How Gov. Justice’s massive transfer of pandemic aid to a jobless trust fund didn’t do much for some WV businesses
By Douglas Soule for Mountain State Spotlight
This story was originally published by Mountain State Spotlight. For more stories from Mountain State Spotlight, visit www.mountainstatespotlight.org.
When Gov. Jim Justice announced earlier this month that he had put hundreds of millions of dollars in federal pandemic relief aid into West Virginia’s unemployment trust fund, he said it would lead to a “massive reduction” in business costs.
But, for many West Virginia businesses, the savings are sparse. While Justice’s move will lead to a 25% reduction in unemployment taxes, for a lot of businesses that amounts to a savings of less than $100 per employee.
“I don’t see that as massive at all,” said Michelle Jack, owner of Sweet-A-Licious, an ice cream shop in Buckhannon. With only five employees aside from herself and her husband, she has to pay a lot less in unemployment taxes than some bigger businesses, meaning the savings are a lot less too.
West Virginia received $1.25 billion from the CARES Act in April 2020. Justice has sole control of the money, and his spending priorities have been questioned for more than a year by West Virginians saying he isn’t using the funds to address the immediate needs of the pandemic.
The governor gave more than a third of that money – $445 million – to WorkForce West Virginia, which oversees the unemployment trust fund, though Justice held on to most of that money until the past month. The fund, which businesses pay into through a tax on their employees’ salaries, pays for state unemployment benefits.
But economic data indicates the amount of federal money – meant to address the urgent needs ignited by COVID-19 – Justice put into the trust fund may go beyond the state’s need. West Virginia has significantly lower unemployment numbers and significantly more money in the trust fund now than before the pandemic. And as the coronavirus has created as well as exacerbated economic and public health issues, struggling West Virginians and some experts point to dire needs that could have been met with that money instead.
“There’s going to be a lot of businesses that won’t be around next year to take advantage of [the trust fund money]’,” Jack said. “Money is needed now to keep us afloat, not next year.”
‘Expert financial guidance’
In the beginning months of the pandemic, the future of West Virginia’s unemployment trust fund looked dire.
The number of state residents claiming unemployment reached historical highs, and far more was being taken out of the fund each week than businesses could contribute into it.
“The trust fund absolutely needed something,” said Sean O’Leary, senior policy analyst for the West Virginia Center on Budget and Policy.
Jared Walczak, vice president of state projects for the Tax Foundation, said West Virginia is one of 11 states to have more in its unemployment trust fund now than before the pandemic.
“It is appropriate that states use the significant resources afforded them by the federal government to replenish these funds, allowing them to begin preparing for the inevitable next downturn,” he said.
Justice directed nearly $40 million toward the fund during the last fiscal year. Over the past month, he sent it another $405 million in CARES Act money: $185 million to pay off a federal loan taken to pay for a surge in unemployment benefits and another $220 million to be added into the fund. A press release touting the newest allotment claimed it and its effects were an example of Justice’s leadership and “expert financial guidance.”
But O’Leary said there’s a difference between strengthening the trust fund to keep it from running out and padding it to lower taxes.
“If we’re putting it in there because we need to get these benefits paid out to those who are really at risk and really struggling, great,” he said. “If we’re doing it to lower taxes in the future, that’s within the rules, probably, but it’s definitely not within the spirit of what the CARES Act money was for.”
The trust fund is designed – during normal times – to be funded entirely by the tax businesses pay per employee. In the month before the pandemic, West Virginia had $160 million in its unemployment trust fund. During the spring of 2020, that balance was upset by record unemployment: More than 146,000 people filed for continued unemployment in April 2020.
But now, unemployment claims are on the decline, with the number of West Virginians claiming continued unemployment benefits half of what it was before COVID-19 struck the state. The trust fund’s levels have swelled to close to twice the pre-pandemic level, with more than $300 million in the fund as of last week, said Andy Malinoski, spokesman for WorkForce West Virginia. According to the U.S. Treasury, that’s more than at any point over the past decade. By getting the trust fund above $220 million, Justice triggered the 25% business tax reduction.
“It might not have been necessary, particularly when we are still in the middle of a pandemic, and there’s still a lot of other things going on that we’re not really addressing,” O’Leary said. “Smaller employers probably aren’t going to get a huge benefit from it.”
Wyatt Lilly, who owns Cheap Thrills Records stores in Beckley and Princeton, only employs three people besides himself. He said a 25% reduction in this tax won’t amount to much; he only paid $600 into the fund in 2020. This sentiment was echoed by Tammy Dotson, owner of The Hatter’s Bookshop in Princeton, who has no other employees.
“Hopefully it helped a lot of small businesses,” Dotson said. “But as far as I’m concerned, it’s not going to benefit me whatsoever.”
Roman Stauffer, Justice’s senior policy advisor, defended the move in an emailed statement.
“Repaying our federal unemployment loan and providing additional funding for the state’s unemployment trust fund will help all job creators now and many years into the future, not just with single short-term small grant assistance,” Stauffer said.
Had the $185 million federal loan not been paid off by Sept. 4, there would have been tax increases to businesses, according to the governor’s press release.
Stauffer added that Justice had made other direct aid available to small businesses.
“As the COVID-19 pandemic closed our economy, Governor Justice acted and made available $140 million in CARES dollars for direct grants to small businesses,” he said.
Last year, Justice did launch a program making grants of up to $5,000 available for small businesses through the CARES Act. But while he said he was putting aside $150 million for the purpose, according to the state auditor’s website, only $26 million was spent on the grants. And business owners like Dotson and Renay Reed, owner of a store selling homemade food and groceries in Williamson, say they didn’t hear about the opportunity until after the deadline had passed.
Other uses of CARES Act funds
Delegate Kayla Young, D-Kanawha, said expanding or extending the state’s small business grant program would have been more helpful than the tax reduction.
“I think the best way we can help businesses is by giving them access to capital immediately,” she said. “And this is not doing that in any capacity. It’s just slightly lessening what they pay into the state unemployment trust fund if they’re still able to stay in business.”
Young said there are other, larger immediate needs during the pandemic to focus on.
“There’s still immediate needs, especially with the rise of the Delta variant,” she said. “People are getting evicted. They need money for their utilities. They need money for everything.”
As of Monday, the state had $138,833,159 remaining in CARES Act money, according to the state auditor’s website. The deadline to spend it was originally the end of 2020; U.S. Congress later extended it to the end of 2021.
Some local governments, like Lewis County, have also told Mountain State Spotlight that CARES Act money would help them deal with the recent surge in COVID-19 cases.
Jenna Gerry, senior staff attorney for the National Employment Law Project, said a better use of the money would be to put it toward extending the unemployment benefits for those that lost them when Justice ended all federally-funded pandemic unemployment compensation programs in June.
“I think [it’s best] getting the money directly to the workers who can use it for the necessities that they need,” she said.
For small business owners like Michelle Jack of Sweet-A-Licious, the need is now.
After months of dealing with the initial pandemic surge, now she’s contending with the Delta variant spreading across the Mountain State.
“You think your head comes above water for a little bit as COVID starts to decrease, well then here comes this Delta variant and [business] just tanks again,” she said.
She still finds happiness in her ice cream store, but said it’s a lot harder.
“Just the constant, ‘Am I going to make enough to pay the rent? When am I going to start making money?’” she said. “How long am I going to put up with this?”
Jack said she received $5,000 through the state’s CARES Act-funded small business grant program, and it helped a lot. She said another one, unlike the tax reduction, would be a “lifeline” for a lot of people – and keep them in business now, to keep paying taxes in the future.
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