Va. asks feds for loan to cover unemployment costs

RICHMOND

Gov. Timothy M. Kaine has asked for a federal loan to stabilize Virginia's nearly broke unemployment trust fund, which has been depleted by tens of thousands of jobless-benefits payments made amid the lingering recession. As a result, employers probably will pay higher federal taxes as Virginia repays the $252 million loan with interest.

In coming years, Virginia businesses also can expect to spend more than twice as much on unemployment insurance tax payments to the state for each worker on the payroll. A higher tax rate is triggered when the state unemployment fund drops below 50 percent solvency, which Virginia's fund has done.

Although the need for a federal loan was not unforeseen - officials have issued warnings for at least one year - the timing of the request is a surprise.

Earlier estimates set January 2010 as the date by which the state might need an infusion of federal unemployment funds. That date has been moved up to mid-October.

"Things turned out to be worse than we expected," said James Wilson, a senior economist at the Virginia Employment Commission.

To put the situation in context, Wilson noted that the nearly 342,000 Virginians who made initial unemployment claims so far this year nearly equals the 347,570 who did so in all of 2008.

And there are still more than three months remaining in 2009, including the holiday periods in November and December when claims typically spike, he added.

Besides serving as a reminder of the effects of the recession, Kaine's loan statement Tuesday also stoked the flames of the unemployment debate in the General Assembly earlier this year by taking a swipe at legislators who rejected $125 million in federal program funds.

The federal stimulus package includes unemployment money for states that agree to extend benefit eligibility to more citizens.

House Republicans rejected Kaine's proposal to make idled part-time workers and people in job training programs eligible for benefits, believing businesses would have to bear the additional program costs after the stimulus dollars were spent.

"The state's compensation fund might have been able to delay requesting loans until after January 1, 2010, which would have delayed the additional federal tax until 2012" if the money had been accessed, the governor's announcement said.

Kaine spokesman Gordon Hickey said a higher tax at that point would have been "a lot easier for employers to swallow because the recession likely will be over by then."

Del. Sam Nixon accused Kaine of twisting the facts to score political points.

"The argument they were making at the time was there was no long-term cost to Virginia," said Nixon, a Chesterfield County Republican who this year carried legislation that extended the number of weeks a person can receive benefits.

"Now, they're making the argument that we could have used that same pot of money to stave off the need to borrow from the federal government," he said. "That money would have only lasted us five to six weeks. And they're trying to spend it twice."

The only other time Virginia has borrowed from the federal government for unemployment purposes was a $45.6 million loan taken in 1983 that the state paid off the same year.

Julian Walker, (804) 697-1564 julian.walker@pilotonline.com