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Unemployment trust fund bleeding

Posted on December 17, 2008 by Staff

On Monday, a report in the New York Times listed North Carolina as one of 15 states with four months or less left in their unemployment trust funds. For Tar Heels who are currently unemployed and those facing layoffs in the near future, this was certainly cause for pause.

According to the Employment Security Commission of North Carolina, the trust fund balance as of Dec. 15 was $282.4 million, down from $353.1 million on Nov. 28. The ESC is currently paying out around $100 million to $130 million per month. That means the fund could be tapped out in two months.

“I’m not saying we’re not in a situation where we need to sit up and pay attention,” says ESC director of communications Andrew James. “But this report ignores the fact that we get money in every day from employers and the recovery of overpayments. Plus, we’ll get between $500 and 700 million coming in the first and second quarter.” That’s when most unemployment tax bills go out.

This isn’t the first time the fund has been near zero. Back in the tech bust recession (2002 and 2003), the state’s fund maxed out. “It sounds bad, but there’s a mechanism in the system to borrow from the federal government at 6 percent interest,” James notes. “And if you pay it back by Sept. 30, the state doesn’t owe any interest.” It’s also possible to borrow through tax participation notes which carry an even lower interest rate of 1 or 2 percent.

“Now, when you’re talking about millions of dollars, it does accrue and businesses would have to pay it back through unemployment taxes. We don’t want that to happen. So while we’re not alarmed by having to borrow, we sure don’t want to.”

Whether the fund zeroes out or not depends on the difference between what comes in and what goes out. So if unemployment continues to rise, and there’s no reason to think it won’t, the borrowing might become the only option. Just another reason to hope the economy turns around, and soon.

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