For the Maryland business community, Gov. Larry Hogan’s Wednesday announcement that over a quarter of the $3.9 billion in federal relief funds that had been allocated to the state would go into the state’s unemployment insurance trust fund came as a major relief.
Over $1.7 billion in unemployment benefits had been distributed from the fund since the pandemic’s onset in March, and business owners have been concerned that they will have to pay massive taxes in order to make up the difference, despite having also lost significant revenue themselves over the past few years.
Currently, the balance of the trust fund is around $54 million, not including the incoming federal funds.
Ahead of the General Assembly session, which will conclude next week, many business leaders said that finding a way to avoid this increase was among their top priorities for the session. Cailey Locklair, the president of the Maryland Retailers Association, was one of a coalition of business advocates who wrote to the governor and General Assembly leadership at the beginning of the session about the community’s top priorities.
“At the very top of that list was the unemployment insurance trust fund,” she recalled.
But Locklair isn’t certain this is the end of the business community’s worries about the fund. The $1.1 billion figure is still less than the $1.7 billion in benefits that have been distributed to unemployed people throughout the state over the past year. With no clear end to the pandemic in sight, it’s uncertain whether $1.1 billion will be enough to make the trust fund solvent.
“We couldn’t be more thrilled, but there’s still that kind of weariness because this isn’t over yet. When that fund was depleted, (it was) the quickest that it’s ever been in history. We have to be vigilant about that and be very conscious about, if it’s not solvent, what type of increases employers will see,” she said. “We’re not done with the crisis yet — people continue to draw from that fund.”
Others feel more confident that the allocated funds will be enough to keep the trust fund afloat, at least for a few years. Donald C. Fry, president and CEO of the Greater Baltimore Committee, believes the contribution will be enough maintain the fund’s solvency and stabilize unemployment tax rates for the next two years — though, he noted, with no clear end date for the pandemic in sight, that may not mean it will maintain the trust fund through the end of the crisis.
“Yesterday was a very encouraging day to hear the governor announce $1.1 billion to replenish the unemployment insurance fund,” Fry said. “That is an issue that was of considerable concern to the business community and to individual businesses in light of all of the pressures the pandemic has brought on,” Fry said.
Back in December, many were relieved by an executive order signed by Hogan that stated that business owner’s experience rating, which increases the amount of unemployment insurance tax they pay depending on how many employees they have laid off, could not be affected by layoffs made during the pandemic. (The fund is typically made up solely from taxes on business owners.)
Still, business owners worried that, had the trust fund not gotten a boost to the tune of $1.1 billion, rates would have increased substantially in 2021 in order to refill the fund. Locklair estimates that a business owner with no unemployment claims would have gone from paying around $25.50 to around $187 per employee per year — an increase of 733% — due to the pandemic if the fund hadn’t been refreshed.
The Maryland business community had previously hoped the state would receive funding to supplement the trust fund from the federal government in late December, when Congress passed a $900 billion federal stimulus bill. But no funds ended up being allocated to state and local governments.
There had been discussions over the summer of the state borrowing over $1 billion from the U.S. Department of Labor in order to replenish the fund. But that loan never materialized either. Prior to the allocation announced Wednesday, no significant portion of money had been transferred into the fund during the pandemic.
“It’s a tax on employers that comes strictly from employers, so this is really one of the first times that you’re going to see the state stepping in to try to make that fund whole,” Locklair said.
In addition to the $1.1 billion allocation, the General Assembly is also exploring options of how to lessen the burden of unemployment insurance tax rate increases on business owners. One bill, sponsored by Sen. Stephen Hershey, R- Caroline, Cecil, Kent and Queen Anne’s, would make it so that, if the tax rate does need to increase due to the impact of the pandemic, it will increase incrementally over the next three years, rather than jump immediately from the lowest to the highest rate. The bill was approved with amendments in the Senate Finance Committee on Thursday.