Unemployment insurance fund poses challenge

A potentially contentious issue may arise in this year's General Assembly when our state legislators convene in Annapolis this month.

Advertisement Maryland's unemployment-insurance fund is coming close to running a deficit due to the recession's impact on unemployment. Fortunately, our state has not yet borrowed from the federal government to meet its unemployment benefit obligations to Maryland citizens out of work.

Replenishing the unemployment insurance fund will pit state legislators, business interests and labor in a contentious discussion over how best to ensure its current and future solvency.

The choices available are limited to cutting benefits to unemployed citizens or raising the payroll tax on businesses. Maryland also has the option to seek a loan from the federal government to cover the potential fund deficit.

Unemployment benefits are funded by a payroll tax on employers that is collected at a rate that is supposed to keep the fund solvent in both good and bad economic times. The payroll tax varies among employers and industries based upon experience regarding rates of termination and layoffs.

The federal government covers administrative costs and any extensions of unemployment benefits beyond the standard 26 weeks. When deficits occur in a state's unemployment insurance fund, it may borrow from the federal government to cover those deficits.

Our current predicament in Maryland is the result of not only a severe economic downtown, but also the result of labor and our state legislators expanding unemployment benefits over the years, while businesses opposed increases in the payroll tax to fund those expanded benefits.

The net effect was the inability of all three parties to realize that we were setting ourselves up for significant solvency problems in the fund if the economy were to sour.

The stereotype of an unemployed worker no longer holds true. The effects of this recession have reached into all levels of employment - from blue-collared to professional workers, and also including business owners who have lost their businesses due to the recession.

Valuable employee skills and intellectual capital are at risk if Maryland fails to reasonably fund the basic needs of the unemployed who are out of work due to no fault of their own.

Maintaining a solvent unemployment insurance fund is in the best interest of government, labor and business. Out-of-work citizens need a dependable safety net until new employment is found.

Maryland businesses want to avoid the migration of unemployed skilled and knowledge-based workers to other parts of the country during times of economic uncertainty. Confronting a diminished available workforce when the economy rebounds will cause a significant hardship for Maryland's businesses and undermine the state's tax base.

The solution to the unemployment insurance fund's solvency concerns will probably result in an approach that incorporates both a temporary tax increase and benefits reduction in the near term, while devising a longer-term strategy to maintain the fund's solvency in anticipation of future fluctuations in the economy.

A collaborative dialogue between government, business and labor will yield realistic options around which a consensus may form to correct the trend toward fund insolvency and restore an appropriate benefit schedule consistent with maintaining a quality workforce in Maryland.

That collaborative dialogue will only be successful if government, labor and business acknowledge the roles they had in creating our current predicament, and agree to mutually work together toward a fair and equitable solution.