North Carolina has run into some tough economic times in recent years. More than 300,000 workers in the state lost their jobs in the Great Recession starting in 2008.
The cost of paying unemployment compensation benefits completely drained the Unemployment Trust fund, so the state had to borrow the money from the federal government. Now, NC owes the third highest debt of any state to the feds - $2.48 billion.
How did things get so bad? When the economy was so strong in the 1990s, businesses began clamoring for tax breaks to reduce the amount that they had to pay into the Trust fund. In fact, they got a series of cuts so the money simply was not available when the big layoffs started hitting in 2008. Moreover, the legislature got so soft on business that 19,000 companies are currently getting a free ride – they pay nothing into the state’s unemployment Trust.
A Big Problem
The money to pay off the debt can come only from three sources: NC taxpayers, businesses or the unemployed. There is no political will to pay down the debt by raising taxes so the burden is falling to businesses and the unemployed.
The NC Joint Revenue Laws Study Committee recently passed a bill that Republican leaders said would “reform” the state’s unemployment system. The Chamber of Commerce praised the new bill and its spokesman, Gary Salamido, said that it showed “business is willing to do its part” to settle the debt.
Let’s Take A Look
The bill calls for businesses that are already paying into the Trust to increase their payments by $21 per year per employee for each of the next 3 years. This means an increase to the businesses each year of about 40 cents per week.
Those companies who have gotten away with paying nothing into the Trust now must pay $126 per year for each employee who is paid $21,000 or more. The rate is lower for employees who are paid less. The higher rate will cost these companies about $2.42 per week per employee.
Unemployed Take the Hit
Recall that the state’s debt is $2.48 billion, so these small increases called for from businesses come nowhere near paying off the tab. As a result, the bill creates a far different set of circumstances for the unemployed.
The highest rate paid to a laid off worker will be slashed from $525 per week to $350 under the Republicans’ bill. This is a $175 cut per week, or a 1/3 payment reduction, for a working family that has hit hard times.
Moreover, the bill would cut the maximum length that an unemployed person can collect payments from 26 weeks to 20. The length is set to fall to hit 12 weeks if the state’s unemployment rate falls to 5.5%.
“This is unconscionable,” observed Local 391 President Mike McGaha. “It is completely unfair that legislators are planning to place the burden of this huge debt on the unemployed.”
Experts say that the entire debt would be paid off by 2018 if there were no changes to the current unemployment system. However, since federal rules require businesses to pay the increased amounts noted above, the Chamber of commerce and the Republican leadership is calling for quicker action. By slashing both the amount and duration of payments to laid off workers, the bill would have the debt paid off three years earlier, in 2015.
“The Republican leadership is acting immorally,” said Chip Roth, Local 391’s spokesman. “These cuts in payments will mean that too many North Carolina families and children will go without basic necessities like utility payments and food.”
The bill will have to pass both chambers of the General Assembly and be signed by the Governor to take effect. It would not make any cuts to those who are currently receiving benefits. However, it is quite likely that many workers will continue to lose their jobs since North Carolina’s economy remains so soft with a current unemployment rate of 9.3%. They will be hit hard if the bill becomes law.
NC BUDGET & TAX CENTER REPORT: Ignoring Lessons from the Past in Unemployment Insurance Financing
Raleigh News & Observer: “State Bill Calls for Reduced Benefits for Laid-off Workers”
Raleigh News & Observer editorial: “Wrong Target”