North Carolina owes the feds $2.8 billion for money borrowed to pay unemployment benefits. I talked about the problem — and the solution — with JLF’s Fergus Hodgson, the director of fiscal studies. Here’s part of our exchange.

Martinez: What do we need to do in order to pay this back or bring this fund balance back up to zero or in the positive?

Hodgson: There are a few ways to go about this. First, the fact is we have to cut the balance, which basically means either increasing revenue or decreasing payments. We can be more accurate in our payments; around 9 percent of payments are actually in error.

Martinez: That’s a huge amount.

Hodgson: Right. But this program is considered liable to error. … Other states have far higher levels. In Louisiana, where I worked in the past, there was actually, I think, 39 percent, or some crazy amount of payments, that were in error. So North Carolina does have some ability to actually cut down on cost in terms of accuracy, but even if we halved that, it would only save around $100 million a year. So it’s not enough.

The status quo is that we’re increasing taxes. There are many problems with that. As of now, North Carolina already has the highest unemployment insurance taxes of its neighboring states, and small business councils actually identify this as a problem in terms of public policy friendliness. So we’re already dissuading small businesses from coming here, or small or large — anyone who has to pay it. So I’ve proposed that we make what are actually relatively simple cuts. That’s to say that we reduce the number of weeks we offer from 26 to 20, at the state level. That would save around $300 million. We could also reduce the benefit generosity to be in line with South Carolina’s level, and that would save another $250 million.

Basically, we could turn around this gap. I will say that actually South Carolina found itself in a similar position to North Carolina, but it’s already acted before us to resolve it, and they reduced the number of weeks. So what I’m proposing is that basically we follow their lead. And it’s not only South Carolina. Missouri and Michigan have done this, too, also finding themselves in difficult positions.