Unemployment insurance taxes drop

AUGUSTA – Instead of an expected tax increase to fund the state unemployment insurance system, employers will see a decrease in 2008, even with a new training fund and other changes adopted by the Legislature earlier this year.

“We were projecting the rates to go up by about $20 million,” Labor Commissioner Laura Fortman said in an interview Tuesday. “Instead, they are going down by about $10 million.”

In all, she said, employers will be paying $33.7 million less in taxes than they would have without passage of the bill overhauling the system.

She said utilization of the trust fund that pays benefits has been less than expected, and lawmakers adopted a measure reducing the size of the reserves from 21 months of payments to 18 months. The trust fund had $462 million accumulated at the start of this year.

Maine’s unemployment rate has been averaging 4.5 percent for several months. That translates to about 30,000 Mainers out of work and looking for work. Maine’s work force is an estimated 714,000.

“Some employers may see their taxes go up because of utilization,” Fortman said, “but most will see a decrease.”

Employers pay a tax on the first $12,000 of pay a worker gets at a rate that depends on utilization of the unemployment system. The lowest tax rate on the new scale is 0.42 percent and the maximum is 5.4 percent.

“As part of the overhaul, we are also excited about the creation of the competitive skills scholarship fund,” Fortman said. “That will help train workers that have lost their job get trained for jobs in areas where there is a need – skilled jobs that pay well.”

The fund gets its money from a 0.05 percent assessment on the $12,000 wage base. It is expected to generate $2.7 million in 2008.

“The scholarship fund is going to hopefully produce more skilled workers to fill currently high-skilled, high-demand jobs that are going unfilled in the workplace,” said Peter Gore of the Maine State Chamber of Commerce.

He said the overhaul legislation gained the support of the Chamber because of the training fund, which would address a serious problem facing many employers who have not been able to find skilled workers to fill vacancies. Examples of vacancies include those for health care professionals and metal workers.

But not all in the business community embraced the training fund. David Clough, executive director of the National Federation of Small Businesses, said his members were split on the issue.

“There was some concern that some small businesses were paying more into the fund than they would get in training for their business,” he said. “But some supported it as well.”

Clough said the fact that the taxes are going down is good news to businesses, already faced with increasing costs of health insurance and growing energy bills.

“I think small-business owners will be relieved not to have to pay as much in unemployment taxes as they would have under expectations earlier this year,” he said.

Some changes in the unemployment law increased the costs of the system. For example, seniors would benefit from removal of the current pension offset provision that reduces benefits for Mainers who receive Social Security. The pension offset has been a target of senior advocacy groups for years.

Also, the measure continued unemployment benefits for people who are able and available for part-time work. It was a pilot program scheduled to end next year.

The measure also allocated $5.2 million in federal funds to upgrade and improve the unemployment insurance and employment services computer systems at the Department of Labor.

Gore said he is concerned that the overall decrease was not larger. He said when the measure was before lawmakers, the savings in lowered tax rates was projected at more than $60 million over the next few years.

“I want to see the details on what they are projecting in the years ahead,” he said.

Gore said originally the Department of Labor had projected an increase in rates in 2008 with decreases in 2009 and 2010.

Fortman said rates are set every year in the fall for the next calendar year based on an analysis of actual usage of the system.