Kaine will propose legal changes to seek $125 million in stimulus funds for unemployment

Gov. Timothy M. Kaine wants to help more unemployed Virginians get financial assistance while they look for work -- and boost the state's dwindling trust fund for unemployment benefits.

Kaine says he will propose changes in state law next week that would allow the state to receive $125.5 million in federal stimulus funds by allowing jobless people to receive unemployment insurance while looking for part-time work or receiving job training. Currently, such people are not eligible for unemployment benefits under Virginia law.

The governor will propose the changes by Monday night so they can be acted upon by the General Assembly at its veto session on April 8. But Kaine faces a political fight due to opposition from the business community and House Republicans.

"The governor thinks we should do whatever we can, within reason, to take advantage of the entire stimulus package," said Gordon Hickey, the governor's press secretary.

The decision to expand unemployment benefits already has stirred a debate over the best way to bolster a state system that is heading for insolvency because of the rising demand for benefits by people who have lost their jobs in the recession.

Employers already face a sharp increase in unemployment taxes to maintain current benefits, based on projections that show the state unemployment trust fund as low as 30.9 percent by mid-year.

If the expanded benefits are adopted by the General Assembly, Virginia would receive a total of $187.5 million -- including $62.5 million that is not tied to changes in state law -- to lift the trust fund and postpone the need to borrow more than $232 million from the federal government to keep the system afloat.

"It will take longer to go bankrupt and you have to borrow less," said Donald Lillywhite, director of labor market information at the Virginia Employment Commission.

But Virginia businesses warn that expanding benefits would raise the long-term costs of a system that is already going broke. Once the stimulus money is gone, they say employers will bear the burden of a more expensive menu of benefits.

"You're asking Virginia employers to accept a permanent tax change for a temporary benefit," said Keith Cheatham, vice president of government affairs at the Virginia Chamber of Commerce, which opposes the proposed changes. "It's helpful until it's gone. When it's gone, what you have left is a system that costs more."

On the other side, advocates say the changes -- and the federal funds that come with them -- would strengthen a state system that is weak in providing benefits to people who have lost their jobs.

"At a time when so many Virginians are losing their jobs in this recession, providing a boost in unemployment benefits is critical," said Michael Cassidy, executive director of the Commonwealth Institute, a Richmond-based think tank.

Virginia is already eligible to receive $62.5 million in stimulus funds for its unemployment insurance system because of a change made in income eligibility requirements in 2003. The additional $125.5 million depends on the state choosing among four options offered by President Barack Obama for improving unemployment benefits.

Kaine picked two optional benefits:

• allowing unemployed people to receive benefits while looking for part-time, not full-time jobs, which the VEC estimates would cost about $10 million more a year or $2.36 per employee;

• giving benefits to jobless people who are enrolled in a state-approved training program, which would cost about $8.1 million a year or about $2.20 an employee.

The governor declined to support two other options, including one that would extend benefits to an unemployed person's dependents at an estimated cost of $38.5 million a year or $10.66 per employee.

Cheatham, who leads a business task force on unemployment compensation, agrees that business taxes will go up without federal aid or any change in state law. But he argues that expanding benefits would punch a bigger hole in a leaking bucket, and that the Obama administration should give back more money to Virginia from federal unemployment taxes paid by businesses here.

"We will ask the General Assembly to just say no," he said. "I know it's painful."

Contact Michael Martz at (804) 649-6964@timesdispatch.com.