Unemployment tax rate to remain stable

AUGUSTA – The tax employers pay to fund the state unemployment system will stay at current rates for 2007, Labor Commissioner Laura Fortman said Monday.

But even as business groups were pleased with the good news, some expressed concern about potential attempts to expand benefits in the new Legislature, including a likely push to make permanent a program to pay unemployment benefits when part-time workers are laid off.

“This year, for the third year in a row, we will remain at schedule B, the next-to-the-lowest contribution rate schedule we have,” Fortman said. “That means for most employers, their tax rate will not change.”

She said the exception to that will be employers that have used the system more than others. The tax is determined not only by what is needed overall to keep the trust fund that pays the benefits healthy, but also by how much the fund is used to pay out benefits.

“A few employers that have used the system a lot will see an increase,” Fortman said.

The trust fund now has $441 million in reserves, which is enough to pay benefits for 21 months should an economic downturn occur. Employers pay the tax that funds the benefit program; employees do not contribute to it.

Representatives of the business community said it is certainly good news when businesses know the tax rate will be stable for another year. There had been concerns expressed earlier this year that there would have to be an increase in the tax rate.

“It certainly is good news to see that UI taxes are not going up,” said Peter Gore of the Maine State Chamber of Commerce. “But with a large cushion in a very healthy fund, I guess all I can say is, ‘Why are they not going down?’ That would be really good news.”

David Clough, executive director of the National Federation of Independent Businesses in Maine, agreed that the news was good, but shared Gore’s concern that if the fund is in good shape, perhaps taxes should be reduced.

“But it is still good news that taxes are not going up. It gives stability to employers,” he said.

Fortman said the health of the trust fund will bolster her argument that part-time worker unemployment benefits should continue. The program will end in 2008 unless lawmakers extend it for some period of time or make it permanent.

“It has not caused the tax rate to go up in the three years,” she said. “That is good evidence it is working as we said it would.”

Fortman said the department will be asking the Legislature to make the program permanent, and employer groups responded they will still oppose that step.

“I think that it is important to remember that any time you look at the health of the system, it is a snapshot,” Gore said. “Maine’s economy is not growing like other states and if the economy goes down, this fund will pay the benefits to workers and that will lead to [unemployment] taxes going up.”

Clough said there will be strong opposition to continuing the part-time benefit program because employers are convinced it will lead to higher taxes eventually.

“I don’t accept the notion that you can expand benefits or grant a new benefit and not have an increased cost,” he said. “The question is not whether it will cause a tax increase, it is when will we see that increase.”

Clough said the timing of the increase may have been slowed by the several initiatives taken by the Department of Labor to reduce costs. Fortman said there has been a decrease in the average duration of benefits from 16.3 weeks to 14.6 weeks. She said there are also fewer workers exhausting all 26 weeks of regular benefits.

Ed Gorham, president of the Maine ALF-CIO, said earlier this year he expected there would be “several” initiatives in the new Legislature to expand benefits. Neither Gore nor Clough doubts that.

“There are a number of groups who see the unemployment insurance trust fund as some sort of piggy bank they can raid periodically,” he said.

Clough said he would not be surprised to see lawmakers next session address proposals to increase the maximum benefit and make the eligibility easier, in addition to a request to make the part-time benefit permanent.

“I expect we will see several proposals,” Gore said. “I expect it will be a busy session.”