Legislature may consider bonds to pay off unemployment insurance debt

When the Nevada Legislature reconvenes in February, it's expected to consider a measure granting the governor the ability to approve the issuance of unemployment compensation revenue bonds to pay off the state's $688 million debt to the federal government.

As the recession took hold, state unemployment payroll tax revenue fell short of covering jobless benefits being paid out. Nevada borrowed roughly $773 million from the federal trust fund to cover unemployment benefits, according to the U.S. Department of Labor.

States with millions or even billions of dollars in debt due to the federal unemployment trust fund have turned to the bond market after the expiration of a federal stimulus provision that made such loans interest-free.

Nevada's initial interest rate was 4.9 percent. The interest rate paid on the debt has declined to 2.94 percent in fiscal 2012-2013, and will be 2.5 percent in the 2013-2014 fiscal year.

"We have submitted our proposed language to the governor," said Renee L. Olson, administrator of the Employment Security Division.

Olson said she didn't know if a proposal authorizing a bond sale has been crafted.

If approved, Nevada would be eligible to join other states refinancing their federal loans.

Gov. John Hickenlooper, D-Colo., in June signed a bill authorizing the sale of bonds to refinance Colorado's $435.2 million in loans.

The bonds were sold at a lower interest rate than the 3 percent charged the state by the federal government, and bond-sale revenue will be used to repay the loans.

Hickenlooper expects to save employers in Colorado $120 per employee over the next two years. Colorado sold the bonds with a 1 percent interest rate, meaning employers will save an average of $100 per employee next year and $20 in 2014.

In August 2011, Idaho sold roughly $200 million in unemployment revenue bonds, a decision that reduced its interest rate from 4.1 percent to below 3 percent. And by paying off the debt all at once, Idaho was expected to spare businesses $157 million as the bonds fully mature in August 2015.

Pennsylvania last month issued $2.6 billion in unemployment compensation revenue bonds, which is expected to save up to $100 million in interest payments.

Treasurer Kate Marshall said Nevada's interest rate would be less than 2 percent.

"We can structure it so we pay less today as the economy is still recovering," Marshall said. "I think the Legislature should give themselves the flexibility to consider issuing the bonds; it doesn't mean the state will issue them."

In June, the state Board of Examiners agreed to pay $62.6 million to the Labor Department to cover interest payments on the debt.

The state paid $22.5 million by June 30 and $40.1 million during the current fiscal year, which began July 1.

Olson estimated the state's interest payment will be $24 million for the fiscal year that begins July 1, 2013. Nevada, however, still has to repay more than $700 million to the federal government.

Republican Gov. Brian Sandoval has yet to support issuing unemployment compensation revenue bonds to meet the state's financial burden.

"The governor is working with the budget office, the treasurer's office and other stakeholders regarding repayment of the unemployment insurance funds to the federal government," said George 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 should the Legislature propose the issuance of bonds during the upcoming Legislative session, the governor "will consider and review the proposal."

The state's seasonally adjusted unemployment rate for September was 11.8 percent, a decrease from the 12.1 percent in August and 13.6 percent in September 2011.

The state Employment Security Council recently recommended a 12.5 percent increase in unemployment taxes for fiscal year 2013. Olson has until December to decide whether to approve a modest rate increase in Nevada's unemployment taxes.

The average rate will rise from 2 percent to 2.25 percent on the first $26,900 of each worker's wages. The actual rate ranges between 0.25 percent and 5.4 percent, depending on the number of employees laid off by a company.

The new taxes could allow Nevada to pay off its debt by 2016 without issuing bonds.

Marshall said the Legislature should look "very seriously" at giving "themselves the flexibility to consider selling these bonds," before the state raises taxes on businesses to pay off the debt.

"The state could repay those loans in full by selling unemployment revenue bonds," Marshall said.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.