A key element of a controversial decision to lower the state’s unemployment insurance benefits came to fruition Tuesday when North Carolina paid off the final portion of a $2.8 billion debt to the federal government.
Gov. Pat McCrory hailed the accomplishment, of which $2.5 billion in payments occurred since he took office.
“This will give employers certainty about the cost of doing business in North Carolina,” McCrory said.
The General Assembly passed legislation in 2013 that targeted the elimination of the debt to the U.S. Labor and Treasury departments. The state borrowed money to pay extended state UI benefits from 2008 to 2011, having at one time one of the largest borrowing totals in the country.
The debt settlement presents employers with the first of two projected breaks on their UI payments for each worker.
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However, it doesn’t appear likely that another part of the law — which drastically cut the maximum weekly benefit amount and amount of benefit weeks — will be altered anytime soon.
The law established a sliding scale with a maximum amount of 12 to 20 weeks and a minimum amount of five to 12 weeks. Previously, North Carolina provided a maximum of 26 weeks. The law also reduced the maximum weekly benefit from $530 to $350.
The number of benefit weeks rise or decline with every 0.5 percentage point move in the state’s jobless rate, with 9 percent the maximum possible rate and 5.5 percent the minimal.
The overall minimum UI benefit range goes into effect the first week of July. The maximum already is below the average UI claimant duration of 17.5 weeks, according to the N.C. Division of Employment Security.
McCrory, legislative leaders and some right-leaning analysts say the approach has put state UI benefits more in line with neighboring states. They also say the reduction has made individuals more willing to take available jobs — including at lower wages and potentially below their skill level — as their benefits run out.
Sen. Phil Berger, R-Rockingham, and president pro tem, said Tuesday the debt settlement represents a “tremendous burden off the backs of North Carolina businesses and creates a sustainable unemployment system.” Commerce Secretary John Skvarla III said the accomplishment “gives North Carolina a level (recruitment) playing field with 42 other states.”
In contrast, the left-leaning N.C. Justice Center says employers have borne about 22 percent of the repayment, while beneficiaries have contributed 73 percent through reduced benefits.
The N.C. chapter of the AFL-CIO called the extinguishment “a Pyrrhic victory.”
“Our leaders have balanced the books on the backs of jobless workers,” said MaryBe McMillan, the chapter’s secretary-treasurer. “This is as callous as it is counterproductive.”
Reducing benefits weeks
Dale Folwell, assistant secretary of the N.C. Commerce Department, said the final debt amount was paid mostly through collection of the first quarter’s employer tax assessment, which typically represents 50 percent of the annual amount.
The debt initiative will be complete when a $1 billion surplus is established in the state’s UI account as a rainy day fund for future economic downturns. That is expected to be accomplished in the first quarter of 2016, Folwell said.
The debt was created in part when a Democratic-controlled General Assembly approved a series of UI tax cuts in the 1990s when the state’s jobless rate was well below 5 percent, which economists consider full employment — when everyone who wants a job has one.
The tax rate was not increased for years even as the state and nation experienced two recessions because it was feared that doing so could deter employers from hiring.
Since 2011, employers have been required to pay an annual increase of $21 for each employee in the companies' federal UI tax until the debt was retired. The current employers’ UI tax is $125 for each worker.
With the debt extinguished, the amount of UI tax for each worker drops to $42, retroactive to Jan. 1. That is expected to save employers a combined $280 million in 2015.
When the $1 billion surplus is created, a 20 percent surcharge on another per-worker tax expires, worth another $275 million in annual savings, Folwell said. That surcharge is related to the number of job cuts an employer makes, with a higher tax applied for more eliminations.
Rep. Julia Howard, R-Davie, and a key supporter of the 2013 legislation, said she hopes the completion of the overall initiative will put the state in position to “hopefully never face this issue again.”
“I believe it was the right thing to do, proud of our work on (the bill).”
Alexandra Sirota, director of the Budget & Tax Center, a project of the N.C. Justice Center, said her concern is that North Carolina “is poised to repeat past mistakes by reducing employer taxes even further, as a result of arbitrarily low solvency targets, in the next year and positioning the system for the next downturn on a very weak foundation.”
There was no mention of the UI benefit reductions by McCrory and other legislators in their announcement. A total of 42 states still offer the 26 weeks.
North Carolina also became the first state to base UI payments on claimants’ last two completed quarters of earnings, rather than the traditional average of their two highest payment quarters. That means claimants affected by illness, reduced hours or seasonal layoffs would receive lower UI benefits.
Senate Bill 15 would set the minimum number of weeks at 12. It has not been acted upon since being placed Feb. 24 in the House Committee on Rules, Calendar and Operations. The Senate passed the bill by a 40-6 vote.
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