ESC management, taxes and benefits all need reform

LAST WEEK'S long-awaited audit of the Employment Security Commission demands action on three fronts - the way the agency is managed, the way we pay benefits and the way we pay for those benefits.

But while the Legislature should move quickly to address the problems, it's important that we understand what that will and will not accomplish. Contrary to what some lawmakers suggest, our main problem isn't that the Employment Security Commission is failing to match up the right job seekers with available jobs. It's that we don't have enough jobs. And that is not something that an agency charged with administering the unemployment insurance program can do a lot about.

What the overdue reforms can do is reduce the cost of the unemployment insurance system and reduce the likelihood that we will again have to borrow hundreds of millions of dollars from the federal government, by creating a better-run agency, eliminating policies that encourage some businesses to shift their payroll costs to other businesses, and denying benefits to employees who were fired for misconduct.

Unlike all but a handful of states, our state law allows people who are fired for misconduct to draw some benefits. Although the primary purpose of unemployment insurance is to stabilize the economy, we shouldn't reward bad behavior. If the appeals process does not provide adequate protections against employers who are dishonest about why they terminated employees, then we need to beef up that system; but benefits should be reserved for those people who lost their jobs through no fault of their own.

Equally problematic is an outlier tax system that doesn't collect enough money to cover benefits, largely because companies that overuse the system pay only modestly higher tax rates than those that rarely if ever lay off employees. The idea behind unemployment insurance is that over time, each company will pay for the unemployment benefits that go to workers it laid off. But that doesn't happen in our state, and that needs to be changed so heavy users carry their weight. (North Carolina taxes heavy users $1,200 more per employee than light users, while the difference in South Carolina is only about $300). Not only would this add fairness and financial stability, but it would deter companies from routinely furloughing their work force and filing for unemployment on their behalf. Even if they continued to do that, it wouldn't be a problem if they had to pick up the cost themselves, rather than shifting it to other companies.

Although we need to correct these glaring problems, simply doing that is like fighting yesterday's war: It won't help us avoid future problems. To do that we need to change a management structure that encourages the hands-off approach that got us into this mess. That means allowing the governor, rather than an autonomous commission, to hire and fire the agency's director, and either eliminating the commission or else limiting its job to hearing appeals. One alternative suggested by the auditors - allowing the governor instead of the Legislature to name the commissioners, who would hire the agency director - would improve the situation marginally, but only marginally, as it dilutes the direct line of responsibility to the governor and puts the director in the needlessly difficult position of having to answer to multiple bosses instead of one.

One of the reasons we never changed the tax system and the benefits system and the agency burned through its trust fund without raising alarms is that no one was holding management responsible for what was going on, because there was no one outside the agency who would be called to account when things exploded. Change that, and you're far less likely to have explosions.