State considering bond proposal

Larry Limpf

A resolution asking Ohio voters to approve the issuance of bonds to repay funds borrowed from the federal government for the state’s unemployment compensation program had its first hearing last week before the finance committee of the Ohio senate.
Sen, Bob Peterson, R – Washington Court House, provided sponsor testimony for Senate Joint Resolution 4, which would allow the state legislature to ask voters in the Nov. 3 election to approve bonds to repay a federal loan to the state’s unemployment compensation fund. The bonds would be retired by fees paid by employers covered by Ohio unemployment regulations.
“The State of Ohio in the past two months has faced unprecedented challenges as a result of the COVID-19 crisis,” Sen. Peterson testified. “The pandemic and the associated containment measures taken by the state have resulted in over 1.1 million Ohioans filing initial unemployment claims with the Ohio Department of Job and Family Services - about one fifth of the state’s workforce. In comparison, approximately 1.1 million claims were filed by Ohioans in the past three years combined. The spike in unemployment claims has put a significance strain on the state’s unemployment compensation fund.”
Texas and other states have used a similar unemployment model for years, he said.
If a majority of voters support the proposal in November it would take effect immediately.
Obligations issued under the proposal would not be general obligations of the state. However, the proposal requires the obligations to be secured by a pledge of all or a portion of taxes, assessments or surcharges imposed by the legislature on employers who are subject to Ohio unemployment laws, along with revenues generated by the sale of the obligations.
“This authority will only be used if the state can get a lower interest rate than the federal government offers. Typically, the federal government will loan the unemployment funds interest-free for 12 months or more before interest is charged,” Peterson said.
Interest from the bonds would be free of state taxes.
Federal law establishes a partnership with the states under which employers who contribute to a state unemployment compensation system approved by the U.S. Department of Labor receive a tax credit on their federal unemployment taxes.
If a state has insufficient funds to pay unemployment benefits, federal law permits the state to apply to the labor department for three-month loans. If a state doesn’t repay advances as required, the customary penalty is a “graduated” loss of the federal tax credit for all employers in the state, according to the Ohio Legislative Service Commission.


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