MEDIA RELEASE: Report: unemployment system changes won’t fix solvency crisis, will harm workers

A new analysis released today by the Budget & Tax Center shows that, despite yesterday’s announcement, harsh benefit cuts have not ensured solvency for the state’s UI Trust Fund

RALEIGH (May 6, 2015) – Changes to North Carolina’s unemployment insurance system have hurt the state’s jobless workers while leaving the system far weaker than it needs to be for the next recession, says a new report released this morning. Despite an official announcement that the state will pay off the unemployment insurance debt it owed the federal government, current policy is likely to repeat mistakes of the past, leaving harsh benefit cuts for jobless workers in place while cutting taxes for employers – creating another solvency crisis for the system.

In the 2013 legislative session, lawmakers enacted various changes to the state’s unemployment insurance system — most significantly, they reduced the amount of money recipients receive and the number of weeks they receive it, while also restricting eligibility. In the short term, this means that most of the burden for debt repayment has been pushed onto jobless workers.

“Cuts to unemployment benefits in North Carolina have made it harder for jobless families to make ends meet and get back on their feet in an economy that is still providing too few jobs to go around,” said Alexandra Forter Sirota, author of the report. “Far from helping the state’s economy, the cuts have left thousands of North Carolinians with less money to spend on food, clothing and other necessities, which also harms local businesses.”

Over the long term, the report says, such a strategy will fail to create an Unemployment Insurance Trust Fund that is a healthy and viable way of supporting the economy during a downturn. This is because of a failure to ensure adequate employer contributions to the system during good economic times.

While jobless workers today have less help and support despite having lost their jobs through no fault of their own, policymakers made virtually no change in the amount state employers paid into the program through taxes. As a result, the system would not be able to function in a downturn without either future borrowing from the federal government, further cutting payments to jobless workers or raising taxes on employers.

An important, quick and partial solution would be to set the funding formula that triggers tax cuts for employers at a more appropriate level. This would allow the trust fund to reach a balance sufficient to cover the wages of jobless workers before employers can contribute less to the solvency of the system.

Cutting taxes before the balance is high enough — as would currently be the case — sets North Carolina up to repeat past problems, the report says. If employer taxes are automatically reduced before the state’s unemployment insurance trust fund is healthy, this would make this week’s apparent milestone meaningless. It is therefore critical that policymakers establish triggers for tax cuts that are realistic so the program can protect the economy from freefall in a downturn.

FOR MORE INFORMATION, CONTACT: Alexandra Forter Sirota, alexandra@ncjustice.org; Jeff Shaw, jeff@ncjustice.org, 503.551.3615 (cell).