The federal-state Unemployment Insurance (UI) system was established in 1935 as a safeguard for individuals against distress for a short period of time after they become unemployed. Today, North Carolinas UI system is facing a $2.4 billion debt crisis and is failing those who have lost their jobs through no fault of their own.
This has been categorized as North Carolinas own fiscal cliff. The North Carolina Chamber could not agree more. The states UI system is broke and broken and this is the single biggest storm cloud hovering over the states economy, which is why the N.C. Chamber has made this its top priority going into the 2013 legislative session. The business community recognizes the need for a comprehensive solution to return North Carolinas UI Trust Fund to a position of solvency and strength for the future.
When the Trust Fund was solvent in good economic times, there was a reduction in UI taxes while at the same time benefits were being expanded. The combination of these factors resulted in an unsustainable system that was ultimately not prepared for the severity of the 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. In order to fix this problem, everyone will have to share in the pain.
The responsibility to repay this debt falls squarely on North Carolina employers, as they are the only taxpayers paying into the fund. Employees do not pay UI taxes. Under current federal guidelines, and given the states outstanding loan balance, North Carolina employers will repay approximately $2.4 billion in principal and more than $500 million in interest from 2011 to 2019 to extinguish the states loan. On Nov. 10, North Carolina missed another deadline to repay the federal UI loan, which leads to additional taxes on businesses. As was the case in 2011, employers will face an additional Federal Unemployment Tax Act (FUTA) tax of 0.3 percent. This translates into a tax increase on every job from $63 to $84 per employee, and will continue to rise annually until the debt is paid. A boost in the cost of N.C. jobs, especially at a time our unemployment rate is higher than the national average, is certainly not an ideal solution for this serious problem.
While tax adjustments are an appropriate part of a comprehensive solution, it would be irresponsible not to address the problem as a whole, which includes ensuring that employer investments into the fund are managed efficiently and inserting accountability measures into the system. A lack of fiduciary responsibility and effective leadership in the past helped add to the debt significantly. The business community recognizes that the states UI system faces significant issues in addition to the $2.4 billion debt and has responded by calling for a balanced solution that addresses solvency, affordability, integrity and reemployment and workforce training.
The most integral piece of the solution is that we must be able to shift the focus of the system from unemployment to re-employment. The system should improve alignment of workforce training and education programs through streamlined and increased use of technology among agencies. A robust worker retraining and placement program is essential to establishing and maintaining a stable UI trust fund.
Ultimately, the North Carolina Chamber is advocating for balanced recommendations that address all parts of the UI system. Anything less than making the comprehensive reforms will only produce marginal results. The North Carolina Chamber is fully committed to working toward a comprehensive plan that solves our states UI crisis and protects the jobs we have, as well as our ability to create and attract more jobs in order to get North Carolinians back to work.