Md. cuts jobless fund surcharge

Companies to pay 0.8% in 2005, down from 1.1% per worker

October 16, 2004|By Stacey Hirsh and Meredith Cohn | Stacey Hirsh and Meredith Cohn,SUN STAFF

Maryland companies must pay $68 per worker next year to subsidize the state's unemployment insurance trust fund -- less than the $93.50 they paid this year and in line with projections, labor officials said yesterday.

The 0.8 percent tax surcharge for 2005 is what state officials predicted this summer was needed to bolster the fund that pays benefits to laid-off workers. It is below this year's 1.1 percent that employers are paying.

A state task force is working on a long-term solution to the shortfall in an effort to eliminate the fee, which businesses argue is unfair.

The surcharge was mandated in January when the fund balance, hampered by the sour economy of recent years, fell below the level required by the state. The balance has not fully recovered, even though Maryland's unemployment rate has stayed below the national rate.

Maryland's August unemployment rate was 4.3 percent, compared with the 5.4 percent national rate.

"Here we've had a good year ... and yet we're going to have a surcharge for '05," said Thomas S. Wendel, assistant secretary for unemployment insurance at the state Department of Labor, Licensing and Regulation.

Business groups said they were pleased that the surcharge was dropping but frustrated that it would be the same for all companies, regardless of how much they relied on the insurance fund. A company that laid off 1,000 workers, for instance, will pay the same surcharge as a company that didn't lay off anyone.

Employers are now taxed on the first $8,500 in wages paid to each employee, at base rates ranging from 0.3 percent to 7.5 percent -- that is, $25 to $637 per person. A company's rate depends on the portion of its work force it laid off in the previous three years. The surcharge is on top of that base rate.

"We think that it's good the [surcharge] rate is coming down," said Thomas S. Saquella, president of the Maryland Retailers Association. "But speaking for an organization whose members are mostly at the minimum tax rate, the way the surcharge is imposed, we think it's unfair."

As of Sept. 30, the unemployment insurance trust fund balance was $705.4 million, well below the required $835.8 million.

The fund is lower than it should be in part because of "leaks" that the program can't recoup. When a company closes, for instance, the fund can't recover the money it used to pay benefits for the laid-off workers. Betwen $120 million and $170 million leaks each year, he said.

The fund could be further drained if a recession like the one in the early 1980s were to hit again, Wendel said. In a recession that bad, the fund could easily have to pay out $700 million to $800 million a year, he said.

A task force was created to recommend changes such as raising the base tax rate or reducing jobless benefits. The group has also debated whether to increase benefits, now less than half the average weekly wage in Maryland, or extend benefits to more workers, including part-timers.

The task force is expected to present recommendations during the 2005 legislative session.

Business groups hope there is a way to avoid future surcharges.

"On the one hand, it's good news that the surtax went down from this year, so we're moving in the right direction," said Ronald L. Adler, president of the consulting firm Laurdan Associates Inc. in Montgomery County and chairman of the Unemployment Insurance Committee for the Maryland Chamber of Commerce. "But there's still a concern that the surtax still had to trigger on."

Advocates for the unemployed say Maryland falls below many other states in the amount paid to workers and the number of employees who qualify for benefits. Andrew Stettner, a policy analyst for the National Employment Law Project in New York, said Maryland needs to devise a modern system that more fairly spreads the burden and saves more in good years for the bad years.

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