Top Republican leaders on Tuesday announced the state has paid off a $2.8 billion unemployment insurance debt to the federal government early.
The accelerated repayment was accomplished in two years – a year earlier than planned – as a result of an overhaul of the state’s unemployment insurance program that reduced the size of payments and the number of weeks the jobless could collect unemployment payments.
The final payment to the federal government, made on Friday, was announced in the Old House Chamber of the State Capitol by Gov. Pat McCrory, Senate leader Phil Berger and House Speaker Tim Moore, along with administration officials.
Several legislators attended, including the co-authors of the unemployment overhaul: Rep. Julia Howard, a Republican from Mocksville, and Sen. Bob Rucho, a Republican from Matthews. Howard and Rucho wielded a giant pair of scissors to cut in half a giant, symbolic credit card.
When McCrory took office, the state’s debt to the federal government was about $2.5 billion.
“It took visionary leadership, it took courage and it took fortitude to make it happen,” McCrory told the assembled.
Why did North Carolina owe the federal government? As the economy crashed and more people lost their jobs, combined with previous tax breaks for businesses, the state’s unemployment trust fund ran out of money in 2009. The state borrowed from the federal government to pay unemployment claims.
How did the state repay it? The state reduced the maximum amount for unemployment benefit checks by about one-third, to $350, and cut the maximum weeks of benefits. The federal government also added an extra $21 per employee per year to the federal unemployment tax that is paid by employers. New processes to deter fraud were also credited.
Democrats and advocates for the poor called the plan unfair because it was accomplished by cutting benefits to people who were already struggling to find work. The N.C. Chamber and the N.C. Republican Party commended the governor and legislature.
Why did this become so important for businesses? Under federal law beginning in 2011, the debt triggered an annual increase in federal unemployment taxes that employers pay, which most recently amounted to the cumulative $21 increase for each employee every year. Also, until the state’s unemployment trust fund reaches a $1 billion surplus, employers have to pay a 20 percent surcharge. That trigger point is expected to be reached sometime during the next year, a state commerce official said Tuesday. Money that was going to pay the debt will now go to building the surplus.
What can employers expect? Businesses will no longer pay penalties and interest on the debt. Officials say that had amounted to a combined $962 million paid by North Carolina businesses since 2011.