Joseph D. Blair, director of the Massachusetts Industrial Finance Agency, testified Monday before a joint session of the state legislature's Committee on Commerce and Labor about a proposed $700 million bond sale he said is needed to bail out the state's unemployment benefits fund.
Lawmakers failed to pass such a measure last month in time to avoid paying the federal government $7 million in interest costs this year for borrowing money to finance the unemployments benefits fund.
If the bond sale had been approved and proceeds delivered to the federal government by Sept. 30, the state would have avoided the interest charge.
Since September 1991, the state has been forced to borrow as much as $5 million per day to pay for unemployment benefits.
Because of the state's jobless rate over the last year, the industry-supported fund ran out of moneys.
The money from the federal government to pay claims has been borrowed at an interest rate of 8.05%.
Blair said if the tax-exempt bonds were issued, the state would be paying around 5%.
"This seems like a simple choice -- and it is," Blair said. "It is plain good sense to borrow on a tax-exempt basis at lower cost with the added benefit of greater flexibility for the future."
Blair said the projected deficit of the benefits fund from the federal borrowing will be $518 million by the end of 1992.
He warned that the longer the state waits to clear up the debt, the more state businesses will be penalized.
"To the extent that the trust fund is in a deficit position on Jan. 1, 1993, and is not solvent prior to Nov. 11, 1993, starting in 1994, employers must pay a federal tax penalty of $50 million," he said.
That figure would escalate to $97 million in 1995 and $150 million in 1996, and increase by $50 million in each year after 1996.
"Gov. [William F.] Weld gave the proposal less than a ringing endorsement yesterday," said Rep. Suzanne Bump, D-Braintree, co-chairwoman of the Committee on Commerce and Labor.
"The governor indicated that he would sign the measure if it crossed his desk, but it wasn't a great priority," Bump added.
A representative of Sen. Lois Pines, D-Newton, the other co-chairwoman of the committee, said the committee was not in session yesterday and a formal vote on the authority to issue the bonds has not been scheduled.
Blair said the sale of the tax-free bonds would save employers $35 million over the life of the issue on a present-value basis.
Bump said, "In the six-year life of the bond, disbursements will be over $6 billion to the unemployed. Thirty-five million dollars would represent approximately two days of benefits payouts."
Bump also said that the savings to businesses could be used to bolster the unemployment fund.
"The governor will favor the deal if the savings goes directly to the employers instead of into some sort of an escrow account," said Dominic Slowey, representative of Peter Nessen, state secretary of administration and finance.
"What the bill needs is a champion," Bump said. "I'm not opposed to it, but I won't be that champion."