The governor designed the order to provide relief, but most companies say it’s barely noticeable.
BLACKSBURG – “Restaurants are in crisis mode.” That’s how Christina Gardner described the economic situation for the Virginia service industry in a Jan. 5 phone call. Gardner and her co-manager Anita Bevins run the vegetarian restaurant Gillie’s in downtown Blacksburg. She described how restaurant managers and staff have survived day-to-day for months. This required cobbling together financial solutions and making tough decisions about budget cuts and layoffs. Through it all, Gardner said, “There was nothing that made us feel like there’s a lifeline to get us through this pandemic.”
Gardner watched as fellow small businesses faltered and, in many cases, closed. She ticked off neighborhood restaurants that have folded for good since the pandemic began. Top-down assistance has been minimal and sporadic, and for many of the region’s businesses, she said, it’s too little, too late.
Nonetheless, Gardner was “very excited” when she saw Gov. Northam’s latest move to support Virginia’s businesses, she said. On Dec. 22, Northam issued an executive order to essentially relieve businesses of their unemployment tax burden between April and June of last year. It’s a drop in the bucket, Gardner admitted, but “every drop in the bucket helps.”
How Does the Relief Work?
Unemployment taxes are complicated. Business owners pay them to both the federal government and the Virginia Employment Commission (VEC). Unemployment taxes paid to the state help fund the VEC’s trust. The trust then pays out money to folks who lose their job.
Will Griffin is the mayor of the Town of Floyd in Southwest Virginia, as well as a small business owner and a certified public accountant. He explained the system in more detail.
The first $8,000 in wages earned by a Virginia employee are subject to state unemployment tax, Griffin said. An “experience factor” determines the tax rate business owners pay on these wages. The experience factor depends on the number of unemployment claims previously made against a business. So if a particular store has laid off a lot of people in the past, it’s paying a higher rate of unemployment tax now. These tax rates range from a measly 0.1% to a ceiling of around 6.5%. The executive order provides that a business’s experience factor won’t be affected by unemployment claims made in the second quarter of 2020.
Griffin pointed out that most employees will probably earn more than $8,000 by the end of the first quarter. He provided an example: If an employee’s salary is $50,000/year, that person is earning $12,500 every three months. Northam’s executive order only applies to unemployment taxes paid in the second quarter of the year, April through June. But employers only pay taxes on the first $8,000 in wages.
Long story short: Griffin thinks the executive order would have been more effective if it had targeted the first quarter.
“It seems like a lot of fluff,” Griffin said. “Of the businesses I own, it’s not going to make a difference for any of them.” Then he added, “In their defense, they’re looking for a way to do something.”
Can Virginia Afford This?
The new executive order may be limited in scope, but it is cutting off a revenue stream to VEC at a time when the commission is underwater. In December, Dogwood reported that the state’s employment commission was being financed by a federal loan. VEC needed the federal funding after unemployment claims in the state exceeded the trust fund’s reserves.
But Professor Michelle Harding, who teaches at Virginia Tech’s Pamplin School of Business, isn’t worried.
“I would not say (the VEC) is bankrupt,” Harding said. “I would say temporarily insolvent. The Unemployment Insurance Trust Fund balance will rebound, as it did following the financial crisis.”
Harding pointed out that “the state can afford to forgive three months of unemployment taxes because Gov. Northam signed a special session budget that included $210 million to backfill” the trust.
Another key point, Harding said, comes with the tax bill. The executive order means businesses won’t be penalized for layoffs when their tax rate is recalculated in 2021.
Help for Businesses; What About Employees?
Making sure that Virginia’s businesses can weather the pandemic is key to the state’s future economic recovery, Harding said. “The state needs businesses to survive,” she said, and this latest executive action is “likely a small but welcome salve on their Covid wounds.”
So the businesses are getting some help—however marginal it may be—through unemployment tax relief. But what about the actual unemployed people? In Southwest Virginia, mutual aid is compensating for a complete lack of federal assistance.
On the human toll exacted by the economic downturn, Russell Chisholm said, “I do feel like that’s fallen off of people’s radar a little bit.” Chisholm is the director of operations at a local coffee roastery and an activist. “People are so hungry for some sense of normalcy that they’ve created this idea that things have gone back to normal,” he explained. “They really have not.”
Chisholm said the pain of the pandemic has been especially acute for those in the service industry, especially those who typically work for tips. “Service work is hard work. Working for tips is a grind,” he said. “To have these people be forgotten in all this” would have been unacceptable to him. So back in the spring, Chisholm launched the SWVA Tip Jar.
The Tip Jar is a website and accompanying Excel spreadsheet that lists local service workers facing job loss or reduced hours. The spreadsheet includes links to a mutual pool fund for all the workers, as well as many personal Venmo and Cash App accounts.
As of Jan. 5, 479 people have signed up to ask for help. Chisholm removed very few names from the list.
“Since it started in March, I’ve had…between five and 10 people who said, ‘I’m good; I found another job, you can take me off,’” Chisholm said. The industry is still struggling, but donations have tapered off drastically since the fund launched.
Chisholm initially envisioned the Tip Jar existing for only a few months. He hoped folks would “tip” their favorite baristas, waiters or bartenders even as COVID safety guidelines prevented them from patronizing businesses in person.
‘Handing the Same $20 Bill Around’
The fund has collected $18,844, and distributed all that money evenly across participants. Now, the fund is out of money, Chisholm said, but it remains linked to his personal PayPal account. And he still gets requests.
“Sometimes I get requests through PayPal saying, ‘They’re going to turn my power off’ or ‘I just need to get some food,’” Chisholm described.
He tries to help when he can. Mostly, the SWVA Tip Jar has turned into an embodiment of a common joke in activist circles. The joke, Chisholm said, is that activists are “all just basically handing the same $20 bill around.” That’s mutual aid distilled down to its purest form. You help someone else when you can, and they’ll cover you when you’re struggling.
“In the service industry it’s the same kind of way,” Chisholm said. “We’ve all had those jobs where we’re pooling tips and everyone’s trying to pull each other along. It’s inspiring in that way, but it’s not sustainable.”
Around the holidays, Chisholm started to boost the SWVA Tip Jar again on his social media accounts. He hopes the community sees the importance of supporting the service sector. “These are community places first,” he said. “If you just use somebody in the service industry as just that, you’re really commodifying what they do. They are members of the community just like any other working people in this area…They are living, breathing human beings, trying to navigate this whole mess right along with us.”
Ashley Spinks Dugan is a freelance reporter for Dogwood. You can reach her at [email protected].