West Virginia's unemployment trust fund ahead of the curve
Shortly after the Great Recession began, states started struggling to keep their unemployment insurance (UI) trust funds afloat. UI trust funds are used to pay out unemployment benefits to citizens. Primarily because of sustained high unemployment rates, long-term unemployment and unsustainable funding models, those UI trust funds have been exhausted, leaving states with a negative balance no choice but to borrow from the federal government.
By mid-June 2011, 29 states plus the Virgin Islands had borrowed more than $41 billion. The Labor Department estimates that by the fourth quarter of 2013, as many as 40 states may need to borrow more than $90 billion to fund their unemployment programs and it will take a decade or more to pay off the debt.
California and Pennsylvania are the top borrowers of federal funds, with a combined total of more than $14.7 billion in loans. Michigan is close behind, currently borrowing $3.2 billion, but also has been borrowing the longest, since September 2006.
West Virginia is one of the few states that aggressively addressed their UI trust fund solvency issues head on, and now they are reaping the rewards.
According to an article in Metro News, Workforce West Virginia Acting Exec. Director Russell Fry told members of a legislative committee last week that the state’s fund is currently around $100 million, compared to the $20 million balance it got close to earlier this year. That means West Virginia won’t have to take out any loans from the feds in the foreseeable future to buttress their accounts, or pay any of the interest that accompanies those loans.
Until the end of 2010, a provision in the American Recovery and Reinvestment Act delayed interest from accruing on state unemployment loans. That provision has expired and interest payments will become due for those borrowing states in September 2011 at a rate of nearly 4.1 percent. In addition to paying out interest on their loans, states in debt may be required to raise tax rates until they regain their solvency.
Fry told the committee that remaining solvent will help West Virginia’s business attraction climate, saying, “That's going to make it better and easier to do business in West Virginia.”
Fry credits two primary reasons for why his state’s fund has remained solvent while other states have had to borrow money: In 2009, the state's Insurance Commission gave $40 million to the fund. In the same year, state lawmakers raised the state's taxable wage base – the wages on which employers must pay unemployment taxes – from $8,000 to $12,000.
In addition to these two measures, the West Virginia Legislature passed S.B. 219 earlier this year as an emergency action. The legislation amends the state code to authorize a loan from the Revenue Shortfall Reserve Fund (Rainy Day Fund) to the Unemployment Compensation Fund to ensure there is always at least $20 million in the Fund to pay unemployment claims. In a press release, Acting Senate President Jeff Kessler explained the measure:
“This legislation, although only a temporary loan to the Unemployment Compensation Fund, ensures that our citizens will receive the benefits of their unemployment insurance at a time when people are often most vulnerable,” said Kessler. “The monies will be repaid to the Rainy Day Fund within 180 days.”
Unemployment benefit rates in West Virginia are currently frozen and will remain that way until the unemployment fund gets back to $220 million.
Read More: Metro News
Download the Excel Version of the Table: "Unemployment and Trust Fund Trends"
Source: U.S. Department of Labor, Employment and Training Administration. Outstanding Loans from the Federal Unemployment Account as of June 16, 2011.
Source: Author's calculation of U.S. Department of Labor, Employment and Training Administration data - Outstanding Loans from the Federal Unemployment Account as of June 16, 2011. Population data used for per capita calculation from Census 2010 figures.