A state law passed earlier this year makes North Carolina the only state whose citizens are ineligible for federally funded unemployment benefits after their state-funded unemployment benefits run out.
As a result, officials estimate that more than 70,000 jobless workers statewide will not receive federally funded unemployment benefits.
In February, Governor Pat McCrory signed House Bill 4: UI Fund Solvency & Program Changes, which went into effect July 1.
Workers who qualified for unemployment benefits before the law went into effect will continue to receive benefits permitted by the old law.
The Republican majority in the General Assembly drafted the new state unemployment law, which decreased the maximum benefits for state unemployment. They did so, they said, to lower the state’s debt to the federal government.
Under the old law, the maximum benefits an unemployed worker could receive were $535 per week for up to 26 weeks. Now, workers receive a maximum of $350 per week for between 12 and 20 weeks, depending on the unemployment rate.
Under federal law, once states make changes to their maximum unemployment benefits they are no longer eligible for federal unemployment benefits. This new law cuts into state-funded unemployment benefits also.
Walter Wessels, a professor of economics at the Poole College of Management, said other states changed their maximum unemployment benefits yet didn’t receive a penalty.
“Four other states got exemptions,” Wessels said. “They cut their maximum benefits but were allowed to continue with the federal grants for the federal program.”
The state’s debt to the federal government has been a contentious topic at the General Assembly since the state began borrowing from the federal government beginning in 2008 and following the recession.
The state borrowed more than $2.5 billion after state-funded unemployment benefits ran out.
Democratic legislators argued that the new law will lead to a loss of more than $500 million coming into the state. That loss, they said, will disproportionately affect those parts of the state hit hardest by the recession.
Opponents also pointed that federal funds were scheduled to end in December, and changes to the law could have been made after that so that eligible workers could have at least received their benefits until the end of the year rather than July 1 when the new law went into effect.
“What I’m doing is tearing up the credit card,” McCrory said in an interview with CBS News last month. McCrory said that signing the law was doing what was best to rid the state of its debt.
On average, workers depend on unemployment benefits for 16 weeks before finding work. Weekly benefit checks averaged $294.72 in July, according to the state Division of Employment Security.
Some employers will see a hike in their state unemployment taxes due to the new law, and some employers excluded before are now required to pay taxes under the new law.
Until the debt is paid, employers will be required to pay increased federal unemployment taxes amounting to $20 more per employee each year.
Employers pay unemployment taxes on the first $7,000 of their employees’ salary to cover federal unemployment benefits and on the first $21,000 in salary for state unemployment benefits.
According to Michael Walden, a professor of economics in the College of Agriculture and Life Sciences who tracks the state economy, the unemployment rate could fall below 7 percent statewide and 6 percent in the Triangle by 2015.
Walden said paying off the federal debt quicker would make a difference in the state budget. By paying it off by 2015 rather than 2018, Walden said the state could save several million dollars in interest. Several millions in interest costs can be saved within the three year difference between 2015 and 2018.
Walden said he understood that those who exhaust their state funded unemployment benefits are likely to suffer economic losses.
“We may want to think about alternative ways of assisting the unemployed”, said Walden. “Some economists recommend a large, one-time lump sum payment that jobless individuals could use for retraining or relocation.”
Because the state continues to borrow while repaying the federal government, the debt fluctuates. The debt totaled $2.546 billion in the beginning of the year, but as of Aug. 27 had decreased to $1.9 billion, according to the U.S. Department of Labor.
The state Division of Employment Security predicts the debt will total $2.112 billion by the end of the year.
