Bond bill filed to deal with unemployment insurance debt

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

Arkansas Sen. Jeremy Hutchinson, R-Little Rock, filed a bill Tuesday (Feb. 15) to allow for a bond election to shore up debt owed by Arkansas to the federal government for unemployment benefits.

The state’s unemployment trust fund is an estimated $330 million in debt to the federal government as it has borrowed federal dollars to keep jobless worker benefits afloat during the recession and subsequent lackluster recovery.

For example, $168 million in unemployment benefits was paid out of the Arkansas Department of Workforce Services in Fort Smith (unemployment) office between September 2008 and September 2010. The amount was the highest paid out in any city in Arkansas, and represents 2,800 jobs per year at an annual salary of $30,000.

Statewide, more than $1.975 billion was paid out in unemployment benefits in the two year period. That amounts to supporting 32,916 jobs per year at an annual salary of $30,000.

Arkansas employers pay an unemployment tax on the first $12,000 of an employee’s salary to cover expenses related to the fund, but due to a rapid and unexpected increase in laid-off Arkansans, the trust fund was quickly depleted leading to the federal government borrowing.

Business and labor leaders have been discussing options for paying back the borrowed money and bringing the unemployment trust fund back into balance. Raising taxes on employers and reducing benefits to workers have been one option being discussed, but talks have stalled in recent weeks.

Another option is the bond issue outlined in SB 305, which creates the "Unemployment Trust Fund Financing Act of 2011."

The bill would give the director of the Department of Workforce Services and the Governor discretion to call an election for a bond issue on the trust fund debt.

Before an election could be called, the DWS director would have to prepare a report outlining circumstances supporting the call, including a plan and timeline for repaying the debt. The Governor would then be entrusted to call a special bond election or tie the bond election into a regular election by proclamation.

The total amount of the bond issue would be capped at $600 million. Payback for the bond issue would be first derived from taxes on wages now paid by employers, which could be adjusted at the discretion of the DWS director.

Additionally, state general revenues could also be used to pay back the bonds.