February 12, 2010

Analysis: Big hole in jobless fund created legislative battle

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By Andy Rosen
Andy@MarylandReporter.com

Two numbers illustrate why changing unemployment insurance is such an important part of the legislative agenda for business, labor and Gov. Martin O’Malley this session.

Last February, Maryland’s unemployment insurance trust fund had $680 million in it. A year later it holds just $50 million, and is paying out $20 million a week to the jobless.

Businesses are facing higher taxes come March, labor wants expanded benefits for the increased number of jobless, and the federal government is offering a $127 million grant if Maryland improves its benefits.

The state is set to borrow about $250 million from the feds to bridge the cash-flow gap until yearly tax receipts start to roll in this spring. But the move to make Maryland eligible for the million grant from Uncle Sam has proven a tough sell.

The state can only get the money if it expands eligibility for unemployment benefits using a new calculation that would effectively shorten the time that it takes to qualify for benefits by three months for some workers.

Accepting this provision is at the heart of Gov. Martin O’Malley’s unemployment reform proposal, putting labor and business groups at odds. Officials say the change in eligibility would aid about 3,000 jobless Marylanders.

Advocates for both sides met with lawmakers Thursday evening. Senate Finance Committee Chairman Thomas “Mac” Middleton, D-Charles, said a measure to provide $83 million in tax breaks to businesses this year was back on the table as a component of the package. He had earlier thought the tax break unlikely.

But it’s the price tag — paid out of the unemployment trust fund employers support through payroll taxes — that has stymied the proposal so far. The expansion of eligibility, coupled with a move to give workers in training programs extended benefits, would cost about $18 million a year.

Unseen tax, little known fund

Workers in Maryland likely have little knowledge that their employers over the years have been paying a tax they never see on their pay stubs into a fund they’re not even aware of — unless they lose their jobs and need to collect benefits.

As the debate has spiraled this year, it has hit on the very nuts and bolts of unemployment insurance: how much employers will pay, how big unemployment checks to the jobless will be and what this unemployment trust fund will look like in future years.

These problems have all been compounded by the Great Recession, which has caused more people to file for claims and depleted the fund so much that some employers will have to start paying twice and three times as much for every worker as they did last year.

One measure of the bill that does not appear to be in doubt is a provision that would lower the interest rate on delinquent payments from 1.5 to 1 percent.The O’Malley administration has also agreed to work with businesses to allow them to spread out their payments.

But the rest of the bill remains a study in moving parts, with several crucial components of a benefits expansion still up in the air. Negotiators have been at the table for two weeks.

Julie Squire, assistant secretary for unemployment insurance, said she thinks the benefit changes will have little impact, relatively speaking.

“That is not a lot of money,” she said, “given that we’ve been paying out about $20 million in benefits per week this year.”

Middleton, who is also co-chairman of the Joint Committee on Unemployment Insurance Oversight, had set a deadline of last Friday, but no agreement materialized.

Bill supporters have argued that the federal cash will offset the cost for at least six years. By that time the expanded benefits could be repealed if they are too costly. However, backers of O’Malley’s plan are now reluctantly negotiating benefit reductions.

“The political reality is, we don’t think that it’s going to pass [as proposed], so we have one of two options,” said Jason Perkins-Cohen, executive director of the Job Opportunities Task Force in Baltimore. He said he chose to stay at the table, rather than to walk away.

All sides say there’s no deal yet, and back-to-back blizzards have held up the process. The O’Malley administration has apparently offered to eliminate a proposal for “sick pay,” which would allow the unemployed to suspend their job search without losing benefits if they become ill.

A business-backed proposal to delay the start of benefits for a week appears unlikely to pass, however.

O’Malley had hoped that the interest rate reduction and the expanded payment period would convince businesses to buy into the benefits expansion, with the help of the $83 million tax break that was supposed to come along with the federal cash. But that measure appeared in doubt until Thursday, because it had split the business community.

Groups including the Maryland Chamber of Commerce and the Maryland Retailers Association opposed the measure, on the grounds that the state should put all of the money it can in the trust fund to stave off future tax increases.

Tom Saquella of the retail group said he thinks the tax relief amounts to a “deferral,” and hurts the long-term stability of the trust fund and future tax rates.

However, Ellen Valentino, Maryland director of the National Federation of Independent Business, said tax relief should be a priority. She said she doesn’t support the benefits expansion, but if it happens, the money should be used to lift the immediate burden on businesses.