OCEAN CITY — Local businesses are bracing for an expected rise in their contributions to the unemployment insurance fund, which is sure to increase payroll costs for almost all of the area’s entrepreneurs.
The letter, expected to arrive in the mail sometime this month from the Maryland Department of Labor Licensing and Regulation (DLLR), is projected to increase costs dramatically in hopes that the state will essentially replenish the state’s unemployment insurance fund, which has dwindled in the past year from $895 million in September 2008 to $301.7 million as of September of last year.
Princess Royale General Manager Jon Tremellen reported a 144-percent increase in the amount of money his company will have to deposit in the state’s unemployment fund in 2010 compared to 2009.
“It’s just crazy what’s going on right now with unemployment,” said Tremellen. “They are essentially trying to replenish the fund balance on the backs of businesses in hopes that they will keep the fund from becoming insolvent. If it becomes insolvent, as it has in 22 states, the state then has to borrow money to pay unemployment claims from the US Department of Labor.”
In the Maryland Unemployment Insurance Trust Fund October 2009 update, the percentage that businesses will be required to pay into the fund is pinned on the fact that the number of unemployment claims have increased dramatically in the last year and reduced the amount of money in the trust below the minimum sum allowed.
As of August 2009, there were more than 272,000 new unemployment claims in the state, as compared to 171,000 in 2008 and almost 142,000 in 2007.
Pennsylvania, New Jersey, and New York are three of the 22 states that have deemed their unemployment insurance trusts insolvent, and what’s even more alarming, according to Tremellen, is that the US Department of Labor is estimated that as many as 35 states will have insolvent unemployment funds by the end of 2010.
Locally, Worcester County’s unemployment rate has skyrocketed to 14.6 percent, but many local business owners, including Carousel Hotel and Family Resort Managing Partner Michael James say that number is a bit misleading.
“The 14.6% statistic is not that surprising for Worcester County if you realize the seasonal nature of the workforce here,” said James, “but what businesses have to pay in could triple, and it really doesn’t have much to do with the business model. If the state is going to go to the businesses to replenish the unemployment fund, then they really need to take a tough look at the extensions that are being granted and the level of enforcement of those extensions.”
James points to practices in decades past where those who were receiving unemployment benefits had to go to great lengths to prove that they were attempting to find work and had to do much more than file a claim online.
“These days, you can just click a few buttons and you get money in the mail,” said James, “and although I think there is certainly a need for unemployment insurance in this economic climate, there is also a clear need for a full look at the program. We need to put all aspects of the situation on the table if we are going to find the solution, because what is about to happen is going to be very cumbersome on a lot of smaller businesses.”
Tremellen also noted that for new businesses, the rate for contribution to the unemployment insurance fund is expected to be at least 2.3 percent.
In prior recessions, businesses were assessed an unemployment insurance “surtax” that was considered 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 a 18-fold increase, while in 1991, the surtax amounted to a 23-fold increase.
In that same report from the DLLR in October, they note, “it is never a good time for a rate increase, but it is critically important to retain a solvent trust fund.”
Governor Martin O’Malley is trying to take measures that will ensure unemployment rates will get back to previous levels in the quickest amount of time. Most notably, it was announced that O’Malley plans to work with the business community, the General Assembly and other key stakeholders to enact a modernization legislation that would essentially allow the state of Maryland to access $126 million in federal funds that would be deposited directly into the unemployment trust fund.
Still, James hopes that the state will take a hard look at the way in which it is choosing to replenish the fund and hopes that it will at least consider stricter rules as far as receiving and extending benefits.
“My concern is that if we make the process totally seamless and simple to get an extension at the state or local level, we aren’t helping our cause and the businesses will have to bear the brunt of the dwindling unemployment fund,” he said.
On the government level, City Manager Dennis Dare says that the town isn’t exactly in the same boat as the local businesses, but it will feel a bit of a sting as well.
“The Town of Ocean City is self insured, which means that whatever we are obligated by law to pay out to work former town employees we pay,” said Dare. “We are not part of a pool so no one is subsidizing our obligation, such as other governments or businesses that do not experience the large seasonal employment swings. That is not to say, however, that unemployment costs for us will not rise if the law is changed to raise the benefit. Being self-insured, we pay dollar for dollar what is owed.”