Long criticized by some for its supposedly business-unfriendly tax climate, Maryland appears to have gained at least a small leg up on its rival across the Potomac River.
Detractors in recent years have blamed that climate for driving major corporations, such as Northrop Grumman and Hilton Hotels & Resorts, to set up their headquarters in Virginia.
But on Monday, Maryland officials announced that employers will see their taxes that support the state’s unemployment insurance trust fund drop next year. About half of the state’s businesses — those at the lowest end of the tax tables that did not lay off workers — will see those taxes fall from $187 for each worker who is paid at least $8,500 to $85 in 2013.
Businesses at the highest end of the tax tables — about 8 percent of those in Maryland — also will see significant cuts, from $1,147.50 to $892.50 per employee. And that could mean more hiring in the state.
The taxes are dropping more quickly than anticipated, said Patrick Donoho, president of the Maryland Retailers Association.
“My members really like this news,” Donoho said. “It’s a big issue to retailers. Maryland is one of the few states of its size not paying interest payments on the federal loans” that were given to most states to boost their unemployment insurance trust funds that sank significantly during the Great Recession.
“Some of our neighbors aren’t as fortunate,” he said.
One of those is Virginia, which had $122 million in its trust fund in June, according to a recent Virginia Commission on Unemployment Compensation report. A year earlier, the commonwealth’s fund had a deficit of $80 million.
Meanwhile, Maryland had a surplus balance of $794.5 million in its unemployment trust fund on Sept. 30, up a whopping 72.6 percent from $460.2 million a year earlier. Two years ago, the fund balance was $273.4 million. Maryland had the fifth highest balance nationally behind Washington state, Oregon, Texas and Michigan.
The average unemployment insurance tax paid by a business in Maryland more than doubled to $492 in 2011 from $235 in 2009, according to data from Chicago consulting company First Nonprofit Cos. But Maryland’s average — more than double what Virginia’s was in 2011 — is expected to decline next year.
The tax reduction could help boost employment when it kicks in Jan. 1, said Jay Steinmetz, CEO of Barcoding, a 75-employee Baltimore provider of barcode scanners, wireless terminals, mobile computers and related software and services. “We will probably hire some based on this,” he said.
Steinmetz, a member of the Governor's Commission on Small Business, said he has to figure out his company’s exact savings, but added that it would be “substantial.”
“A lot of small businesses are struggling to survive,” he said. “This is one brick taken down to allow companies to pass through the wall.”
Maryland’s unemployment rate was 7.1 percent in August, down just slightly from 7.2 percent a year earlier. The jobless rate peaked at 8.0 percent about two years ago. Rates for September are due out Friday.
In the week ending Oct. 6, the state paid $14.0 million in benefits to unemployed residents, up about 2 percent from the same time a year ago but down some 7 percent from the level in 2010, according to state figures. Maryland had 30 percent fewer new unemployment claims that week than the same week in 2011.
The boost in the trust fund and consequent drop in tax rates were accomplished through cooperative planning involving public and private leaders, state Sen. Thomas McLain Middleton (D-Dist. 28) of Waldorf, co-chairman of the state Joint Committee on Unemployment Insurance Oversight, said in a statement.
“We were able to access critical federal funds and modernize unemployment insurance to fit today’s workforce by establishing a cooperative working relationship with business, labor and community representatives,” Middleton said.
In 2010, private and public leaders worked out a compromise plan that allowed the state to qualify for $126.8 million in federal stimulus funds to help shore up the trust fund. The plan eliminated sick claims filed by unemployed workers and increased the minimum weekly benefit threshold that claimants could collect to $50 from $25, meaning fewer workers could collect.
One result was that Maryland paid off its federal loan in 2010 before having to pay interest.
Virginia has borrowed $818 million from the federal government to help its jobless fund, as of August. That figure is expected to climb to more than $1.0 billion, as the state borrows $175 million more between now and April.
Virginia made $14.6 million in interest payments last year and this year, according to the commission report, a factor in the state’s unemployment tax increase. Officials paid off the balance this year before it began its new round of borrowing this month.
Virginia’s average annual unemployment tax per employee increased from $103 in 2009 to $166 in 2010, $215 in 2011 and $232 this year, according to the commission. First Nonprofit Cos. had slightly different figures for Virginia.
Several states had 2011 average unemployment taxes higher than Maryland’s, including Pennsylvania, New Jersey, Massachusetts, Michigan and Iowa.
The average rate figures don’t really tell the entire story, however, because rates can vary so much from business to business, said Maureen O’Connor, a spokeswoman for the Maryland Department of Labor, Licensing and Regulation.
In Maryland, Table F was in effect this year with a range of tax rates of 2.2 percent to 13.5 percent, based on how many layoffs companies had. Next year, businesses will pay according to Table C with a range of rates from 1.0 percent to 10.5 percent.
Other states are in worse shape, debtwise. North Carolina has $2.5 billion in outstanding loans from the federal government as of this week, according to labor department figures. That’s the third most behind California’s $10 billion and New York’s $3.2 billion.
Delaware and New Jersey are among the 20 states that owe on the federal loans, according to the labor department.
Maryland is gaining somewhat on Virginia in an annual report on business tax climate released last week by the Tax Foundation. Maryland ranked 41st among all states, one notch higher than last year. Virginia was 27th, one slot lower than a year ago.
But that report does not take into account states’ fiscal responsibility when dealing with unemployment insurance. States that have paid off federal loans such as Maryland were penalized for having higher unemployment tax rates than states such California and North Carolina, which the foundation ranked as low unemployment tax states, despite their high federal debts.
Audit: Deceased, prisoners collected benefits
Maryland has paid unemployment benefits to the dead, prisoners and workers employed by the state at the same time they received benefits, according to a recent audit by the state Department of Legislative Services.
Auditors found that the state paid about $124,000 to people after they died between January 2009 and May 2011. The state also paid some $175,000 to prisoners in 2009, 2010 and 2011, the report says.
In addition, a few state employees in 2011 received $20,000 in benefits while still employed by the state.
Auditors said the state’s unemployment insurance division, which is under the labor department, needs to use technology better to screen out ineligible claimants.
State labor department officials said in a written response that the division already adopted recommendations or is doing so. For instance, the division is coordinating with the state Department of Health and Mental Hygiene to receive monthly crossmatches of death records and jobless claims, and expects to have this system in place by December.
The division formed a similar procedure with the Department of Public Safety and Correctional Services related to prisoners in July. It also routinely crossmatches labor department payroll records against unemployment insurance payments and is upgrading that effort to include all state employees by April.