Tens of thousands of unemployed workers receiving federal emergency unemployment will likely lose their benefits starting July 1 as legislators overhaul the program.

Legislative leaders said this week that they will push ahead with a July 1 start to cuts in weekly benefits for unemployed workers. The measure would put the state in violation of the recently passed federal relief package that would have provided benefits to laid-off workers through December 2013. The federal legislation specifically forbid the states from altering the weekly benefit amount, which the General Assembly is poised to do as it returns to session Wednesday.

“It interferes with our expected legislation that we already had ready to go in December. We won’t let it continue,” said Rep. Julia Howard, R-Mocksville, head of the House Finance Committee who is shepherding a bill that would overhaul the unemployment system.

Federal emergency benefits for unemployed workers were extended for another year under legislation that prevented the U.S. from going over the so-called fiscal cliff – the automatic federal spending cuts and tax increases that were scheduled to take place at the beginning of this year.

As of Jan. 5, more than 85,000 laid-off workers in North Carolina collected federal emergency benefits and could have continued through year’s end. Some of the 128,000 unemployed on the state’s portion of benefits may also be affected, depending on when they transitioned from state to federal benefits.

Worker advocates called the measure unnecessary and shortsighted.

“This will push thousands and thousands of North Carolinians off an artificial cliff and deny hundreds of millions in dollars to businesses and communities. That money adds nothing to our debt and had already been appropriated,” said Harry Payne, former labor commissioner and worker advocate for the North Carolina Justice Center.

The extended benefits was being funded entirely by the federal government. Each week, that program funnels $25 million in benefits to about 85,000 laid-off workers.

“If anyone wants an example of thoughtlessness, I’ll hold this piece up high,” Payne said. “This is about not understanding what people are going through.”

Enhanced benefits

States and the federal government have enhanced unemployment benefits dramatically through the recession and its lackluster recovery. Currently, unemployed workers could receive up to 73 weeks of benefits, with 26 of those paid in taxes by North Carolina employers.

Howard, the legislator, said the program is far too generous and recipients are becoming reliant on benefits.

David Craig, a 55-year-old former sales engineer for Nortel Networks, said his unemployment benefits barely cover his health insurance and house expenses. He and his wife have been leaning on savings since he was laid off last spring. While he’s come close to securing another job twice, he’s still scrambling to re-enter the work force. The advanced cutoff to his benefits may force he and his wife to tap into retirement savings to weather this period.

Craig said the politicians are “clueless about what’s happening in real life, what it’s like out here.”

Gary Salamido, vice president of governmental affairs for the N.C. Chamber, said he wishes Congress had enabled the state to reform its unemployment system without jeopardizing the federal extension. The chamber has led the charge to overhaul the unemployment system, and the GOP plan includes a number of its recommendations.

$2.5 billion debt

State leaders will try to overhaul the unemployment system this legislative session as the state grapples with a $2.5 billion debt to the federal government. The feds provided the money to cover unemployment benefits to workers laid off during the recession because the state’s reserves had been depleted.

The state must now repay the loan, and legislators are contemplating a number of measures to speed repayment. The draft of legislation put forward by GOP lawmakers calls for a reduction in maximum benefits from $535 to $350 a week. It would also reduce the number of weeks claimants receive benefits from 26 to a sliding scale between 12 and 20 weeks depending on the state’s unemployment rate. Currently, those earning about $55,000 or more had qualified for maximum benefits.

Most employers are expected to pay higher state and federal unemployment taxes in the future. State taxes would rise for most employers under the proposal being considered by the legislature. Federal unemployment taxes for employers will increase $21 per employee each year until the debt is paid off.

The plan to overhaul the state’s unemployment system was voted out of a legislative committee earlier this month. It is expected to move quickly through the legislature.

Locke: 919-829-8927