$2 Billion Owed & Counting!
How Will NC’s Growing Unemployment Debt Impact Employers & Jobs?

Adding to the existing strain on our state’s economy, North Carolina is undergoing a severe funding crisis within our unemployment insurance (UI) system.  North Carolina is experiencing the highest unemployment rate in more than 30 years.  One of the many unfortunate consequences stemming from this crisis is the fact that our state has currently borrowed approximately $2 billion from the federal government to pay for unemployment benefits.  Only five states in the country have had to borrow more money for unemployment benefits than North Carolina.  To make matters worse, the debt continues to rise every day – with some analysts estimating that we may need to borrow another $2 billion this year for a total of $4 billion!

The Issue
Interest on the $2 billion debt that North Carolina currently owes the federal government (and whatever amount it grows to) will begin to accrue at the end of this year.  While we do not have to begin repayment of the debt now, the solvency of the Unemployment Trust Fund and our growing debt should be an immediate concern to all North Carolinians, employers and employees alike.

The Potential Solutions
As state policymakers begin to consider how to deal with the debt issue and ultimately with the health of the state’s Unemployment Trust Fund, some of the potential solutions that have been mentioned are:

1) The federal government / Congress forgives the debt and interest

2) The insurance tax on employers increases

3) Unemployment benefits decrease

4) The state uses revenue from its general fund to address the issue

The Impact – Let the North Carolina Chamber hear from you!
As conversations continue with policymakers about this growing problem the North Carolina Chamber wants to hear from its members about this issue.  North Carolina’s unemployment insurance system is complex – one state’s system doesn’t necessarily work the same as other states’ systems do.  (You can find details about how North Carolina’s UI system works below.) 

Because the North Carolina Chamber’s focus is on promoting and passing policies that will stimulate our state’s economy and help employers retain and grow jobs, we need to hear from you first-hand about how this unemployment issue may affect you and your business. 

You can read about how our UI system works below the following questions and then please let us hear from you on this issue:

Click here to tell us how a potential unemployment insurance rate increase would impact you and your business / employer.  Consider the following questions when you offer your input:

• How concerned are you with the current unemployment insurance tax?
• Are you concerned about future unemployment insurance tax increases?
• Do you have any issues with how North Carolina’s unemployment insurance tax rate is computed?
• Do you have any issues with how unemployment benefits are determined in our state?

How the Unemployment Insurance Tax Operates in NC
Our state’s unemployment insurance fund is solely funded (aside from the current loans from the federal government) from the unemployment insurance tax that NC employers pay.  Our state’s employers pay this tax quarterly with the rate depending on how many workers the company has laid off and how much those employees receive in unemployment benefits.  In 2009, our state’s employers paid $955 million in employer contributions with unemployed workers receiving $2.7 billion in benefits.

• North Carolina’s tax rate is based on a federal model of experience-rated employer accounts.  If an employer has claims against its account, that employer’s rate goes up.  This method provides an actuarial rating system like other insurance systems.  A new employer’s account is initially assigned a standard tax rate of 1.2%.  After two years, an employer’s tax rate is determined annually based on experience.  Experience ration is affected by payroll, tax paid, timeliness of payments and unemployment insurance benefits charged against the employer’s account.  Based on economic conditions, an employer’s tax rate could be as low as 0.00% and as high as 6.84%.
• Tax schedules for employers are directly proportionate to the balance in the Unemployment Trust Fund, meaning that rates will be lower when the Trust Fund has a higher balance (or more money).  The average tax rate in 2010 is 1.712%, an increase from 2009 where it was 1.672%. There are currently 17,897 employers in North Carolina assigned a 0% tax rate, compared to 20,079 employers in 2009 that were assigned this 0% rate.
• A surtax of 20% is applied to all employers with a tax rate above 0% when the amount in the Unemployment Insurance Trust Fund falls below $163,349,000.  This surtax was applied for 2010 when North Carolina’s fund fell below this amount.

Click here to tell us how a potential unemployment insurance rate increase would impact you and your business.