LOS ANGELES — The Nevada legislature may consider bonds to pay off approximately $681 million in unemployment insurance debt when the legislature reconvenes in February 2013.
The state's Department of Employment, Training and Rehabilitation has submitted proposed language to Gov. Brian Sandoval.
"They have requested a bill to authorize the state to issue bonds," said Mark Mathers, Nevada's chief deputy treasurer. "We just want to have the bonding option available as a tool."
The state Employment Security Division owes $681 million that it borrowed from the U.S. Department of Labor beginning in 2009 when the state's unemployment payroll tax revenue failed to cover jobless benefits being paid out as the recession dragged on.
If Nevada legislators pass legislation to issue unemployment insurance revenue bonds to pay off the debt, the state will join several other states that have made the decision to turn to the bond market after the expiration of a federal stimulus provision that made such loans interest-free.
The federal interest rate is slated to increase to 0.3 percent a year on the outstanding debt, which means it would increase to 0.6 the second year, and 1.2% the third year, and so on, Mathers said.
In Nevada, Mathers said, there is not a broad authority to issue bonds and the state legislature has to pass legislation authorizing issuance of the debt.
The governor has been working with the budget office, the treasurer's office and other stakeholders regarding repayment of the unemployment insurance funds to the federal government, said Gerald Gardner, Sandoval's chief of staff.
"There is no doubt that this is a significant financial burden for our state as we continue our fragile economic recovery," Gardner said.
The state's unemployment rate for September was 11.8 percent, a decrease from 12.1 percent in August, but still the second highest in the country after Puerto Rico, which posted a 13.6% rate for September, according to the U.S. Department of Labor.
If the legislature proposes issuance of the bonds during the legislative session, the governor "will consider and review the proposal," he said.
The decision to issue unemployment compensation revenue bonds would be predicated on what market conditions are at the time, Mathers said.
The legislation would also need to authorize an increase to the surcharge paid by employers for the state's unemployment insurance, he said.
He did not know how much the surcharge to pay debt service on the bonds would be.
"We would only do it, if the cost to employers were less than what it would cost to pay interest to the federal government," Mathers said.
He estimated the state could issue bonds commanding interest rates of 1% to 2% given that it would be short-term debt with a 10-year maturity on tax-exempt bonds.
The state's employment security council has already advised Employment Security Division administrator Renee Olson to consider increasing the tax rate for unemployment insurance from 2% to 2.25%, an increase of $72 per worker for a total of $705 per employee. Olson will make a decision on whether to increase the rate in December.
That increase has nothing to do with the bond proposal but would be used to maintain solvency in the state's unemployment fund and cover operational costs, he said.
If the state decided to issue bonds, and Olson improved the tax increase, the bond surcharge would come on top of the initial tax increase.