Raleigh, N.C. — Federal regulators have signed off on the bulk of North Carolina's new unemployment insurance law but warned the state that some rules governing who is ineligible to receive unemployment benefits need to be rewritten.
A 13-page letter from Gay Gilbert, administrator with the U.S. Office of Unemployment Insurance, details areas where the new state law fails to comply with federal rules, as well as other areas of potential conflict.
Josh Ellis, a spokesman for the state Department of Commerce, which oversees the state's unemployment insurance program, calls the issues "technical."
Gilbert's letter warns North Carolina could lose a grant for operating its unemployment system and the state's employers could lose a key discount on their federal unemployment taxes. Losing that discount would raise an employer's federal unemployment tax from $84 per employee per year to the maximum $420 per worker per year that the federal government can charge.
"That's way down the road," Ellis said.
Gov. Pat McCrory has the ability to temporarily set aside unemployment insurance rules that don't comply with federal standards until the legislature can fix them permanently. Also, lawmakers can make the fixes before they adjourn their legislative session this month.
Advocates who lobbied against the new law said they had not had enough time to review the letter this week, but they say it could be a symptom of a law that was rushed through the legislative process and overly harsh to unemployed workers.
But backers of the law say the feds are bringing their criticism late in the process.
Sen. Bob Rucho, R-Mecklenburg, the lead sponsor of the unemployment changes in the Senate, said he had not seen the U.S. Labor Department letter and could not speak to the specifics it raised. However, he did say that state lawmakers shared copies of their proposed legislative language with the federal agency in December, before the legislative session began.
"Those folks had a chance to review all of that, and we never got comments back on it. They never once complained," Rucho said.
Meanwhile, Rep. Julia Howard, R-Davie, who crafted many of the changes for the House, said she was "thrilled" with the federal government's feedback.
"We should be high-fiving one another," she said, adding that the House would run a "technical corrections" bill next week to fix the issues identified by the U.S. Labor Department.
Changes went into effect July 1
North Carolina's employers are responsible for funding the state's unemployment insurance system through a combination of state and federal taxes. During the boom years of the 1990s, the state cut the taxes employers paid, meaning that reserve funds in North Carolina built slowly.
When the most recent recession hit, the state did not have enough money on hand to pay a spike in unemployment claims, so it borrowed money from the federal government. McCrory recently said the total owed was near $2 billion. Federal unemployment taxes will rise $21 per worker per year to repay that loan.
Proponents of the new state law said the changes would help repay that debt more quickly and ensure that the program never incurs such as deficit again. Portions of the bill call for slightly higher state taxes on employers to accelerate repayment and build a reserve fund.
Other changes shorten the number of weeks for which an unemployed worker is eligible for state benefits – it had been 26 weeks in all cases before July 1 but is now a maximum of 20 weeks – and tightened requirements for when an unemployed worker must take another job, even if it didn't pay as much as his or her old job.
Signed into law in February, changes to the state's unemployment system went into effect July 1. The most immediate impact was that roughly 71,000 people on long-term federally funded unemployment benefits lost their support payments. That's because federal law revokes long-term federal assistance in states that change their own unemployment programs. This week's letter from the U.S. Labor Department doesn't deal with that issue.
Rather, it points to differences between what federal law requires states to do in their unemployment programs and what the newly crafted state program does. In particular, the letter takes issue with some occasions upon which a worker would be entirely ineligible for benefits. For example, if a worker is fired because he or she do not secure a license needed to do a job, the new law would reject the claim, regardless of whether that failure was the employee's fault or the employer's.
The federal regulator also takes issue with new state rules that would drop workers from the unemployment rolls if they don't take another job immediately when it becomes available. This provision was controversial when the bill moved through the legislature because it could force those who used to be middle managers or executives to take new jobs far below their previous pay grade and skill level.
Howard said that "total reduction of benefits rights" language was the most serious and substantial issue raised by the Labor Department.
But, she said, the language that the federal government wants won't change how the law operates. Rather, it will clarify provisions already in the bill.
"We'll clarify what we need to clarify," she said.