Texas To Rely On Bond Sales To Replenish Empty Unemployment Trust Fund
Broke US states are probing new lows with each passing day, as money continues to stubbornly refuse to grow on trees (unless you have discount window access of course). The latest funding fiasco comes from Texas, which Reuters reports is planning on selling $2 billion in debt just to refill its empty unemployment trust fund. We are confident that bondholders will be ecstatic to put their money into a extremely rapidly amortizing "asset" that will begin depleting from day one and will likely have no collateral recourse in under a year. But after all, it is other people's money, so we are confident this particular Citi/BofA led bond offering will close and price and sub Treasury rates.
More from Reuters:
Texas, like many states around the nation, has seen the recession drain its unemployment insurance fund, which pays benefits to jobless workers.
Last year, Texas paid out $4 billion in jobless benefits, up from $1 billion in 2008, said Ann Hatchitt, a spokeswoman for the Texas Workforce Commission.
Along with at least 33 other states, Texas has also borrowed from the federal government, which will start charging interest at the end of this year.
By early May, U.S. states had borrowed a total of $38.9 billion from the federal government to pay unemployment benefits, according to a Government Accountability Office report.
"We don't know yet if the bonds will be tax-exempt," Hatchitt said.
The co-senior managers of the new debt, if it is approved, are Citigroup, which is working with BofA Merrill Lynch , Loop Capital Markets, and Estrada Hinojosa, she said.
Ironically, the underwriters will likely end up holding a big chunk of the offering on their own books, demonstrating just how efficient of a financial system ponzies are: bankrupt entities using issued debt to buy the debt of another bankrupt entity, so it can give its unemployed llittle green pieces of paper, and prevent an uprising.