The North Carolina legislature returns to work in this Jan. 30 photo. (Takaaki Iwabu/AP )
North Carolina lawmakers Tuesday moved to drastically slash jobless benefits, joining the ranks of states that have decided they can no longer sustain the growing financial burden of the unemployed.
Despite having one of the nation’s highest jobless rates, North Carolina’s government took steps to enact some of most severe benefit cuts in the country. The measure would shrink the maximum period of time someone could receive state jobless benefits to 20 weeks from 26 weeks and reduce the maximum weekly benefit to $350 from $535. The state Senate gave preliminary approval to the proposal on Tuesday, and Gov. Pat McCrory (R) has promised to sign it into law, which would take effect July 1.
The reduction in benefits has another dire consequence for North Carolina’s unemployed. Unless they collect at least 26 weeks of unemployment checks from the state, they are disqualified from getting jobless benefits from the federal government, which add up to an additional 47 weeks of aid.
An estimated 170,000 people would be thrown off federal jobless benefits in the state, according to the federal Labor Department.
“This cutoff is automatic under federal law. I have no discretion to stop it,” acting Secretary of Labor Seth D. Harris said.
Supporters of the measure say North Carolina had little choice after falling heavily in debt to finance these benefits. Seven other states have also rolled back aid for the unemployed in the wake of the recession.
“Unemployed job-seekers are facing a one-two punch, with state cuts triggering federal cuts too — a real double-whammy hitting families whose needs remain great,” said Christine Owens, executive director of the National Employment Law Project. “Pulling the rug out from under the unemployed is the wrong thing to do on so many levels.”
Most of the states that have reduced jobless benefits in the past two years have unemployment rates that higher than the national average of 7.9 percent. They are: Michigan, Florida, South Carolina, Georgia, Illinois, Missouri and Arkansas. In North Carolina the rate is 9.2 percent.
Advocates for the unemployed say the reductions harm families on the brink while robbing the larger economy of a particularly efficient form of stimulus. But business leaders say the cuts are needed to improve the economic climate and help states rebuild unemployment insurance funds that fell deep into debt because of the downturn.
Since 2008, 35 states borrowed more than $50 billion from the federal government to keep jobless benefits flowing. The loans were needed because many states had neglected their unemployment funds during the economic expansions that preceded the bust, cutting taxes on businesses and reducing balances. Consequently, states had less money on hand to pay jobless benefits as demand for the aid skyrocketed during the recent recession compared to the milder economic slowdown that occurred in 2001.
As a sluggish job market continues to grip much of the country, more than half of the money states borrowed from the federal government is still outstanding. The debt has confronted states with a stark choice: either raise taxes to pay off the debt, cut benefits, or some combination of the two.
North Carolina has now borrowed $2.5 billion for aid to the unemployed. Business leaders said the new taxes that would be required to pay down that debt would be so high that they would become a determinant to job creation.
“If we did not fix the system it would take until 2019 pay the debt, and the taxes would keep incrementally keep compounding,” said Lew Ebert, president of the North Carolina Chamber of Commerce. “This is the number one economic development cloud hanging over the state.”
With the new law, Ebert added, “companies would know what the cost of business is. Also, companies that move here would know they would not have to pay off a debt that they did not help create.”
At the same time, the new law would require about 30,000 businesses to pay unemployment insurance taxes that they don’t currecntly make.
Often cited as a paragon of the New South with its high-tech Research Triangle near Raleigh and the nation’s second-largest banking hub centered in Charlotte, North Carolina was especially hard hit by the recession.
Nearly four years into the recovery, the unemployment rate is the fifth highest in the nation. Ebert said that some business owners grumble that the state’s jobless benefits are too generous and are a disincentive for people to return to work.
“Everywhere I travel, there are companies that have jobs and want to hire,” he said. “But I hear two things: people don’t have the skills, or that it is tough to compete with $500 plus per week in benefits.”
Advocates for the jobless point out that although the maximum benefit is $535 per week, the average jobless worker in the state receives $296 a week — a figure that will plummet to closer to $200 a week under the new law.
“This is a huge hit for people,” said Bill Rowe, general counsel and director of advocacy for the North Carolina Justice Center, which has lobbied against the unemployment insurance changes. “Thousands of people are going to go from receiving an unemployment check to zero. You can only imagine the problems that will cause.”