Rhode Island Repays Federal Unemployment Insurance Loans 6 Months Early

Governor Lincoln D. Chafee joined Rhode Island Department of Labor and Training (DLT) Director Charles J. Fogarty on Monday at DLT in Cranston to announce repayment of the funds the state borrowed to cover Unemployment Insurance (UI) benefit payments.

Since March 2009, the U.S. Treasury has loaned our state $905 million to assist unemployed Rhode Islanders through the recession. With the final payment of $2,690,368.70 to the U.S. Treasury six months early, businesses will save more than $50 million in 2015 – including $36 million in Federal Unemployment Tax Act (FUTA) payments and $14.5 million in interest assessment taxes. Rhode Island’s 32,000 employers — who pay for the Unemployment Insurance Trust Fund (UITF) — will save $45 million more in FUTA taxes in 2016.

“This is a big win for Rhode Islanders and our business community,” Governor Chafee said. “In 2011, my administration faced a huge challenge with an insolvent Unemployment Insurance system, an existing UI loan and a lack of a plan to repair the system or repay the loan. By borrowing from Treasury, we spared the business community the burden of repaying the loan. That was our only course of action acceptable to me.”

In January of 2011, Governor Chafee requested Director Fogarty develop a balanced UI repayment plan that made the UITF solvent, eased the tax burden on employers; aligned our benefit structure with Connecticut and Massachusetts; and built the required reserves in the UITF to lower the UI tax payment schedule. The FY 2012 state budget adopted by the General Assembly included this UI repayment plan that would be phased in over three years.

“Nobody liked the overhaul plan. We really had to sell it,” Director Fogarty said. “Claimants didn’t like the changes we were making to their wage replacement rate and employers didn’t like the additional contributions that were asking them to make. The only way for the plan to work was to appeal to shared sacrifice.”

Currently, DLT projected that in 2019 the UITF will reach the required reserve level, which will allow the State UI Tax Schedule to drop Rhode Island from the highest bracket for the first time since 1992. When this occurs, dropping one tax schedule will save R.I. employers an additional $21 million annually.

In an August 2011 report, the National Employment Law Project (NELP) recognized two states out of the more than 30 states that borrowed federal money as having dealt with their UI system crises head-on. “Only Colorado and Rhode Island this year implemented effective financing reform, by raising and indexing their taxable wage bases, and by requiring that contributions into their trust funds be based on the amount businesses draw in benefits,” the NELP reported.

It added: “Rhode Island also enacted harsh changes to its benefit calculation formula that will result in that state’s wage replacement rate falling from among the best in the nation to the middle of the pack.”

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