Faced with a potential fourfold increase in payroll taxes on Virginia businesses, Gov. Ralph Northam wants to deposit $862 million in the state’s depleted unemployment trust fund to help them hire workers and recover from the COVID-19 pandemic.
Northam, working with General Assembly budget leaders, also proposed to invest $73.6 million from the American Rescue Plan Act on upgrades to the Virginia Employment Commission, which has come under intense criticism — including a class action lawsuit the state settled in federal court — for its response to an unprecedented number of requests for unemployment assistance.
The trust fund had reached a record high of $1.4 billion when the pandemic threw more than 400,000 Virginians out of work in March 2020, forcing the state unemployment system into a crisis from which it has yet to emerge.
The Northam administration initially suggested restoring at least $1 billion of the funding loss, but the governor and General Assembly money committees settled on an investment that would prevent any business from having to pay a higher tax on its employees.
“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,” the governor said in a news release on Tuesday.
Northam, who issued an executive directive in May to boost the state’s backlog of unresolved unemployment claims, said in the release that the other proposed investments “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,” he added.
Earlier on Tuesday, Northam announced Richmond would receive $50 million in federal aid to help with the next phase of its massive combined-sewer cleanup to stop untreated waste from flowing into the James River as part of a $411.5 million investment in water quality improvements.
The proposed investments in the unemployment system and water quality improvements bring to more than $2.6 billion that the governor and General Assembly budget leaders want to spend from the $4.3 billion that Virginia received under the American Rescue Plan Act.
And they’re not done, with major new spending expected to bolster Virginia’s crippled behavioral health system after the state halted admissions at five public mental hospitals on July 9 because of overcrowding, understaffing and a lack of options for treating people in psychiatric emergencies in their communities.
The Northam administration has worked closely with the House Appropriations and Senate Finance and Appropriations committees to recommend what it considers the best use of the federal funds for the full assembly to decide when it meets Monday to begin a special session.
House Republican leaders, however, have bridled at being left out of the process by the Democratic majorities in both chambers and by the governor, a Democrat approaching the end of his term in January.
“It’s disappointing, but not surprising that Democrats would want to all but prevent input and debate — it’s how they’ve operated for nearly two years,” House Minority Leader Todd Gilbert, R-Shenandoah, said during a Republican news conference on Tuesday.
House Republican Caucus Chair Kathy Byron, R-Bedford, accused Democrats of “effectively saying they will write the budget behind closed doors without any input from the people or their elected representatives.”
House Appropriations Committee Chairman Luke Torian, D-Prince William, notified House members last week that his committee would not consider individual amendments to the budget bill that Northam will introduce with proposed uses of the one-time federal funds.
“It simply would be impossible to thoroughly evaluate those items in what is expected to be a short and expeditious special session,” he said in the memo.
Torian said members from either party have been free to contact him or the committee staff with requests for using the federal funds.
“All they have to do is pick up the phone and give me a call,” he said.
Del. Barry Knight, R-Virginia Beach, a senior Republican on House Appropriations, said he has had “a good working relationship” with Torian and committee staff over his suggestions for spending the federal money.
But Knight accused Northam of “an absolute dereliction of duty” by not submitting a detailed proposal in advance, as the governor does each December with the full two-year state budget. Instead, he said the governor has engaged in a “protracted rollout” of spending proposals without significant Republican involvement.
The current state budget gives the assembly absolute control over how to spend the federal aid, but the House and Senate budget committees have worked closely with the administration on recommended priorities for the money.
“They are being rolled out because this has been a joint, collaborative conversation,” Torian said.
In addition to mental health, unemployment assistance has been high on the list of shared priorities.
Virginia’s unemployment system has been overwhelmed with a record 1.6 million claims during the pandemic, a tenfold increase. While the system performed well in processing initial claims, it has struggled to resolve disputed applications for traditional state and enhanced federal unemployment benefits, resulting in a backlog that had exceeded 92,000 cases when a U.S. District Court judge ordered the state in May to take specific steps to resolve them by no later than Labor Day.
The VEC continues to take fire from the public and employee advocates for not moving faster to resolve complex cases or, most of all, answer calls from frustrated Virginians who are desperate for answers.
The package Northam announced on Tuesday includes $37.4 million to expand capacity of state and privately contracted call centers, including the hiring of hundreds of outside “navigators” to help people through the system.
It also includes $29.8 million to upgrade information technology systems at the VEC, beyond the completion of a long-delayed modernization program on Oct. 1; nearly $4.6 million to hire additional officers to adjudicate disputed unemployment claims; and $1.8 million for personnel support at the beleaguered employment agency.
The centerpiece, however, is the investment in the depleted trust fund, along with a proposed change in budget language to ensure that payroll tax rates don’t rise from $90 to $360 per worker, as VEC officials warned of earlier this summer.
“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 in the announcement on Tuesday. “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.”
Earlier, Northam proposed $125 million to help Richmond, Lynchburg and Alexandria end combined-sewer overflows into the James and Potomac rivers.
The three cities had sought about $1.4 billion in federal aid to Virginia under the American Rescue Plan Act to deal with the problem of old sewer systems that combine raw sewage and stormwater that overflow into rivers during heavy rains.
Richmond alone had asked for $883 million, most of it for a mammoth project to capture, store and treat heavy overflows to comply with a new state mandate to end the discharges by 2035.
“I am grateful for Governor Northam’s commitment of $50 million to limit the burden on Richmond’s ratepayers as we implement what is an $883 million project to protect one of our greatest assets — the James River,” Mayor Levar Stoney said in a statement on Tuesday. “We appreciate this down payment and look forward to continued partnership from the state.”
The water quality package also includes $186.5 million for wastewater treatment and removal of excess nutrients that harm water quality in the Chesapeake Bay and its tributaries. It also would give $100 million to small, disadvantaged communities to upgrade their drinking water systems.
“Protecting the environment, and particularly providing for sanitary disposal of wastewater, is critical to public health and the economy,” Secretary of Natural Resources Matthew Strickler said in a news release. “These investments will put us even closer to restoring the Chesapeake Bay, and will clean up streams and improve septic and sewer systems across the Commonwealth.”
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