Local Businesses Should See Unemployment Tax Rates Drop

OCEAN CITY -- Thanks in large part to a now healthy fund balance, business owners in the area and across the state could see a drop in their 2013 unemployment insurance tax rates by as much as 55 percent, which could be welcome news in a resort area subject to seasonal employment fluctuations.

Gov. Martin O’Malley on Monday announced most Maryland businesses will see their unemployment insurance taxes drop next year after several years of heading in the opposite direction.

Some Maryland businesses will see their unemployment insurance tax rates drop by as much as 55 percent beginning Jan. 1, 2013, according to projections. O’Malley said this week improving the state’s unemployment insurance trust fund has been a priority of his administration.

“In Maryland, we are moving forward,” he said. “This progress doesn’t happen by chance, but by the choices we’re making together to build a strong, growing and resilient economy. Working closely with business, labor and the General Assembly, Maryland businesses will see a significant cut in their unemployment insurance rate, many by as much as 55 percent. That’s good news for all Marylanders.”

In the simplest of terms, Maryland, like all states, maintains an unemployment insurance trust fund to ensure money is available for those eligible to receive unemployment benefits. During the ongoing recession, the trust fund was stressed to the point most businesses saw sharp increases in the amount they pay into the fund each year to ensure a healthy and sustainable balance.

In September each year, an assessment is made on the health of the state’s unemployment insurance trust fund and the tax rates paid by businesses are set accordingly for the following year. This September, Maryland’s trust fund balance came in at just under $795 million, which is the fifth highest trust fund balance in the country. By comparison, the trust fund balance on September 30 last year was just over $460 million.

As a result, the state will now be able to lower the unemployment insurance tax rate for most businesses in Maryland. The numbers are complicated and there are tiers for different businesses, but in short, the now healthy fund balance has triggered the unemployment insurance tax rate from Table F to Table C. The difference is a range from 2.5 percent to 13.5 percent under Table F, to one percent to 10.5 percent under Table C.

Because of the comparatively high unemployment rate in Worcester County and the seasonal nature of the resort areas in his district, Senator Jim Mathias (D-38) has been a strong advocate for unemployment insurance reform in Maryland since joining the General Assembly first as a member of the House of Delegates. Mathias this week praised the unemployment tax rate change for its potential benefits to small businesses in his district stressed by the steadily increasing rates.

“Throughout the recession, small businesses have been hurting,” he said. “As a former small business owner, I know how critical this issue is to small businesses. Most small businesses operate off the smallest of margins and every dollar that can stay with them is another dollar that can reinvested back into their businesses and the local economy. This news ensures that small businesses have the resources to succeed while also making certain that we have a fully solvent and secure unemployment trust fund.”

The Ocean City business community has long lamented the soaring unemployment insurance tax rates and has often been at a competitive disadvantage because of the seasonal nature and the timing of the tax bill.

“We welcome any relief we can get right now,” said Ocean City Economic Development Committee (EDC) Chairman Michael James, managing partner of the Carousel Hotel and other resort properties. “Most Ocean City businesses saw their rates more than double in recent years. We were obviously very upset when they changed the formula a few years back.”

James said the jury is still out on what the rate changes mean for most area businesses. Because of the tier structure and a relatively wide range in the percentages, even at Table C rates, some businesses across Maryland might benefit more than others.

“It sounds like employers in resort areas might not benefit as much from this as employers in the urban and suburban areas,” he said. “We’ll have to wait and see. I’m very anxious to see the final plan because we haven’t seen those numbers yet.”

Even at the peak of the recession, Maryland did not have to go to the federal government for a loan to ensure a sustainable unemployment insurance trust fund. When unemployment claims spiked across the country during the recession, as many as 20 states including neighboring Pennsylvania and Virginia had to borrow from the federal government to sustain their fund balances, further burdening the private sector with high interest loans and subsequently higher tax rates.