Rhode Island Owes Feds $240 Million
Tuesday, October 25, 2011
Rhode Island owes the federal government $240 million from the funds borrowed to fund the state’s unemployment program, which became insolvent in March 2009, a study by the Washington-based Tax Foundation shows.
The state, which still faces a 10.5 percent jobless rate, has paid back about $100 million of the funds it borrowed to cover unemployment payments.
According to the Tax Foundation study, record-high unemployment and benefits lasting up to 99 weeks have forced 34 states to borrow over $37 billion to pay benefits and many of those states are likely to default on interest owed to the federal government. The result, according to Tax Foundation Vice President of Legal and State Projects Joseph Henchman, will be large tax increases for businesses unless something is done.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST"Unemployment insurance was meant to be a program that built up surpluses in prosperous times, with the expectation that they would be spent down during economic downturns," Henchman said. "The problem with most state funds is that they stopped building up reserves during the good times. Before the beginning of the recession in 2008, less than half the states were in a position to disburse more than a year's worth of the kind of high benefit pay-outs that would be expected in a major economic downturn."
RI Reforms Praised
Despite still owing the feds money, the study singled out Rhode Island as one of three states that has recently made reforms to its unemployment system.
During the General Assembly session, Governor Chafee proposed a package of reforms to the employer-funded Unemployment Insurance system that balanced additional employer contributions with benefit reductions and new eligibility restrictions. This package, which was voted upon and approved by the General Assembly, is expected to restore the RI trust fund to solvency by 2015 and build the trust fund balance to more than $500 million by 2020. Without these reforms, solvency would not be attained until 2016, and the trust fund balance in 2020 would reach only $45 million – far below the recommended level needed to maintain fund stability.
The reforms, which drop the average weekly benefits from approximately $390 to $298, take effect in July 2012. The report lists four key changes made by the state:
-
Reducing the maximum weekly rate from 67 percent of average wages to 57.5 percent
-
Calculating benefits as replacing 50 percent of lost wages rather than 60 percent (phased in over three years)
-
Averaging the two highest quarters in determining a claimants' benefits, rather than using only the highest quarter
- Capping claimants' maximum benefits at 33 percent of all base period wages, rather than 36 percent
An Opportune Time For Reform
According to the study, Rhose Island “claimants will be disqualified if they are terminated for misconduct, refuse to accept suitable work, quit without good cause, or have not worked at least eight weeks earning at least the benefit rate. Claimants who received severance pay will be disqualified for up to 26 weeks.”
Henchmann said the billions owed to the federal government by the states throughout that country should force legislatures to think about ways to reform their system.
"Given the array of serious problems facing government unemployment programs today, it could be an opportune time for reform," said Henchman. "Lawmakers have an opportunity to take a new look at benefit levels, program requirements, and whether such programs should be expected to accomplish additional fiscal and social policy goals."
If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.
