This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. A new article is added each week – read all of MACo’s Policy Deep Dives.
What Is Unemployment Insurance?
The federal-state unemployment insurance (UI) system offers temporary financial support to individuals who have lost their jobs, helping to replace a portion of their income while they search for new employment. Established in 1935, this system functions as a social safety net, where employers pay taxes into a fund that provides income assistance to workers who become unemployed. Additionally, the UI system helps maintain consumer spending during economic downturns by ensuring that families continue to have money to spend.
The US Department of Labor oversees the basic UI program, which individual states manage. Typically, the program offers up to 26 weeks of benefits, replacing about half of the worker’s previous wages on average. States are primarily responsible for funding and disbursing these benefits, with the federal government covering only the administrative costs. Though states must adhere to some federal guidelines, they mainly have the autonomy to determine eligibility requirements and benefit levels. The federal government collects state and federal taxes and holds each state’s proceeds in a trust fund account.
In Maryland, the UI program is administered by the Maryland Department of Labor using BEACON, the Maryland Division of Unemployment Insurance (Division) online UI system. The weekly benefit amount in Maryland ranges from $50 to $430, and claimants may receive up to 26 weeks of UI benefits. UI benefits are subject to federal and state taxes. A claimant may choose to have federal tax (10%), Maryland state tax (7%), both, or no taxes withheld from the claimant’s UI benefits. Employers are considered contributory or reimbursable for unemployment insurance (UI) tax purposes. Contributory employers pay quarterly UI taxes based on benefit charges and taxable wages. Reimbursable employers (state and local government entities and specific non-profit organizations) may reimburse the state for benefits charged against their account instead of paying quarterly UI taxes.
Learn more about unemployment insurance here.
What Is an Unemployment Insurance Trust Fund and What Is Maryland’s Status?
Each state maintains its own unemployment insurance (UI) trust fund reserve built from state taxes, primarily on employers, and used only to pay for state UI benefits. States operate on a forward funding basis for UI, meaning states collect taxes from employers during economic growth or stability to build up their reserves in their UI trust funds to be adequately prepared for future recessions.
When trust funds are too low, and a recession hits, states must borrow from the federal government to ensure they pay benefits. They must repay these loans with interest within two years or face increased federal taxes on employers until they fully repay the loan. Recessions squeeze trust funds and can create solvency issues for state UI programs; the most recent example occurred in 2020 during the COVID-19 pandemic and recession. The Maryland Department of Labor has paid out close to $14.5 billion in unemployment benefits since the beginning of the pandemic. According to the Maryland Department of Labor, as of July 2024, Maryland’s trust fund balance is $1,985,656,722.91.
Solvency is essential when looking at different state’s trust funds. The minimum solvency level refers to the ability of the trust funds to pay 100 percent of currently scheduled benefits. To assess solvency, the US Department of Labor Office of Unemployment Insurance Division uses the Reserve Ratio, which compares the trust fund balance to the state’s total yearly wages. This ratio can be compared to the Benefit Cost Rate, which measures the amount paid in benefits relative to wages. Ideally, the Reserve Ratio should be higher than the Benefit Cost Rate to ensure the state is prepared for recessions. As of January 1, 2024, 19 states met the recommended solvency standard, an increase from the prior year.
Maryland’s trust fund balance from the Trust Fund Solvency Report:
- 1/1/2021: $84,016,516
- 1/1/2022: $1,250,458,436
- 1/1/2023: $1,489,626,061
- 1/1/2024: $1,866,540,791
Like every state, Maryland had a surge in unemployment claims during the COVID-19 pandemic, which burdened the UI trust fund heavily. Maryland received federal aid in the form of emergency funding and federal loans. Maryland has paid back its loans and met the recommended solvency level in 2024. The recommended solvency level is 1.0; Maryland has successfully met the recommended solvency level in 2024 with a balance of 1.09, reflecting a recovery from 2023’s level of 0.92, but the state must remain vigilant to maintain this healthy balance given the past challenges to its UI trust fund.
How Maryland compares to other states in the most recent data from the US Department of Labor Office of Unemployment Insurance Division:
Looking Ahead
In the 2024 legislative session, MACo opposed legislation that would have significantly changed how Maryland calculates unemployment insurance (UI) benefits and contributions. HB 205/SB 104 intended to double the minimum and maximum weekly benefits range used to determine weekly benefit amounts. These changes would have created a substantial fiscal challenge for counties, which are not direct contributors to trust fund but would be required to pay the greatly enhanced benefit levels.
Currently, unemployment benefits range from a minimum of $40 per week to a maximum of $430 per week. Under HB 205, the minimum weekly benefit would rise to 15 percent of the state’s average weekly wage, or $232—an increase of five times the current minimum. The maximum weekly benefit would increase to 66 percent of the state’s average weekly wage, or $961—more than double the current cap. In simpler terms, HB 205 would more than double the weekly unemployment benefits, with the new, significantly higher benefits fully implemented by 2027—an expedited timeline for such major policy changes.
Counties, as employers, could face financial impacts from HB 205. County governments don’t contribute to the State-managed trust fund because they are self-insured and pay benefits directly. However, unlike other private employers, they face unique financial challenges. MACo expects the legislation to resurface in 2025 with sweeping changes to the state-run unemployment system, significantly affecting county governments, even though they are not part of that system.
Closing
Maryland’s unemployment insurance system is essential for supporting workers and sustaining the economy during downturns. However, potential changes to the system could have significant financial implications for counties. Despite operating outside the state trust fund, counties face unique challenges as self-insured employers. As discussions around unemployment insurance reform continue, it is crucial for county governments to engage proactively. Ensuring that any changes consider the distinct fiscal realities and responsibilities of Maryland’s counties.
Stay tuned to Conduit Street for more information.
