Committee on Unemployment Insurance Oversight
2005 Interim
Maryland General Assembly
Committee on Unemployment Insurance Oversight
2005 Membership Roster
Senator Thomas McLain Middleton, Co Chairman
Delegate Ann Marie Doory, Co-Chairman
Senator Nathaniel Exum
Senator Delores G. Kelley
Delegate Carolyn Krysiak
Delegate John G. Trueschler
Representative of the Department of Labor, Licensing, and Regulation
Mr. Thomas Wendel, Assistant Secretary
Department of Labor, Licensing, and Regulation
Representative of the Department of Business and Economic Development
Mr. Miles Cole
Department of Business and Economic Development
Representative of the Maryland Retailers Association
Mr. Tom S. Saquella, President
Maryland Retailers Association
Representative of the Job Opportunities Task Force
Mr. Jason Perkins-Cohen, Executive Director
Job Opportunities Task Force
Representative of Union Labor (Maryland State and District of Columbia AFL-CIO)
Mr. Ernie Grecco, President
Metropolitan Baltimore Council AFL-CIO Unions
Representative of the Maryland Chamber of Commerce
Mr. Ronald L. Adler
Laurdan Associates, Inc., H.R. Consulting
Representative of the Academic Profession
Anirban Basu, M.A., M.P.P., J.D.
Chairman & CEO, Sage Policy Group & Senior Lecturer
Towson University, Sage Policy Group
Committee Staff
Tami Burt
Ann Marie Maloney
December 19, 2005
The Honorable Thomas V. Mike Miller, Jr., President of the Senate
The Honorable Michael E. Busch, Speaker of the House of Delegates
The Honorable Members of the Maryland General Assembly
Ladies and Gentlemen:
The Committee on Unemployment Insurance Oversight was created pursuant to Chapter 169 of 2005 to continue the work of the Unemployment Insurance Funding Task Force, which provided recommendations to reform the unemployment insurance tax system; those recommendations became law under Chapter 169. The new law replaced the current single schedule of experience tax rates and the flat-rated surcharge system with an overall more experienced rated system (comprised of six tables based on the balance of the trust fund and no surcharges) and increased the maximum weekly benefit from $310 to $340, effective October 1, 2005.
The recommendations were aimed at improving the solvency of the trust fund, as well as overall fairness for both contributors and recipients. The task force agreed extensive changes to the system were not appropriate at the time, but that further improvements to the system may be considered in the future. Accordingly, the legislation created this committee to monitor the impact of Chapter 169 on the unemployment insurance tax system and examine any additional alternations that may be needed for charging and taxation or eligibility and benefits. The committee must report its preliminary findings and recommendations by December 31, 2005, and final recommendations by December 31, 2006.
2005 Interim Meeting
The committee met on December 1, 2005, and received an update from representatives of the Division of Unemployment Insurance in the Department of Labor, Licensing, and Regulation (DLLR) on the condition of the trust fund and the implementation of Chapter 169. The trust fund balance as of September 30, 2005, was $883.4 million. With this balance, employers will be assessed tax rates under Table B for calendar 2006. Accordingly, under this table, beginning in January 2006, there will be 29 tax rates in effect ranging from .6 percent to 9 percent, which will allow minimum rated employers to pay $42.50 less per employee than last year and maximum rated employers will pay $59.50 more per employee. By comparison, there were 73 rates in effect during 2005, with rates ranging from 1.1 percent to 8.3 percent. About 94 percent of employers will pay less during calendar 2006, with 6 percent paying more. DLLR has notified employers that the new rates will be mailed in mid-January.
The Honorable Thomas V. Mike Miller, Jr., President of the Senate
The Honorable Michael E. Busch, Speaker of the House of Delegates
The Honorable Members of the Maryland General Assembly
December 19, 2005
Page 3
The committee was also briefed on the implementation of Chapter 610 of 2005, departmental legislation enacted as a requirement of federal law to prevent companies from engaging in “SUTA dumping.” As a form of leakage, SUTA (State Unemployment Tax Avoidance) dumping is the practice of an employer avoiding a high unemployment insurance tax rate (based on its history in the system) by either forming a new company to get a lower unemployment tax rate or buying an existing firm with a low number of unemployment claims and using the second firm’s lower rate. DLLR advised that it has begun training employees to use new software that will enable better identification of SUTA dumpers and that several employers who may be engaging in this practice have been identified through manual procedures. Also, final regulations are expected to be published in December 2005.
Workgroup to Review Funding Issues
All administrative costs incurred by DLLR which relate to the unemployment insurance tax system, including the SUTA dumping computer system, is federally funded under the Federal Unemployment Tax Act (FUTA). The source of these funds is from FUTA taxes paid by employers to the Internal Revenue Services at a rate of .8 percent on the first $7,000 each worker earns. At the December 1 meeting, DLLR expressed concern about available federal funding to administer the unemployment insurance tax system, noting that federal budget cuts appear imminent for the next fiscal year. Federal funding for the unemployment insurance tax program has declined by almost 15 percent between 2003 and 2006. Accordingly, the co-chairs requested that a workgroup be formed to discuss several funding issues that DLLR mentioned at the meeting.
· Current State law restricts the use of penalty and interest revenue to rent and capital costs. Penalties and interest funds collected on employer tax or report delinquencies and unemployment insurance benefit overpayments collected from claimants (approximately $3.4 million per year) are deposited in the Special Administrative Expense Fund (SAEF).
The Attorney General has stated that these funds cannot be used for administrative or maintenance costs. DLLR has previously used most of the funds for rent and land acquisition, but these needs have declined, while technological upgrades, which are ineligible for these funds, have become a priority.
Additionally, State law requires unused funds over $250,000 at the end of the fiscal year to revert to the general fund (about $313,000 in fiscal 2005). Most states use penalty and interest funds to offset federal under-funding of their unemployment insurance tax systems, as well as to make critical program improvements, prevent fraud, and acquire or maintain computer technology.
· The U.S. Department of Labor (DOL) collects FUTA taxes paid by employers in all states and directs the amount of federal contributions to each state for use in paying for their unemployment insurance tax systems (includes job services and labor market information services). DOL contributions to Maryland average less than a 61 percent return (50 percent for fiscal 2005) of FUTA taxes paid by Maryland employers. As a long-term solution to the perpetual under-funding of the unemployment insurance tax system, DLLR suggested that the committee may want to consider allowing DLLR to collect FUTA taxes from Maryland employers, making Maryland the first state to collect its own FUTA taxes. Under this scenario, a .2 percent FUTA tax would be submitted to DOL. DLLR would determine the remaining tax rate assessed on employers to be used pay for the administrative costs of the system, an amount which is projected to be less than .6 percent.
Workgroup Meeting
The workgroup met December 19, 2005, to discuss the aforementioned issues. The workgroup is interested in pursuing a change in State law to allow penalty and interest funds to be used for unemployment insurance tax system administrative costs and prevent unspent funds from being reverted to the general fund. The workgroup heard from DLLR about its suggestion to allow DLLR to collect FUTA taxes from Maryland employers; given the complexity that would be involved in making this significant change, the workgroup expressed some interest in hearing back from DLLR after its planned meeting with DOL in mid-January 2006.
No Committee Recommendations At this Time
At this juncture, the committee does not offer any recommendations for alterations to the unemployment insurance tax system; however, it may be interested in pursuing the feasibility of legislation to allow DLLR to use penalty and interest funds for unemployment insurance administrative costs and use certain federal funds to make technological upgrades. The committee will discuss the recommendations of the workgroup at its next meeting in late January 2006.
The committee would like to express its appreciation for the time and effort invested by all members and agency staff during the 2005 interim. The committee looks forward to the same spirit of cooperation and assistance during the upcoming 2006 legislative session.
Respectfully submitted,
Thomas McLain Middleton Ann Marie Doory
Senate Co-Chair House of Delegates Co-Chair
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