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April 3, 2014

NC expects to pay off unemployment debt by Nov. 2015

North Carolina's massive debt that the state racked up paying unemployment benefits in the wake of the recession should dip below the $1 billion mark by mid-year and should be paid off by the end of 2015, an official said Wednesday.

The massive debt that the state racked up paying unemployment benefits in the wake of the recession should dip below the $1 billion mark by mid-year and should be paid off by the end of 2015.

Dale Folwell, who heads the state Division of Employment Security, laid out that timeline for lawmakers at a committee meeting Wednesday.

The state’s debt to the federal government, money it borrowed to pay unemployment benefits, peaked at $2.8 billion and triggered higher federal unemployment taxes for the state’s employers.

That prompted the Republican-led legislature to revamp its unemployment system — over the protests of Democrats and advocacy groups for the poor — in order to accelerate repayment of the debt. The measures included reducing the maximum benefits a laid-off worker could receive by one-third as well as cutting the maximum weeks of benefits.

Sen. Bob Rucho, R-Mecklenburg County, embraced Folwell’s message that the debt should be paid off at the end of next year.

“Good news for everyone,” he said. “It’s good to see a plan working like we had planned.”

Folwell said the debt is currently just under $1.65 billion, “a pretty dramatic reduction from this time last year.” The debt was about $2.5 billion in February 2013.

Folwell said that the debt is expected to drop below $1 billion this year, but then will rise.

“We’ll be burning money the rest of the year,” he said, referring to the need to borrow money in the second half of the year.

That’s because the state unemployment taxes paid by employers are front-loaded, given that those taxes are pegged to the first $21,000 in salary earned by the employer’s workers. So the biggest tax collection period is between “two weeks ago and two months from now,” Folwell said.

Lockhart Taylor, whose many roles at Employment Security include systems and procedure analyst, said after the committee meeting that the state is on track to retire all of its debt by Nov. 10, 2015.

That’s the cutoff date for whether the federal unemployment taxes paid by employers would rise again in 2016. Those employer taxes increase $21 per employee per until the debt to the federal government is erased.

In addition to avoiding another increase in federal unemployment taxes, retiring the debt would also eliminate prior $21-per-employee-per-year tax hikes.

Employers pay both state and federal unemployment taxes. Workers don’t pay any unemployment taxes.

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