A Wall Street banker, a lawmaker from Ketchum and an agency director combined to craft a plan to refinance Idaho’s $202.4 million in federal loans that have propped up the state’s unemployment safety net for thousands of workers broadsided by the recession.
Idaho, which began borrowing from the federal government in June 2009, aims to sell revenue bonds to retire the debt then repay the bonds over four years.
Selling the bonds at less than 3 percent interest – thanks to Idaho’s solid credit rating – compared to the 4.1 percent rate charged by the federal government was expected to save millions of dollars in interest.
Leaders also say it will spare businesses a $157 million hit over the next three years, from a federal tax credit they’d otherwise lose if Idaho remains in arrears to the federal government.
Gov. C.L. “Butch” Otter thanked Department of Labor director Roger Madsen in a Jan. 10 State of the State speech for the bond-sale idea.
In reality, however, it has a more complex history. A Wall Street banker telephoned state Rep. Wendy Jaquet, D-Ketchum, last year and suggested the idea; Jaquet, in turn, told the banker to call Madsen, who then dispatched a team of state employees to review the idea. They decided it was a keeper.
“Roger’s sharp, because he has such a can-do attitude and he thinks outside the box,” said Jaquet, who declined to release the name of the Wall Street banker.
The idea isn’t new. After the last recession, Illinois and Texas in 2003 authorized more than a $1 billion in bond sales to address their unemployment trust woes. Nevada is now discussing plans to sell bonds this year after borrowing $1 billion from the federal government. Arkansas and Florida have broached the idea, too.
Idaho’s plan, which still requires lawmakers’ blessing, won’t create additional debt obligations, since the state already owes the cash to Washington, D.C. It is simply refinancing at a more attractive interest rate, with a better repayment profile for businesses than if Idaho had attempted to repay the federal government by itself.
For the past two years, federal loans to prop up state unemployment trusts have been interest-free, thanks to the federal stimulus bill. But the free money came to an end Jan. 1.
In addition, Madsen said, a federal law automatically reduces a tax credit for businesses in states whose unemployment trust funds carry loans from the federal government. If Idaho remained in arrears, its businesses would pay $21 more per worker in taxes in 2012 than they do now, with the figure to rise to $42 in 2013 and $140 in 2014.
For a company with 25 employees, that’s more than $5,000 over three years – or for all Idaho businesses, about $157 million.
Alex LaBeau, a lobbyist for the Idaho Association of Commerce and Industry business group, said that might not sound like much, but having that cash could be a lifeline to companies in the construction industry that have been especially hard hit by the downturn since 2008.
“Any little bit helps,” LaBeau said. In addition to the bond plan, Idaho is also about to get more conservative in how it manages its unemployment trust fund.
Back in 2005, the Department of Labor, with the AFL-CIO and LaBeau’s group, decided the state didn’t need as robust a trust fund as it had been carrying, on grounds future recessions were forecast to be shorter and shallower. That decision staved off steep, near-term rate hikes on businesses, but forced Idaho to turn to the federal government when its trust fund ran out.
So officials are now calling for a return to the trust fund’s previous, more-conservative formula – with the trust restocked to about $380 million by 2020 – in hopes of avoiding yet again turning to the federal government for loans.
The trust fund will go to something that’s not necessarily recession-proof, but anticipates that even in a slow-growth period you’re going to avoid going back into debt, LaBeau said of the new approach.