Session Law 2013-2 was signed by Governor Pat McCrory on Tuesday, February 19, 2013, reducing unemployment benefits, tightening benefit eligibility, and changing the UI tax rate schedule.
A study conducted last year found that the UI taxes paid by employers in North Carolina were higher than taxes paid by employers in other states in the region. Nevertheless, the tax payments did not generate sufficient revenue to cover benefit payments on an annual basis or to build solvency in the UI trust fund. The level of benefit payments had simply outstripped the ability of employers to pay for the UI program in North Carolina since the 2008-2009 recession.
Reforms were necessary to allow the state to start to pay down the $2.5 billion Title XII loan balance (the third highest in the nation) and to balance the amount of UI benefit payments with the UI tax revenue. Without such reforms, the costs associated with the Title XII loan would keep rising and the business environment in North Carolina would become less competitive. Session Law 2013-2 includes the following provisions to address these problems:
- The maximum weekly benefit amount is reduced from $535 to $350. This represents a 35% reduction in potential benefits.
- The maximum number of weeks that state UI benefits will be paid is reduced from 26 weeks to a range of 12-20 weeks, depending on the rate of unemployment. If the seasonally adjusted unemployment rate is 5.5% or lower, the potential benefit payments are limited to 12 weeks. At the other end of the spectrum, if the seasonally adjusted unemployment rate is 9.2% or higher, the potential benefit payments are extended to 20 weeks.
- The calculation of the weekly benefit amount is changed from an amount based only on the high quarter to an amount based on the two most recent quarters in the base period. This results in lower benefits for the person whose wages were primarily paid in only one quarter.
- The bill eliminates most good cause provisions for leaving work, which will result in more disqualifications being imposed on individuals who quit. For example, prior law provides for no disqualification when a person quits to accompany his or her spouse to a new residence where the spouse has secured work. Under this bill, such claims will be disqualified except in the limited circumstances of a military spouse having been assigned to a new military base.
- All changes relating to unemployment benefits will take effect for new claims filed on or after July 1, 2013.
- This bill increases the minimum and maximum UI tax rates and changes the tax rate schedule beginning January 1, 2014.
- A Surtax equal to 20% of the contributions due is imposed for each calendar year until the balance in the Unemployment Trust Fund equals or exceeds $1 billion, which is projected to occur in 2017.
- Including the Surtax, tax rates will range from 0.072% to 6.912% until such time as the balance in the Unemployment Trust Fund is greater than 1% of total insured wages in the state. Our analysis indicates that tax rates will generally be higher under the new rate schedule until solvency is restored.
In recent years most states have paid UI benefits for a maximum of 26 weeks. However, state legislatures have begun to reconsider the level of benefit payouts that should be available, given the fact that benefit payouts have continued to be out of balance with employer tax payments, despite the general increase in UI tax rates. North Carolina joins seven other states that have reduced either the weekly benefit amounts or the maximum number of weeks of benefits. These states are Arkansas, Florida, Georgia, Illinois, Michigan, Missouri, and South Carolina.
Simulations prepared by The Upjohn Institute suggests that the provisions in Session Law 2013-2 will accelerate the repayment of the $2.5 billion federal loan by three years and result in a positive fund balance by 2015.
The full text of Session Law 2013-2 is attached. As always, please do not hesitate to contact us if there are any questions.