Unemployment Insurance: Fixing Our Broken System
By Patrick Coughlin
Special to The Pilot
North Carolina is facing a jobs crisis - exacerbated by a broken and broke unemployment insurance system.
In Moore County, we are struggling to recover from the recession, tackling an 8.3 percent unemployment rate with more than 3,200 of our neighbors out of work - not including the underemployed or those who have given up looking for work. With the state's unemployment rate stubbornly above the national average, we have to ask ourselves, "Why?" And, "How can we fix the problem?"
One of the major contributing factors to North Carolina's jobs crisis is the state's insolvent and wholly insufficient unemployment insurance system.
First, a little background. 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 became unemployed. It was meant to be a temporary safety net for individuals who lost their jobs through no fault of their own. Its purpose: Match unemployed individuals looking for work with available jobs - a re-employment system.
During the recent recession, the perfect storm hit North Carolina, causing the UI system to plunge into insolvency. A record number of North Carolinians out of work, a weak and prolonged recovery, extended benefits mandated by the federal government, and a state UI trust fund with inadequate reserves - all led to our current crisis.
These factors combined to drain the unemployment trust fund and trigger the previous governor's administration to borrow money from the federal government to cover unemployment claims.
North Carolina's unemployment insurance debt quickly ballooned to more than $2 billion, the third-highest in the country behind California and New York. Now North Carolina's lender, the federal government, is requiring tax increases on the state's employers until the debt is paid off.
On Nov. 10, 2012, North Carolina missed another deadline to repay the federal UI loan in order to avoid additional tax penalties. This translates into a tax increase on every job from $63 to $84 per employee; it will continue to rise annually, $21 per job, until the debt is paid. These crippling tax increases will ultimately cost North Carolina jobs, making our unemployment problem even worse. Inaction on this issue cost employers a total of $395 million in 2012 alone.
North Carolina's UI system is not only broke, it's broken. Between 2008 and 2011, $556 million in improper jobless benefits was paid out, of which millions involved alleged fraud. WRAL reported in May 2012 that over the last 15 years, North Carolina's Division of Employment Security was rated the worst in the nation - with $28 million in overpayments in 2011 alone, a $147 million "mistake" by an Employment Security employee, and money going to inmates at the Wake County Jail.
With a broke and broken unemployment system, the third-largest UI debt in the country, and federally mandated tax increases on North Carolina's job creators, this problem is clearly an enormous drag on our economic recovery and unemployment rate.
Now. How can we fix the problem?
While tax increases (paid only by businesses, not by individuals) are an appropriate part of a comprehensive solution, it would be irresponsible not to address all the problems in the system. Waste, fraud and abuse have cost employers hundreds of millions of dollars over the last decade. Tax revenues should match the unemployment benefits that are paid out. The state can't continue running $400 million annual deficits; that is simply unsustainable.
Future benefit levels should be brought in line with other Southeastern states - states that compete with us for jobs. Virginia's maximum UI benefit amount is about $155 less per week than North Carolina's. Claimants can remain on unemployment six weeks longer in North Carolina than in Virginia. And Virginia's UI system is solvent, without looming tax increases on employers.
North Carolina simply does not compete on a level playing field with Virginia and other states for new businesses and jobs.
It is important to note that the current proposal to fix the UI system will not affect anyone currently receiving benefits.
The unemployment system was meant to be a re-employment system. We owe it to the thousands of unemployed citizens in our state to reconstitute that system, matching workers with jobs. The Moore County Chamber of Commerce has joined a re-employment coalition of businesses, local chambers and allied business organizations to address the state's broken UI system and advocate for reforms that put the focus back on creating jobs.
The writer is president and CEO of the Moore County Chamber of Commerce.
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