“North Carolina has now recovered all of the jobs lost during the recession,” said Governor McCrory. “We will remain focused on long-term job creation because North Carolina will continue to attract people and businesses because of the improvements we’ve made to the business climate and quality of life through tax reform and investments in areas such as education.”
In October, 4,183,900 people (nonfarm, seasonally adjusted) were employed in the state, which exceeds the pre-recession high of 4,174,500 in February 2008. North Carolina experienced 24 months of continuous employment decline until the number of people employed bottomed out at 3,839,200 in February 2010.
“We will reach another employment milestone soon when North Carolina employers pay off the federal unemployment insurance debt that at one time exceeded $2.5 billion,” Governor McCrory said. “Once that debt is paid, employers will have the capital and stability to make even more job-creating investments. Achieving these milestones was not easy, but we will continue to make the tough decisions that will lead to a more prosperous North Carolina.”
Frequently Asked Questions regarding North Carolina’s
Unemployment Insurance Debt to the Federal Government
Why did NC owe $2.8 billion to the federal government?
In the 1990s, when the economy was better, North Carolina’s Unemployment Trust Fund was badly mismanaged by those in charge of state government — at a time when the state should have been building up the trust fund. Legislators lowered employer contributions to the fund in the mid-1990s and turned the system essentially into a “pay-as-you-go” financing structure. This unsustainable policy drove the solvency position of the trust fund to unsafe levels just prior to the recession of the early 2000s.
Over many years of financial negligence, the fund became depleted — and then, in 2009, lost nearly $2 billion. Since no steps had been taken to prevent this looming catastrophe, the state had to turn to the federal government to borrow the $2.8 billion that it was obligated to pay out as unemployment benefits. Had North Carolina sustained the trust fund in line with the national average from 1990 to 2004, it would have maintained a level of $2.4 billion by that time and today there would be no solvency issues for the current legislature to address. Instead, in 2004, the fund had a balance of $23 million with an “average high cost multiple” of 0.38, well below the recommended level of 1.0.
Doesn’t every state borrow money for unemployment benefits?
No. There are 26 other states that have been borrowing money from the federal government under Title XII—Advances to State Unemployment Funds. But the amount that North Carolina taxpayers owed to the federal government was the third highest in the nation, just behind California and New York (both of which have far higher populations).
Why would we pay off this $2.8 billion debt early?
Aside from bringing financial solvency to North Carolina’s broken unemployment insurance system, paying down this massive debt to the federal government by 2015 will save taxpayers and businesses over $400 million in interest payments and allow us to begin building a $1 billion reserve fund for future unemployed workers. The new law restricts the use of this reserve fund to the direct payment of unemployment benefits, unlike in the past.
So long as the UI debt goes unpaid, not only will interest continue to accrue, but employers will have to include higher UI taxes to their cost of doing business. The federal government is already imposing a 0.3 percent addition to the prevailing 0.6 percent federal UI tax (for administration costs). And that tax will continue to rise in additional 0.3 percent increments annually until repayments begin.
Are we finally on track to paying down this debt?
Yes — ahead of schedule, actually. The beancounters in Raleigh now project that the entire $2.8 debt to the feds will be paid off by the middle of 2015. Washington was so impressed by North Carolina’s fiscal responsibility over the last two years that the U.S. Department of Labor recently waived additional Federal Unemployment Tax Act penalties — saving an additional $180 million for the 2014 tax year. “By demonstrating to the federal government that we have cut up the federal unemployment insurance credit card,” said Governor McCrory, “North Carolina employers will avoid paying penalties and be able to invest those funds in job creation.”
“Once the debt is paid off, employers will begin receiving their full Federal Unemployment Tax Act (FUTA) credit,” said Division of Employment Security Assistant Secretary Dale Folwell. This will be a tremendous burden lifted from the employers of this state. It will give them certainty about the cost of doing business in North Carolina. It will also encourage new businesses to come to this state, driving unemployment even lower.”