How did North Carolina get here with such low unemployment insurance benefits available?

The primary answer is that these are levels that Republican legislative leaders have been comfortable with for nearly seven years as the state slowly emerged from the depths of the Great Recession of 2008-11.

The UI reductions were the key elements in the passage of House Bill 4, which was ratified by the GOP super-majority legislature on Feb. 14, 2013, and signed into law by then-Republican Gov. Pat McCrory on Feb. 19, 2013.

Although Republicans won control of the General Assembly for the 2011 general election, the 2013 session was the first time they had a super-majority in both chambers and a governor hesitant to use his veto powers.

To show the importance of the legislation to Republican leadership, it took just two weeks between introduction to clearing both chambers. It was the second bill of non-ceremonial content signed into law in the 2013 season.

Now, like in 2013, Republican legislative leaders favor limited UI benefits, in part because they didn’t want recipients — who lost their job through no fault of their own — to rely on the benefits over working.

Rep. Julia Howard, R-Davie, said in February 2013 as co-sponsor of HB4 that “is the best fix I can come up with for an ugly scenario we have to resolve” in terms of paying off $2.8 billion in borrowings from the U.S. Labor and Treasury departments during the Great Recession.

“This (unemployment insurance) is becoming a welfare-dependent program in a lot of cases,” Howard said at that time.

Some UI claimants during the Great Recession received up to 99 weeks of state and federal benefits, of which some of the state’s payments were paid through federal borrowings.

Howard said the benefit cuts would spur some claimants to take whatever job they can find now regardless if it was part time or represent gainful employment. Hopefully, she said, they would find a better job as the economy improved.

Sen. Paul Newton, R-Cabarrus, said in February 2013 that the sharp decline in state UI benefits would not have been so noticeable if the state had been paying what neighboring states had been all along. The maximum weekly UI benefit was $530 before it was cut in HB4 to $350.

However, in order to justify the reductions in HB4, Republican legislators drew Alabama and Mississippi into the comparison, rather than just Georgia, South Carolina, Tennessee and Virginia.

McCrory called HB4 “this bipartisan solution (that) will protect our small businesses from continued over-taxation, ensure our citizens’ unemployment safety net is secure and financially sound for future generations, and help provide an economic climate that allows job creators to start hiring again.”

There were four Democratic senators and three Democrat House members to vote for HB4, along with every GOP senator and all but two GOP House members who cast a vote.

Several Democratic bills in the past seven years designed to eliminate the sliding scale or at least increase the floor of the weekly benefits weeks and payment total have not advanced out of a committee.

A little background

Senate president pro tem Phil Berger, R-Rockingham, and then-House speaker Thom Tillis, R-Mecklenburg, jointly touted the benefit reductions in HB4.

Tillis used his final two years as speaker as a springboard toward being elected as North Carolina’s junior U.S. senator in November 2014. He is engaged in a toss-up 2020 re-election fight with Democrat Cal Cunningham in which the balance of the chamber could be decided.

The federal UI debt was created in part because N.C. employers received a series of unemployment insurance tax cuts in the 1990s when the state jobless rate was well below the 5% level that economists consider full employment.

The jobless insurance tax rate was not raised, thus replenishing the state reserves for benefit payments until 2011, despite the state going through two recessions.

The 2013 state UI law raised by $21 a year the per-employee unemployment insurance tax on most businesses until the debt was paid off. That put the per-employee tax as $126 for 2015, before reducing it to $42 in 2016 once the debt was extinguished.

Berger’s office released a statement before the law went into effect on July 1, 2013, to serve as “a quick reminder” on why the legislature chose to reduce the benefits.

“During good economic times, previous Democratic legislatures and administrations made irresponsible decisions that hurt the solvency of our state’s unemployment insurance system,” according to the statement.

“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.”

However, it is clear at that time there was no outcry from Republican legislators or from employers to raise the employer UI tax as the state went through the 2001-03 recession and the Great Recession.

Instead, the common theme was state officials couldn’t raise the tax because it will dissuade employers from hiring.

According to the left-leaning N.C. Justice Center, employers bore about 22% of the UI trust fund repayment burden through the temporary employer tax increase, while beneficiaries bore 73% through reduced benefits.

Taste of reality

It didn’t take long for unemployed North Carolinians to get their first taste of reality from the UI benefit cuts.

States that made changes to their UI benefits laws without congressional approval in the 2012-13 time period were disqualified from receiving extended federal benefits. North Carolina was the only state to plow ahead.

According to the U.S. Labor Department, that decision cost North Carolina an estimated $780 million in UI benefits for the second half of 2013 even though the state’s jobless rate was at 8% during that time. Those funds could have helped 85,000 unemployed North Carolinians, including 15,000 in the Triad.

State GOP legislative leaders had some kindred spirits among conservative pundits and media at that time. For example, in an editorial posted by the Wall Street Journal in December 2013, the newspaper cited North Carolina as among “some smart states that have begun to resist Uncle Sam’s not-so-free unemployment benefits and loans.”

“North Carolina, for example, was criticized as heartless for scaling back benefits earlier this year. But by doing so Raleigh avoided an (employer UI) payroll tax hike.

“Maybe it’s time to consider whether the big expansion of unemployment insurance has increased joblessness.”

Sliding scale

Because state unemployment benefits are on a sliding scale, the number of weeks can rise up to 20 weeks when the state unemployment rate is 9% or higher — which economists say it is highly likely to be exceeded in either the April or May reports.

However, the sliding scale is only activated twice a year — on Jan. 1 and July 1 — both based on the average rate for first three months of a six-month cycle.

That means the January through March rates for the July 1 trigger, and July, August and September for the Jan. 1 trigger.

John Quinterno, a principal with South by North Strategies Ltd., a Chapel Hill research company specializing in economic and social policy, said that because the state “will not see the first real spike in the unemployment rate until (April’s rate), I wouldn’t be surprised at all if maximum duration stays at 12 weeks for the rest of the year” unless state legislators eliminate the three-month requirement.

Berger spokesman Pat Ryan said in March that waiving the three-month average “is one of several policy adjustments under discussion.”

Methods of cutting benefits

According to a National Employment Law Project report released in June, legislatures looking to reduce the number of people eligible for UI have cut benefits through four primary methods:

  • Increasing the amount of earned wages needed to qualify;
  • Redefining who qualifies;
  • Reducing duration of benefits; and
  • Imposing stricter ongoing eligibility requirements.

The nonprofit group’s report found that 25% of UI benefit claims nationwide were denied for reasons unrelated to the cause of their unemployment, in particular the job-search requirements and online claim procedures.

The N.C. legislature has imposed all four restrictions, including requiring recipients to wait multiple weeks to receive benefits, as well as raising the number of required weekly job search contacts from two to five for people who receive UI benefits.

Those restrictions were suspended temporarily by Democratic Gov. Roy Cooper with executive order No. 118 on March 17.

“If you want to reduce a deficit in a social program, there are only two ways to do so: increase revenues or decrease benefits,” said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University.Since Republicans wanted to reduce the UI tax, and thus c ut into revenue enhancement, they had to reduce benefits.”

rcraver@wsjournal.com

336-727-7376

@rcraverWSJ

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