Texas May Borrow $2 Billion to Cover Unemployment

By Shelley Kofler, KERA News

Dallas –

Texas is preparing to borrow as much as $2-billion to pay for unemployment insurance benefits. That's what the chairman for the Texas Workforce Commission told KERA in a recent interview. KERA's Shelley Kofler reports employers who fund benefits can expect a tax increase, too.

The fund that pays unemployment benefits to Texans ran out of money this month. That forced the state to take out the first of several no-interest, federal loans that will total some $643 million- just to pay benefits through September. Then what? Workforce Commission Chairman Tom Pauken says the state will borrow more. A lot more.

Pauken: We are looking at putting a bond in place probably next year in excess of a billion and we could look at a bond in the range of a billion and a half or $2 billion.

Kofler: The state of Texas may have to borrow $2 billion?

Pauken: Yeah, that could well be the case in terms of a bond over a seven-to-10 year period.

Pauken wants to stretch the repayment of $2 billion plus interest over at least seven years saying that might limit a huge spike in the tax rate employers pay to support the benefits fund. But for employers, Pauken says there's no escape.

Pauken: Oh, they are going to have to pay more next year. They have had lower rates in recent years because the economy has been so good in Texas, but it is going to go higher next year.

How high? That's unclear. But Bill Hammond, President of the Texas Association of Business says employers, especially the small ones will hurt.

Hammond: There's no question $2 billion is a lot of money and that's unfortunate. For the employers who have a smaller number of employees, when they are forced due to business conditions to layoff some of their folks, unfortunately their tax rate goes up more than the larger businesses.

Hammond says, however, many businesses accept the Texas system which requires them to pay higher unemployment taxes during bad economic times. He says they'd rather do that than have the state hold larger chunks of their money in reserve when it's not needed.

But State Representative Jim Dunnam, (D) Waco, says Governor Rick Perry could have spared businesses a lot of the expense if he hadn't rejected $555 million in federal stimulus money available for unemployment payments. Dunnam chairs a stimulus funding committee in the legislature

Dunnam: He's borrowing the money the feds would give us for free. The amount of interest we are going to pay is far beyond the cost of any changes necessary to receive the $555-million.

Pauken says employers should know by December how much their unemployment insurance taxes will rise.

The Texas Workforce Commission says Texas borrowed $2 billion to fund the unemployment insurance fund in 2003. A commission spokesperson says the state repaid those bonds in four years.

Email Shelley Kofler