Existing employers' V.I. Unemployment Insurance Fund contributions will increase from zero to 1.5 percent of payroll, that of new employers will double to 2 percent and both will pay $25 annually per employee for Unemployment Insurance debt, if a bill in the Senate becomes law.
The changes are needed to stanch fast-growing debt burden, as the territory is forced to borrow money to pay unemployment insurance to V.I. workers, Labor Commissioner Albert Bryan testified to the Housing and Labor Committee Friday.
Rising unemployment in the territory has led to an increase in unemployment claims, forcing the territory to borrow from the federal government to pay beneficiaries, he said.
The problem began back in 2001, when the Unemployment Insurance Trust Fund had a substantial surplus, according to Bryan. That year the Legislature voted to reduce the minimum tax rate to 0 percent and the new employer rate to 1.5 percent – changes that did not impact the Trust Fund while the economy was doing well.
"The fund remained solvent until about 2008 when the recession increased claims and payables by 75 percent. We went from a situation where we disbursed about $6 - $8 million a year to $14 million a year. This put a great strain on the fund but we managed to keep paying from the fund balances until August 2009," Bryan said.
The territory pays for the first 26 weeks of unemployment insurance with the federal government covering the rest, but with rising unemployment, the territory's share is rapidly increasing, he said.
The balance on the trust fund loan is $39 million with an interest payment due in September of $966,000, he said. The increase in contributions is needed to bring funding into the system closer to the amount the territory has to pay out.
"This is not a debt of the Virgin Islands Government but a debt of the employers of the Virgin Islands," Bryan said.
Representing the St. Thomas-St. John Chamber of Commerce, St. Thomas attorney Charles Engeman testified against the bill, arguing the increase would put too much of a strain on businesses at a time when they were already struggling.
"This bill would result in an additional barrier to opening a business in the territory, doubling their initial UI tax rate, and will also penalize existing employers who have little or even no unemployment claims," Engeman said. Instead, he urged the Legislature to create an advisory council that would formulate a proposal for when and how much to increase contributions.
The committee voted unanimously to send the bill out of the committee of jurisdiction, for further consideration in the Rules and Judiciary Committee.
Voting yea were Sens. Neville James, Terrence "Positive" Nelson, Usie Richards and Celestino White. Sens. Alicia "Chucky" Hansen, Louis Patrick Hill and Alvin Williams were absent.