Fight looming over unemployment fund: O’Malley proposes plan to reduce interest, use federal stimulus [The Capital, Annapolis, Md.]

Dec. 18--Faced with an unemployment insurance fund that could go bankrupt because of the recession, Gov. Martin O'Malley's administration on Thursrday proposed tapping into federal funds in a move that also could require businesses to pay substantially more per employee.

The governor's plan is to pursue a bill to seek $126.8 million in federal stimulus money to stave off bankruptcy and reduce employers' financial obligation by $83 million.

But, judging from the reaction of the business community, the move is shaping up to be one of the most contentious issues of the legislative session that starts next month.

The Department of Labor, Licensing and Regulation also would offer employers the option of payment plans to spread out their tax dues over a longer period of time and simultaneously reduce the interest rate for late payment from the current 1.5 percent to 1 percent.

But representatives of the business community who attended a joint committee hearing in Annapolis yesterday on the status of the Unemployment Insurance Trust Fund rejected the administration's new strategy. They protested that it would only delay debts and put more stress on the fund, as the federal money would come with strings requiring broader eligibility for higher benefits spread over more time.

Because of a drastic recession-induced increase in the number of layoffs in the past year, the state fund that doles out unemployment checks to jobless residents has been depleted.

On Sept. 30, the fund's balance had plunged to less than $302 million, down from $895 million exactly one year before. The payout in 2009 has averaged $18 million per week.

The state's unemployment rate jumped from 5.1 percent in November 2008 to 7.4 percent last month.

Local residents are suffering along with the rest of the population. In Anne Arundel County, the most recent jobless rate estimate comes in at 6.7 percent.

Just as with many other insurance funds, skyrocketing claims trigger an increase in rates, calculated through a rate-schedule formula.

But at a time when government officials and job seekers hope employers will begin to hire again, already-strained businesses will now have even more of a financial burden.

Patricia Baldwin, who represented the National Federation of Independent Business at the hearing, is the treasurer of Reliable Contracting Co. Inc. in Millersville. She said her company did the math and discovered the tax hike's impact on its business was equal to one person's salary.

"So we'd have to let one person go to pay off this liability," she said.

Julie Squire, assistant secretary of the labor department's Unemployment Insurance Division, said the trigger would cause an employer who had paid $51 per employee this year to owe $187 per employee next year.

Speaking for the administration's plan, Joseph Bryce, Gov. Martin O'Malley's chief legislative officer, said that it's urgent to reach a consensus on some remedy that can bring the business community, organized labor and legislators together at the table.

"The increase is coming," Bryce said. "It's part of how the system was designed. That's why we're trying to put the money up -- so businesses and small businesses will hire again."

Despite attempts to provide businesses relief, many business community leaders said this plan is not the way to resolve the problem.

Tom Saquella, president of the Maryland Retailers Association based in Annapolis, said he "got a lot of push back" from association members on the points of the proposal.

"The one thing my members don't want to do is borrow (money) and (have) the Draconian impacts it could have," Saquella said.

Business operators said they'd prefer to maintain the rate schedule, but have extended time in which to make the payments, he said.

Other cost-saving measures bounced around by the business community included instituting a weeklong delay before benefits kick in for recipients and dropping the additional payments that go to recipients with dependents.

Ernest Grecco, representing AFL-CIO members, said he found the ideas offensive.

"I thought it was an insult," he said. "We're talking about dependency allowance ... taking money away from kids, I guess."

If legislators passed an emergency bill in the next General Assembly session to access the $126.8 million in stimulus money, Maryland businesses would have to adopt a second formula to calculate workers' eligibility for benefits and amend current laws to allow part-time workers to receive benefits.

Businesses also would have to provide extra benefits for jobless residents who choose to enroll in work force-training programs.

To see more of The Capital or to subscribe to the newspaper, go to http://www.hometownannapolis.com.

Copyright (c) 2009, The Capital, Annapolis, Md.

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.