Off the dole: economic recovery and tough love reverse state's $2.8 billion debt for jobless benefits.

• Author: Mildenberg, David
• Position: TAKING INVENTORY

When North Carolina Republicans rejected Dale Folwell as their nominee for lieutenant governor in 2012, the veteran lawmaker didn't lose ambition to wield influence in the state capital. He jumped at the chance when Gov. Pat McCrary's administration offered him a job as assistant secretary of the Division of Employment Security. The Commerce Department post grew in importance after legislators passed the nation's most sweeping reform of unemployment insurance in March 2013. The General Assembly acted in response to a $2.8 billion debt owed to the federal government, which stepped in when the state's unemployment insurance fund became insolvent in 2009. When former Commerce Secretary Sharon Decker hired Folwell, he recalls, "she said, 'Don't rest until every penny of this debt is paid off.'"

As of mid-May, the debt will be erased, and Folwell, 56, can take a siesta. Payouts have declined because the state is stingier and the rebounding economy has sliced its jobless ranks by 47% since 2012. McCrory says the changes will boost business investment. "Our system has been sticking out like a sore thumb," Folwell says. "Employers haven't been listened to."

But the changes kick at people going through hard times and cheapen North Carolina's progressive image, says Rick McHugh, an Arm Arbor, Mich.-based labor lawyer and adviser to the Economic Policy Institute, a Washington, D.C., research group partly funded by labor unions. After years of offering the South's most generous benefits, North Carolina now cuts off compensation for job seekers after 15 weeks, the shortest payout of the 50 states. Forty-six states pay at least 20 weeks. Maximum weekly benefit is $350, down from $535 in 2012. "Instead of saying, 'We had the best unemployment insurance program in the South,' now they can say, 'We got on the low road with South Carolina, Florida and Georgia,"' he says.

Folwell says North Carolina's debt stemmed from years of mismanagement, which earned the state the worst quality scores in the U.S., based on...