WASHINGTON -- The U.S. Labor Department has warned North Carolina legislators that their controversial plan to slash unemployment benefits will cost the state $780 million in federal funds and cast a "grievous blow" on the state's working families.
"I have no discretion to stop it," Seth Harris, the department's acting secretary, said in a statement on the state losing eligibility for federal funding. "As a result, families struggling to secure their place in the middle class will suffer a grievous blow, and the state's economy will lose $780 million in federal funds that are vital to reducing North Carolina's high unemployment rate."
As HuffPost has reported, the state's lawmakers have been pushing a bill that would reduce the maximum weekly benefit for an unemployed worker from $530 to $350, as well as cut back their maximum duration to between 12 and 20 weeks. Due to federal guidelines, the cuts would mean that North Carolina could no longer take advantage of long-term unemployment insurance supplied by the federal government.
The state's unemployment rate remains well above average, at 9.2 percent, compared to the national rate of 7.9 percent. According to Harris, the proposed measure would exclude an estimated 170,000 North Carolinians from the federal benefits, known as emergency unemployment compensation, which are designed to help the jobless once state benefits have been exhausted.
The Labor department made its appeal to North Carolina legislators largely along macroeconomic lines. Harris noted that unemployment benefits can play a critical role in bolstering a sluggish economy, since recipients tend to quickly pump the money into their local communities by buying food and other necessities.
"We know that for every dollar spent on Unemployment Insurance benefits, nearly $2 are generated in the local economy," Harris said. "Unemployed workers and their families spend these benefits in local grocery stores and small businesses, and use them to stay current on mortgage or rent payments and utilities."
State Republicans said they're backing the proposed cuts because the savings will help the state repay the $2.5 billion it borrowed from the federal government to underwrite unemployment insurance in recent years. By repaying the debt more quickly, the rationale goes, the state's businesses will see their federal tax rates come down.
Critics of the measure, however, have blasted it as a short-sighted move that leaves free federal money on the table.
"It is pretty amazing," Alexandra Sirota, an analyst with the North Carolina Justice Center, told HuffPost last week. "As far as we know, no other state has rejected federal dollars to push that level of benefit cuts."
In a new paper addressing such cuts, the National Employment Law Project, a worker advocacy group, said the poor shape of states' unemployment trust funds isn't due to "generous" benefits for recipients; instead, it's due to the low unemployment insurance tax rates facing employers.
"This reality has little to do with the alleged 'generosity' of UI benefit levels, which have remained relatively flat over recent decades, and everything to do with the fact that state legislatures reduced employer UI taxes to unprecedented lows over the years leading up to the Great Recession," the paper argued. "The purpose of these cuts is simple: pay a lesser amount of UI benefits, to a smaller share of unemployed workers, for a shorter period of time."
North Carolina isn't the first state to try to implement such cuts. Though states have historically offered at least half a year of unemployment insurance, Florida has recently cut back to a range of 12 to 23 weeks, and Georgia to a range of 14 to 20 weeks, depending on the state's unemployment rate.
Of the states that have taken such measures, NELP calls the North Carolina proposal "the harshest cuts yet." The state legislature may address the bill as early as Tuesday, and the measure could reach Gov. Pat McCrory (R) by the end of the week. McCrory has signed that he will sign the bill.