The McCrory administration on Thursday announced the state has restored its unemployment insurance reserve to more than $1 billion, accomplished by curtailing benefits for the jobless and imposing a surcharge on employers in order to repay a federal debt incurred to fund the program.
The milestone triggers a relief for businesses, which will no longer have to pay a 20 percent state unemployment insurance tax surcharge that has been in effect for 10 years. The reserve will be used to cover payouts in future economic downturns. There is no plan to restore unemployment benefits to previous levels.
Gov. Pat McCrory made the announcement at the state Division of Employment Security headquarters in Raleigh in front of a large crowd of division employees. The governor credited the employees with a broader success of transforming their agency into a culture of customer service and coming up with new ideas for running the department. He also credited an increasing the focus on fraud by businesses not paying their fair share into the system.
McCrory said when he took office there was a backlog of 14,000 claims, which have been reduced to a handful; the appeals process has been cut from 279 days to about 40 days; and the state’s federal performance quality index has gone from the lowest in the United States, with a rank of 12, to a rank of 60.
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“There was absolutely no plan whatsoever to pay back this debt when I came into office, and no plan to reform the dysfunctional employment insurance system,” McCrory said.
He said the administration and legislature were criticized for how they went about paying the debt, but critics didn’t see the long-term benefits.
That criticism remains. Alexandra Sirota of the liberal N.C. Justice Center, says the emphasis remains on helping businesses rather than on people who need temporary wages until they can find work.
“Our program is not functioning as a stabilizing force in the economy and it’s not helping jobless workers while they’re trying to find work, who we know still struggle in so many places in North Carolina,” Sirota said. “Having $1 billion in the trust fund is a time to reflect and re-balance our approach, and perhaps consider not giving tax cuts to employers.”
North Carolina’s debt to the federal government came about as a result of the economic crash combined with previous tax breaks for businesses. The unemployment fund ran out of money in 2009 and the state had to borrow from the federal government to pay jobless claims.
Since 2011, a federal law triggered by the debt led to an annual increase in federal unemployment taxes that employers paid, which as of May amounted to $21 extra for each employee compounded every year. North Carolina businesses paid the federal government $1 billion in penalties and interest between 2011 and 2014, according to the administration.
McCrory and the General Assembly reduced the maximum amount for benefits by about one-third, to $350 a week, and cut the maximum weeks of benefits. In May, the state announced it had paid off the $2.8 billion federal debt and it would begin saving the money.
Now that the $1 billion threshold has been reached, employers will no longer have to pay a 20 percent surcharge. That money and the full federal credit will return to businesses more than $600 million in taxes this fiscal year, according to the administration.
Dale Folwell, the assistant secretary of the division, said no governor “has ever inherited such a broke, broken unemployment system,” and pointed out it took just 30 months for the trust fund to become solvent.