ANNAPOLIS – The O’Malley administration is hoping to receive almost $127 million dollars in federal stimulus funds to shore up the state’s unemployment insurance trust fund.
In the past year, the trust fund has been significantly depleted, dropping from $895 million to $301 million as of Sept. 30. The decrease was caused by a combination of factors that have resulted from the recession, including the highest unemployment rate in decades and a decrease in the overall number of employers across the state.
The trust fund’s depletion triggered a significant spike in unemployment taxes for businesses, which will see an increase from 0.6 percent to 2.2 percent at the low end and from 9 percent to 13.5 percent at the high end. The higher rates will go into effect in January.
To receive the federal stimulus funds, Maryland will need to change its unemployment laws to make more people eligible for benefits. Business leaders expressed concern about this expansion, particularly given the strain that the higher tax rate will put on them.
But, if the eligibility changes do occur and the federal money arrives, businesses hope to receive assistance from the state, including help paying those increased taxes or a significant cut to the tax rate.
At a meeting of the state’s Joint Committee on Unemployment Insurance Oversight Thursday, Labor Secretary Alexander Sanchez outlined how the state hoped to give the trust fund a much needed boost through a program from the U.S. Department of Labor.
“Why would we leave ($126.8) million on the table,” Sanchez said, “if we can make some modernization that we either should make or that will probably be forced upon us anyway? That’s the way the federal government is going, so might as well do it now and take that money off the table.”
Under federal guidelines, the state would need to expand unemployment eligibility in several ways, including using a different time period for eligibility in some cases. Other possibilities include extending eligibility for victims of domestic violence and for those in job training programs.
All of these would require action by the General Assembly. Federal rules dictate the state could receive money 45 days after making the required changes.
Sanchez hopes the legislature will act quickly once the session starts.
“This will be the first thing we try to move,” Sanchez said. “We want that money as soon as we can.”
Receiving federal funds would help the trust fund become more solvent and expanded eligibility would help more people suffering through lengthy unemployment. But business leaders have expressed concern given that more people drawing unemployment benefits will likely mean increased costs for them.
“Anything that creates an ongoing liability to the fund is a concern to the small business community,” said Ellen Valentino, the Maryland director of the National Federation of Independent Business, a group representing 5,000 small businesses across the state.
To alleviate the effect of higher taxes and the eligibility expansion, Valentino recommended cutting the unemployment tax rate by 50 percent when the stimulus money enters the trust fund. This would be an unprecedented move given that the rate is typically only adjusted once a year.
“The quicker they can reduce that rate,” Valentino said, “the quicker they can get some money back into small businesses’ pockets.”
Valentino also recommended waiving interest rates and penalties on businesses that are late on their payments if they enter into a payment plan with the state.
Christian Johansson, Secretary of Business and Economic Development, said the O’Malley administration is working with the business community to make sure it is not adversely affected by these changes. He said some form of payment plan and a decrease in interest rates could be included in the final legislation.
“We’re reaching out to the business community — and we have an outreach plan over the next couple weeks to do more of it — to look at what are the best options to take forward,” Johansson said.