WV Unemployment Benefits

CHARLESTON, W.Va. -- The state Chamber of Commerce says rather than increasing a tax on employers used to pay unemployment benefits, lawmakers should consider reducing benefits and eliminating payouts to some people, including strikers and workers who are fired for failing drug tests.

Employers pay a tax on the first $8,000 of each employee's wages in a calendar year. The money goes into a trust fund that is used to pay benefits to unemployed workers. The chamber's position comes as a task force appointed by Gov. Joe Manchin studies ways to keep the fund solvent.

The fund had a $249 million balance at the end of November and probably finished 2008 with a balance of between $232 million and $233 million, said Michael Moore, director of the state Unemployment Compensation Division.

It is estimated that the fund is sufficient to last until 2015 unless the state's seasonally adjusted unemployment rate, 4.6 percent, goes up. That could happen as the national recession impacts West Virginia's economy.

Charleston lawyer David McMahon has pointed out that the taxable wage base has not been raised in 26 years and advocates "a substantial one-time raise," so the trust fund can weather an economic downturn. McMahon also has proposed that the taxable wage base be automatically adjusted with inflation.

"Starting now to get the trust fund healthy will prevent insolvency in 2015 and at least start to avoid a horrific crisis if we fall into a deep recession," McMahon said.

But Steve Roberts, president of the state chamber, said an increase in the taxable wage base from $8,000 to $10,000 would cost employers about $35 million "at a time businesses really can't afford tax increases.

"Any kind of a tax increase just makes it less attractive to employ people," he said.

The chamber has gathered data that shows the state's current $8,000 taxable wage base "is right around where it should be," Roberts said. According to the chamber, Kentucky, Virginia and Pennsylvania also have an $8,000 taxable wage base, while Maryland's is $8,500 and Ohio's is $9,000.

Rather than raising the taxable wage base, Roberts said the program could save serious money if it paid out a lower benefit amount; quit paying benefits to striking workers, retiring workers who take a voluntary separation package, and workers terminated for failing drug tests; and if it clamped down on fraud.

"West Virginia is one of only eight states that pays more than 50 percent of the average weekly wage in unemployment benefits," Roberts said.

West Virginia pays a maximum of 66 2/3 percent of the average weekly wage. Forty-two states pay 50 percent or less.

"If we're going to talk about raising the tax, let's at least talk about what the benefit level is," Roberts said. "I am not suggesting that someone who is unemployed has too much money. And I'm not trying to be hard-hearted about it. But we have to strike a very careful balance so we don't make ourselves uncompetitive."

West Virginia wages are lower than wages in most other states, which means that 66 2/3 percent of the average weekly wage isn't a huge amount compared to the benefits jobless workers in some other states receive. But Roberts points out that studies consistently show that the cost-of-living is less in West Virginia than in many other states.

Roberts said the chamber believes the trust fund would save $8 million to $10 million a year if administrative and court decisions didn't result in benefits being paid to striking workers, retiring workers who take a voluntary separation package, and workers terminated for failing drug tests.

"This is the recommendation we've spent the most time on," Roberts said. "It concerns us greatly."

Perhaps the highest-profile example came in 2003, when administrative and court decisions allowed nearly 1,800 Kroger workers to collect up to $358 a week in unemployment benefits while they were on strike.

Roberts said a study by the U.S. Department of Labor shows that West Virginia is doing a good job in terms of benefits accuracy when compared to other states. In fact, the state Unemployment Compensation Division just last month received the U.S. Department of Labor's Pinnacle Award, recognizing the division as the best in the nation.

Even so, the study shows that West Virginia is making about $3.5 million in benefits overpayments annually, Roberts said.

"There's a certain amount of inaccuracy in the system - checks paid to people who have already gotten a job; checks paid to people who are no longer eligible to receive benefits; or checks to people who got paid more than they should have received.

"Our complaint is not with the unemployment compensation division," Roberts said. "They appear to be very competent. Our complaint is not with the Manchin administration. We think it's good they want to look at this and that they want to develop information and data.

"But what we're finding as the data is developed is that there's not an argument for increasing the tax," Roberts said. "We do have a concern when there are those who call for what is potentially a $35 million business tax increase at a time businesses really can't afford tax increases. Businesses especially can't afford tax increases on payroll.

"We at the chamber see our job as trying to create an environment in which businesses can grow and create jobs," Roberts said. "We urge our state policymakers to give very careful consideration to these factors we're pointing out before anybody starts talking about raising business taxes."

The state chamber advertises itself as "the voice of business in West Virginia."

Moore declined to say whether he has recommendations for what, if anything, should be done. He pointed out that the Manchin administration task force is still working on the issue.

"We're not, I feel, in a crisis situation - yet. And we hope we don't get there," he said.

Moore, the director of the Unemployment Compensation Division, noted that the funds in Michigan, Indiana, South Carolina and Missouri are broke and Ohio's fund is in trouble, "not to mention New York and California. It's kind of all over. I feel pretty good about where we are, in comparison."

Manchin created the task force before the economic downturn, Moore noted.

"We saw some problems in the last few years, that just by the nature of it or our law that we're going to have problems down the road. Our taxable rate has been $8,000 since 1981. The benefit rates are, by statute, increased every year. Common sense would tell you that if your revenue base stays the same and your payouts increase, you're eventually going to hit a wall."

West Virginia's trust fund took in approximately $142 million last year and paid out about $164 million. Moore said that in 2007, the fund took in $141.4 million and paid out $134.9 million.

West Virginia's unemployment rate hit a peak of 18.2 percent in early 1983. The trust fund became insolvent and the state had to borrow $308 million from the federal government to provide benefits. The state sold $259 million in bonds in 1987 to repay the federal loans. Both employers and employees were taxed so the payments could be made. The bonds were paid off in 1991.