The NC House Finance
Committee took the first step towards reforming North Carolina’s
broken Unemployment Insurance system by giving a favorable report
to House Bill 4 – UI Fund Solvency and Program Changes Jan.
31, 2013. The bill is scheduled for a floor debate in the House
during Monday night’s session, Feb. 4.
North Carolina currently faces a more than $2.4 billion debt to
the federal government for loans used to fund the state’s
share of unemployment compensation benefits (the third largest UI
debt in United States). Record-high unemployment rates, a very sluggish
economic recovery and extended benefits mandates by the federal
government led to a significant increase in claims that quickly
depleted the state’s unemployment trust fund.
When the Trust Fund was solvent in good economic times, there were
multiple reductions in UI taxes while at the same time benefits
were being expanded. The combination of these factors has resulted
in an unsustainable UI system that was not prepared for the severity
of the most recent recession.
Neither the tax rates nor the benefit structure single-handedly
led to the debt crisis; and similarly, fixing just one of these
factors is not a viable solution to creating a solvent and effective
UI system for the future. Therefore, the state’s business
community (including MCIC), led by the NC Chamber, have been working
with legislative leaders on a balance approach to resolving the
current UI dilemma. Those efforts have resulted in introduction
of House Bill 4 by Representative Julia Howard (view the most recent
edition of House Bill 4 at the following link.... http://ncleg.net/Sessions/2013/Bills/House/PDF/H4v3.pdf
The ultimate responsibility to pay off this debt falls squarely
on employers, threatening jobs and economic recovery. The unpaid
debt is currently triggering mandatory federal tax increases of
0.3% every year until the debt is paid, which further threatens
job expansions and overall economic recovery in North Carolina.
In the absence of this legislation, North Carolina employers will
repay the federal government approximately $2.4 billion in principal
and more than $500 million in interest from 2011 to 2019 to extinguish
the state’s loan. And the annual financial impact on contributing
employers is estimated to range from a low of $78 million in 2011
to a high of $568 million by 2018 – crippling tax increases
at the federal and state levels year-over-year will cost North Carolina
jobs, making our unemployment problem worse.
House Bill 4 offers a workable alternative that results in elimination
of the federal debt in early 2015, avoiding hundreds of millions
of dollars in savings to NC employers when compared to the federal
re-payment option. Further, legislative staff estimate that if House
Bill 4 is implemented the UI trust fund balance would stand at $2.2
billion by 2021.
House Bill 4, if adopted in its current form, will accomplish
the following major objectives of the North Carolina business community:
Trust Fund Solvency
• Creates new “Employment Security Reserve Fund”
used solely to pay down debt
• Three-year debt repayment plan
• Increase minimum and maximum SUTA tax rate on employers
Improve Program Integrity
• Analyzes each unemployment claim individually to determine
• Clearly defines suitable work
• Division of Employment Security implementing measure to
Unemployment to Reemployment
• Reforms and streamlines workforce training dollars, boards
• Develops Trade Jobs for Success program and expands reemployment
services, vocational school and training programs.
• Establishes new enforcement on able, available and actively
seeking work requirements
• Aligns benefit duration and amount with surrounding states
to make North Carolina more competitive
If you have any questions concerning this, or any other legislation,
please contact Preston Howard at the MCIC Office.