RALEIGH ? North Carolina has borrowed $2.47 billion in the past two years to pay unemployment claims. But repaying that debt could frustrate the state?s economic recovery and make jobs even harder to come by.
The unemployment debt is yet another twist in the Gordian knot of state economic and budget problems that Gov. Bev Perdue, a Democrat, and Republican state House and Senate majorities will have to solve next year.
North Carolina?s unemployment rate is 9.7 percent, a tick below the national average but high by the standards of recent history.
Weekly unemployment benefit checks are a godsend to workers who have lost their jobs and would not otherwise have money to pay for rent or groceries.
Under normal conditions, the state pays those claims with money collected from a tax on employers based on the number of workers they employ.
But as North Carolina?s unemployment rate spiked in February 2009, the state ran out of money in its unemployment trust fund and began borrowing from the U.S. Department of Labor, to the tune of about $100 million or more every month.
Only California, Michigan, New York and Pennsylvania owe the federal government more than North Carolina for unemployment-related borrowing.
In total, 31 states owe the federal government $40.4 billion, according to U.S. Department of Labor figures current as of Dec. 21.
?It?s clearly a national issue,? said David Clegg, deputy chairman of the N.C. Employment Security Commission, which pays unemployment claims.
As part of the federal stimulus law, Congress forgave the interest that would have accrued in the past two years.
Perdue was one of 14 governors who signed a letter dated Dec. 6 asking Congress to extend that forgiveness for another two years. But Congress adjourned last week without taking action on the issue.
With so many states facing the same problem, there will be tremendous pressure on Congress to at least consider delaying interest payments next year, Clegg said. However, Republicans will control the U.S. House next year, and those who won on a platform of fiscal austerity may not be eager to further bail out the states.
So under current law, interest will begin piling up starting Jan. 1.
In September, North Carolina?s first interest payment will be due, and soon afterward, the state will have to begin repaying principal.
?When I run the calculus of figuring out how we?re going to get out of this, I come up with a one-word answer: forgiveness,? said Rep. Dale Folwell, a Winston-Salem Republican and the presumptive No. 2 leader in the state House next year.
Folwell said the system was designed to stockpile money in good times in order to pay benefits when the economy turned sour. But with the economic recovery expected to be slow, there?s no way the state will add enough jobs to pay new claims and pay off old ones, Folwell argues.
?There?s multiple options that you can do, and we?re exploring all of them right now,? said Kevin Carlson, assistant chairman for finance at the state Employment Security Commission.
The state could borrow through bonds to repay the money.
Other states have limited the benefits they pay or raised the amount of payroll taxes they collect.
The commission will likely make a recommendation on how to handle North Carolina?s debt in the first part of 2011, Carlson said.
If the state doesn?t act by the end of 2011, automatic repayment provisions would kick in and the federal government would raise its own unemployment insurance tax.
Raising either the federal or state payroll tax means it would be more expensive for businesses to keep and hire new workers.
Legislative leaders and business advocates argue that would put a damper on economic recovery.
?It would be counterproductive to increase any fees on businesses that are already losing employees. ... We?re very concerned about it,? said Kerri Burke, a spokeswoman for the N.C. Chamber, a business lobbying group.
Adding to the cost of keeping an employee on staff will make businesses less likely to hire new workers, Burke argued.� In turn, that will frustrate the unemployment problems that led to the borrowing in the first place.
?It is not a small problem,? said Sen. Phil Berger, an Eden Republican and the presumptive leader of the state Senate next year. ?It is, in some respects, a reflection of the high unemployment we?ve had.?
However, Berger said, this is not a new issue. and he said Democratic lawmakers should have done more to solve the problem when they were in office.
?This is not an issue that just fell out of the sky, and I?m concerned that it has not been addressed up to this point,? Berger said.
Like the governor and Folwell, Berger said he did not know what the state would do to repay the money. But he said the state needed to carefully evaluate the options so as not to thwart job creation and send even more people to the unemployment line.�
Contact Mark Binker at (919) 832-5549 or mark.binker@news-record.com
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