RICHMOND — Virginia may have finished the past fiscal year with a $545 million surplus, but the state will likely have to borrow an additional $251 million between next month and April 2013 to repay the federal government for loans to its unemployment insurance trust fund, which remains underwater for the second consecutive year.
The status of the trust fund was among the subjects of a meeting Friday of the Virginia General Assembly's Commission on Unemployment Compensation.
The state has borrowed about $568 million from the federal government after the fund, which comes from employer taxes, ran out of money in 2009 owing largely to a spike in initial unemployment claims during the nationwide economic recession.
Initial claims totaled about 500,000 in 2009, compared with 260,561 in 2007 and 356,220 in 2008. Nearly 400,000 initial claims were reported in 2010 and 169,089 were logged from January through June of this year.
The state is now giving the money back, with interest, paying $358 million in May and $45 million in August.
As the solvency rate of the fund drops, employer tax rates increase to make up the difference. When the fund is 100 percent solvent, for example, the lowest employer tax rate is set at zero, but as the fund dips lower, employer tax rates bump up.
John Broadway, commissioner of the Virginia Employment Commission, predicted the loan would be completely paid off by May 2012, but that borrowing would continue for January through mid-April 2013.
That's because if a state has a loan balance at the beginning of two consecutive years and can't pay back the balance by November of the second year, it triggers a tax penalty on employers of $21 per employee a year.
The state plans to completely repay the balance of its loan to avoid the penalty, but will likely have to borrow an additional $251 million to cover unemployment claims in future years, Mr. Broadway said.
The state will also use a chunk of its surplus money to make payments; $8.9 million of the $545 million announced Thursday by Gov. Bob McDonnell, a Republican, will go toward paying down interest on the loan.
The unemployment trust fund dipped into the red last year for the first time since 1981 after initial unemployment claims spiked during the recession.
"This is only the second time that the state of Virginia has had to borrow from the federal trust fund," said state Sen. John Watkins, Powhatan Republican and chairman of the Unemployment Compensation Commission.
Still, initial claims are trending downward, dipping 17.9 percent through June of this year and down 37.7 percent from 2009, Mr. Broadway told the commission Friday.
But the state's seasonally adjusted unemployment rate ticked up in July by 0.1 percent to 6.1 percent. The figure is still down from last year's 6.8 percent rate and well below the national rate of 9.1 percent in July.
It was the first increase since the state's peak rate of 7.2 percent for the December 2009 through February 2010 period, but the change was not significant, and the figure is still subject to revision, according to the Virginia Employment Commission.
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