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Indiana Eyes $2B Deal to Pay Off U.S. Unemployment Insurance

JAN 22, 2013 5:25pm ET
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CHICAGO — Indiana would become the latest state to consider issuing bonds to pay off a large federal unemployment loan if a bill introduced last week is approved by the General Assembly.

The Hoosier State owes $1.76 billion to the federal unemployment trust fund. Senate Bill 541, introduced last week by state Sen. Karen Tallian, D-Portage, would authorize the Indiana Finance Authority to investigate whether it would be less expensive to float bonds to pay off the debt.

The measure authorizes the IFA to consider borrowing up to $2 billion of 20-year bonds.

If the bill is approved, and if the IFA determined it makes fiscal sense to do the deal, then the General Assembly would need to approve separate legislation authorizing the issuance and detailing the credit structure.

A growing number of states have issued or are considering issuing bonds to cover federal unemployment insurance liabilities, many of which grew during the Great Recession. Texas and Idaho were earlier issuers, but by last year at least four additional states borrowed to pay off the debt, with others announcing they are eyeing the option.

With interest rates at record lows, the municipal market could offer cheaper borrowing than the federal interest rate on the unemployment loans, which last year was 2.943%.

Tallian is hoping that the third time is the  charm for her bill. The legislation died for lack of a hearing the past two years, but this year it has been referred to the Senate Appropriations Committee — where she is a ranking minority member — instead of to the Committee on Tax and Fiscal Policy as in the past two years, she said.

“I intend to talk with Sen. Kenley this week to see if he will give it a hearing,” Tallian said, referring to state Sen. Luke Kenley, R-Noblesville, chairman of the Appropriations Committee. “I don’t think this is a party issue. It’s a question of whether this is going to help us out financially. It’s meant to tell the IFA to go forth and investigate this and report back with real numbers.”

In 2011, the state levied a solvency surcharge on employers to cover interest payments on the loan. Indiana has paid roughly $60 million over the past two years for the interest payments, Tallian said. “We need to get this on the table,” she said. “For a long time there was a feeling that the federal government would waive interest payments, but we’ve made two of them now and there’s nothing that says they’re going to do that.”

She has talked with the Indiana Chamber of Commerce and the manufacturers’ association, and says that both appear to support the measure.

Indiana employers pay for federal unemployment benefits with state and federal premiums. Since 2011, they have also paid an additional state solvency surcharge to help bring down the size of the loan, according to a fiscal analysis of SB 541. The surcharge in 2012 was 8% of an employer’s state premiums.

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