Unemployment insurance rates on a steep climb

Employers face huge increases
Dec. 23, 2012 @ 07:00 AM

Escalating unemployment costs may discourage adding jobs, says McDonalds owner, operator and president Tony Delligatti.
Delligatti owns McDonald’s in Thomasville, Archdale, High Point, Lexington, Reidsville and Greensboro.
“Our goal is to continue or grow our number of employees, as business conditions allow,” he said. "Future increases in unemployment insurance will discourage hiring, as the costs to employ each person increase.”
While unemployment costs vary, Delligatti estimates that his average cost per employee was $158 last year, but increased to $180 in 2012. He is worried about the current trend, which could escalate as high as $420 per employee by 2028.
"I completely understand the need for unemployment payments, but the program needs to be solvent," he said. “I just want to make sure the dollars are properly managed, so that the money we pay on behalf of our employees is still there, if our employees need it in the future.”
According to Jake Cashion, director of Governmental Affairs for the North Carolina Chamber, the federal government isn't the only one who faces skyrocketing debt. With a debt of $2.5 billion, Cashion said North Carolina’s unemployment insurance trust fund is not only insolvent, it rates as the fourth highest trust fund debt in the country.
"The National Unemployment Insurance program, developed in 1935, was designed as a safeguard for individuals against distress for a short period of time after they become unemployed," Cashion said. "The program is fully funded by employers. In 2012, there are approximately three million covered employees."
Up until 2008, unemployment insurance benefit payments were made from the state’s trust fund. During the Great Recession, unemployment claims in North Carolina skyrocketed way beyond the trust fund’s balance. The state opted to borrow money from the federal government so that it could continue to make payments to those who were eligible.
In 2012, employers paid the $395 million price tag for debt service on that loan. Under the current system, the cost per employee will continue to escalate in order to pay finance costs for the loan.
This means that in 2013, employers face an increase to $84 per employee. If nothing is done, costs will continue to increase and, by 2019, employers will face an estimated 56 percent Federal Unemployment Tax Act (FUTA) tax increase.
The Thomasville Area Chamber of Commerce supports reform of North Carolina's Unemployment Insurance System, noted Chamber President Doug Croft. The Chamber’s board of directors voted its unanimous support at the Sept. 4 meeting.
“North Carolina's Unemployment Insurance situation faces crises,” Croft added.  “Owing
nearly $3 billion to the federal government, NC has the fourth highest unemployment insurance debt in the nation. Unemployment Insurance is solely funded by employers. 
“The debt is triggering mandatory tax increases on NC businesses that threaten economic stability.”
The Archdale-Trinity Chamber of Commerce has joined the effort as well.
As chief financial officer for Harris & Covington Hosiery in HIgh Point, Darrell Frye, also a member of the Randolph County Board of Commissioners and vice president of community relations for the Archdale-Trinity Chamber of Commerce, hopes reforms happen soon.
He sees the effect of the debt crisis up-close and personal.
According to Frye's calculations, Harriss & Covington's normal FUTA tax would be $12,500 for the year. This year state debt interest penalties added an additional $6,250 to the company's bill, a 50 percent additional surcharge.
"I do believe this is an important issue," he said. "Today, no, it's not a crisis, but if the North Carolina General Assembly fails to do anything about it when they go into session next year, it may become a crisis."
Highlights of a study commissioned by the N.C. Chamber indicate that the best route to achieve solvency is to enact legislation to refinance the debt, which will return the unemployment insurance trust fund to solvency faster with the least impact on employers. Recommendations made by N.C. Chamber include improvements in program integrity, a more “back to work” focus and common-sense reforms to align tax revenues with benefits and speed up the creation of jobs and re-employment.
"Something we'd like to see is a more-back-to-work program," said Cashion. "Also, you'll likely see a change in benefit amounts and duration."