Department of Labor provisions.

The Hampton Roads Chamber of Commerce and other business groups mounted a powerful and successful campaign to gut legislation to expand the program and convince legislators that the $125 million federal gift was a bad idea.

Meanwhile, the Virginia Employment Commission says the trust fund where unemployment taxes are parked is nearing insolvency, which means the state will have to borrow money from the federal government to continue paying unemployment benefits.

Virginia borrowed $176 million from the federal government in October 2009. Other states borrow money as well to prop up their unemployment trust funds.

Some states, such as Illinois and Michigan, have borrowed billions of dollars to pay unemployment benefits.

"If you look at surrounding states, Virginia is in good shape," said Ira Agricola, vice president of governmental affairs for the Hampton Roads Chamber of Commerce.

The VEC estimates the state will have to borrow $1.15 billion, and interest payments on the loans from 2011 to 2013 would total $30.2 million.

Agricola said while the average state tax per employee will increase from almost $95 in 2009 to $171 in 2010, $234 in 2011 and $263 in 2012, "we want to make sure it doesn't increase further for decades to come by expanding eligibility or benefits in this year's General Assembly session.

"We oppose accepting stimulus funds if 'strings are attached' that require the state's unemployed insurance eligibility requirements to expand," Agricola said.

The average tax per employee in Virginia is about $95. By comparison, the average tax per employee in North Carolina is $338, $163 in Maryland and $185 in Washington, D.C.

The U.S. average is $261 per employee.

Agricola said VEC Commissioner Dolores Esser, who briefed lawmakers on the trust fund, said the rates would go up regardless of the $125 million.

"The numbers are too big," Agricola said.

Cassidy, a fiscal policy analyst, said the state could have accepted the $125 million, interest-free, rather than now opting to borrow money, for which the state will pay interest from the its general fund, increasing its budget deficit.

"The government's bill doesn't require that an individual look for work or be available for work," Agricola said.

"When you take those features out of it, you get into entitlement programs and shouldn't be covered by unemployment insurance. It's a philosophical difference and a monetary difference."

Unemployed workers in Virginia get 26 weeks of benefits, but this can be extended to 86 weeks for individuals who qualify.

There's been some economic research on those re-entering the job market and their length on unemployment, Agricola said. He's referring to an essay by Christine Chmura, president and chief economist at Chmura Economics and Analytics in Richmond, in which she says that studies show that unemployment insurance lengthens the duration of unemployment.

A 1990 study by Bruce D. Meyer, for example, showed that a job-seeking worker's chance of finding a job improves dramatically the week his benefits run out, Chmura said.

"There's some concern that if you can structure your program in such a way, it would act as a disincentive to return to work," Agricola said.

In the short-term, Cassidy said, a lot of out-of-work people who need unemployment insurance won't get it. One of the drawbacks over the long-term is that Virginia's unemployment system won't get fixed, Cassidy said. The system was set up in the 1930s and hasn't changed since then, though the labor pool has changed, with more women and minorities working.

Virginia's Main Street Alliance, a coalition of 200 small business owners in Virginia, supported Watkins' bill.

"[Small businesses] employ 1 to 100 workers," said Main Street Alliance Statewide Director Liz Burroughs. "They are the backbone of our local economy.

"Small businesses believe the tax is a small price to pay," she said. "People who receive that money spend money close to home."

Burroughs said the $125 million isn't a handout. "This is much-needed assistance."

Molly Brogan is a spokeswoman for the National Small Business Association.

"We haven't engaged in the unemployment insurance debate," she said. "None of our members have raised the issue."

The Virginia Poverty Law Center pushed to have Watkins' bill approved.

"Our coalition is regrouping," said Ty Jones, a staff attorney with the center. "We are trying get the word out there and to put pressure on legislators. I don't think the general public knows enough about this and we hope for the best next year."

Expanding unemployment insurance in Virginia to include training and for compelling family reasons would have added $4 per employee for every employer, Jones said. Expansion of unemployment insurance was seen as a tax on jobs "and that's not correct," he said.

Virginia firms would not go out of business for an additional $4 per employee, Jones said.

Cassidy said the federal government would be paying the additional $3 to $4 per employee.

"The amount that the feds are giving us is enough to pay the additional taxes for a couple of years," he said.

Cassidy said 89 percent of Virginia firms have fewer than 20 employees, so employers might pay an average of $70 a year.nib