DALLAS - The Texas Workforce Commission is considering a plan to sell up to $2 billion of tax-exempt and taxable bonds by late 2010 to repay a no-interest federal loan for its depleted unemployment compensation trust fund.
The seven- to 10-year bonds would be supported by a portion of the employment tax paid by businesses in Texas. TWC chairman Tom Pauken said the bonds will likely be a combination of tax-exempt and taxable debt.
The trust fund, which normally is replenished by a tax on wages paid by the 448,000 employers in Texas, is expected to be out of money by July. The once-healthy fund is being drained by mounting claims from an increasing number of laid-off Texans.
The commission's latest report to Gov. Rick Perry said the fund is expected to be $1.35 billion below the statutory floor by October.
"The fund will be at zero in July," said Ann Hatchitt, director of communications for the TWC. "I don't mean at the mandated minimum. I mean zero. Our annual benchmark is Oct. 1, and we estimate we'll need loans of $493 million from the federal government by then to pay benefits between July and October."
Perry refused to apply for $556 million in federal stimulus funds for the unemployment fund in March because he said the program had stipulations that would require higher taxes from Texas employers in later years.
The TWC said it cost the state $1.1 billion in 2007 to provide the mandated 26 weeks of unemployment insurance, but that cost is projected at $3.4 billion in 2009 and $2.47 billion in 2010.
The state's unemployment rate in April was 6.7%, up from 4.6% in April 2008. Texas had a net loss of 173,900 jobs in the last 12 months.
State law requires the unemployment insurance compensation fund to hold an amount equal to 1% of all taxable wages in Texas, or $857.6 million in 2009. On June 2 the trust fund totaled $617.3 million.
The commission voted in May to seek up to $2 billion in no-interest loans from the U.S. Department of Labor to replenish the fund. The loans must be repaid by December 2010 under new provisions that extended the maximum loan period from the original nine months.
Commissioners are expected to decide within the month on financial options being developed now by the TWC staff on the best way to repay the federal loan.
"We're looking at whether it would be better to sell bonds this December, or next year before the loans are due," Hatchitt said. "The commission is trying to minimize the impact of higher employment taxes on Texas businesses."
Texas' employment taxes include several components, including one dedicated to replenishing the unemployment compensation fund and one for debt service. The debt service assessment was removed in 2008 when the last bonds matured from $1.37 billion of debt issued by the Texas Public Finance Authority in 2003 to replenish the fund.
The 2003 issue consisted of $776.7 million of fixed-rate revenue bonds and $600 million of taxable variable-rate demand revenue bonds. The two fixed-rate tranches included $256.2 million of tax-exempt bonds and $520.5 million of taxable debt.
The 2003 bonds were rated AA by Standard & Poor's, AA-minus by Fitch, and Aa2 by Moody's Investors Service.