At some point, you’d think the conservative elected officials behind North Carolina’s stingiest-in-the-nation unemployment insurance cuts would at least have the courage and decency to stand up, look straight in the camera and take responsibility for the the pain they are about to inflict on 170,000 jobless workers and their families. And indeed, while they’re at it, they would also do well to note the impending damage to the state’s economy as a whole as it is forced to do without $600 million in federal dollars and endure an estimated overall decline in economic activity of around $1.2 billion.
Unfortunately, as next Monday’s benefits cut-off deadline fast approaches, courage and decency are in short supply on Jones Street and spin and blame deflection appear to be the order of the day. Last Friday afternoon, in fact, a paid flak for Senate President Pro Tem Phil Berger set what might be a new low in this department with a letter to members of the press corps that literally overflows with inaccuracies and downright falsehoods.
Here, in the interest of setting the record straight, is the staffer’s letter interspersed periodically with the actual truth. Our corrections and additions appear in bold italics.
——– Original message ——–
From: “Amy Auth (President Pro Tem’s Office)” <Amy.Auth@ncleg.net>
Date: 06/21/2013 3:39 PM (GMT-05:00)
To: “Amy Auth (President Pro Tem’s Office)” <Amy.Auth@ncleg.net>
Subject: Unemployment Insurance Reforms
Dear Members of the Press Corps:
As we near July 1, I want to provide a quick reminder on why the General Assembly passed legislation earlier this session to reform the state’s unemployment insurance system.
During good economic times, previous Democratic legislatures and administrations made irresponsible decisions that hurt the solvency of our state’s unemployment insurance system.
*The irresponsible decision (supported by members of both parties) was to repeatedly cut employer tax rates to the point that insufficient funds were collected in good times to pay out in benefits during bad times. The core mechanism of the unemployment insurance system was thus undermined.
When the recession hit, North Carolina was completely unprepared to pay the flood of new unemployment claims and was forced to borrow more than $2 billion from the federal government. In fact, our state had the 4th highest UI debt in the country behind only California, Pennsylvania and New York. House Bill 4 included a prudent plan to pay it off by 2016.
*”Prudent” this plan is not. It is, in fact, the most radical overhaul of a state unemployment system in the nation. It reduces unemployment insurance by more than 70 percent in the out years, fails to adopt “forward financing” and restricts or denies access to workers by repealing provisions that had modernized the system just a few short years ago.
If the General Assembly had failed to act, the state’s debt would not be paid off until 2019.
*The state’s debt would have been paid off by 2018 if nothing had been done through a simple credit reduction to employers for their federal unemployment insurance taxes owed. The reduction would have resulted in a $21 per employee increase each year. Thus, the cost to a 100 person company would have risen by $2,100 per year.
By that time, North Carolina employers would pay a federal tax of $718.2 million per year rather than the standard $79.8 million per year – threatening existing jobs and making it harder to create and recruit new jobs.
*The actual figure according to the General Assembly’s Fiscal Research Division would have been $558 million. This works out to $147 per employee. There is no evidence to suggest that unemployment insurance costs represent a significant driver of employer decisions about hiring. This makes sense given that unemployment insurance costs represent 0.01 percent of employer’s total business costs.
House Bill 4:
- Required employers to contribute significantly more money to fund unemployment benefits.
*Not true. Employers will be paying primarily because of existing federal law and the credit reduction required when a state has an outstanding balance. The state tax changes represent just 0.7 percent of the total repayment, $24 million by 2017.
- Adjusted benefits to workers who lose their jobs starting July 1 to bring them more in line with other Southeastern states.
*North Carolina is the ONLY state in the union to do what it is doing. These adjustments put North Carolina at the bottom of the pack whereas it had been in the middle of all states in terms of average weekly benefit amount.
- Grandfathered in people who were receiving unemployment benefits at the time of the bill’s passage.
*The system will no longer be effective at providing a temporary and modest support to unemployed workers. Future jobless workers are being sacrificed while policymakers attempt to neutralize the voice of the unemployed.
- Rebuilt a $1 billion surplus in the unemployment insurance fund to prepare for the next economic downturn.
*It is not at all clear if the $1 billion trust fund balance (this is not a “surplus”) will be sufficient in future economic downturns. Previous funds of comparable size have proven insufficient in recent recessions.
The General Assembly worked closely with the U.S. Department of Labor when crafting the bill, incorporated their feedback and had them review the bill for compliance with federal law. (See attached March 5, 2013 letter.)
Federal fiscal cliff negotiations threw a wrench into the plan by failing to grandfather our unemployment insurance reforms (set to begin July 1, 2013) into an extension of federal emergency unemployment benefits. A condition of the fiscal cliff deal was that North Carolina maintain its current benefit levels in order to accept a one year extension of federal benefits.
*Not much of a wrench, given that on successive occasions the leadership refused to vote on amendments that would have fixed this aspect of the bill and ensured that federal emergency unemployment benefits didn’t go away.
General Assembly leaders called on Senator Kay Hagan (whose party in the U.S. Senate led fiscal cliff negotiations) and the rest of the N.C. Congressional delegation to grandfather in the unemployment insurance reforms into the final fiscal cliff package, so North Carolinians could be eligible for extended benefits. (See attached December 7, 2012 letter) Because of their failure to act, an extension of federally funded payments for those unemployed longer than 26 weeks did not happen.
*This one is a real doozy. First of all, how could Congress respond to a request penned a month before the 2013 session even convened? And how could Berger, Tillis et. al. even presume to send such a letter? Ultimately it was Berger and Tillis’ action and unwillingness to provide an opportunity to amend the bill or give careful thought to the impacts that are the real reason unemployed workers will not receive federal unemployment benefits.
Four other states (Pennsylvania, Arkansas, Indiana, Rhode Island) had changes to their UI programs grandfathered in to a previous round of federal unemployment benefit extension negotiations in February 2012. North Carolina was the only state with a UI reform bill ready to go when federal fiscal cliff negotiations were taking place in December 2012, so we were the only state with the potential to be grandfathered.
*Wrong again. The exceptions dispensed to those states were for program changes that had been scheduled to take effect after the expiration of the original federal law prohibiting state cuts. When the federal law was extended for another year, the grandfather exceptions were deemed appropriate. Had North Carolina done likewise it would have set the effective date for its changes as January 1, 2014 . Moreover, as a practical matter, the cuts in those states were minimal compared to North Carolina’s. Arkansas’ cut reduced maximum benefits by $6. Had the feds provided an exception to North Carolina it would have defeated the very purpose of the federal law in question.
Finally, under the Sequester that took place on March 1, 2013, the federal government required a 5.1 percent reduction in unemployment benefits for FY 2013. If we had not passed HB 4, we would have still been forced to cut unemployment benefits anyway – without making our unemployment system fiscally solvent.*Hello, Earth to Senator Berger: Cutting benefits by 5.1% would be less than optimal, but your plan ends them for thousands. That’s a 100% cut.
I hope this information helps. Have a nice weekend.*It wasn’t and tens of thousands of average North Carolina families won’t.
Deputy Chief of Staff
Communications & Operations
Office of the Senate President Pro Tempore