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Updated Apr 5, 2013 - 3:03 pm

Arizona bill refinances unemployment insurance debt

PHOENIX — Before the economy collapsed five years ago, the fund that
Arizona uses to pay unemployment benefits topped out at more than $1 billion and
was considered one of the healthiest in the nation. The state then burned
through the entirety of the fund and went an additional $420 million in the hole
as unemployment soared during the Great Recession.

The state now wants to issue up to $200 million in bonds to pay back a loan it
received from the federal government to plug the gap. The Legislature must
approve the bonds, and the legislation is awaiting action in the Senate.

The federal government routinely makes loans to states during periods of high
unemployment. It gets repaid when rates go back down using revenue from normal
employer premiums for the unemployment insurance program.

According to the National Conference of State Legislatures, 22 states and the
U.S. Virgin islands owe a total of $28.8 billion to the government for
unemployment insurance loans, with California leading the way with a $10.7
billion debt.

Arizona’s unemployment trust fund also remains in the red and is expected to be
paying out more than it takes in until next year.

The state will owe an estimated $6.5 million to $8 million in interest if it
doesn’t repay the loan by Sept. 30, and employers will be hit with an increase
in what they’re required to pay into the unemployment insurance pool beginning
in November.

The state owes about $311 million to the federal government, down from a peak
of more than $420 million, said Mark Darmer, a deputy assistant director at the
Division of Employment and Rehabilitation Services.

The bonds essentially are a refinancing of that debt at a lower interest rate
that also avoids higher employer rates, Senate President Andy Biggs said.

“This debt’s already out there,” Biggs said Tuesday. “This is refinance,
(and) we’ll save some money.”

Because of how the federal loans are structured, if the loan balance is repaid
by Sept. 30, the interest is waived, Darmer said. The state expects to save
about $5.5 million by issuing the new bonds, and employers will avoid a second
$21 per employee bump in their unemployment insurance rates.

The state’s unemployment trust fund is expected to return to a positive balance
by mid-2014, Darmer said, and that’s with repaying the bonds.

That will put an end to an agonizingly glum period for the fund caused by the
Great Recession.

“We were one of the most solvent states in the nation,” Darmer said. “That
kind of gives you an idea just how long and deep our recession was, that we went
through a billion dollars and at our high point owed the feds in excess of $420
million.”

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