AUGUSTA – Starting Jan. 1, the taxes Maine employers pay to fund the state unemployment system will go up nearly $14 million. Employers say that will hurt the economy, even though the increase is less than projected last winter.

“I have just finished working on the numbers,” said Laura Boyett, director of the Bureau of Unemployment Compensation. “In using the current economic assumptions on where the state will be next year in terms of layoffs, we will be moving from Schedule A to Schedule B.”

The unemployment compensation system taxes employers to fund the compensation paid to workers who are laid off. Boyett said Maine employers pay taxes based on a number of factors. Basically, the more an employer uses the system, the higher the tax rate.

She said the minimum rate will go from 0.44 percent to 0.52 percent, with the maximum staying at 5.4 percent. That will generate approximately $13.8 million in additional funds, increasing the total tax revenue in 2005 to about $96.5 million. That is about a 16.7 percent increase in revenues.

“Any increase is going to hurt,” said Dana Connors, president of the Maine State Chamber of Commerce. “I am trying not to be too critical here, I want to be fair, but I thought the trust fund was in good shape and I need to understand why they need an increase.”

Boyett said the increase is dictated by the 1999 reform law that requires the state to maintain enough reserves to pay for 20 to 21 months of benefits based on the average of the three highest years of payout over the last two decades. The fund was at $429.5 million on Sept. 30, the date on which computations are based. The reserve is down $7.3 million from last year.

“The combined effects of more unemployed individuals collecting benefits over a longer duration had the effect of drawing down the unemployment trust fund,” wrote John Dorrer, director of Labor Market Information Services, in a department memo explaining the tax hike. “While economic and labor market conditions are now again improving, the need to catch up and restore the required reserves of the unemployment insurance trust fund necessitates a tax increase in 2005.”

Figures developed by Dorrer’s bureau indicate the average duration of unemployment has increased from 14.1 weeks in 2001 to 18.3 weeks in 2003.

Maine’s unemployment tax rate was ranked 35th among the 50 states, Puerto Rico, the Virgin Islands and the District of Columbia in a study by the National Foundation for Unemployment Compensation & Workers’ Compensation released this summer. That study said that over the last two years, average unemployment tax rates have increased nearly 50 percent across the country.

Boyett said Maine’s overhaul in 1999 was a series of compromises between employer and labor groups that has resulted in a healthy trust fund. The bottom line was higher tax rates for most employers and a tax on the first $12,000 of wages, up from $7,000.

For employers at the minimum tax rate, the cost per employee will go from $52.80 to $62.40 a year.

Employers are also concerned the increase may only be the first hike they face in 2005. The coverage of part-time workers will expire next September, as part of a “sunset” provision, if lawmakers do not vote to extend the program.

“I have never seen a sunset really sunset,” said David Clough, Maine director of the National Federation of Independent Businesses, “so we are looking at a tax increase to pay for that.”

More than 9,000 Mainers receive some level of state-funded unemployment benefits every week. Individual payments are based on what a person was earning before being laid off, with a maximum payment of $302 per week for an individual with no dependents. An additional $10 a week is added per dependent.