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Virginia's economy is roaring. The state's unemployment fund is richer than ever. So why are so many laid-off workers struggling with low benefits and little hope?

By Page Boinest Melton

For 13 years, Geraldine Hairston became accustomed to the cycles of Virginia’s textile industry. At Tultex, a maker of fleece clothing in Martinsville where she worked, layoffs of one or two months were routine. When they happened, Hairston would simply collect unemployment and wait for the call back to work. Not anymore. Bankrupt Tultex is shutting its doors forever. Hairston must get by on $230 weekly unemployment to help support herself, her 12-year-old daughter, mother and two nieces. "You have health insurance, life insurance, car insurance, car payments, personal bills, housing and then you have children to feed," says Hairston. "That’s nothing to live on."

There’s a curious irony to Geraldine Hairston’s plight: There is plenty of money in Virginia’s unemployment tax trust fund to accommodate her and the 3,000 other recently laid-off textile workers in her area.

The state’s economy continues to roar on, despite small pockets of despair such as Martinsville, with unemployment as high as 19 percent. The state jobless rate overall is now 2.8 percent — the lowest in 31 years. As fewer Virginians make claims against it, the fund is swelling with extra cash. It now carries a balance of more than $1 billion, the highest since its Depression-era inception.

For Hairston and those like her, however, that’s cold comfort. They still are receiving benefits that are among the lowest in the South (see chart, Page 13). Though ample funds are available for retraining, there’s no organized way to disperse them and prepare workers for new jobs as the global economy and free trade kill off old ones. Attempts to address the issue in the General Assembly bogged down in partisan squabbles early this year. Democratic legislators from Southside, led by Delegate Ward Armstrong of Martinsville, wanted to boost unemployment benefits by $100 a week. After bitter fights, the Assembly adopted a lesser remedy. It passed a compromise by Gov. James S. Gilmore that will increase maximum weekly unemployment benefits by $38. Even so, many workers, such as Hairston, will not enjoy the increase because of how payments are calculated.

Why the half measure? If you cut through the partisan battles, the political outcome reflects the growing unevenness of Virginia’s economic evolution. In technology-rich metropolitan areas such as Northern Virginia, Richmond and Charlottesville, there are worker shortages. In Southside and Southwestern communities with dying manufacturing and energy industries, there’s a labor glut. The disparity is putting new strains on the unemployment fund. Options include increasing benefits, paying for job retraining or leaving the fund alone.

State leaders can’t decide what to do. The Gilmore administration argues that unemployment benefits must be distributed evenly. It supports more retraining and proposed during the session to use the unemployment fund to pay for it. But business leaders say the fund shouldn’t be touched. Some legislators say a top priority should be to make sure the fund has plenty of money should the economy take a major tumble. "We know a recession is coming. What’s the proper measure to anticipate what’s next?" says Delegate Jack Rust, a Fairfax Republican likely to head a legislative committee overseeing the fund.

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The predicament illustrates why the unemployment tax fund may be out of date. When the unemployment insurance system was created through the federal Social Security Act of 1935, the major beneficiaries were factory workers, who at the time accounted for half of all non-farm jobs. The fund helped workers cope with three- to four-year factory cycles, during which manufacturers would amass large inventories, lay off workers for a short period, then resume production.

But times have changed. In Virginia, manufacturing makes up just 12 percent of total non-farm employment. The cyclical Old Economy businesses are less influential. Most of the growth in the state is coming from the modern service and high-tech sectors. With these, layoffs still occur, but workers typically can find new jobs within a matter of weeks. "We are probably about the largest state with the unemployment rate as low as it is," says William Mezger, the Virginia Employment Commission’s chief economist. For all practical purposes, the state is at or just below full employment. "It used to be that 2 percent unemployment was considered a labor shortage situation, and now about one-third of the state is below 2 percent." In tech-heavy Northern Virginia, unemployment is a miniscule 1.5 percent.

Hardly so in places like Southside, whose textile region now makes about two-thirds of all unemployment claims. In Martinsville, nearly one in five workers is out of a job. Other parts of Southside and Southwest Virginia pose a long-term problem that unemployment insurance can’t address — the slow death of their core industries. The predicament, says Delegate Armstrong, goes far beyond just the immediate lost jobs. If laid-off workers don’t get bigger benefit checks, their hard times will be passed on to local banks, clothing shops and grocery stores. "It wasn’t just the factory closing," says Armstrong. "You could start to see the ripple effect on other businesses."

While some want to tap the fund to address current economic woes, others fret that it may not cope well with a future recession. According to a recent analysis by the Joint Legislative Audit and Review Commission, a key factor in determining the fund balances — economic experiences over the past 20 years — is based on a rosier scenario than before the fund underwent a major change in 1997. That year, Gov. George Allen and state legislators changed the way taxes were calculated so that only about 35 percent of employers pay the unemployment tax at all. U.S. Department of Labor statistics for 1998 place Virginia’s unemployment tax rate at 47th lowest in the country.

The arrangement may work just fine when the economy is strong. But the changes made in 1997 also set up the fund so that it corrects itself when the balance gets too high. It is already growing at a slower rate, and the balance is expected to start dropping. Despite today’s billion-dollar bonus, if the structure of the fund is left as it is, there may not be enough to cover needs during a major recession.

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While worrying about the fund’s future viability, legislators also must address the more nettlesome question of how to best serve hard-hit workers such as Geraldine Hairston while keeping the needs of all workers in balance. Legislators could increase benefits, but that alone won’t do much to solve the economic problems that caused the layoffs. Or they could explore new ways to use the funds for retraining.

Southside’s distress spotlights the need to retool the work force. Training is needed for many of the jobs economic developers would like to recruit. "In Virginia you’re dealing with a type of work force that’s been heavily in decline for a number of years — a very real example of how the work force is changing," says Cheye Calvo, an employment and insurance policy specialist for the National Conference of State Legislatures. "High tech isn’t going to run off to Mexico."

Already, 27 other states have created retraining funds paid for with unemployment taxes. In Virginia, linking the training fund to the tax could have created a steady stream of dollars. But the idea died in the General Assembly during the bitter debate over the Tultex bankruptcy and how to handle unemployment benefits. Legislators authorized a training kitty but will look at the next Assembly session to fund it with money from other sources. Gilmore and legislators in late April were skirmishing over whether to spend a modest $7 million to provide medical benefits for laid-off workers or, as the governor proposed, set up an economic-development fund for high-unemployment areas.

At the same time legislators must worry about what happens during the next economic downturn. While the good times are rolling today, experts are also respectful of history. Just eight years ago, unemployment was at 6.4 percent in Virginia and the unemployment insurance fund balance dipped below $500 million. "In my time, I’ve personally observed three severe recessions in Virginia. It has happened and it’s going to happen again," says Hugh Keogh, president of the Virginia Chamber of Commerce. In 1983, the situation was even more dire. The state fund was tapped almost bone dry and Richmond was forced to borrow federal money to cover benefits.

Dealing with the tax fund requires a delicate balancing act, says Stephen Fuller, professor of public policy at George Mason University. "If I were at the state level," Fuller says, "I would want to make sure I had a cushion, because I would probably need it in two years. But I would also want to make sure it wasn’t overly aggressive, because the next two years are going to be very competitive."

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As Virginia mulls changes in the tax fund, it continues to pay out relatively low benefits compared with other Southern states, says Danny LeBlanc, president of the Virginia AFL-CIO, citing U.S. Department of Labor statistics. For 1998, Virginia’s average weekly wage was $589. The maximum weekly unemployment insurance benefit was $228. (The following year it increased to $230, and with the latest legislation the maximum benefit climbs to $268 a week.) Two years ago North Carolina had a lower weekly wage, at $537, and a maximum benefit of $322. Comparable figures for Florida were $535 and $322. It’s unclear where Virginia will rate in future national rankings, given the recently approved increase. "Right on down the line, we are behind the curve," says LeBlanc. "As the average weekly wage increases, the benefit means less and less." His solution: index the benefits against wages.

For now, the folks in Martinsville are hoping for a little good news. Local economic development officials are running down new leads: In February, Gilmore announced a new distribution center for clothier Nautica in adjoining Henry County that will employ 375. For her part, Geraldine Hairston looks for work to support her family. As legislators in Richmond try to figure out what to do with the unemployment insurance tax fund, Hairston says she’ll rely on her strong Christian faith to keep her going.