The sister cities of Bangor and Brewer are predicting that hundreds of city employees would lose their jobs under the proposed Palesky tax cap, and that means cutting into city coffers to issue unemployment checks because both cities offer direct reimbursement, officials say.

With direct reimbursement, both communities pay unemployment compensation costs out of pocket.

“This is going to be a cash payment” to employees laid off under the tax cap, Brewer Finance Director Karen Fussell said recently.

Bangor and Brewer officials say they would have to make significant cuts in the number of employees to offset the possible reduction in revenues. These cuts would require extensive payments totaling as much as $1.8 million for unemployment costs to both cities, not including school layoffs.

Most of Maine’s municipalities across the state face similar circumstances, according to Maine’s Department of Labor.

The Palesky tax cap, set to go before voters on Nov. 2, would cap property taxes at 1 percent or $10 per $1,000 of assessed property values for residents and businesses.

Tax cap proponents say that costs to taxpayers would be reduced under the initiative and municipalities would be forced to be more efficient.

“When you are talking about creating efficiencies, you are talking about less employees,” Tax Cap YES! volunteer Tom McBrierty said Monday.

Bangor is projecting the loss of 195 employees out of 500, or 39 percent, if voters pass the initiative on Nov. 2.

Brewer is expected to lose 38 employees, or 40 percent of its 95 city employees.

Bangor Assistant City Manager Robert Farrar said recently that, based on the city’s projected loss of 195 employees, Bangor could face unemployment costs of more than $1.5 million, if all the employees collected the maximum benefit of $302 a week for the 26-week maximum.

“But that’s all speculative. It’s all conjecture,” he said.

A more likely projection, he said, is a cost of $765,000, a figure that assumes that the average laid-off worker finds a new job after 13 weeks.

In Brewer, the city is predicting it would pay “around $300,000” in unemployment costs, said Fussell.

“That’s approximately $300,000 that we won’t have for other expenses,” the Brewer official said. “It’s a potential … [that] additional people could lose their jobs as a result.”

Brewer employees who earn more than $26,000 a year qualify for the $302 weekly maximum unemployment benefit. Each employee would take home about $7,800 total in unemployment checks during the 26-week period.

Any vacation or unused personal days also mean “another cash expense” for the cities because employees would be given those benefits upon termination, Fussell said. The unemployment costs would be above and beyond the projected decreases in property tax revenues if the Palesky tax cap passes, she said.

Though tax cap proponents have attended numerous speaking engagements, the issue of unemployment costs hasn’t arisen, McBrierty said.

“This is the first time I’ve heard this brought up,” the Tax Cap YES! volunteer said Monday.

Communities basically have two choices when it comes to unemployment compensation, Paul R. Haley, field adviser and examiner at the Department of Labor’ s Unemployment Compensation Tax Division in Bangor, said Tuesday.

“They can choose whether to pay into the [state unemployment] fund or become a direct reimbursement community,” he said. “If they don’t pay into a fund, they become liable for those benefits when they occur.

“They’re saying they’re going to take care of the benefits cost for all of their employees when they occur.”

Communities that have high turnovers often are the ones that contribute to the state unemployment fund, Haley said, though “it’s up to the individual town” to decide how to handle those costs.

“With [high] turnovers, it’s more advantageous to pay into a fund rather than pay for each individual benefit costs,” he said.

Communities that choose to do direct reimbursements must apply to the Department of Labor and must have a surety bond or certificate of deposit that equals 5 percent of total taxable wages.

In the local area, Hampden, Veazie, Orono and Old Town are direct reimbursement communities along with Bangor and Brewer.

Orrington is one area community that makes quarterly payments to the state’s unemployment fund.

The school departments of Bangor and Brewer also offer direct reimbursement when it comes to unemployment compensation, which means they, too, would have to pay laid-off employees out of pocket.

Bangor School Department is projecting losing up to 120 employees under the tax cap, and Brewer School Department is expecting to lay off 64 people.

The two school departments’ unemployment cost totals are projected at $1,235,000 – $785,000 for Bangor School Department and $450,000 for Brewer School Department.

Bangor Superintendent Robert Ervin recently projected that as many as 120 school employees could lose their jobs if the cap passes.

Alan Kochis, Bangor School Department’s business director, said that, based on 100 layoffs, the department’s unemployment costs could run as high as $30,000 a week.

In Brewer, the school’s unemployment costs are projected at approximately $450,000, with an average $279 per week unemployment benefit, Superintendent Betsy Webb said recently.

“In order to come up with that money, we’d have to reduce more positions,” the superintendent said.

City and school officials from both cities are echoing the same sentiment.

The city of Bangor and the Bangor School Department each set aside about $50,000 a year to cover the costs of unemployment but have yet ever to require that much.

The city of Brewer and the Brewer School Department also set aside funds, about $5,000 each, and they, too, usually do not use all of the funds.

“Historically, it has been more beneficial to be self-insured,” Webb said. “Unemployment has not been a large expense for the Brewer School Department because we have not laid off many people. Employees who have left our system mostly have retired or have moved out of the area.”

Each community will see a reduction in operating expenses, with the loss of employees, but these figures cannot be computed without knowing exactly who would lose their jobs.

No matter how the election turns out, Brewer city officials are going to look into the possibility of joining the state’s unemployment plan, Fussell said.

“This is just another example of how far-reaching Palesky is and how deeply it will affect the community,” she said. “There are so many hidden ways the Palesky initiative is going to affect communities and this is just one example. There are the things you don’t think about and this is just one of the illustrations.”