RALEIGH — A controversial bill to overhaul the states unemployment system is poised to be introduced when the state legislature convenes at the end of this month after a draft proposal was voted out of committee Tuesday.
The Republican-backed proposal, which would cut the maximum benefits paid to unemployed workers by roughly one-third, has the support of the N.C. Chamber, the influential voice of the business community. But advocates for the poor have criticized the proposal for favoring the interests of business and hurting workers who lost jobs through no fault of their own.
Among other changes, the proposal calls for cutting the maximum benefits paid to unemployed workers from $535 a week to $350. The changes in unemployment benefits would go into effect July 1 if the proposal becomes law, although those currently receiving benefits wouldnt be impacted.
No state has ever cut their maximum benefit so severely, George Wentworth, senior attorney at the National Employment Law Project, said at a press conference after the measure emerged from the Revenue Laws Study Committee.
The proposal also would reduce the maximum weeks of benefits from 26 to a sliding scale of between 12 and 20 weeks, depending on the prevailing unemployment rate.
Wentworth said that if the proposal had been in effect last year, the amount of unemployment benefits paid by the state would have been cut in half from roughly $1.4 billion to $700 million hurting the economy as well as unemployed workers. (Currently the state pays the first 26 weeks of benefits, with any benefits beyond that point provided by the federal government.)
Unemployment insurance helps stabilize local and state economies, Wentworth said.
Rep. Edgar Starnes, a Caldwell County Republican, said during the committee session that cutting the maximum benefits would only affect high-income earners eligible for the full amount.
This would not affect the average worker in North Carolina, Starnes said.
That depends on how you define high-income workers, Wentworth countered, noting that employees making in the neighborhood of $52,000 a year are eligible for maximum benefits.
The proposal, first unveiled last month, was voted out of committee after minor tweaks Tuesday morning. The GOP-dominated legislature could take up the proposal as early as January 30, when it convenes in Raleigh.
$2.56 billion debt
The effort to reform the system is being driven by the states $2.56 billion debt to the federal government, money it borrowed to pay for jobless benefits when the ranks of the unemployed soared during the recession. The states 9.1 percent unemployment rate remains well above the national rate of 7.7 percent.
That debt has triggered higher federal unemployment taxes for businesses, which are scheduled to rise at a rate of $21 per employee per year until the debt is erased. Individuals dont pay unemployment taxes; businesses pay both federal and state unemployment taxes.
The proposal before the legislature would enable the state to pay off the federal debt in 2015, compared to 2018 if the state does nothing.
Just as North Carolina has been saddled with one of the highest unemployment rates in the country, North Carolinas businesses have been saddled with this unemployment debt for too long with no light at the end of the tunnel, Andy Ellen, president and general counsel of the N.C. Retail Merchants Association, said in a statement issued Tuesday afternoon. Unless the General Assembly makes fundamental changes to the unemployment insurance system in North Carolina, the scheduled increases in unemployment taxes will simply stop any hiring momentum dead in its tracks.
Sen. Floyd McKissick, a Durham Democrat, said the vast reduction contemplated in the proposal is too much for jobless workers struggling to pay for housing, groceries and other necessities.
The extent to which we can look at some other options for helping us repay this debt expeditiously, it would behoove us to do so, McKissick said. I just think we need to have some compassion and respect for people who are probably at the most difficult and challenging point in their lives.
All of this will be debated further when its in the House and Senate committees, replied Sen. Bob Rucho, a Mecklenburg County Republican and committee co-chair.
In addition to cutting benefits for the unemployed, the proposal would also impact state unemployment taxes paid by businesses.
Last month the N.C. Justice Center, a Raleigh advocacy group, issued a report contending that the proposal actually would cut state unemployment taxes for a sizable chunk of employers.
However, the latest version raises the formula for figuring state unemployment taxes compared to the earlier proposal for companies that pay neither the highest nor the lowest tax rate by two-tenths of a percent of taxable wages, or $50.16 for each employee who makes at least $20,900. The latest version retains an increase included in the earlier proposal of six one-hundredths of a percent, compared to current rates, on employee wages of up to $20,900 for employers that pay the lowest and highest rates.
Rodney Bizzell, a legislative fiscal analyst, told the committee that thanks to the change in the latest proposal, most employers will see a slight increase in state unemployment taxes on top of their rising federal unemployment taxes. However, due to irregularities in the current law, he added, theres a small portion of employers that would see a tax decrease.
Bill Rowe, director of advocacy for the N.C. Justice Center, expressed skepticism about the impact of the changes and said he wanted to see the underlying data.
The proposal incorporates many of the recommendations the N.C. Chamber made last year, but doesnt include the centerpiece of the Chambers plan issuing bonds so that the state can pay off the federal debt, enabling employers to avoid serial increases in federal unemployment taxes. State Treasurer Janet Cowell advised legislators that borrowing that much money was beyond the states capacity and would jeopardize its coveted AAA credit rating, which enables the state to borrow at lower interest rates.
Lew Ebert, president and CEO of the N.C. Chamber, lamented in an interview Monday that former Democratic Gov. Bev Perdue and the Republicans in charge of the legislature for the past two years dropped the ball in recent years by doing nothing while the states debt to the federal government grew larger and larger.
On a bipartisan basis, there has been a failure to recognize that, through inaction, the decision we have made is a decision to make jobs cost more, he said.
But Ebert is upbeat about the prospects for ending that inaction.
I think we have a new governor who is very aware of this situation, he said of Gov. Pat McCrory, a Republican who was sworn into office Saturday. He understands the math of owing ($2.56 billion) and addressing that problem in a prudent fashion.
McCrory told the Greensboro News-Record on Tuesday that the unemployment proposal is the only plan I know of that will work, and that its likely to be one of the first pieces of legislation he signs into law.