Virginia Had No More Money for Unemployment, so the Feds Provided a Loan

By Ashley Spinks Dugan

December 2, 2020

The Unemployment Trust Fund is out of money, Virginia officials say. It continues to operate through a federal loan.

RICHMOND-Virginia’s Unemployment Trust Fund is being financed by a federal loan. Brian Ball, the state’s Secretary of Commerce and Trade, made the admission during Tuesday’s meeting of the Small Business Commission.

The unemployment trust, which had capital reserves of more than $1.4 billion prior to the pandemic, entirely depleted those state funds over the past 10 months. The Virginia Employment Commission projected back in July that the trust was likely to run a deficit. At the beginning of October, the VEC warned that it would run out of money within a week. Sec. Ball again discussed the shortfall during a presentation to Virginia’s elected officials Tuesday. 

Continued unemployment claims have steadily declined since May. During the filing period that ended Nov. 21, claims totaled 81,138—a 4.7% decrease from the previous. However, that’s 63,597 higher than the 17,541 continued claims from the comparable week last year.

Ball said the state is currently in conversations with the federal government about potentially converting those loans to grants. That way, the state would not have to repay the money.

But that’s not guaranteed. Commission members asked if the governor’s office had any solutions in mind. Ball said no. However, short of a huge infusion of cash, he added, there are very few solutions to the VEC’s budget shortfall. The hope is that the next COVID-19 relief bill would include funding support. On Dec. 1, Virginia Sen. Mark Warner urged Senate leadership to include extensions of funding for two pandemic unemployment programs in any upcoming relief bill. 

Virginia funds the unemployment trust through payroll taxes. Paradoxically, Ball pointed out, those businesses that have suffered the most during the pandemic will also bear the brunt of recovery costs. Businesses that laid off the most workers will pay higher unemployment taxes. 

Virginia Businesses Are Closing

Those are taxes most small businesses in Virginia can’t afford to pay. According to Sean Brazier, nearly a quarter of businesses in the state have closed temporarily or permanently due to impacts from the pandemic. 

Brazier is the vice president of economic competitiveness at the Virginia Economic Development Partnership (VEDP), and he presented on the efficacy of Paycheck Protection Program loans delivered in Virginia. 

Both federal and statewide programs attempted to get relief money into the hands of business owners. PPP is probably the best-known of these programs, and Brazier said it provided more than 60% of Virginia businesses with loans. 

Ninety-three thousand businesses with employees (so excluding sole proprietorships) received loans through PPP. The median loan amount was $123,000. 

Businesses with 20-99 employees were most likely to receive loans, Brazier said.

Businesses in rural areas faced more challenges in accessing loans, he explained. In densely populated areas, between 50-75% of businesses participated in the program. In less populated areas, that percentage dropped to between 25-50%. Brazier said this disparity is likely due to the fact that there are fewer banks in rural areas and that rural small businesses are less likely to have relationships with lenders. 

The VEDP has limited insight into the racial and gender diversity of those who were given loans, because 93% of applicants neglected to include this demographic information on their application.

“I think it maps to the challenges that minority and women-owned businesses have had in accessing credit historically,” Brazier said. Applicants from marginalized groups were likely “skeptical that checking a box may negatively impact their ability to access these programs.”

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Elected Officials Left With Questions 

Ball and Brazier both characterized the PPP program as fairly successful in Virginia. However, PPP funds haven’t been replenished in months, and statewide programs such as Rebuild Virginia grants are thus far insufficient to plug holes in the monetary safety net. 

Furthermore, members of the Small Business Commission had questions about the implementation of PPP following Brazier’s presentation. 

Sen. John Bell (D-Loudoun) said he heard from many constituents about delays in PPP applications being processed and loans being distributed. He also said small businesses in his community desperately need a second round of relief funding before year’s end. Ball assured him that the state has conveyed the urgency to its representatives in Congress.

Del. Kelly Convirs-Fowler (D-Virginia Beach) said banks directly distributed PPP loans with “no accountability, no oversight.” While Brazier had acknowledged that some businesses had an easier time accessing loans than others, Convirs-Fowler asked whether that reality could carry the “implication of subjectivity.”

Sec. Ball reiterated that the goal of PPP was to loan money as quickly as possible. Banks were able to process applications from existing customers more easily, he said. 

“The financial institution is not exposed if they process the application correctly, and there’s no recourse against the bank,” Ball said. 

During his presentation, Brazier offered racial data on loan recipients. Convirs-Fowler asked whether the VEDP also kept data on the racial makeup of all applicants—not just those awarded loans. Jay Challa, a member of the Small Business Commission appointed by Gov. Northam, likewise pushed for more transparency. He asked, do we know the racial data for people whose loan applications were rejected?

Brazier said he could do more research into these dynamics of PPP administration. Ball reminded the commission that SWaM (small, women-owned and minority-owned) businesses were the focus of Rebuild Virginia grants, in an attempt to compensate for those groups being locked out of the PPP process.

Legislative Priorities 

Near the end of the meeting, commission members discussed potential legislative priorities for the coming year. National Federation of Independent Businesses (NFIB) Virginia State Director Nicole Riley offered several suggestions during the public comment period. 

Riley encouraged Virginia legislators to conform to federal tax policy regarding PPP loans. Money received through PPP loans will not count as income, Congress decided earlier this year. She also said that keeping payroll taxes low and enhancing statewide grant programs could help keep Virginia’s small businesses afloat.

Natasha Crosby, president of the Richmond LGBTQ Chamber, also spoke during public comment to remind elected officials which businesses most needed support. “Black, women-owned, LGBTQ businesses…are falling through the cracks,” Crosby said. “They did not get access to PPP in an equitable fashion…I implore all of you to take a second and think about the backbone of this country. We need your help. We need it now.”

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