State considers unemployment fund options
Feds offer $126 million, but strings could be costly to Maryland
Maryland officials are weighing whether to enact policy changes to the unemployment insurance program that would make the state eligible for $126 million in federal aid.
Some argue, however, the changes could hurt the state's businesses, which are trying to claw their way out of a faltering economy.
"This is one-time money from the feds, and you have to look at it very carefully that it's not imposing a long-term cost on employers," said Ronald Wineholt, vice president of government affairs for the Maryland Chamber of Commerce.
The trust fund, which had almost $900 million in September 2008, dropped to about $300 million a year later as more people filed jobless claims.
In September 2009, the state's unemployment rate was 7.2 percent, and 211,321 were jobless, according to the U.S. Bureau of Labor Statistics. That was up considerably from September 2008, when the unemployment rate was 4.6 percent and 139,106 Marylanders were out of work.
With more out of work, the trust fund is spending about $17 million a week, meaning it could be depleted by March, said Ronald Adler, president of Laurdan Associates Inc. in Potomac, a human resources management consulting firm.
Once the money runs out, the state would have to borrow from the federal government to cover benefit claims until employer payments replenish the fund. Twenty-four other states already are doing that, according to the Employment and Training Administration of the U.S. Department of Labor.
"Digging a hole is not a sound way of managing their finances," said Adler, who is part of an unemployment insurance task force providing guidance to the legislature.
The $126 million could tide the state over until first-quarter unemployment tax payments are injected into the fund. The state anticipates receiving $839 million in unemployment taxes next year, Adler said. Because the tax is paid on the first $8,500 a worker earns, the first-quarter payments collect more money than subsequent quarters.
Meanwhile, businesses will be hit with a big unemployment tax increase on Jan. 1. The rates adjust annually depending on the status of the trust fund. As its total decreases, the state imposes higher rates.
But if the trust fund can't sustain itself, House Minority Leader Anthony J. O'Donnell asks why the state should make the changes, because the new policies would expand eligibility.
"The problem is that it's short term and shortsighted. If we get these short-term funds, we're going to be stuck with the expense forever," said O'Donnell (R-Dist. 29C) of Lusby.
Before the increase, companies were paying a levy between 0.6 percent and 9 percent, depending on their histories of layoffs. On Jan. 1, the rates increase to between 2.2 percent and 13.5 percent.
Gov. Martin O'Malley (D) is weighing options on what to propose to lawmakers about unemployment insurance.
"It's certainly our intention to get consensus and a plan as early as possible so we can help employers, employees and maintain the solvency of the fund," said Joseph C. Bryce, O'Malley's chief legislative officer.
The administration could suggest reducing unemployment insurance rates, but the legislature would have to move quickly to get emergency legislation signed and take effect before the April tax payments.
"Our window of opportunity is short, because you have to allow the state to do the recalculation and get out the notices," Adler said.
Reducing the rates would mean the trust fund replenishes more slowly, so the rates would have to be in place longer, he said.
The federal money comes with strings attached.
Maryland would be required to make three changes to its unemployment rules. One is mandatory and the other two could be picked from four options.
The mandatory change is a technical one that would affect the timing of when workers are eligible for benefits. Estimates put the cost at $17 million to $18 million.
"You can't pass go' unless you do this," Adler said.
Of the optional changes, the least expensive is a technical correction to Maryland's existing law providing unemployment benefits to part-time workers. The General Assembly passed the law during the 2009 session.
The change would cost $600,000, Adler said.
The next option involves job training for the unemployed, who can currently be waived from looking for work for 26 weeks if they are enrolled in approved training programs. To receive the federal money, Maryland would have to increase the period to 52 weeks.
The cost has been estimated at less than $2 million, Adler said.
The two other options would involve increasing the amount an unemployed worker can receive for dependents. Maryland now offers $8 per dependent per week for up to five dependents. The feds would want the payment increased to $15 per dependent, and it would cost $16 million.
The final option would require the state to pay benefits to someone who quits a job for "compelling family reasons." Those could include transfer of a spouse, because the person has been sexually abused or the victim of domestic violence or needs to care for a sick spouse, parent or child.
Adler said the estimated cost attached to this option was about $7 million.
The changes could cost the fund about $20 million a year, but the state could reap a $126 million grant from the U.S. government.
"We're not in a position to pass judgment other than we would need to be looking at the proposal very carefully that employers were not burdened on a long-term basis with higher charges to fund these enhanced benefits," Wineholt said.