Thu July 3, 2014
Paying Down North Carolina's Federal Unemployment Debt
State leaders say paying down a multi-billion dollar debt will make North Carolina more attractive to businesses.
If you bring up unemployment benefits to most people in North Carolina, you might get some less than favorable reactions. But Dale Folwell says there’s good news regarding at least one aspect of the issue.
“For the first time in five years, we see the finish line in completely paying off this debt to the United States Treasury via the U.S. Department of Labor,” he says. Folwell is the assistant secretary of North Carolina's Commerce Department. The debt he’s referring to the $2.6 billion the state owed to the federal government. Now it’s down to $980 million. In 2009, the state began borrowing money to cover unemployment insurance benefits for out of work North Carolinians.
“All of the taxes associated with unemployment benefits are paid by the employers, not the workers of North Carolina," explains Folwell. "What happened during the last recession, there was not enough money in reserve in the bank to pay out the billions, and billions of dollars of benefits that North Carolinians were claiming.”
Now for the past 18 months, the Republican led-legislature and Governor Pat McCrory have stopped borrowing and instead been chiseling down this federal debt by making some drastic changes.
“It’s a combination of three things," says Folwell. "Raised taxes on employers which goes toward paying off the debt, a reduction of benefits to new claimants, along with the efficiencies we’re putting into the program here so we cut down on waste, fraud and abuse, which was highly rampant in the North Carolina Unemployment System.” The average weekly check for people drawing unemployment now is $350, a drop from $535. There’s also a sliding scale in terms of the number of weeks an individual will receive funds based on the overall state unemployment rate. Currently, people are getting benefits for 19 weeks. Also, people now have to show a photo ID to get their benefits.
The state’s approach to reducing this debt sparked state-wide and national controversy. Opponents felt it was a harsh move that penalized people already struggling to find work.But Folwell argues letting this debt grow would chase off new business prospects. “It’s one of the invisible things that employers use to calculate if they want to do business in a particular state or not," says Folwell. "When we have this high amount of debt, they understand if they come here they will be responsible for paying off a debt that someone else created. And what that does is that keeps jobs from coming to North Carolina, which keeps people from getting off of unemployment.”
According to Folwell, since 2009, North Carolina accumulated the third highest unemployment debt in the nation, behind New York and California. Also, each year this debt went unpaid, the federal government increased the federal unemployment taxes employers had to pay. The state estimates paying off this debt by next year. Folwell believes it will make companies of all sizes more confident about bringing jobs to North Carolina.