There is an old saying, “A real leader faces the music, even when he doesn’t like the tune.” After years of mismanagement, our state’s economy has been weighed down by $2.5 billion owed to Washington for our unemployment insurance debt. We were forced to borrow this money from the federal government during the Great Recession. We incurred this debt because the General Assembly’s prior management team gave the most generous unemployment benefits in the southeast and never bothered to save adequate rainy day funds for a potential economic downturn that was bound to occur.
No matter what you might have heard about the $2.5 billion debt, understand this: The federal government is determined to get its money back. We can either pay them back in a responsible manner, saving future pain and interest on the debt or we can watch them seize their money from us. The federal plan will increase unemployment insurance rates at $21 every six months to a high of almost $190 per employee until 2019. All the while, our state will be paying interest on the money owed to the feds and will be hamstrung by the crippling cost of unemployment insurance.
Instead, the new leadership in Raleigh has decided to take “hard medicine” and knock out the debt as soon as possible, plus place over $1 billion in a reserve fund for future economic downturns. All of this will be done by the end of 2015, far short of the 2019 payoff plan proposed by Washington. Hundreds of millions of dollars will be saved in interest payments alone.
Under the Republican plan, unemployment insurance rates for businesses will continue to increase at $21 every six months, but will be capped at just over $120. Benefits to future unemployed workers will be modified from 26 weeks duration to 12 to 20 weeks, depending upon the state of the economy. In a good economy, the time period for benefits will be shorter. In a bad economy, they will be longer.
North Carolina is currently the most generous southeastern state when it comes to maximum and average weekly benefits. Under the new plan, the maximum benefit will be reduced from $525 a week to $350 a week. Currently, only Virginia comes even close to North Carolina’s maximum benefit at $378. With the change, North Carolina will still be the second highest paying state in the Southeast. It is important to note that even though the new rules will not apply to current beneficiaries, if they did, 84 percent would continue to maintain their current level of benefits.
For the last few weeks, legislative leaders have been pressured by numerous groups to do everything from borrow the money to pay off the federal government, to demand that Washington write off the debt or to do nothing and let the federal plan kick in. To their credit, the Republicans have refused to cave to the pressure.
Acting U.S. Labor Secretary Seth Harris condemned the GOP plan, claiming that it would cut off benefits after 26 weeks of unemployment. Harris left out a few facts. First, the individuals to whom he refers will have been on unemployment for two and a half years at the time their benefits expire. Second, North Carolina called on Senator Kay Hagan and the North Carolina Congressional delegation to grandfather unemployment insurance reforms into the final fiscal cliff package. The Washington politicians did not help, but they still can do so. Third, without the reform, North Carolina would have faced an additional $400 million in costs for the payout, putting more jobs at risk.
It is not easy to be a real leader. Tough choices must be made at times. The General Assembly’s plan to resolve the unemployment debt issue does the least amount of harm and obtains the most benefit. Additionally, the substantial rainy day fund will prevent this crisis from ever occurring again.
Thom Goolsby is a state senator, practicing attorney and law professor. He serves on the Finance, Commerce and Revenue Laws Study Committees in the N.C. Senate.