Texas to Seek $1.5B Unemployment Loan, Then Pay It Back With Bonds

DALLAS - Texas expects to borrow $1.5 billion from the federal government to pay unemployment benefits through the end of the year and then repay that loan through a $2 billion bond issue during better economic times, according to the Texas Workforce Commission.

Despite Gov. Rick Perry's efforts to reduce the unemployment tax on employers, the plan would trigger an increase to cover the funding deficit and the bonds.

Texas last borrowed funds for unemployment benefits in 2003 and is one of 18 states that have sought loans in the current recession. California has borrowed $2.6 billion, followed by Michigan at $2.4 billion, New York at $1.3 billion, and Ohio at $1.1 billion, according to the Web site Pro Publica.

Texas, which has already borrowed nearly $41 million, would not have to pay interest on the $1.5 billion of federal loans until January 2011. That is seen as the likely date when bonds would be issued, with forecasters expecting a brighter economy by then.

The borrowing scenario reflects Perry's policy of keeping taxes low in expectation of attracting more employers to the state.

Unlike the other large states, whose unemployment rates exceed the 9.4% national average, Texas enjoys a jobless rate of just 7.5%. According to Perry's office, Texas accounted for 75% of national job creation in 2008.

The oil industry, one of the pillars of the Texas economy, has shielded the state from the recession's harshest impact.

The economy and the state's ability to maintain healthy reserves led to an upgrade Monday from Standard & Poor's, the first since the agency began rating the state in 1961 with a AAA. Standard & Poor's Monday boosted the rating to AA-plus from AA, bringing Standard & Poor's in line with Fitch Ratings' AA-plus and Moody's Investors Service's Aa1.

The state's biennial budget passed in this year's session maintains a rainy-day fund of $6.7 billion, which is about 9% of fiscal 2009 expenditures. The reserve gives the state flexibility to deal with liquidity pressures involving school funding and other issues, Standard & Poor's wrote.

The state's reliance on energy leaves it vulnerable to downturns in that sector, analysts said. Texas suffered deep declines in the oil bust of the late 1980s but is seen as having a much more diversified economy now.

"Despite the continued diversification of Texas' economy, the energy sector remains one of the state's main economic drivers, which in our opinion increases the potential for revenue and employment volatility in the medium term," the report noted.

In addition to lower unemployment, Texas levies one of the nation's lowest unemployment insurance taxes while providing some of the lowest benefits to the unemployed.

Only 35% of jobless residents were awarded benefits in the first quarter of this year, a lower percentage than any other state except South Dakota, according to U.S. Department of Labor statistics. The national average was 58%.

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