Treasury Restarts Borrowing After UI Aid Stalls Out

A major bond sale that was put on hold as the House and Senate tried to reach a compromise version of economic development legislation is now back on for later this month, even as the economic development bill remains in limbo.

The state Treasury is now planning to offer $2.7 billion of special obligation revenue bonds the week of Aug. 15 in order to pay back the remaining $1.8 billion that Massachusetts owes to the federal government and to replenish the state fund that pays out unemployment benefits, a spokeswoman said Thursday. The fund was overwhelmed by the unprecedented surge in joblessness during the early months of the COVID-19 pandemic, forcing the state to turn to federal loans to keep benefits flowing. The bonds are secured by a COVID-19 Recovery Assessment levied on Massachusetts employers.

The bond sale was originally planned for the week of July 18, but the Treasury postponed it saying that the size and structure of the bonds could be affected by measures in an economic development bill that would have the state make a special deposit to the Unemployment Insurance Trust Fund as a way of minimizing the effects of rising insurance costs employers are facing due to the COVID-19 layoffs. That bill did not pass before formal sessions ended Monday morning and the fate of its contents remains up in the air.

But Treasury officials said Thursday that they can no longer wait and are moving ahead with the bond sale this month in part because there is no certainty as to when, or if, the UI Trust Fund deposit contemplated in the economic development bill might become a reality. While November is the deadline to repay federal advances in order to avoid tax penalties, the Treasury said it should really be done by Sept. 30 to ensure the lowest possible rate schedule for employers in 2023.

In total, Massachusetts received $2.3 billion in federal advances and used American Rescue Plan Act money to offset a $500 million portion of the debt. The Legislature last year authorized up to $7 billion in borrowing to keep the UI Trust Fund stable, but Fitch Ratings said that it expects the $2.7 billion “to be the sole debt incurred under this authorization, except for possible refundings for savings.”