by Sarah Curry
Director of Fiscal Policy Studies
Taking a look at history as a whole, it is obvious why the unemployment rates were slashed in the early 1990s and North Carolina has ended up with a $2.6 Billion deficit today in the Unemployment Insurance Trust Fund.
In 1992 BMW announced they were going to build a large manufacturing plant in South Carolina, and in 1993 Mercedes chose to build a large plant in Alabama. North Carolina was courting the two automakers in hopes they would locate in North Carolina, and they lost. Upset about losing both manufacturing plants, State legislators began working on a plan to make North Carolina more attractive for corporate investment. They began by cutting the unemployment insurance contributions, eventually becoming the lowest rate in the US in 1995. In 1996 the state passed the Bill Lee Tax Credits package to give corporations incentives to relocate into North Carolina, again slashing taxes businesses would have to pay to the state.
In 1999 legislators redirected funds that were earmarked for unemployment insurance and used them for worker training programs through the Department of Community Colleges. After the federal passage of CAFTA in 2004, many textile workers lost their jobs in Western North Carolina. In response, 2006 legislation allowed the interest from the Employment Security Commission Reserve Fund to be used for a “Worker Training Trust Fund” in efforts to retrain workers that had lost their jobs due to CAFTA.
After the start of the Great Recession in 2008, North Carolina had no funds left in reserve for unemployment insurance. Our state had to use a Federal Loan to pay unemployment benefits, and in this balancing crisis legislators extended benefits for unemployment recipients. Thus, today in 2013 the state of North Carolina has approximately $2.6 Billion in deficit to the Federal Government, and now mandatory federal tax increases are being imposed on NC businesses through a federal act to repay the outstanding debt.
So what caused this problem? Many refer to cutting employer contributions and expanding benefits. The real reason – a hungry appetite for business expansion and trying to compete with neighboring states. If true tax reform had occurred in the 1990s as a way to make North Carolina more business friendly, we wouldn’t have the large deficit and wouldn’t have to forgo potential tax revenue from businesses through incentives. Educating workforce is a way to grow economically, but no amount of education can help a business climate that is taxed and cannot produce large profits.
Legislators in 2013 need to learn from history and stop making short-term fixes and revamp our entire system. That includes unemployment insurance contributions AND tax reform; jobs will come to healthy states, but North Carolina has a long way to go to undo the problems of the last 20 years.