North Carolina has an urgent fiscal crisis that requires state leaders’ attention and a solution that matches its size and scope. The crisis is a job-squashing $2.4 billion debt to the federal government for money borrowed to pay the state’s share of unemployment benefits it could not afford during the recession and its aftermath.
The massive debt is triggering annual federal tax increases on employers that started this year, threatening jobs at a time when our unemployment rate is still higher than the national average. This tax increase on jobs has already cost employers an average of $21 per employee. The jobs tax will continue to rise by roughly the same amount every year until the state’s debt to the federal government is repaid.
Our unemployment insurance system is broke, with an unsustainable annual deficit of $470 million per year. Complicating the debt crisis is overwhelming evidence that our UI system is in need of a complete overhaul.
North Carolina’s unemployment insurance system is broke and broken. The state agency in charge of unemployment benefits reflects poor management and a glaring lack of accountability. Federal data released last fall showed half-a-billion dollars in unemployment payments in North Carolina that should not have been made between 2008 and 2011.
It gets worse. A recent investigation by WRAL uncovered serious problems that contribute to unemployment insurance fraud going back 15 years. Not only does the Division of Employment Security have difficulty determining whether someone is actually eligible for unemployment benefits, but it also often doesn’t know when the benefits should stop. (One example involved three inmates charged in a scheme to collect unemployment while in jail!)
According to the U.S. Department of Labor, North Carolina had the worst scores in the country on important quality control measures in the last quarter. Of 120 quality checks performed by the department on our state’s unemployment agency since 1997, it has passed only twice.
Amid these disturbing revelations is another major failing. The system is not helping unemployed North Carolinians get back to work – the core reason for existence. Instead, data shows that its misplaced focus is on ensuring claimants receive benefits rather than jobs. Is there a greater disservice to the jobless and their families in our state than this one?
It is past time for comprehensive reform that addresses the staggering and persistent problems in our state’s UI system, along with a plan to pay off the debt to the federal government that is increasing taxes on employers and threatening jobs. To that end, the N.C. Chamber has commissioned an extensive study of the system in order to develop a data-driven solution for state leaders to consider. The study will bolster recommendations that will return the system to a position of solvency, and restore integrity and affordability to ensure that jobless workers and businesses alike can count on it in the future.
Solvency – We must provide bonding authority to cover the $2.4 billion debt owed to the federal government to prevent additional federal tax increases on jobs. Bonding the debt will allow us to pay it off at a lower interest rate, bring predictability necessary for job creation to businesses and save employers approximately $200 million.
Integrity – We must make sure that unemployed North Carolinians who are receiving benefits are actively seeking jobs, and that unemployment benefit checks are delivered only to those who deserve them. Money for unemployment benefits comes solely from employers and we must restore confidence that their investments are not being recklessly spent or wasted. We also have to change the system so its focus is on re-employment rather than unemployment.
Affordability – We must ensure North Carolina’s competitiveness when it comes to attracting jobs and investment, while being fair to those in our state who are currently unemployed by making sure changes do not impact existing benefits already being paid. The truth is that our state’s paid unemployment benefits are higher than the national average and states around us.
Comprehensive reform to address the solvency, integrity and affordability of North Carolina’s UI system is critical to job retention, creation and economic recovery. We did not become mired in this downward-spiraling crisis overnight and we will not fix things overnight. Years of inattention and neglect have contributed to our debt crisis and changes that are needed will require courage, leadership and time to implement.
The N.C. Chamber is committed to working with state leaders, legislators and the employers who fund the UI system to overcome our unemployment insurance crisis without hampering job growth. There are 450,000 unemployed North Carolinians counting on us.
Lew Ebert is president and CEO of the North Carolina Chamber, the statewide Chamber of Commerce.