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Northam replenishes unemployment trust fund

Gov. Ralph Northam recently announced the commonwealth will commit $935.6 million in federal American Rescue Plan funding to replenish the Unemployment Insurance Trust Fund and accelerate critical upgrades to the Virginia Employment Commission.

The governor’s plan will put $862 million back into Virginia’s unemployment insurance trust fund, preventing tax increases on businesses and ensuring that employers are not penalized for layoffs during the COVID-19 pandemic. Virginia will also invest $73.6 million to fast-track ongoing modernization efforts at the Virginia Employment Commission, including $37.4 million to boost call center capacity, $29.8 million to upgrade technology, nearly $4.6 million to hire additional adjudication officers and $1.8 million for personnel support.

“Shoring up the commonwealth’s unemployment insurance trust fund is a smart investment that will prevent Virginia businesses from paying higher taxes and allow our economy to continue surging,” Northam said. “These actions will also propel our modernization efforts forward so the Virginia Employment Commission can better serve those in need of assistance throughout our pandemic recovery and into the future. Together with the General Assembly, we are taking important steps to ensure Virginia remains a place where businesses, workers and families can all thrive.”

Virginia, like all other states, pays unemployment benefits from its Unemployment Insurance Trust Fund, which is financed through payroll taxes paid by employers. When higher numbers of workers are laid off and apply for unemployment insurance, taxes on businesses increase based on a formula to help replenish the trust fund. Because these taxes are based, in part, on a company’s history of laying off or reducing staff, the businesses most impacted by pandemic-related workforce reductions face the most significant increases in future unemployment insurance taxes. 

“The commonwealth’s unemployment insurance system has served as a critical lifeline to thousands of out-of-work Virginians over the last year,” Secretary of Labor Megan Healy said. “This continued investment will ensure the long-term viability of the trust fund and allow Virginia businesses to put their limited resources towards hiring workers rather than paying taxes.”

These investments build on the Northam Administration’s ongoing work to implement long overdue improvements to Virginia’s unemployment insurance system and address rising unemployment tax rates resulting from the pandemic. Governor Northam signed Executive Order Seventy-Four in December of 2020, which held businesses harmless for lay-offs that occurred during the pandemic and protected Virginia businesses from having to pay an additional $200 million to restore the depleted Unemployment Insurance Trust Fund. 

Governor Northam and the General Assembly have also worked together to support out-of-work Virginians in need of assistance and speed up the processing of unemployment claims. The special session budget included $210 million to backfill the Unemployment Insurance Trust Fund and the 2021 budget dedicated an additional $15 million to increase call center staffing levels and support long-overdue IT system upgrades at the Virginia Employment Commission. 

“In May, we made a commitment to prioritize the use of American Rescue Plan funding to support workers and small businesses alike,” House Speaker Eileen Filler-Corn said. “This plan follows through on that promise by keeping relief funds available for Virginians while simultaneously removing added burden on businesses, helping them get back on their feet.”

Despite being underfunded for decades, the commonwealth’s unemployment insurance system successfully distributed $12.9 billion in benefits to more than 1.3 million eligible Virginians between the start of the pandemic in March 2020 and May 2021. Approximately 85% of Virginia applicants receive benefits within 21 days of filing an initial claim, making Virginia sixth in the nation — and first in the Mid-Atlantic region — for delivering unemployment insurance to eligible individuals.

In May 2021, Governor Northam issued Executive Directive Sixteen, which directed the Virginia Employment Commission to invest $20 million to add 300 new adjudication staffers, make immediate technology upgrades and complete a full modernization of the commonwealth’s unemployment insurance system by October 1.