State Government News
Slowing Economy
Outs Pressure on UI Rates
Rising
unemployment caused by the slowing economy is placing huge demands on
the state fund that pays benefits to jobless workers and likely will
require businesses to begin paying higher unemployment insurance
premiums, according to Employment Security Commission officials.
North Carolina’s Unemployment Insurance (UI) Trust Fund, which
regularly exceeded $1 billion during the booming 1990s, probably will
fall below $800 million by the end of the year as soaring benefits
paid to laid-off workers far exceeds premiums paid into the fund. A
record $88 million in benefits was paid out of the fund in July, and
benefits have continued increasing in the months since then, according
to Acting ESC Chairman Thomas S. Whitaker.
Whitaker said a new ESC analysis projects that the UI trust fund will
stand at roughly $763 million at the end of this year after taking in
about $406 million in employer contributions and interest and paying
out about $787 million in benefits. Assuming that the state’s
current economic doldrums mirror conditions that prevailed during the
1990-1992 recession and no changes in existing UI rate structures, the
ESC estimates that the fund will drop to roughly $509 million at the
end of 2002 and fall below $200 million at the end of 2003.
But before the fund sinks that low the ESC will be forced to take
action and begin raising the UI rates paid by businesses — rates
that the state steadily reduced over the past few years. Those rate
reductions mean that thousands of North Carolina companies now pay
nothing in unemployment insurance premiums.
A company’s unemployment insurance rates are a factor of how long
it’s been in business and its history of claims. Companies in
business less than two years pay a rate of 1.2 percent applied to the
first $14,700 of salary for each employee. Companies in business more
than two years pay rates that reflect their claims experience — the
more laid-off workers receiving unemployment benefits, the higher the
rate. Companies with the greatest number of laid-off workers receiving
benefits pay the top rate of 5.4 percent of the first $14,700 in
salary for each employee
Those rates are reviewed and adjusted annually, a task the ESC
completes in August. The new rates take affect with UI payments due at
the end of the first quarter of the following calendar year. Because
many companies have laid off workers over the past year — that
state’s unemployment rate in August was 5.0 percent, compared to 3.8
percent in August 2000 — their UI rates will automatically rise to
match their claims experience.
Moreover, businesses probably will lose a major break in UI rates
they’ve enjoyed for the past two years. In 1999, when the UI trust
fund was overflowing amid record-low unemployment, the General
Assembly adopted a measure slashing overall UI rates by 50 percent.
However, that law contains a trigger eliminating the 50 percent
discount if the trust fund balance falls below $800 million. Whitaker
said it’s likely the ESC will have to pull that trigger next August.
Whitaker cautioned that the expected increases in UI premiums might
not be as bad as it would seem now because he expects North
Carolina’s economy to rebound quickly. “I think we are close to
bottoming out and I’m hopeful that we will see a recovery in the
first quarter of next year. I don’t think the economy is as soft as
some people say it is. We are still generating new jobs and we still
have strong numbers of job listings from employers.”
Whitaker also pointed out that the average duration of unemployment in
North Carolina, typically among the shortest in the nation, continues
shrinking. It was 10 weeks in the 1999 fourth quarter, when the
economy was still strong, and has declined to 9.2 weeks now. Whitaker
said that’s among the second- or third-lowest in the nation.
Therefore, by next August, when the ESC performs its annual review of
the UI trust fund and adjusts rates, unemployment may well be
declining as the economy recovers, allowing the depleted UI trust fund
to begin a natural recovery. -- Steve Tuttle
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