DLT: State repayment of UI loan will save R.I. businesses $95M
BY 2020, THE R.I. Department of Labor and Training estimates the state's unemployment insurance trust fund balance will reach $654 million. Without the changes to the UI system mandated by Gov. Lincoln D. Chafee, the fund balance would total $45 million in 2020, the DLT said.
PROVIDENCE – As a result of the state’s early repayment of its federal unemployment insurance loan, Rhode Island businesses will save $95 million in federal UI tax payments and interest through 2016, according to data released Tuesday by R.I. Department of Labor and Training Director Charles J. Fogarty.
The state’s UI trust fund became insolvent in March 2009 due to the abnormally high unemployment rate following the 2008 recession. Rhode Island along with 29 other states had to borrow from the federal government to make UI payments, and the outstanding loan balance peaked in April 2012 at $290 million.
Without a plan to repay the loan, Rhode Island businesses would have been responsible for paying the entire loan through increases in federal UI tax payments, but changes to the UI system mandated by Gov. Lincoln D. Chafee and adopted in the 2011 state budget established a repayment plan to ease the burden on businesses and put the UI trust fund on more stable footing, Fogarty said.
As a result of the rate-calculation changes phased in over three years and the repayment plan, the DLT will pay off the balance of Rhode Island’s loan from the federal government this November, Fogarty said, seven months ahead of schedule.
The early payment will save state businesses $14 million in interest assessments as well as $36 million in federal UI tax payments in 2015 and $45 million in tax payments projected for 2016, the DLT said, for total savings of $95 million through 2016.
In addition, the recently enacted fiscal year 2015 state budget includes another change to end the 3 cent UI surcharge in 2014 rather than 2015, saving Rhode Island businesses an additional $14 million.
In 2015, the DLT projects the UI trust fund will reach a balance of $101 million, and the balance will double to $205 million in 2016. Without the changes to the UI system, the trust fund balance would have totaled $51 million in 2016, the DLT said.
By 2020, the DLT estimates the trust fund balance will total $654 million, compared with $45 million if no changes had been made to the UI system.