Virginia Employment Commission report to

The Commission on Unemployment CompensationJames Ellenberger, Deputy CommissionerVirginia Employment CommissionJuly 19, 2004

VEC Trust Fund

VEC Administrative Funding

Employers pay a FUTA tax to the Internal Revenue Service (FUTA is the Federal Unemployment Tax Act).

FUTA is a flat tax of 0.8% on first $7,000 of each employee’s wages, which costs $56 per employee per year.

VEC Administrative Funding(continued)

Revenue from the FUTA tax is used to pay for SESA (State Employment Security Agency) administration at both the state and national levels.Virginia’s employers paid over $191 million in FUTA taxes in FY 2002.VEC received about $63 million from U.S. DOL in FY 2002.

VEC Administrative Funding(continued)

VEC paid $153.8 million in TEUC benefits in CY 2003. This was funded by FUTA.VEC received $214.9 million on March 13, 2002. This money was collected by the FUTA tax.

Virginia’s Unemployment Rates2002 - 2004 (year to date)

Since October 2003, all unemployment rates have been at or below year-ago rates. 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

jan feb mar apr may jun jul aug sep oct nov dec

2002 2003 2004

Perce

nt of

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r For

ce

UI Initial Claims2002 - 2004 (year to date)

0

10,000

20,000

30,000

40,000

50,000

60,000

jan feb mar apr may jun jul aug sep oct nov dec

2002 2003 2004

Total initial claims through May this year are down 30.8% because of fewer temporary factory furloughs and better weather for outside construction work.

UI First Payments2002 - 2004 (year to date)

A claimant can receive only one first payment in his benefit year; so first payments are a good proxy for the number of claimants receiving unemployment benefits.Through May, first payments are down 28.0% from last year.The average duration in May was 14.1 weeks, the same as the previous May.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

jan feb mar apr may jun jul aug sep oct nov dec

2002 2003 2004

UI Final Payments2002 - 2004 (year to date)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

jan feb mar apr may jun jul aug sep oct nov dec

2002 2003 2004

For the first five months of 2004, final payments are down 26.6% from 2003.The exhaustion rate in May was 36.1%, down from last May’s 41.8%.

UI Benefits

Benefits are paid to workers unemployed through no fault of their own.Benefit levels: Maximum weekly benefit

$268 (Nov. 28, 1999)$368 (Sept. 9, 2001 – Jan. 4, 2003)$318 (Jan. 5, 2003 – July 5, 2003)$316 (July 6, 2003 – July 3, 2004)$326 (July 4, 2004)

28,935 claimants at maximum through 2nd quarter

Minimum weekly benefit$50 (July 1999)$69 (Sept. 9, 2001 – Jan. 4, 2003)$59 (Jan. 5, 2003 – July 5, 2003)$50 (July 6, 2003)

155 claimants at minimum through 2nd quarter

2004 Maximum Weekly BenefitFourth Circuit

$309 $310

$416

$285$326

$358

$0$50

$100$150

$200$250

$300$350

$400$450

$500

DC MD NC SC VA WV

UI Benefits

Benefits determined by earnings in the first 4 of last 5 completed quarters. This is called the base period.

Effective July 6, 2003, for those claimants who do not qualify under the standard base period, alternate base period, consisting of the 4 most recent quarters, is used to determine eligibility.

Otherwise eligible claimants are not paid for the first week of unemployment. This is called the waiting week. This year (2004)Last year (2003)

OctNovDec

JulAugSep

AprMayJun

JanFebMar

OctNovDec

JulAugSep

JulAugSep

AprMayJun

JanFebMar

OctNovDec

JulAugSep

AprMayJun

AprMayJun

JanFebMar

OctNovDec

JulAugSep

AprMayJun

JanFebMar

JanFebMar

OctNovDec

JulAugSep

AprMayJun

JanFebMar

OctNovDec

Previousyear

(2002)

Base Period Explained

Base period Alternate base period

If the effective date of claim is in:

UI Taxes

Taxes are paid by employers to the VEC on the first $8,000 of each employee’s wages.Tax rates:

Minimum tax for 2004 is 0.44%, or $35.20 per employee.103,700 employers, or 63% of employers

Maximum tax for 2004 is 6.54%, or $523.20 per employee.8,060 employers, or 4.9% of employers

UI Taxes

Individual employer’s tax rate based on:Trust Fund solvency level that determines which of 15 tax tables is used.Employer’s experience over last 4 years.

Two surtaxes can also be levied:Pool tax used to recover benefits that cannot be charged to a specific employer.Fund-building tax used to push solvency over 50%.

Trust Fund SolvencyAdequate Fund Balance

Solvency = 1.38 × Average Cost Rate × Wages.1.38 represents 16.5 months of benefits with no revenue.Average Cost Rate is the average of 3 highest ratios of benefits to total wages in the past 20 years.Wages are total wages paid by taxable employers for the year ending June 30.

Solvency Level = June 30 balance ÷ Adequate Fund Balance.

Trust Fund Data(Millions of Dollars)

(Projections will be updated in December)

45.5%$200.3$606.4

$23.4$255.3$528.0

2003

34.3%Solvency Level (6/30)$297.0December 31 Balance$374.0Benefits

$14.7Interest Revenue$456.0Tax Revenue$200.3January 1 Balance

2004

Actual Projected

Trust Fund Data(continued)

Tax revenue will increase as employers continue to pay for higher benefits resulting from recession and benefit increases instituted after September 11, 2001.Interest revenue decreases because of lower average Trust Fund balances.Benefit payments decrease as a result of fewer claims and lower benefit schedule effective July 6, 2003.The Fund is projected to increase to $297 million by the end of 2004.The solvency level will decrease by 11 percentage points from 2003 to 2004 due to benefits being higher than tax and interest revenues in FY 2004.

Improvements to Forecast Since November 2003

Over 70% of the improvement is attributable to the 6.2 percent decrease in projected benefit payments.The remainder is due to the 3.4 percent increase in projected taxes and interest.The combined effect raises solvency by almost 11 percentage points.

June 30 Balances and Solvency Level

$0

$200

$400

$600

$800

$1,000

$1,200

1981

1982

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1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

When solvency drops below 50%, Fund Builder Tax is triggered the following year.(Projections will be updated in December)

2004 – 2007 projected.

22% 11% 5%

43%

77%

92%

97%97%

97% 99%

84%

69% 65%70%

79%

91%

123% 114% 107% 101% 100%

83%

45%34%

48%

66%

78%

Average Tax per Employee

$99$111

$148

$175

$134

$96

$75$62 $60 $57 $63

$79

$102$115 $115

$97

$74

$50 $48 $49 $49 $51

$82

$143$159

$171

$136

$0$20$40$60$80

$100$120$140$160$180$200

1981

1982

1983

1984

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1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

The increases from 2003 through 2007 are the result of higher benefit schedules and the recession.(Projections will be updated in December)

2004 – 2007 projected.Fund Builder Tax in effect.

Average Tax per EmployeeFourth Circuit – Year ending 9/30/03

$189

$128

$259

$140

$80

$224

$0

$50

$100

$150

$200

$250

$300

DC MD NC SC VA WV

Cost

per E

mpl

oyee

Borrowing

VEC has never received money from General Fund to pay unemployment benefits.If high unemployment depletes Trust Fund, short-term, no-interest loans are available from U.S. Department of Labor.Virginia borrowed once, in 1983. The loan was for $45.6 million and was paid back the same year.

Virginia Employment Commission report to

The Commission on Unemployment CompensationJames Ellenberger, Deputy CommissionerVirginia Employment CommissionJuly 19, 2004