The Labor Department plans to move to a sliding scale for employer unemployment insurance contribution rates, where companies that regularly or seasonally lay off workers pay a higher rate than companies that have low turnover rates, Labor Commissioner Catherine Hendry told senators Wednesday.
The move toward what Hendry called "experience rating" is the department’s next step in trying to pay down around $69 million loaned by the federal government to pay benefits after the recession of 2008 and the closure of the Hovensa refinery in 2012.
Officials told the Committee on Education and Workforce Development that every other state and territory uses some form of "experience rating," setting contribution rates based in part on how much the employees of a particular company actually use unemployment insurance, as compared to other companies.
The territory used to use it too, but suspended it, Hendry said, back when the system was one of the most solvent in the nation and had an excessive surplus.
The current shortfall and growing debt arose from actions taken in 2001, when the Unemployment Insurance Trust Fund had a substantial surplus. That year the Legislature voted to reduce the minimum tax rate to zero 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, according to the Labor Department, and before the territory recovered, the Hovensa closure in 2012 caused a spike in unemployment.
In 2012, the Legislature increased employers’ V.I. Unemployment Insurance Fund contributions from zero to 1.5 percent of payroll. That of new employers doubled to 2 percent and both were newly required to pay $25 annually per employee to help pay interest on the unemployment insurance debt. The changes took effect in 2013 and, in 2014, the government stopped borrowing to pay benefits.
But the outstanding debt, taken on behalf of employers, has only gone down slowly in the three years since the tax was reinstated. It currently hovers around $69 million – down from a peak of $89 million.
Sen. Jean Forde asked Hendry if Labor could increase the contribution rate and if it planned to.
She said the 1.5 percent rate is a floor, a minimum rate, and the department could and planned to put a sliding scale in place.
"Experience rating is suspended. But if experience rating is put back, you would have rates of 1.5 to 6 percent," Hendry said.
"If an employer keeps laying off employees due to no fault of their own and they seek unemployment benefits, (the employers) are going to pay a higher rate," while a company that keeps employees for long periods, the rate would be 1.5 percent, she said.
Labor Department Director of Unemployment Insurance Elston George said the USVI is the only territory that has a fixed rate.
"All the other states and territories have some time of experience rating system," George said.
Labor officials also defended a recent move to try to collect as much as possible of $32 million in unpaid employer contributions, much of which dates back to the 1980s. Businesses were sent dunning notices, at least some of which did not say how much was allegedly owed, or from when. (See Related Links below)
Forde pointed to an op-ed by former Labor Commissioner Albert Bryan (See: Unemployment Insurance: Businesses Need to Ask for Audit in Related Links below), where Bryan asserts the department does not have accurate records of the old debts and that they are largely uncollectible.
He asked how much had been collected.
Hendry said the department had netted $53,400 so far. "But it is a step in the right direction," Hendry said. "We have active employees who owe $200,000 … who owe $300,000 … who owe $60,000 or $70,000," she said, adding that pressing businesses to resolve their accounts is important.
"We need to straighten up things in our house, not to ignore it. So that the federal government, if we do have to borrow again, they will lend it," Hendry said.
“These are the steps we have to take … and whatever we can garner from them with the assistance of the Department of Justice we will do so.”
Asked about the reliability of the records, George said the system is tracking payments well now. But he said it was up to taxpayers to demonstrate they have paid.
"Any employer that pays taxes, we are on the honor system," George said. “If the department is short on its records, you come in and show what you have paid. You come in and present your case as to whether or not you owe.”
He said, “The onus of the tax liability is on the employer. … Proof of what you pay to the government is your responsibility.”
The committee also heard from the Education Department and teachers unions. They reported that V.I. schools are struggling with maintenance and facility issues.
Education plans to ask the Legislature to reappropriate bond funds for a track at St. Croix Central High to buy a dishwasher for the Lockhart Elementary School and other lunchroom equipment.
No votes were taken during the information-gathering oversight hearing. Present were committee members Forde, Sens. Justin Harrigan, Myron Jackson, Positive Nelson, Tregenza Roach and Kurt Vialet, as well as noncommittee members Novelle Francis and Kenneth Gittens.