Pennsylvania’s Senate passed a bill to let the state sell as much as $4.5 billion of bonds to repay federal loans for jobless benefits, which would be the largest such offering in the U.S.
The legislation, supported by Governor Tom Corbett, a Republican, also would make the unemployment-compensation fund solvent by 2019. The upper chamber approved it 29-19.
States collectively owed the U.S. $29.8 billion at the end of last month, led by California at $8.49 billion, Labor Department figures indicate. The debt was amassed as the longest recession since the 1930s pushed the nation’s jobless rate to a 26-year high of 10 percent. Pennsylvania would sell the bonds to repay its loans before November, to prevent employer costs from rising. The commonwealth owed $3.86 billion, the data show.
“There are better rates through bonding than those being charged by the federal government through interest,” Senator John R. Gordner, a Republican from Berwick, said during debate before the vote. “It is something we should take advantage of in order to reduce our overall cost to employers.”
Debt sold to repay loans for jobless benefits is typically structured as revenue bonds backed by assessments on employers. Investors who favor such securities like the “clearly laid out” structure, said Chris Mauro, head of U.S. municipal strategy at RBC Capital Markets in New York.
“There is a lot of appetite for these transactions,” Mauro said. “There’s no reason to believe that these deals wouldn’t get a very favorable reception.”
A refinancing sale by Michigan next week will indicate the depth of demand, Mauro said. The state’s finance authority plans to issue $2.7 billion in fixed-rate debt that will refund variable-rate notes it sold in December to cover jobless benefits loans.
Illinois may sell $1.7 billion of bonds to repay its federal loans in mid-July, Kelly Kraft, a spokeswoman for Governor Pat Quinn, said by e-mail.
Texas sold about $2 billion of tax-exempt bonds in 2010 to pay off its loans for unemployment compensation funds. The bonds maturing in January 2017 and rated AAA are yielding about 1.1 percent, compared with top-rated general-obligation municipal debt at 0.8 percent, according to data compiled by Bloomberg.
Borrowed From U.S.
States borrowed from the federal government as their local funds ran dry during and after the 18-month recession, which began in December 2007 and ended in June 2009.
The bill to authorize Pennsylvania’s sale must return to the state House of Representatives, which already passed a similar measure. The lower chamber must concur with the Senate’s changes before the bill can go to Corbett for his signature.
The legislation also makes changes to boost the fund, which in 2011 paid out $3.03 billion while collecting $2.69 billion from employers and workers, according to the state Labor and Industry Department. It freezes the maximum weekly benefit of $573 through 2019.
Also, workers who made 50.5 percent of their annual income or more in one quarter wouldn’t be eligible for benefits, a change from the 63 percent limit. The change affects less than 10 percent of the unemployed, the state said, while providing an annual savings of $276 million.
Pennsylvania is ranked 26th in employment growth from the last three months of 2010 to the fourth quarter of 2011 among the 50 states and the District of Columbia, according to the Bloomberg Economic Evaluation of States.
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