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Monday, August 29, 2011
Ind. Gov't. - "A bonding proposal to pay off the state’s unemployment debt to the federal government could save Hoosier businesses hundreds of millions of dollars – if it’s legal."
That is the lede of this Sunday Fort Wayne Journal Gazette story reported by Niki Kelly. The story reports that:
[T]he Indiana Chamber of Commerce and other business groups have pushed the bonding option.“We think it makes sense,” said George Raymond, a vice president for the state Chamber. “The constitutional question is still up in the air, but from a financial standpoint it would save money to bond out.”
The general idea would be for the state to issue bonds and use the money to pay off the loan from the federal government immediately. That would eliminate the federal penalty businesses are paying now. The state would then use money from the state premium increases to pay off the bond over the next 10 years.
Raymond believes the premiums are a secure revenue stream and the state could get an interest rate of between 2 percent and 2.5 percent, compared with the 4 percent charged by the federal government.
Rep. Dan Leonard, R-Huntington, the House Republican expert on the subject, said the state’s businesses could save more than $200 million over the 10-year life of the bond.
“We’ve had several meetings about it,” he said, noting a New York law firm has agreed to write an opinion saying the bonding is legal, though an Indiana firm has not.
“That raises a real red flag to me about its legitimacy,” Leonard said.
The Indiana Constitution limits the state’s ability to incur debt. Some believe the state can borrow only against real property, not a revenue flow.
But lawmakers back in the late 1990s used increased fees at the Bureau of Motor Vehicles to back highway bonds.
Texas recently bonded to pay off its unemployment debt, and claims it will save $110 million overall. Other states are considering the idea.
Chris Ruhl, director of Indiana’s Office of Management and Budget, said the administration is not actively considering the option.
He said there are constitutional hurdles and also noted that the cost of writing the bond might eat up any savings.
Posted by Marcia Oddi on August 29, 2011 09:52 AM
Posted to Indiana Government