Texas rolling unemployment loan to the private market

Saturday, March 8th, 2014 By

Loan

Texas is rolling its federal debt into the private market - but does this solve problems, or create them? Image: Flickr / MoneyBlogNewz / CC-BY

Unemployment is high, and with up to 99 weeks of benefits available, states have paid out a lot. The federal government has provided loans to most states to fund unemployment benefits. The interest payments on those loans are coming due, and some states are seeking creative solutions.

Federal unemployment loans

In order to keep unemployment benefits flowing, the federal government provided loans to states such as Texas. The loans did not require any interest payments for several years. However, the interest payments are now coming due on these loans. These payments add up to as much as $10 million to cover interest on the loans. The federal government waived interest on these no credit check loans for two full years, but the interest-free period expired on Dec. 31 of 2010.

Texas payments on unemployment loans

The federal government provided what amounted to payday loans no faxing to the states. The agreement included a clause that states would be required to start making interest payments as of 2011. Though Congress has considered bills to extend this no-interest period, they have no passed. Idaho, Texas and several other states have not necessarily been able to make these payments. Rather than going into debt, which state law does not allow for, they are rolling the debt into private market loans. That means investors will pay off the federal government, but the states will be on the hook for more money, for longer.

The commercial municipal debt market

Municipal bonds and municipal debt are a large private market. When states, counties and cities are in need of credit, they sometimes go to private debt markets. In Texas and Idaho, these no-credit loans have been rolled to the private market. The states will not have to make a $10 million payment to the federal government. The states, however, will be required to make smaller payments over a longer amount of time, which will add up to a higher payment in the end.

Sources

ProJo
Slate

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