On September 30th of each year, the Department of Labor, Licensing and Regulation's Unemployment Insurance Tax Unit is required to conduct a temperature check of the status of the Unemployment Insurance Trust Fund.
A number of measurements are set forth in law that we are required to take. The law also sets forth six different rate tables. The applicable rate table for the upcoming year is determined by the measurements we are required to conduct on September 30th.
Because of a significant increase in the number of unemployment insurance claims filed over the last year, the Maryland Unemployment Insurance Trust Fund is below the level required to maintain current unemployment insurance tax rates. As a result, this measurement has triggered a statutorily mandated change in the Maryland Employer Tax Rate Schedule for calendar year 2010.
Unemployment Insurance is a prime economic stabilizer during recessionary periods. The current national economic downturn has been the cause of changes to the Maryland Unemployment tax structure for 2010.
The current recession has caused a drastic increase in the number of Marylanders collecting unemployment insurance benefits. As of August 31, 2009 there were 272,234 new claims for benefits for the calendar year 2009, compared to 171,630 new claims over the same period in 2008 and 141,982 in 2007.
Nationally, unemployment insurance trust funds are struggling to keep up with the payment of benefits because of the current recession. If a state's UI Trust Fund becomes insolvent, the state must borrow money from the U.S. Department of Labor.
As of September 15, there are 22 states that have borrowed money to pay benefits, including Pennsylvania, New York and New Jersey. The United States Department of Labor estimates that as many as 35 states may see their UI Trust Funds become insolvent by the end of 2010.
Fortunately, Maryland's Unemployment Insurance Trust has been able to weather the unprecedented economic storm. On September 30, the Unemployment Insurance Trust Fund balance was $301,717,926.04.
While Maryland's UI Trust Fund has fared better than many states, this fund balance is far lower than the balance of $895 million on September 30, 2008. The reason for the decrease is straightforward: we have seen unprecedented demands on the Fund.
In fiscal year 2009, which ended June 30, 2009, Maryland paid $890,772,849 million in chargeable benefits, compared to $477,896,144 in FY 2008 and $397,113,103 in FY2007. The amount of benefits paid weekly peaked at $24,618,329 in March 2009, and hovered between $21 and $22 million per week from May through July. For the month of September, the Trust Fund payout held steady at approximately $18 million per week.
Computation of the UI Rate: September 30, 2009
In 2005 the Unemployment Insurance Funding Task Force, made up of lawmakers, business leaders and other key stakeholders, recommended the current UI tax rate structure, which was approved almost unanimously by the General Assembly that year.
The six tables, Table A through F, that make up the current structure are designed to ensure both the solvency of the Trust Fund and the equity of taxation for all employers.
The 2005 changes were a response to concerns expressed by many stakeholders in the business community that the pre-2005 rate structure was unfair.
In prior recessions, businesses were assessed an unemployment insurance "surtax" that was dramatic. For instance, in the 1976 recession, employers who enjoyed the most favorable tax rating received a 28 fold increase in their rate. In 1983, the surtax amounted to an 18 fold increase, while in 1991, the surtax amounted to a 23 fold increase.
Unemployment Insurance is similar to other forms of insurance in that when significant events occur that result in dramatic increases in claims, rates go up for everyone. Once the fund is replenished, then rates go back down.
The increased payout of benefits to unemployed Marylanders in 2008 triggered an increase in tax rates for calendar year 2009. For calendar year 2009, Table B was in effect. Because of the drastic increase in unemployment due to the national economic crisis, after the September 30th review this year, we are required by law to move to Table F for 2010, which is the highest of the six rate tables.
The following is the cost per employee at the current rate (Table B) and the rate that will be in effect in 2010 (Table F):
Table B .6% to 9.0% = $51.00 to $765.00 per employee per calendar year.
Table F 2.2% to 13.5% = $187.00 to $1147.50 per employee per calendar year.
Approximately 55 percent of Maryland employers are in the lowest end of a table, because they have the best experience rating. For these employers, the movement from Table B to Table F means that the annual cost per employee in 2010 will increase from $51 to $187.
There is never a good time for a rate increase, but it is critically important to retain a solvent Trust Fund.
It is equally important to reiterate that if the 2005 reforms to the rate structure had not occurred, the "surtax" would amount to a much more significant increase for 2010.
The O'Malley-Brown Administration's Response to the Rate Increase
Although the law affords no discretion to the Governor, DLLR or the General Assembly in determining what table shall be in effect, Governor O'Malley is working hard to mitigate the effect of the rate increase, and return Maryland to the lowest table as soon as possible.
In particular, the Governor is working with the business community, the Maryland General Assembly, and other key stakeholders on Unemployment Insurance modernization legislation that, if enacted, will allow Maryland to access $126 million in federal funds that will be deposited directly into the Maryland Unemployment Trust Fund. We are working closely with the United States Department to ensure that we receive these critical dollars within weeks after passage of such legislation. These funds will allow us to return to a lower rate table at a much faster rate.
Additionally, the Governor will be working with key stakeholders on legislation temporarily lowering the interest rate on late payment of UI taxes. A temporary reduction in the rate would reflect acknowledgement that in these difficult times employers may experience cash flow problems that would result in the late payment of their quarterly UI obligations.
Finally, we will be working with any employer who may desire to enter into a payment plan for the payment of 2010 taxes. We will work on a case by case basis to address the needs of employers who may need additional time in making payments.
Fortunately, as a result of the reforms put in place in 2005, Maryland's unemployment insurance system remains solvent, and, unlike other states, has demonstrated the resilience to remain afloat in turbulent times. We are confident that if the Governor's proposals are adopted, rate relief will come at a much faster pace.
Questions or comments regarding the Division of Unemployment Insurance may be directed to
ui@dllr.state.md.us.
Questions or comments regarding the DLLR website may be directed to webmaster@dllr.state.md.us.
