Governor’s Unemployment Tax Changes Won’t Work for Business

Last month, the governor released his recommended budget for 2019-2021. While there are a number of provisions in his draft that, if passed, could affect your business, we were interested to read his proposal for changes to the taxes you pay to fund the unemployment insurance system.

First, we should look back to 2013, when North Carolina employers, who pay 100% of the system’s funds, were facing a $2.6 billion debt to the federal government for money borrowed during the Great Recession. At the time, the NC Chamber led bipartisan reform efforts, eventually restoring solvency to a collapsing system and, after replenishing the reserve fund, restoring predictability for business owners. Today, the system is solvent and ready to weather another economic downturn. On top of that, employers pay $105 less in FUTA taxes per employee than they did in 2016.

Following those reforms, the unemployment insurance system works—period. That’s why we were concerned to see that the governor is proposing new changes to fund other programs (more on those shortly). His proposal would modify the employer surcharge, which temporarily raises taxes on business owners by imposing a 20% surcharge whenever the reserve fund is below $1 billion. This was a key piece of the compromise solution we fought for because it ensures the solvency of the system and would only be applied under certain, necessary circumstances. The governor’s new proposal would apply the surcharge permanently, using the additional revenue to fund a workforce development program separate from those already established under the 2013 reforms.

There’s no question that North Carolina must focus on workforce development. Our members are facing serious challenges finding the talent they need to continue growing, and our team is working on solutions. In fact, other pieces of the governor’s budget address this area and could earn our support, such as $15 million for students to pursue workforce credentials or other funds allocated to Finish Line Grants supporting students at our state’s high-quality community colleges.

The problem arises when our government starts to use funds intended for one purpose for a different one entirely. We have long opposed using funds from the Highway Fund for purposes other than transportation infrastructure, and successfully worked to end that practice several years ago. Earmarking unemployment insurance funds in this way would set a dangerous precedent about how the government spends your money and how we prepare for economic downturns.

We encourage the legislature to reject this portion of the governor’s budget and instead pursue other funding methods and policy changes to support workforce development. Job creators in North Carolina deserve long-term, visionary solutions built out of collaboration and stakeholder input. We will continue to speak out against this provision as the General Assembly moves forward with their budget process and will keep you apprised.

Sincerely,

Gary J. Salamido
Chief Operating Officer and Acting President
NC Chamber


How the governor’s budget works: 

Near the start of each long legislative session in North Carolina, the governor traditionally releases a recommended budget, kicking off a process of negotiations and votes that eventually leads to the passage of our state’s two-year budget. While the governor’s proposal is not legally binding, it reflects the administration’s priorities for the coming years and is meant to help inform lawmakers as they draft the state’s budget.