NC legislators nearing unemployment debt proposal

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RALEIGH, N.C. (AP) — A road map to rid North Carolina of its $2.4 billion debt to the federal government for jobless benefits and to place the state's unemployment insurance system on sturdier financial footing is getting sketched out by legislators and business leaders.

It could be rocky both for employers who pay for the benefits and displaced employees who receive them. It might be the first test of how Gov.-elect Pat McCrory works with fellow Republicans running the Legislature.

Based on interviews, the legislative proposal set to be unveiled early next month would likely keep business paying more to pay down debt and reduce benefits for workers who become jobless in the future. McCrory also is expected to have his own ideas.

"We're going to have to make some tough decisions so that we can maintain the financial integrity of the system," said Sen. Bob Rucho, R-Mecklenburg, co-chairman of the Senate Finance Committee. "We need to fix a serious problem."

North Carolina is one of 20 states that began borrowing money from the federal government at the height of Great Recession when insurance taxes were outstripped by claims from a flood of unemployment applicants. North Carolina's tab is currently the third-highest in the country, behind only California and New York. The state's unemployment rate remains above 9 percent.

Federal law says the state needs to set aside more than $2 billion by 2019 to borrow interest-free in the future. Businesses already are being forced to pay higher federal and state unemployment insurance taxes to pay down the debt and make interest payments: Another $21 per-employee increase is on the way in January.

Ben Stuck, a vice president at Charlotte-based Marshall Air Systems, which manufactures restaurant equipment, said more taxes mean less for retirement income and profit-sharing, as well as capital improvements that can help the 100-employee business grow.

"If I have less money to reinvest in my business, then that's going to affect the economy in a negative way," Stuck said.

New Republican leaders at the General Assembly vowed to find a solution to the debt nearly two years ago. At least two studies have now been issued on North Carolina's unemployment benefit challenges. Last year legislators overhauled the state agency that manages the program and are looking for more ways to reduce fraud and restrict who gets benefits.

The Legislature returns to debating and passing bills in late January, the same month McCrory takes office.

The debt is "going to be one of the biggest issues that I have to deal with immediately," McCrory told The Associated Press in an interview in September.

Two key negotiators on the legislative proposal told the AP last week they don't plan to recommend the state issue bonds now to pay off the federal debt more quickly and so employers can avoid mandatory higher incremental taxes. Rucho and Rep. Julia Howard, R-Davie, said in separate interviews said the state can't afford more debt, even if employers pay it back.

Studies commissioned by the N.C. Chamber and the state suggested bonds were the way to go if they could be issued at a lower interest rate than the current federal borrowing rate. Even McCrory said in September he thought issuing debt to repay the federal government was a likely course. Gary Salamido, the Chamber's vice president for government relations, said he hoped legislators would consider other refinancing options. Repaying the debt without changes would take several years.

Rucho also said he expected the proposal would make sure "benefits will be aligned with the Southeastern states that we compete with." He didn't provide further details.

The study by the N.C. Chamber, which has been involved in the legislative proposal, recommended capping weekly benefits at $350 for future unemployed workers and reducing the maximum number of benefit weeks to 20. The maximum weekly benefit amount in North Carolina is currently $535. South Carolina, Virginia and Georgia range between $300 and $400. North Carolina's portion of unemployment benefits is capped at 26 weeks.

Salamido said expanding benefits over time have contributed to troubles.

"Our position is that we all got into this together and we all have to get out of it together," Salamido said Friday.

Alexandra Sirota with the North Carolina Budget & Tax Center, which advocates for the poor, disagrees that expanding benefits are to blame. She said reducing benefits would place only more strain upon the unemployed, causing them to rely more on credit and miss paying utility bills.

Many attribute the unemployment debt problem to a series of employer tax cuts in the 1990s. The tax cuts weren't reversed after the last recession a decade ago, and people stayed jobless longer.

"We can't arbitrarily change the benefit amounts without considering what a family needs to make ends meet," Sirota said. The center recommends keeping current benefit levels in place but raising employer taxes over time by using a great percentage of the state's average annual wage to calculate the tax.

Both the chamber and the center agree better re-employment and worker training efforts can get more people back to work. And most agree the state's unemployment insurance system must be fixed before the next recession arrives.

"It took us 20 years to get into this situation," Sirota said. "Hopefully it won't take that long to get out."

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