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NC legislators nearing unemployment debt proposal

Associated Press Modified: November 18, 2012 at 4:16 pm •  Published: November 18, 2012

RALEIGH, N.C. (AP) — A road map to rid North Carolina of its $2.4 billion debt to the federal government for jobless benefits and to place the state's unemployment insurance system on sturdier financial footing is getting sketched out by legislators and business leaders.

It could be rocky both for employers who pay for the benefits and displaced employees who receive them. It might be the first test of how Gov.-elect Pat McCrory works with fellow Republicans running the Legislature.

Based on interviews, the legislative proposal set to be unveiled early next month would likely keep businesses paying more to pay down debt and reduce benefits for workers who become jobless in the future. McCrory also is expected to have his own ideas.

"We're going to have to make some tough decisions so that we can maintain the financial integrity of the system," said Sen. Bob Rucho, R-Mecklenburg, co-chairman of the Senate Finance Committee. "We need to fix a serious problem."

North Carolina is one of 19 states that still haven't repaid the federal government when they began borrowing money at the height of the Great Recession as insurance taxes were outstripped by benefits from a flood of unemployment applicants. North Carolina's tab is currently the third-highest in the country, behind only California and New York. The state's unemployment rate remains above 9 percent.

Federal law also says the state needs to set aside more than $2 billion in reserves by 2019 to borrow interest-free in the future. Businesses already are being forced to pay higher federal and state unemployment insurance taxes to pay down the debt and make interest payments: Another $21 per-employee increase is on the way in January.

Ben Stuck, a vice president at Charlotte-based Marshall Air Systems, which manufactures restaurant equipment, said more taxes mean less for retirement income and profit-sharing, as well as capital improvements that can help the 100-employee business grow.

"If I have less money to reinvest in my business, then that's going to affect the economy in a negative way," Stuck said.

New Republican leaders at the General Assembly vowed to find a solution to the debt nearly two years ago. At least two studies have now been issued on North Carolina's unemployment benefit challenges. Last year legislators overhauled the state agency that manages the program and are looking for more ways to reduce fraud and restrict who gets benefits.

The Legislature returns to debating and passing bills in late January, the same month McCrory takes office.

The debt is "going to be one of the biggest issues that I have to deal with immediately," McCrory told The Associated Press in an interview in September.

Two key negotiators on the legislative proposal told the AP last week they don't plan to recommend the state issue bonds now to pay off the federal debt more quickly and so employers can avoid mandatory higher incremental taxes. Rucho and Rep. Julia Howard, R-Davie, said in separate interviews said the state can't afford more debt, even if employers pay it back.

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