Department of Labor and Training requests three-month line of credit for Unemployment Insurance Trust Fund; DLT applies employer contributions to principal on federal loan; reduces anticipated Sept. 30th interest payment by 11 percent.
The RI Department of Labor and Training has requested a $78-million, three-month line of credit from the federal government for the state’s unemployment insurance trust fund. The line of credit is both guaranteed and immediate.
In the past, the department has requested limited-term lines of credit for the purpose of paying unemployment insurance benefits whenever there were insufficient funds in the state’s unemployment insurance trust fund to pay those benefits. Previous to its latest line-of-credit request, the state had borrowed $264.8 million from the federal government over a two-year period.
In the coming months, the department intends to use the $78 million available through the federal line of credit to pay regular unemployment insurance benefits. During the months of May and June, however, the department anticipates receiving $83 million in employer contributions to the unemployment insurance trust fund. The department intends to apply these new employer contributions to the state’s outstanding principal on its federal loans.
The move to begin repaying principal is expected to reduce the state’s interest payment this year from $8.1 million to $7.2 million—a $900,000 difference that amounts to an 11-percent reduction in interest due September 30.
No state may use funds borrowed from the federal government to pay down the principal on its federal loan. However, a state may use the regular employer contributions which finance unemployment insurance to repay principal. A similar analogy would be when a credit card holder pays more than the minimum interest on his monthly bill in order to reduce his initial debt and to reduce the interest accrued over the following month.
While the department anticipates continued borrowing in the future in order to pay benefits, it also anticipates continued repayments over time, such that the total amount of principal borrowed from the federal government should not exceed $290 million. This represents the same total borrowing the department would have required if it had not begun a repayment strategy.