Gov. Martin O'Malley has said he wants to help businesses by tapping federal stimulus money to lower their unemployment tax rates. But first he has to face down the toughest opponents of his plan: businesses.
The emerging battle has lawmakers scrambling for a compromise before employers face massive payment increases to the state's unemployment benefits fund in about a month. It also puts the Democratic governor in the awkward position of pushing an immediate antidote that business leaders have decided is poisonous because it imposes long-term costs.
"The governor is very well-intentioned on this, and I think his ideas are good and make a lot of sense," said Sen. Thomas M. Middleton, a Democrat who heads the Senate Finance Committee. "But we don't know what's best for businesses. They do. And they really don't want this."
Middleton and other lawmakers say ignoring the desires of business owners in favor of a policy they devised seems to fly in the face of the lessons they are gleaning from the current political climate. They have raised the recent Republican win in a U.S. Senate race in Massachusetts and last year's Virginia and New Jersey gubernatorial contests won by Republicans as evidence that Democratic lawmakers need to pay more attention to what their constituents have to say.
"This is an election year, and to go down this road and force businesses into this position because of the heavy-handedness of the governor's office - some of these delegates know there is a price to be paid, said Del. Warren E. Miller, a Howard County Republican on the House Economic Matters Committee.
O'Malley promoted his unemployment fund plans as part of the "job creation and economic recovery" portion of this year's legislative agenda. He had promised for months to help employers deal with the extra costs of out-of-work Marylanders drawing benefits.
Maryland's jobless rate is at a 26-year high of 7.5 percent. The benefits fund is so depleted that the state must borrow $250 million from the federal government to keep making payments, joining half the states in the nation with bankrupt funds. Many Maryland employers are set to pay nearly triple in taxes this year compared to last, about $136 to $383 more per worker than they do now.
To help businesses deal with the increase, O'Malley is seeking to spread out payments for the taxes, most of which are due at the end of April, and lower late penalties. He also wants to give employers tax rate relief if the state receives $127 million in federal money, which would decrease the new tax rate by about $34 to $51 per worker.
Some lawmakers, including Senate President Thomas V. Mike Miller, a Democrat, called O'Malley's proposal "extremely helpful to small businesses."
But the federal stimulus money comes with strings attached: The state must modernize its unemployment insurance fund by extending benefits to more part-time workers and those in qualified job-training programs and by changing a technical formula so that more people would qualify for benefits.
Business groups say the rate relief comes at too great a cost, because they'll pay an extra $20 million in annual unemployment taxes, quickly offsetting gains from the one-time cash infusion. Many business leaders also oppose taking any federal stimulus money, saying the contentious recovery program has failed to create jobs or improve the economy but has added greatly to the national debt.
Employers have another plan
Employers are pitching an alternative that would reduce benefits for workers with less tenure and institute a one-week waiting period before payments start, among other changes. Labor leaders say they won't accept those proposals, and its unclear whether O'Malley and lawmakers will agree to them.
Claire Louder, president of the West Anne Arundel County Chamber of Commerce, said her members, mostly small businesses, believe the governor's plan is "short-sighted." At hearings in Annapolis last week, she and other chamber leaders urged lawmakers to reject the governor's plan.
Tom Saquella, president of the Maryland Retailers Association, said businesses "wish [the governor] would have talked to us earlier. It's a shame because he thinks he's helping us. He's trying to help."
Some lawmakers have questioned whether O'Malley tried hard enough to get businesses on board before pitching the proposal to the General Assembly.
"It's a matter of listening," said Miller, the Republican delegate. "It's apparent from the opposition that they didn't listen."
State Labor Secretary Alexander M. Sanchez said he is "absolutely baffled" by the opposition and says the bill was "crafted after listening to all sides."
He and Joseph Bryce, O'Malley's top legislative officer, said administration officials have been talking with businesses since October about their desire to reduce the unemployment-insurance tax rate by trying for federal money.