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Rhode Island Owes Feds $200 Million for Unemployment Benefits

Monday, January 07, 2013


Rhode Island still owes the federal government nearly $200 million from loans taken out to cover unemployment benefits, according to figures released last week by the National Conference of State Legislatures (NCSL).

The state is one of just 19 states across the country that currently have loan balances within their unemployment insurance trust funds, which were set up to help unemployed workers during economic downturns.

But many of those trust funds were inadequately funded for years and when the Great Recession hit the country, states were forced to borrow from the government. In total, states have taken out almost $50 billion in loans and still owe $27,177,528,656.68, according to the NCSL.

Rhode Island, which began borrowing funds in March 2009, still owes $199,470,182.74.

The outstanding balance has caught the eye of some government watchdogs, including Ocean State Tea Party in Action (OSTPA) spokesperson Lisa Blais, who questioned how the state plans to pay back the loans.

“Businesses in Rhode Island, particularly local small businesses, are struggling enough, they don't need the additional tax expense of increased rates to the Department of Labor and Training,” Blais said. “The loan underscores the train wreck that is Rhode Island’s economy.”

RI Must Pay Loans in 2 Years

But the Ocean State is not alone and several states may need to borrow more money if unemployment rates across the country do not significantly. In Rhode Island’s case, the state began borrowing when the jobless rate was nearing 12 percent and experts say the unemployment rate isn’t expected to drop below 9 percent until sometime next year.

A report released last year by the Center on Budget and Policy Priorities noted that “because unemployment is expected to remain high for some time, such borrowing will likely continue for the next few years.”

And defaulting on the loans is not an option. The report suggested that a failure to repay the government would only hurt employers

“States are required to fully repay the loans, with interest, within two years of borrowing the funds,” the report stated. “If a state does not repay the full amount, the federal government will recoup its funds by effectively raising the federal tax on employers within the state each year until the loan is repaid.[34] As a result, employers in 27 states face higher FUTA tax rates in 2012.”

According to Rhode Island’s Comprehensive Annual Financial Report released last week, the state’s Employment Security fund incurred $541 million in expenses during the 2012 fiscal year. As of June 30, 2012, the fund was running a deficit of $151.5 million.

For some, an inability to fund their unemployment trust funds is one of the key reasons so many states still find themselves in the hole.

“The states have a fundamental problem: They’re not funding these trust funds appropriately,” Mike Evangelist, of the National Employment Law Project, told the Pew Center on the States last year. “You just keep digging the hole deeper, you keep losing more. It is a compounding problem.”

Is RI Too Generous?

But others say Rhode Island has been too generous when it comes to handing out unemployment and other benefits in recent years. In December, the website 24/7 Wall St. released a study that suggested the Ocean State hands out the most generous benefits in the country/

The study broke down six key entitlement categories (average pension benefits, total per pupil spending, Medicaid payments per enrollee, percentage of weekly wages covered by unemployment benefits, number of months of TANF received, average TANF cash assistance per month) and found that the Ocean State ranked in the top ten among all states in all but one category (average TANF cash assistance per month).

That state ranked second in average pension benefits ($34,577) and percentage of weekly wages covered by unemployment benefits (43.4 percent) and fourth in Medicaid payments per enrollee ($8,566).

“Rhode Island does more to spread wealth among its residents than any other state,” the study stated. “In the third quarter of 2012, unemployment insurance in Rhode Island covered 43.4 percent of the recipients’ previous weekly wages, more than any state except for Hawaii.”

For Blais, the answer is simple. The state needs to create a more business friendly atmosphere if it wants to solve its unemployment crisis.

“The juxtaposition of loss of population and the tax revenue that leaves with it should sound long overdue alarms for state leadership to stop talking and jump into action to create a tax and regulation landscape that costs less for business,” she said. “They should also reduce the excess costs that support themselves to create an economic climate that causes pause for anyone else who is thinking of leaving the state."


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