An advocacy group is urging state legislators to resist the temptation to slash benefits for jobless workers as they seek a way to repay the $2.8 billion in debt facing the state unemployment system.
Cutting unemployment benefits would hurt “the most vulnerable people in the state,” said Harry Payne, senior counsel of the nonprofit N.C. Justice Center.
Moreover, the impact would ripple throughout the state’s economy in the form of “more bankruptcies, fewer customers and more foreclosures,” Payne said Wednesday afternoon during a session with editors at The News & Observer. Payne is a former chairman of the state Employment Security Commission, now the Division of Employment Security.
After the unemployment rate soared during the recession, in February 2009 the state ran out of money to pay jobless benefits and began borrowing from the federal government. The money was used solely for the first 26 weeks of unemployment benefits; any benefits unemployed workers receive beyond that are paid by the federal government.
As of April 6, the state’s debt stood at $2,842,492,260.61, according to the U.S. Department of Labor. States across the country have borrowed from the federal government to make their unemployment payments, but only three – California, New York and Pennsylvania – owe more than North Carolina.
This year, for the first time, the debt hit the state’s employers in their collective wallets. They are paying more in federal unemployment taxes this year, and they’ll be stuck with annual increases amounting to $21 per worker until the debt is paid off.
That has sent state legislators and others scurrying to find a more palatable solution. Lawmakers are expected to take up the issue when they convene in May.
The influential N.C. Chamber of Commerce has commissioned a study to analyze the state’s unemployment system, identify the best practices of other states and recommend how to return the state’s unemployment insurance trust fund to solvency. That study, which is expected to be completed later this month, also will look at ways to get people back to work.
Options legislators could consider include raising state unemployment taxes – which employers pay in addition to federal unemployment taxes – reducing unemployment benefits and issuing bonds. The latter wouldn’t erase the state’s debt, but it would enable the state to repay the federal government, which would mean that employers would no longer have to pay higher federal unemployment taxes.
Another option is to do nothing. But going that route, Payne said, would mean that the state wouldn’t finish repaying the federal government until 2019.
Payne said cutting either the amount or the duration of state unemployment benefits would be unfair because today’s jobless aren’t to blame for the state’s debt. He traced the debt to a series of cuts in state unemployment taxes instituted by the legislature in the 1990s, when the economy was humming along and the state unemployment fund had hundreds of millions of dollars in reserve.
“It was a time when the sky was quite blue and was always going to get bluer,” Payne said.
The Justice Center is advocating that the state substantially boost the unemployment insurance rates for new businesses, a move Payne said would spread the burden faced by employers. It is pushing also for an increase in the amount of wages subject to taxes paid by employers, currently 50 percent of the state’s average annual wage.
But Gary Salamido, a lobbyist for the N.C. Chamber, cautioned that it would be a mistake for the legislature to focus on any one element of the unemployment system.
“We have to look at the system comprehensively,” he said.
Payne and Salamido agree on one point: Both would like to see the state invest in efforts that would reduce unemployment and get people back to work.
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