Maryland is bracing for a sharp increase in unemployment claims from the COVID-19 pandemic likely to dwarf the Great Recession’s flood of jobless and swamp the state’s $1.3 billion unemployment insurance fund.
The closure of non-essential businesses coupled with orders to reduce public gatherings and concerns about contracting the respiratory illness are already having an effect on some businesses. Gov. Larry Hogan said the unemployment numbers are going to spike as more and more are laid off.
“There’s going to be an overwhelming crush on the unemployment fund, which is why we passed legislation allowing us to tap the rainy day fund,” said Gov. Larry Hogan.
“I think it could very well be worse than the recession of 2008, there’s no doubt about that,” said Hogan.
The warning raises questions about the state’s ability to handle a sharp spike in claims. The state Thursday should see some of the early effects on the job market when new first-time unemployment claim statistics are released.
“I’m not sure if anybody has an estimated number at this point, “ Hogan said Monday. “It’s obviously something we’re going to be very concerned about and taking a look at as are federal leaders.”
Last week, the U.S. Labor Department reported 281,000 new claims for unemployment benefits nationally. The one-week figure represents a 33 percent increase over the previous week.
The number of initial jobless claims was the highest for a single week since September 2, 2017, when it was 299,000, according to U.S. Department of Labor statistics.
Labor officials said the uptick in initial claims is “clearly attributable to impacts from the COVID-19 virus.”
And while some states specifically reported COVID-19 as the cause of layoffs, other states that reported layoffs in the hospitality, food services, transportation, and warehousing industries did not cite a specific cause, according to the labor department.
Federal Reserve Bank of St. Louis President James Bullard predicted that the United States could see the unemployment rate top 30 percent as a result of the economic slowdown tied to COVID-19. Currently, the national unemployment rate is 3.5 percent as of February.
“Unfortunately for some, unemployment has already become a reality during these difficult times,” Maryland Labor Secretary Tiffany Robinson said Monday. “So I want to be very clear: the Maryland Department of Labor unemployment insurance program is fully operational and remains dedicated to helping employers and employees who have been affected by COVID-19.”
In Maryland, workers who lose their jobs can file a claim immediately.
Robinson said the state has expanded eligibility to cover more affected workers.
One industry that expects to be hit hard is the state hotel and tourism industry.
The Maryland Hotel and Tourism Association projects that more than 13,000 hotel employees, about 44 percent of the total workforce, will lose their jobs as a result of the response to COVID-19. More than 42,000 additional jobs indirectly tied to the hotel industry are also likely to be lost, according to a national study released by the America Association.
Those numbers alone top some of the highest weeks for first-time claims during the Great Recession, when Maryland’s highest numbers of new claims didn’t exceed 12,600 in a week. By comparison, in early March the number of first-time unemployment claims in Maryland was 2,675, according to the U.S. Department of Labor.
“We think the numbers will be worse (than the Great Recession),” said Amy Rohrer, president and CEO of the Maryland Hotel Lodging Association. “This is worse than 9/11 and the 2009 recession combined,” she said.
Some hotels have temporarily closed. Others are laying off staff in ranges approaching 80-90 percent, according to Rohrer.
“This is anecdotal but the information that has been coming in is staggering,” said Rohrer.
Hogan imposed a prohibition on gatherings of more than 10 people. Hotels in Maryland were just starting to gear up for graduation seasons and summer tourism. Some hotels are already reporting cancellations for June.
“The longer this goes on the further and further out the cancellations are,” Rohrer said.
Currently, Maryland has about $1.3 billion in its unemployment insurance fund. The economy and employment rates touted by Hogan have resulted in employers paying the lowest possible rates into the fund for the last five years.
But federal officials warn that fund balances alone are “not a useful measure of solvency.”
A 2020 U.S. Department of Labor report found that Maryland is just below its solvency rate, one of 21 states and U.S. Territories under the federal standard.
In 2010, the state borrowed about $133 million from the federal government to bolster its fund after seeing it drop from $971 million in 2008 to just $96 million three years later.
Hogan already has permission through emergency legislation passed during the abbreviated 2020 General Assembly session that gives him the ability to tap the state’s rainy day fund for up to $50 million.
“We imagine we’re going to have to tap the rainy day fund to tackle some of these things,” said Hogan, adding that governors will ask the federal government for additional money for unemployment benefits.
Additionally, lawmakers approved a supplemental request for another $10 million.
The state is also seeking a share of $100 million in federal funding for displaced workers.
Additionally, the state is prepared to provide unemployment payments to displaced workers, including a work-share program in which employers can reduce a worker’s hours. The worker could then also collect a portion of their weekly unemployment benefits.
“Unprecedented actions are being taken to save the lives of Marylanders,” Robinson said Monday, adding that her department “is doing everything in our power to support and protect our small businesses and our workforce.”
Daily Record business reporter Adam Bednar contributed to this story.
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