Businesses to benefit from state unemployment deal - East Valley Tribune: Capitol Media Services

Businesses to benefit from state unemployment deal

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Posted: Monday, September 16, 2013 5:15 pm | Updated: 12:58 pm, Sun Mar 23, 2014.

The state is borrowing $200 million this week to pay off the last of what it owes the federal government for providing jobless benefits to out-of-work employees. And the move should save Arizona businesses $42 on each and every worker they have.

The state provides unemployment insurance through a fund fueled by a tax on employers. But the length and depth of the recession resulted in that fund going broke, forcing Arizona to borrow what at one point reached $420 million.

When the state still owed money last November, the federal government tacked on a $21-per-worker surcharge, on top of what companies normally pay, to get the balance paid off.

Mark Darmer, a deputy assistant director of the state Department of Economic Security, estimated the balance right now is down to about $124 million.

Darmer said Monday that the federal government, wanting its money, will add another $21 surcharge to employers if there is anything outstanding on Nov. 10. So the decision was made by state officials — and approved earlier this year by the Legislature — to borrow the money privately instead.

Darmer said DES is borrowing $200 million to err on the side of caution.

He said once the state pays off the federal government, it cannot borrow again this year. And borrowing just enough to pay off the debt would leave no cushion if the Arizona jobless rate — still hovering in the 8 percent range — should suddenly increase.

Even with borrowing $200 million, Darmer puts the savings from both the original surcharge and the one that would be imposed in November at about $100 million.

The only difference — other than the savings to employers — is that the private borrowing will mean it will take a bit longer to put the trust fund into the black. DES is estimating that will now happen in the third quarter of 2014.

“It's really more advantageous for the Arizona economy for us to let the employers retain that money to be able to go out and hire additional staff rather than paying it to the federal government to build a positive balance in the trust fund a little bit sooner,” Darmer said.

DES says the bonds, to be sold as tax-exempt securities, are structured to be paid off in eight months.

The surcharge has been on top of what employers already pay.

Rates range from a fraction of 1 percent to 5.4 percent of each worker's first $7,000 in wages. Each company's rate is based on its own history of how often employees are laid off and eligible to collect benefits.

On top of that, companies pay an additional 0.6 percent to the federal government, before any surcharges.

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