Gov. Ralph Northam rolled out a new plan on Friday to help small businesses and child care providers recruit workers with hiring bonuses, but the $3 million grant program quickly became enmeshed in General Assembly politics over use of emergency federal aid, including enhanced unemployment benefits that some businesses and politicians want to end in order to force people back to work.
The “Return to Earn” program, which Northam unveiled at a Virginia Beach restaurant, will allow the state to match an employer hiring bonus of up to $500 each for new workers at small businesses with fewer than 100 employees, as well as a state grant of up to $500 for each employee at a qualifying child care operation.
Northam pitched it as a way to help people return to work after the COVID-19 pandemic, despite facing what he called “a variety of barriers to returning to work, like access to affordable child care, transportation, and a living wage.”
“These bonuses will serve as an incentive for unemployed workers to get back into the workforce while also helping employers fill vacant jobs,” he said. “The Virginia Return to Earn Grant Program is about empowering the true catalysts of our economic comeback — Virginia’s workers and small businesses.”
But some business organizations said the hiring bonuses would be too small to compete with the $300 in weekly federal unemployment benefits that jobless Virginians receive on top of their state benefits and that the program’s requirement of a $15-an-hour minimum wage would discourage employers from participating.
“Honestly, it’s not going to help very much at all,” said Eric Terry, president of the Virginia Restaurant, Lodging and Travel Association. “The minimum wage is so much higher than our state minimum wage, it’s not going to make much impact.”
“It’s not set up correctly to make a difference,” said Terry, who represents about 1,500 members, both independent and chain restaurants. “This is zilch.”
Starting May 1, Virginia’s minimum wage rose from $7.25 per hour to $9.50 per hour. It’s the first of three scheduled increases that will raise minimum pay for most non-farm jobs in Virginia to $12 per hour by 2023.
Child care providers were more supportive because they need help in hiring employees, while they are still waiting for direct aid under the latest federal emergency relief package.
“One of the greatest challenges we face in child care today is lack of teachers,” said Kim Hulcher, executive director of the Virginia Child Care Association. “We commend the governor for taking action to build forward momentum to get people back to work. Many child care centers now have wait lists because they don’t have enough teachers to fill the increasing demand.”
‘We are hamstrung’
The grant program also is limited by the amount of federal money that Northam has discretion to use without the approval of the General Assembly. The assembly amended the two-year state budget this year — and the governor signed it — to require legislative approval to appropriate discretionary funding under the American Rescue Plan Act.
“We could do more, but we are hamstrung,” Secretary of Finance Aubrey Layne said Friday.
As a result, Northam is relying on $3 million remaining from a set-aside program from the federal Workforce Innovation and Opportunity Act for grants that could quickly exhaust the funding.
“It could be a drop in the bucket for the need that’s out here,” said Nicole Riley, Virginia director of the National Federation of Independent Business.
The state could receive additional money under the set-aside program after July 1, but cannot use any of the $4.3 billion that Virginia already has in the bank from the American Rescue Plan Act. The assembly expects to meet in a special session in the first week of August to decide how to spend the money, as well as elect judges to the expanded Virginia Court of Appeals.
Riley said the grant program could help some small businesses hire workers, which is a major problem for almost half of the small businesses surveyed by her parent organization.
She said the minimum wage requirement “will probably hamper small businesses from being able to take advantage of the program,” but the larger issue is the difficulty of getting people back to work because of the enhanced unemployment benefits, which would end on Sept. 6, Labor Day, unless the state stops them sooner.
Riley agrees with Senate Republicans that Virginia should have refused the federal money for enhanced unemployment benefits, as many states led by Republican governors have done, and should use the aid for what she called “a really good back-to-work bonus.”
Senate Republicans called last month for a $1,500 one-time hiring bonus, using either the repurposed federal unemployment benefits or the money that Virginia received under the rescue plan. They want Northam to call a special session immediately just for that purpose.
“Requiring businesses to pay bonuses to participate, and mandating a higher wage rate if they do, will result in a limited number of businesses availing themselves of this program,” Senate Minority Leader Tommy Norment, R-James City, and Sen. Steve Newman, R-Lynchburg, said in a statement on Friday in response to the governor’s Return to Earn announcement.
“By continuing the $300 per week supplemental unemployment payments, the governor’s proposal places these state bonuses in competition with the federal government’s, doing little to encourage many to return to the work force,” they said. “We are a special session away from getting this right.”
The Northam administration has made clear that it does not intend to end the federal benefit prematurely, before people can return safely to work, as well as afford child care and other expenses without better wages for their labor.
Senate Majority Leader Dick Saslaw, D-Fairfax, dismissed the Senate Republican proposal for an immediate special session.
“We can’t be going into special session anytime a legislator has an idea,” Saslaw said. “We’re running a state.”
Layne had worked out an arrangement with Democratic leaders to allow the governor to spend federal aid that is not discretionary for the purposes Congress and the president intended, including unemployment benefits.
But Layne said Norment and Newman have argued that those funds also are discretionary because the state could refuse them.
“I never in my wildest dreams thought we were going to turn back money,” the finance secretary said.
Layne said the Republican approach would require the legislature to play an ongoing and active role in approving the use of money specified by Congress for a wide range of state programs.
“It’s not a special session — it’s either be here full time or give some discretionary control,” he said.
In addition to limiting funding for the new hiring bonus plan, the political battle over spending federal aid will delay the state’s ability to replenish the Virginia Unemployment Trust Fund before July 1 to prevent a potential fourfold increase in payroll taxes on employers next year.
Layne recommends a deposit of more than $1 billion in the fund, which Riley strongly supports as a top priority at the federation, which represents about 6,000 small businesses.
“That certainly was encouraging news for the business community,” she said.
House Appropriations Chairman Luke Torian, D-Prince William, said he and other assembly leaders are talking to the administration about solutions to budget timing problems, without undermining the legislature’s authority.
“We’ll work it out to make sure there is no detriment to the commonwealth,” Torian said. “Trust me on that one.”
Staff writers Karri Peifer and Colleen Curran contributed to this report.