Virginia must borrow to make jobless payments

Virginia will need to borrow as much as $1.27 billion from the federal government over the next three years to keep making unemployment compensation payments.

The employer-financed state trust fund that issues unemployment checks is spending $18 million a week and is likely to run out of money sometime in the next two to three weeks, a top Virginia Employment Commission executive said yesterday.

The trust fund's difficulties and the need to borrow mean:

• The average tax employers pay into the fund will jump 80 percent next year -- and keep rising for two more years.

• Virginia taxpayers will be on the hook for as much as $36.7 million in interest payments on the federal loans.

• Virginia companies will lose part of a federal tax credit they get for paying unemployment compensation taxes, amounting to $87 million in 2011.

• Unemployment benefits will be cut in half for roughly 10,500 people who also receive Social Security benefits.

"Over the short term, we're still staring down the barrel," despite some encouraging signs about the economy, said state Sen. John Watkins, R-Powhatan, chairman of the General Assembly's Commission on Unemployment Compensation.

The state trust fund's balance has plunged from just less than $547 million at the start of the year to about $69 million now, said M. Coleman Walsh Jr., chief administrative law judge of the Virginia Employment Commission, testifying before Watkins' panel.

One reason: The number of people filing for benefits so far this year is up nearly 80 percent from last year.

It is also taking longer for the unemployed to find work. As of the end of last month, Virginians were averaging 14.2 weeks of unemployment compensation, up from 12.8 weeks in August 2008. The number of people running out of their 26 weeks of state benefits exceeded 11,000 last month and so far this year is up 149 percent from last year.

Walsh said the VEC expects unemployment tax collections will lag benefit payments until 2011, which is why Virginia is joining the list of 21 states that have already borrowed $15.7 billion from Washington for their funds.

Virginia asked two weeks ago for the first $252 million of what it expects could eventually reach $1.27 billion in loans, Walsh said.

The request is almost unprecedented: The only other time was in 1983 when the state borrowed $45 million in April and repaid it by that September. This time, Virginia will likely have to keep borrowing until well into 2013 to build up its fund again.

"We're not complaining," said Keith Cheatham, vice president of the Virginia Chamber of Commerce. "It is what it is -- this is the way the system works."

Cheatham said Virginia traditionally has low unemployment compensation taxes but also designed its tax-setting system to automatically replenish the fund when it runs down.

The idea is for taxes to begin rising as the economy rebounds, but the problem this year is that the recession is lasting much longer than usual, he said.

Contact David Ress at (804) 649-6051 or dress @timesdispatch.com.