NC's unemployment benefits debt drops

North Carolina’s unemployment debt has dropped by 76 percent  since 2010 to $597 million, according to Gov. Pat McCrory.

McCrory said in a statement last week that the state is now projected to pay off its debt to the federal government by August 2015. Original estimates had the state paying off its debt by November 2015.

North Carolina incurred its unemployment debt after the state’s funds for unemployment benefits ran out in 2009 during the economic recession.

The state ranked sixth nationally for highest unemployment debt in August 2011 before the federal stimulus package ran out and the state had to begin paying interest on its loans. When McCrory took office in January 2013, the debt stood at $2.5 billion, McCrory said in his statement.

The new debt numbers coincide with North Carolina’s declining unemployment rate, which dropped from 10.7 percent in June 2010 to 6.4 percent in June 2014.

In a May report, state lawmakers said the lower debt can be attributed to a variety of factors, including an increase in the unemployment tax on businesses — which had been cut before the recession . Changes to the unemployment benefit policy also contributed to the lower debt.

Those changes consisted of major reductions to the state’s benefit payments to the unemployed, said Patrick Conway, chair of the UNC economics department.

The N.C. General Assembly in 2013 cut unemployment insurance compensation from $535 per week to $350 per week.

“The trust fund is being repaid, but it’s being reduced by reducing the payout to the unemployed,” Conway said.

The state’s unemployment trust fund was in a surplus before the recession started, he said, but the state had to borrow from the federal government to continue to pay out the benefits.

Conway said the state legislature originally reduced the unemployment tax — levied on businesses as a contribution to the state’s unemployment trust fund — because of the fund’s surplus at the time.

“The trust fund was getting bigger and bigger,” Conway said. “Having done so, they left the trust fund too small to handle the recession.”

Conway said the state had a high unemployment debt because of the pre-recession unemployment tax cuts combined with North Carolina’s identity as a state with strong manufacturing and construction industries.

“Those were the two sectors that were hit relatively hard in the recession,” he said. “We had a higher unemployment shock than other states North Carolina might be compared to.”

McCrory in his statement praised Dale Folwell, the N.C. Department of Commerce assistant secretary of employment security, and his team for lowering the debt.

“It’s not enough to pay it off,” Folwell said. “We need to build a surplus and keep the trust fund solvent.”

To maintain the trust fund, Conway said, the state needs to find an unemployment payment level that allows unemployed North Carolina residents to support their families until they can find work.

state@dailytarheel.com