Funds News

Texas may sell $2 bln of debt for unemployment fund

NEW YORK, July 13 (Reuters) - Texas might refill its unemployment trust fund by selling $2 billion of debt later this year, a strategy that cut its borrowing costs in the last downturn, according to a state official.

Texas, like many states around the nation, has seen the recession drain its unemployment insurance fund, which pays benefits to jobless workers.

Last year, Texas paid out $4 billion in jobless benefits, up from $1 billion in 2008, said Ann Hatchitt, a spokeswoman for the Texas Workforce Commission.

Employers must pay into the fund. Texas increased the minimum tax to $64.80 per worker in 2010 from $23.40 per employee in 2009.

Along with at least 33 other states, Texas has also borrowed from the federal government, which will start charging interest at the end of this year.

By early May, U.S. states had borrowed a total of $38.9 billion from the federal government to pay unemployment benefits, according to a Government Accountability Office report. See: [ID:nN06138959].

Texas has taken out a $1.3 billion loan, but its own debt, which would be issued through the Texas Public Finance Authority, could have lower interest rates than what the federal government would charge, Hatchitt said.

Texas issued bonds in 2003 to replenish its unemployment trust fund. “The Texas Workforce Commission was able to secure a lower interest rate from the private sector and to have more control on the time frame over which we can repay the loans,” Hatchitt said.

The state was able to repay the debt in four years, instead of five as first planned, because the economy sprang back more quickly than expected, she said.

Although the conduit agency has selected underwriters, many details about a possible bond sale have not been finalized and the Texas Workforce Commission has yet to approve it.

“We don’t know yet if the bonds will be tax-exempt,” Hatchitt said.

The co-senior managers of the new debt, if it is approved, are Citigroup C.N, which is working with BofA Merrill Lynch BAC.N, Loop Capital Markets, and Estrada Hinojosa, she said. (Reporting by Joan Gralla; Editing by Dan Grebler)