State sells bonds to cover jobless aid
By David Koenig
Thursday, September 25, 2003
DALLAS -- The state has sold $1.4 billion in bonds to shore up the unemployment benefits fund, which has been drained by a jobless rate stuck above 6 percent all year.
The Texas Workforce Commission said Wednesday that bond financing would be cheaper than the alternative: borrowing from the federal government.
The unemployment fund faces a $300 million deficit. By law the fund is supposed to contain about $750 million, so the gap between the deficit and the legal minimum is about $1 billion.
The bonds, which will be repaid over five years, "will be much cheaper for employers," commission chairwoman Diane Rath said. "Without this mechanism, they would have skyrocketing tax increases because we would have to pay $1 billion all at once."
Rath said the state won't need to bolster the fund again until 2005, by which time she hopes the economy will have improved.
Texas employers will pay about $320 million in additional unemployment taxes in each of the next five years to pay off the bonds.
Employers would have paid even more -- another $300 million over five years -- if the state had borrowed from the government, according to the commission.
The commission said it will pay an average annual interest rate of 1.9 percent on the bonds, compared with about 6 percent to borrow from thefederal government.
The weak economy has pushed more Texans to collect unemployment benefits. The state's unemployment rate in August was 6.6 percent.
More than 700,000 Texans are jobless, and about 220,000 people collect unemployment benefits that average about $250 each week, according to the commission.
In 2000, the last year before the economic slump, Texas paid out $1.02 billion in unemployment benefits.
Last year, that rose to $2.269 billion, and the commission expects a similar amount this year.
Unemployment benefits are financed with taxes paid by employers.