Gubernatorial hopeful Pat McCrory said Friday that he would consider borrowing money to make good on the state’s unemployment insurance debt to the federal government, which totals some $2.8 billion.
North Carolina’s Unemployment Insurance system is in crisis. The debt, on a per capita basis, is among the top five worst states in the country, and it only continues to grow. The federal government is both charging North Carolina interest on its debt and mandating tax increases on employers.
The best way to resolve this mess, as I’ve noted in my weekly Fiscal Insight newsletter, is to unhinge the state from debt with the federal government and reduce the generosity of the program. While I am as reluctant as anyone to shoulder more debt on North Carolina taxpayers, the debt already exists, so a bonding would merely transfer the debt to a lower interest cost form. Additionally, it would stop the federal tax mandates—an additional $21 per employee each year—and free the state up to reduce the benefits to get the system in balance.
The fact is that current recipients are receiving benefits far in excess of the tax they ever paid in through their employers. That is the underlying germ as to why the state is stuck in the mess: benefits have been going out at a rate not justified by the taxes going in. This structural deficit has continued with the state in delinquency since January, 2009.
North Carolina has the most generous UI benefits of its neighboring states, a full 25 percent more than the benefits Tennessee pays out, and these ought to be reduced as soon as possible. Legislators could also restructure them to be a more uniform subsistence wage, rather than so tilted in generosity towards high earners.
While McCrory’s comments were off the cuff and short on details—he did not endorse benefit reductions, for example—they suggest that finally this issue may actually bring legislative action, and it is about time.