New projections on the state’s $343.6 million debt to the feds for unemployment insurance suggest that a bond issue won’t save the state or employers enough money to pursue.
The new calculations produced by the Arkansas Department of Workforce Services and released by the Arkansas State Chamber of Commerce today also show that under reforms made in the last legislative session combined with improving economic conditions, Arkansas could be debt-free by 2015.
In a presentation to about 100 chamber members in Little Rock, State Chamber President Randy Zook told the group, "This is terrific news for the business community in Arkansas."
"Cash flow into the trust fund has dramatically improved," Zook added.
He cited several reasons for the improving scenario, including more workers being employed in Arkansas, "slow, steady" economic improvement, and changes made by Act 861 in the recently completed 88th General Assembly.
Act 861 eliminated wage indexing, reduced Arkansas jobless benefits from 26 to 25 weeks, and set new eligibility requirements for workers seeking unemployment. All told, the changes will save an estimated $60-75 million, Zook said.
State legislators also passed Act 1125, which allows the Governor to call an election to float bonds to pay back the unemployment trust fund debt. An additional assessment on workers paid by employers would underwrite the bond debt. In theory, the bonds would save businesses several millions of dollars by capturing a lower interest rate than the interest rate for what is currently owed to the feds.
However, today’s presentation showed that savings would be negligible.
With no bond issue and the changes made by the legislature, DWS projects that the trust fund would be $46.2 million in the negative at the end of 2014, $137 million in the positive in 2015 and $233.7 million in the black by 2017.
With a bond issue, the trust fund would be out of debt by the end of 2011 and would have a positive balance of $184.4 million by 2014 and a balance of $233.3 million by 2017.
The projections show that in the long-run, the bonds wouldn’t change the fund’s expected balance. In the short-run, employers would see across-the-board hikes in their payments to service the bond debt – as much as 30% more per employee. With no bond program, employers payments to support the trust fund would remain the same unless the federal government makes changes.
"I voted against the bond issue because my company’s costs would increase if we did a bond issue versus pay the penalty to the feds," said John Parke, owner of Democrat Printing and Lithographing, a Little Rock-based printing company.
"The other thing with the doing the bond election is just all the background work. If we’re going to be caught up in just 3 or 4 years, why go through the effort of the bond election and keep that in our hip pocket if we need it 10 or 15 years down the road," Parke added.
"These projections are a big change," said Bruce Maloch, a Magnolia banker and former State Representative who co-chaired the Joint Budget Committee in 2009. "Hopefully, the economy is coming back and collections pick up and benefits drop off and we can do it without bonding."