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General Assembly Takes First Step on Needed Unemployment Insurance Reforms
Added 02-01-13

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 by .6%

Improve Program Integrity
• Analyzes each unemployment claim individually to determine proper fault
• Clearly defines suitable work
• Division of Employment Security implementing measure to reduce fraud

Unemployment to Reemployment
• Reforms and streamlines workforce training dollars, boards and commissions
• 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

Affordability Solutions
• 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.


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