The N.C. Chamber wants the state to rein in future unemployment benefits and issue bonds to pay off the $2.4 billion in debt the state owes the federal government – money that it borrowed to pay benefits to jobless workers.
Both measures would require action by the legislature, which reconvenes Wednesday. The Chamber is the lead advocate for the state’s business interests and wields considerable clout.
The current system is a “jobs killer” because of the higher unemployment taxes that the state’s employers must pay, said Chamber lobbyist Gary Salamido.
The bonds the Chamber is proposing would be paid off by unemployment taxes collected from the state’s employers. But the employers could save more than $200 million in taxes because of lower interest rates and by eliminating the extra tax they pay as long as the state is in debt to the federal government, Salamido said.
The Chamber also is advocating that the state scale back unemployment benefits so that it doesn’t rack up new debt moving forward. The cutbacks it is pushing – reducing maximum weekly benefits from $506 to $350 and reducing the maximum length of unemployment benefits paid by the state from 26 weeks to 20 weeks – would be prospective and wouldn’t affect what currently unemployed workers receive.
Today, any benefits that unemployed workers receive beyond 26 weeks are funded by the federal government. Extended federal benefits are set to expire at the end of this year, although Congress could act to extend them.
One advocacy group official believes the Chamber’s agenda would unfairly punish vulnerable unemployed workers in order to fix a problem that stems from a series of cuts in the unemployment taxes paid by employers. Those cuts were implemented by the state in the 1990s.
“The basic rule is, when employees didn’t get the benefit of the tax cuts, they shouldn’t be the ones who pay for it,” said Harry Payne, senior counsel at the nonprofit N.C. Justice Center. Payne is a former chairman of what is now the state Division of Employment Security, which handles unemployment claims in North Carolina.
Hurt those who need it
Payne said cutting the weeks of benefits from 26 to 20 would be “especially onerous” because it would hurt those who need help the most. He suggested the Chamber may be overreaching as a political ploy designed to win the best legislation possible for its members.
Although the average unemployed worker in North Carolina receives roughly 16.5 weeks of benefits, that means a significant number receive more than 20 weeks, Payne said.
The state Treasurer’s office issued a statement highlighting problems with the Chamber’s bond proposal: “While a state bond would result in lower financing costs over the life of the debt, it would result in higher payments for employers in the early years of the debt.”
The Treasurer’s office also said the state is “very limited” in how much more it can borrow. The Treasurer’s office added that it is waiting for the General Assembly to complete its study of the state’s unemployment system, which may provide additional information.
The measures that the Chamber is advocating stem from a comprehensive study of the state’s unemployment system that it commissioned. The study, conducted by a Columbus law firm, hasn’t been released, but Salamido discussed its key findings and recommendations with The News & Observer on Tuesday.
DES Assistant Secretary Dempsey Benton hasn’t seen the study and has no comment on it, said agency spokesman Larry Parker.
Employers paying more
The study was triggered by the billions in debt amassed by the state since February 2009, when the state’s high unemployment rate caused it to run out of money for paying jobless benefits. Like many states, it began borrowing from the federal government.
That debt amounted to $2.84 billion as of April 6 and, as of May 11, totaled $2.41 billion, according to the U.S. Department of Labor. The amount of debt fluctuates as the state continues to borrow but also makes payments to the federal government.
The state makes payments as it receives quarterly unemployment tax payments from North Carolina employers, Parker said.
More than 20 states owe money to the federal government for unemployment benefits, but just three – California, Pennsylvania and New York – have a debt higher than North Carolina.
That debt came with consequences that grabbed employers’ attention. They are paying more in federal unemployment taxes this year, and they’ll be hit with annual increases amounting to $21 per worker until the debt is paid off.
Those annual increases would be eliminated by a bond issue because the state would no longer owe the federal government. Instead, the debt would be payable to bondholders.
Other states, including Texas, have issued bonds to pay off their federal government debt. North Carolina went with the bond option after the last recession, but its debt then was much smaller: $270 million.
Salamido said the state paid $1.41 billion in benefits last year and received $937.1 million in unemployment taxes paid by employers, producing a $470 million deficit.
“It’s just not sustainable,” he said.
Even if the maximum weekly payment to unemployed workers is cut from $506 to $350, Salamido said, North Carolina’s top benefit would still be higher than the maximum benefit in Georgia, South Carolina, Tennessee and Florida. Virginia’s maximum benefit is $378.
The Chamber also plans to push a host of administrative reforms that would, for example, ensure that those receiving unemployment benefits are actively seeking jobs and that state unemployment funds are doled out appropriately. Federal data issued last fall showed that the state paid out $533.9 million more in unemployment benefits over three years than it should have.