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Charlotte Amalie
Monday, February 6, 2023
HomeNewsArchivesUnemployment Insurance Fund in Need of Bond Loan

Unemployment Insurance Fund in Need of Bond Loan

A lack of funding is making it difficult for the Department of Labor to function, according to the testimony of Commissioner Albert Bryan Jr. to the Senate Education and Workforce Development Committee on Tuesday.

This news comes at a time when the territory could surely use the department’s services as the overall unemployment rate hit 13.7 percent in January 2013. The rate on St. Croix is a staggering 17.8 percent.

“We continue to work through this economic recession doing more with much less,” he said. “We are extremely short staffed and are literally struggling to provide the services we are mandated to provide the people of this territory who often look to us for relief.”

Bryan identified two programs that were in particularly “precarious positions,” unemployment insurance and workers’ compensation.

According to Bryan, the unemployment insurance fund has been borrowing money to operate since 2009, largely due to the fact that employers in the territory have paid little or no unemployment insurance tax for the past 12 years.

He said that, in 2000, the territory’s fund was one of the most solvent in the country. But it was decided that there was too much money in the fund, so the minimum rate for the unemployment insurance tax was dropped to zero, he said.

The minimum rate was raised to 1.5 percent last year to help correct the shortfall.

In order to keep the project running, Bryan said the unemployment fund has borrowed extensively and currently has a debt of $64.2 million.

He proposed issuing a bond to eliminate the debt, because the terms of the loan are onerous for the territory’s employers.

“For every year that this debt is outstanding, there is a reduction of the federal tax credit that is issued for federal unemployment tax,” Bryan said.

He explained that the standard federal unemployment tax rate is 6 percent but, if you pay into the local unemployment insurance system, employers can take a credit lowering their obligation to .6 percent.

Every year that the loan goes unpaid, employers in the Virgin Islands are allowed to claim less of the credit, Bryan said, meaning their payments per employee will continue to creep upward.

“[Employer payments have] been effectively raised from about $42 per employee to $241 per employee,” Bryan said.

He said that if the debt is paid with money raised from a bond, employers will again be able to claim the full credit and some of the money they save on their taxes can be collected through an assessment to repay the bond.

Bryan suggested a $25 per employee per year tax, which would still leave employers ahead.

He said the workers compensation fund was also struggling, estimating that the fund pays out $8-10 million but only collects $5-6 million a year.

Bryan said that the premiums that pay for the service would need to be increased, but he warned that this would be “but another burden on the employers.” He said that the closure of the Hovensa refinery exacerbates the problem because there are 2,500 fewer premiums being paid into the system.

Bryan said the workers compensation program was also struggling due to a lack of staff. He said the St. Thomas office was down to a skeleton crew and that recent budget cuts have prevented them from replacing staff that has quit or retired.

Bryan said one area of the department with plenty of funding was their retraining program for former Hovensa workers.

Following the closure, the department received a National Emergency Grant that allocated $6,300 per employee for retraining. Bryan said this money could be used in a wide variety of ways and was there for the taking.

Unfortunately, he said, enrollment in the program remains low and, if the funds aren’t used by February 2014, the remainder will have to be returned to the federal government. Bryan estimated that as much as $3.8 million could go unspent.

Sen. Donald Cole asked why it was so difficult to get people to take advantage of the program.

Bryan replied that it was a number of factors. Some are actually still working for Hovensa is some capacity while some have left the territory. Others, he said, just aren’t interested.

“Most of the employees are over 45. People have a lot of issues about going back to school,” he said. “People are a little intimidated. The university and training has changed so much over the last 10 years, much less the last 20 or 25.”

To date, 324 people have participated in the program at a cost of $1.3 million.

Throughout the proceedings, several senators asked Bryan to weigh in on the issue of companies bringing in workers from outside of the territory.

While Bryan said that he would like to see some type of support for local workers, he said any laws favoring one group of workers over another would likely be deemed unconstitutional. Citizens have the right to live and work where they please within the country, so local governments can’t ban workers from other states or territories

He went on to say that the era of protectionism and tariffs was over, for better or worse, and now “the whole world is your competitor.”

Sen. Judy Buckley agreed with this point and said education reforms were necessary to keep Virgin Islands kids competitive.

“We have a very outdated education system,” Buckley said, adding that this was a national problem, not just a Virgin Islands one. “We’re no longer preparing our kids to compete locally.”

Cole also touched on this topic, saying he was disappointed that schools weren’t doing more to train students for jobs in fields that are thriving in the Virgin Islands, such as tourism.

“Somewhere along the line we’ve dropped the ball,” he said. “The curriculum – as it is set up – isn’t geared to the industries we have here.”

No votes were taken at the information gathering session.

In attendance were Sens. Cole, Buckley, Myron Jackson, Janette Millin-Young, Clifford Graham, Kenneth Gittens, Terrence Nelson, Tregenza Roach and Samuel Sanes.

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