by Tyler Arnold


In an effort to prevent a future tax hike on Virginia businesses, Gov. Ralph Northam proposed allocating $862 million in federal relief money to the Unemployment Insurance Trust Fund, but a small business association is warning it might not be enough.

The Unemployment Trust Fund, which provides unemployed Virginians with benefits, is funded primarily through payroll taxes from employers. During the COVID-19 pandemic, Virginia’s fund dried up and the state was forced to borrow money from the federal government. Unless the losses can be fully offset, business taxes would automatically increase to maintain the fund because of the state’s funding formula.

According to the governor’s office, Northam wants the state to use federal relief funds through the American Rescue Plan to recoup the losses to avoid penalizing businesses for layoffs that occurred during the COVID-19 pandemic. The General Assembly is meeting next week to consider the governor’s proposals for the federal funding.

Northam also proposed $73.6 million to fast-track modernization projects for the Virginia Employment Commission.

“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 in a statement. “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.”

The National Association of Independent Business applauded the governor’s effort to offset the losses, but warned it may not be a sufficient amount of money. Just a few months ago, the VEC estimated it would take $1.3 billion to return the fund back to pre-COVID-19 levels.

“We appreciate that the governor is advocating a large sum of money towards a deposit in the Unemployment Trust Fund,” Nicole Riley, the NFIB Virginia director, said in a statement. “We’re encouraged by this news and look forward to seeing if this deposit will significantly blunt the anticipated quadruple increase in taxes small employers will have to pay in January. Our small business owners are still recovering from this crippling pandemic. While they are finally allowed to open and operate – they can’t find qualified workers to fully open. According to the latest NFIB survey, 46% of our small business owners have job openings they can’t fill. Our members are anxious as they look ahead – they want to know their new UI tax rates, especially in light of another impending minimum wage increase to $11 per hour this January. That increase, along with the UI tax increase could hurt our Virginia small business owners even more.”

Northam’s proposed modernization efforts include $37.4 million to increase call center capacity, $29.8 million to upgrade technology, about $4.6 million for more adjudication officers and $1.8 million for personnel support.

– – –

Tyler Arnold reports on Virginia and West Virginia for The Center Square. He previously worked for the Cause of Action Institute and has been published in Business Insider, USA TODAY College, National Review Online and the Washington Free Beacon.