CHICAGO — The Michigan Senate Thursday approved legislation that would make Michigan the third state to issue bonds to repay federal loans for unemployment benefits.
If approved by the House, the state would borrow up to $3.2 billion to cover the debt, which would be the largest bond offering yet for a federal unemployment liability.
Several other states are eyeing the borrowing option as they struggle to maintain unemployment trust funds amid climbing jobless rates. Until last January, federal loans to the trust funds were interest free due to a stimulus act provision. Now many states, including Michigan, are facing 4.1% interest payments starting this year.
Last week, Illinois Gov. Pat Quinn signed legislation authorizing up to $2.4 billion of revenue bonds to pay off his state's federal unemployment loans.
In Michigan, the House Commerce Committee is expected to take up the three-bill package next week. The chamber is required by law to wait five days after Senate passage to consider legislation, and lawmakers are only in session for two more weeks before their holiday break.
But supporters, including Gov. Rick Snyder and House Speaker Jase Bolger, R-Marshall, said they want legislation passed by the end of the year to allow the state to enter the bond market in early 2012.
"The speaker is a supporter of the concept of doing the bonding as a way to take care of some of our long-term debt," said Bolger spokesman Ari Adler.
"He wants to make sure that we are doing things right but he wants to get it done as quickly as possible," he said, adding that the Commerce Committee chair has also said he wants to consider the legislation as soon as possible.
Michigan's current federal liability totals $3.2 billion. The state was forced to dip into its general fund to cover its September interest payment. The annual interest payment totaled $106 million, and the state used $38.5 million from its general fund to cover a shortfall.
The planned borrowing would include $38.5 million to repay the general fund, officials said.
The three-bill package includes a new companion bill that makes some changes to the state's unemployment benefit system, including protection against fraud. Senate bills 483 and 484 would authorize the Michigan Finance Authority to float special-purpose bonds that carry no general obligation pledge to pay off the federal loan.
There is no cap on the amount or maturity of the debt that can be issued.
The legislation would replace two of the three taxes now paid by employers to cover jobless benefits with a new unemployment obligation assessment on the first $9,000 of wages paid to employees. The state treasurer would be allowed to set the rate of the assessments, which would pay off the bonds.
After passing the legislation, Senate Republicans put out a statement saying it would probably take Michigan until 2018 to pay off the current debt and that the state trust fund would not have a sufficient balance until 2022.
"If the Legislature does not act, Michigan employers will be faced with a seemingly endless burden of increased taxes, interest, and penalties until the federal debt is paid," the statement said.
Texas and Idaho are the only other states to have sold bonds to pay off their federal shortfalls. Texas issued $1.2 billion in November 2010 and Idaho sold $187.5 million in August. Both were highly rated deals that saw significantly lower rates than the 4.1% states pay to the federal government on their unemployment loans.