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HomeCommentaryOp-edUnemployment Insurance: Businesses Need to Ask for Audit

Unemployment Insurance: Businesses Need to Ask for Audit

During my tenure as the commissioner of the Virgin Islands Department of Labor, Unemployment Insurance was probably my most complex division. My staff and I spent countless hours researching over the myriad of ways to solve this problem with the least economic impact on Virgin Island businesses that were reeling from astronomical energy rates, a worldwide recession and the closure of HOVENSA.

In effect, how do you get blood out of stone?

Despite these challenges, I am proud to say that we successfully disbursed the most money ever by any sitting V.I. commissioner of Labor and collected the most revenue we had seen in over a decade. We also fought to ensure that our residents received the maximum payout allowed by federal law. In fact, we exceeded collecting targets, where we actually stopped borrowing and were able to start issuing checks again out of the designated trust fund from the money collected.

During this time, we ensured that the Legislature and public were aware of the precarious situation of the fund, while offering solutions that would make this fund solvent. While facing these challenges, we were still tasked with keeping our systems up and running, even though many of them crashed nationwide or proved inadequate in meeting the demands of the recession.

It is for these reasons that I found the press conference by the present commissioner of Labor and the attorney general quite perplexing. There are several facts surrounding the unemployment insurance dilemma that the public should know:

– The commissioner of Labor is not the custodian of the Unemployment Trust Fund. The commissioner of Finance is the custodian.

– Ninety percent of the outstanding payments due were accumulated in the 1980’s, over 30 years ago, which is mostly uncollectible.

– The current computer system was converted in 1995 and the conversion of the data was not clean, rendering a huge portion of this debt uncollectible because it cannot be validated by the actual paper file. That’s right – there aren’t sufficient records to validate the debt owed.

– The V.I. Government owes $3.2 million and counting of this debt. This is a debt that was in three budgets to be paid but there was never enough money to actually release the funds.

One of the most misleading statements was that nothing was done to collect the outstanding debt. The first thing you should know is that there weren’t any unemployment taxes actually being billed when I became the commissioner of Labor. Specifically, in the early 1990’s, the V.I. Unemployment fund was one of the most solvent in the nation. The federal government mandated that the rate be lowered, and stated that it was too high, while businesses still being taxed at an exorbitant rate.

It should be noted that the only thing that could be done with unemployment trust fund money was to pay unemployment wages. This money could be used for no other purpose. The Legislature systematically began to lower the tax rate, eliminate penalties and increase the amount that was being paid out to unemployed individuals. This helped to decrease the tax fund but it still would not go down significantly. The Legislature finally eliminated the tax rate by lowering it to to zero in 2001. This meant that for over 10 years, businesses did not have to pay any local Unemployment Tax.

It was only after much research and deliberation, that we went to the Legislature in 2012 and got them to raise that minimum tax rate to 1.5 percent. Also, we implemented a $25-per-employee fee to help offset the cost of the interest on the trust fund loan. This interest cannot be paid with Unemployment Trust Fund proceeds and thus a special fee had to be put in place. We not only collected but we were the ones that initiated a tax rate and billing!

Therefore, it is misleading to say that nothing was done to collect the outstanding amounts when it was actually the administration that started the process of billing and collecting after having zero tax for 11 years. In fact, we collected so much that we began to pay back the loan. The AG stated in his conference that the loan was $89 million but is now down to $69 million. It is this collection process that was put in place by the Unemployment Insurance team that made this possible. As a matter of fact, the Collection Policy and Plan was recognized by Region 1 US Department of Labor, as a best practice for Unemployment Insurance Divisions.

Furthermore, the collection of the outstanding amounts was a key component for resolving the outstanding debt of the UI Trust Fund. We investigated the possibility of creating a bond instrument that would pay off the federal government but the repayment interest rate was high due to the uncollectible, 30-year-old debt. Recognizing that we had to step up our collection efforts to ensure a better rate for the bond issuance, we delayed our proposal to the Legislature.

As I mentioned, Unemployment Insurance is a very complicated division, even without all of the other issues that surround the administration of the benefits. Labor Commissioner Catherine Hendry was a member of the Unemployment Task Force Advisory Council, which is mandated by law, and is well aware of many of these issues and the solutions that were presented to resolve them.

I urge every business to request an audit of your account, if you have doubts about your balance. We were well aware of the discrepancies that plagued the division and set up a plan to systematically audit the accounts and collect any outstanding money. My intent is to provide some clarity to the issue on a very complicated system.

I wish you the best of luck in resolving these issues and bringing the fund once again into solvency. 

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