WASHINGTON, DC - In an effort to help Rhode Island and other cash-strapped states save millions of dollars and continue providing unemployment assistance to jobseekers, U.S. Senators Jack Reed (D-RI), Dick Durbin (D-IL), and Sherrod Brown (D-OH) today introduced legislation to suspend for two years interest payments to the federal government by states on money borrowed to meet unemployment insurance obligations.  The Unemployment Insurance Solvency Act will give states greater flexibility in managing their costs without raising taxes on employers and help ensure the long-term solvency of the program. 

According to estimates from the National Employment Law Project (NELP) and the Center on Budget and Policy Priorities, the Durbin-Reed proposal is deficit neutral and could save Rhode Island $190.2 million, including an estimated $32.3 million in interest payments on the state's federal borrowing.   And as a result of a two-year freeze on Federal Unemployment Tax Act (FUTA) credit reductions, Rhode Island employers will avoid a $22.5 million state tax increase in 2012 and 2013. 

"We need to do everything we can to accelerate economic growth and get companies hiring again.  This bill will give businesses and states extra time to strengthen their finances as an economic recovery takes hold.  It will also allow states to continue meeting their jobless compensation obligations," said Reed.  "This bill will help states rebuild their unemployment insurance trust funds and boost our economy."

Rhode Island's unemployment rate is currently 11.5% and the state has borrowed about $280 million over the last two years from the federal government to meet its unemployment obligations.  The state receives about $30 million per month in federally-funded unemployment insurance benefits, creating roughly $57 million in local economic activity.

Nationally, the unemployment rate is 9.4% and the deep recession caused 30 states across the country to borrow approximately $41.5 billion from the federal government to pay unemployment benefits. 

A provision of the Recovery Act had made the loans interest-free, but that waiver expired on December 31, 2010.  If Congress doesn't act, states will owe $1.3 billion in interest payments alone this year to the federal government. 

Unemployment insurance is a joint federal-state program that provides laid-off workers with a portion of their paychecks based on previous employment experience.  The average benefit to Rhode Island job seekers is about $320 per week.  Each state administers its own program, determining eligibility, benefit levels, and the length of time unemployment insurance is available.  The program is funded through federal and state employer payroll taxes.

Under current law, states are required to immediately pay interest on any money they need to borrow from the federal government to make payments to the jobless if their trust funds run dry.  States must then raise unemployment taxes on local employers to quickly make up for any shortfalls.

The Durbin-Reed bill would waive the interest payments that states would otherwise be required to pay for the next two years, and also waive the requirement that states immediately begin charging companies higher taxes.  In 2014, when the economy is on stronger footing, states will have greater flexibility to restore their unemployment insurance trust funds to solvency.