By:  Keffer of Eastland                                           H.B. No. 3324


A BILL TO BE ENTITLED
AN ACT
relating to the issuance of financial obligations for the unemployment compensation fund and revenue to support such obligations. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. The subchapter title and Section 203.102 of the Texas Labor Code are amended to read as follows: Subchapter C. Advances from Federal Trust Fund and an Obligation Assessment. Sec. 203.102. The Obligation Trust Fund (a) The obligation trust fund is a dedicated trust fund outside the state treasury but in the custody of the Comptroller. (b) The Commission and the Governor may use the money in the obligation trust fund without legislative appropriation to: (1) to pay bond obligations and bond administrative expenses; and (2) to pay principle and interest incurred on advances from the federal trust fund. SECTION 2. Repeal Section 203.103 of the Texas Labor Code. Section 203.104 of the Texas Labor Code is amended to read as follows: Sec. 203.104. Limitation to Transfers No amounts attributable to the portion of the unemployment obligation assessment authorized by Subsection 203.105(a)(2) shall be transferred to the compensation fund unless all bond obligations, including bond administrative expenses, have been fully paid and satisfied. When such obligations have been fully satisfied, the commission shall transfer the balance in the obligation trust fund to the compensation fund. SECTION 3. Section 203.105 of the Texas Labor Code is amended to read as follows: Section 203.105 Unemployment Obligation Assessment (a) In each calendar year when any condition set out in clauses (1) and (2), is met, an unemployment obligation assessment shall be collected from each employer entitled to an experience rating. The unemployment obligation assessment rate shall consist of the total of the rates set under each clause. (1) If an interest payment on an advance from the federal trust fund will be due after January 1 of a year, and the estimated amount necessary to make the interest payment is not available in the obligation trust fund, or otherwise available, the commission shall set an unemployment obligation assessment rate sufficient to ensure timely payment of interest, not exceeding two-tenths of one percent. (2) If after January 1 of a year bond obligations are due and the amount of funds necessary to pay in full these obligations, together with the bond administrative expenses, is not available in the obligation trust fund, or otherwise available, the commission shall set an unemployment obligation assessment rate sufficient to ensure timely payment of the bond obligations, together with the bond administrative expenses, and to provide the amounts necessary in the judgment of the Commission to enhance investor acceptance of the bonds. This rate shall be based on a formula prescribed by Commission rule, utilizing the employers experience rating from the prior year. (b) The unemployment obligation assessment rate applies to the same wage base to which the employer's unemployment tax applies for the year. (c) This unemployment obligation assessment is due at the same time, collected in the same manner, and subject to the same penalties and interest as other contributions assessed under this subtitle. (d) The commission shall deposit the revenues collected under this section to the credit of the obligation trust fund created under Texas Labor Code Sec.203.102. SECTION 4. Title 4, Subtitle A, Chapter 203 of the Texas Labor Code is amended by adding Subchapter F, to read as follows: Subchapter F. Issuance of Financial Obligations for the, Unemployment Compensation Fund. Sec. 203.301. Findings and Purpose The legislature funds that: (1) it is an essential governmental function to maintain funds in an amount sufficient to pay unemployment benefits when due; (2) currently, borrowing from the federal government is the only option available to obtain sufficient funds to pay benefits when the balance in the compensation fund is depleted; (3) alternative methods of financing replenishment of the unemployment compensation fund may reduce the costs of providing unemployment benefits and employers' cost of doing business in the state; and (4) funds representing revenues received from the unemployment obligation assessment authorized under this subchapter and any income from the investment of those funds do not constitute state property. The purpose of this subchapter is to provide an appropriate range of methods through which the state may continue its unemployment compensation program at the least possible cost to the state and its employers. Sec. 203.302. Definitions In this subchapter: (1) "Authority" means the Texas Public Finance Authority. (2) "Bond" means any type of revenue obligation, including a bond, note, certificate, or other instrument, payable from and secured by a pledge of revenues received from the unemployment obligation assessment and amounts on deposit in the obligation trust fund to the extent provided in the proceedings authorizing such obligation. (3) "Bond administrative expenses" means expenses incurred to administer bonds issued under this subchapter, including fees for paying agent, trustee, legal, and other professional services necessary to ensure compliance with applicable state or federal law. (4) "Bond obligations" means principal, premium if any, and interest on bonds issued under this subchapter, together with amounts owed under related credit agreements. (5) "Credit agreement" means a loan agreement, revolving credit agreement, agreement establishing a line of credit, letter of credit, interest rate swap agreement, interest rate lock agreement, currency swap agreement, forward payment conversion agreement, an agreement to provide payments based on levels of or changes in interest rates or currency exchange rates, an agreement to exchange cash flows or a series of payments, an option, put, or call to hedge payment, currency, interest rate or other exposure, or other agreement that enhances the marketability, security, or creditworthiness of a bond issued under this subchapter. Amounts owed by the Authority or the Commission under any credit agreement shall be payable from and secured by a pledge of revenues received from the unemployment assessment obligation and amounts on deposit in the obligation trust fund to the extent provided in the proceedings authorizing such credit agreement. (6) "Obligation trust fund" means the trust fund established in Section 203.102. (7) "Unemployment obligation assessment" means the assessment authorized in Section 203.105 (a)(2). Sec. 203.303. Request for Bond Issuance (a) If the Commission determines that the issuance of bonds is necessary to reduce or avoid the need to borrow or obtain a federal advance under Section 1201, Social Security Act, or any similar federal legislation, or to refinance any such previous borrowing or federal advance received by the Commission, and that bond financing is the most cost effective method of funding the payment of benefits, it may either request the Authority to issue such bonds on its behalf, or may issue its own bonds. Before making such a request or issuing its own bonds, the Commission shall by resolution find that the issuance of bonds for the purposes established in this Section results in a savings to the state and its employers when compared to the cost of borrowing or obtaining a federal advance under Section 1201, Social Security Act, or any similar legislation. (b) The Commission shall either: (1) specify in its request to the Authority the maximum principal amount of the bonds, not to exceed $2 billion for any separate bond issue, and the maximum term of the bonds, not to exceed 10 years. The principal amount determined by the Commission may be increased to include an amount sufficient to pay the Authority's costs of issuance, provide a bond reserve fund and capitalize interest for the period determined necessary by the Commission, not to exceed two years; or (2) shall specify in its authorizing resolution the maximum principal amount of the bonds, not to exceed $2 billion for any separate bond issue, and the maximum term of the bonds, not to exceed 10 years. The principal amount determined by the Commission may be increased to include an amount sufficient to pay the costs of issuance, provide a bond reserve fund and capitalize interest for the period determined necessary by the Commission, not to exceed two years. Sec. 203.304. Issuance of Bonds by the Authority (a) The Authority shall issue bonds pursuant to the request of the Commission, in accordance with the requirements of its enabling act, Texas Government Code, Chapter 1232, and other provisions of Title 9 of the Texas Government Code applicable to bond issuance by a state agency, including specifically Chapters 1201 through 1207, 1231 and 1371. (b) The Authority shall determine a method of sale, type of bond, bond form, maximum interest rates, and other terms of the bonds in its judgment to best achieve the economic goals of the Commission and effect the borrowing at the lowest practicable cost. (c) The Authority may enter into a credit agreement in connection with the bonds. Sec. 203.305. Issuance of Bonds by the Commission (a) The Commission is authorized to issue, sell, and deliver bonds in the name of the Commission in an amount determined by the Commission. (b) The Commission shall issue bonds, in accordance with the requirements of Title 9 of the Texas Government Code applicable to bond issuance by a state agency, including specifically Chapters 1201 through 1207, 1231 and 1371. (c) The Commission shall determine a method of sale, type of bond, bond form, maximum interest rates, and other terms of the bonds in its judgment to best achieve the economic goals of the Commission and effect the borrowing at the lowest practicable cost. (d) The Commission may enter into a credit agreement in connection with the bonds. Sec. 203.306. Bond proceeds (a) Proceeds of bonds issued by the Authority under this subchapter may be deposited with a trustee selected by the Authority and the Commission or held by the Comptroller in a dedicated trust fund outside the state treasury but in the custody of the Comptroller. (b) Proceeds of bonds issued by the Commission under this subchapter may be deposited with a trustee selected by the Commission or held by the Comptroller in a dedicated trust fund outside the state treasury but in the custody of the Comptroller. (c) Bond proceeds, including investment income, shall be held in trust for the exclusive use and benefit of the Commission. The Commission may use the proceeds for the following purposes: (1) to repay the principal and interest of previous advances from the federal trust fund; (2) to be deposited in the unemployment compensation trust fund as defined in Subchapter B of this chapter to pay unemployment benefits; (3) to pay costs of issuing the bonds; (4) to provide a bond reserve; and (5) to pay capitalized interest on the bonds for the period determined necessary by the Commission, not to exceed two years. (d) Any excess or residue remaining, after the purposes for which the bonds were issued is satisfied, may be used to purchase or redeem outstanding bonds. (e) At any time that no bonds or bond interest remains outstanding, the remaining proceeds will be transferred to the state's unemployment compensation trust fund. Sec. 203.307. Repayment of the Commission's Financial Obligations (a) The Commission shall assess an unemployment obligation assessment, annually on each employer entitled to an experience rating under chapter 204, as long as any bonds issued under this subchapter are outstanding. (b) When the Authority has issued bonds on behalf of the Commission, then the Authority must notify the Commission of the amount of the bond obligations and the estimated amount of bond administrative expenses each year in sufficient time, as determined by the Commission, to permit the Commission to fix the annual rate of the unemployment obligation assessment, subject to verification by a financial advisor to the Commission or as otherwise specified in the proceedings authorizing the bonds. (c) When the Commission has issued bonds then it must determine the amount of the bond obligations and the estimated amount of bond administrative expenses each year in sufficient time, to permit it to fix the annual rate of the unemployment obligation assessment, subject to verification by a financial advisor to the Commission or as otherwise specified in the proceedings authorizing the bonds. (d) The Commission shall deposit all revenue it collects from the unemployment obligation assessment into the obligation trust fund. Money deposited to the fund may be invested as permitted by general law. (e) Money in the obligation trust fund required to pay bond obligations and bond administrative expenses shall be transferred to the Authority or utilized by the Commission in the manner and at the time specified in the resolution adopted in connection with the bond issue to ensure timely payment of such obligations and expenses, or as otherwise provided by the bond documents. (f) Whether the bonds are issued by the Commission or by the Authority on behalf of the Commission, the Commission shall provide for the payment of the bond obligations and the bond administrative expenses by irrevocably pledging revenues received from the unemployment obligation assessment and amounts on deposit in the obligation trust fund, together with any bond reserve fund, all to the extent provided in the proceeding authorizing the bonds and related credit agreements. Sec. 203.308. Bond Payments (a) Revenues received from the unemployment obligation assessment may only be applied as provided in this subchapter. (b) The Commission may pay bond obligations with other legally available funds. (c) Bond obligations are payable only from sources provided for payment in this subchapter. Sec. 203.309. Excess Revenue Collections and Investment Earnings. Revenue collected from the unemployment obligation assessment as provided for in Section 203.105(a)(2) in any year in excess of the bond obligations and bond administrative expenses payable in that year and interest earned on the obligation trust fund may, in the discretion of the Commission be applied: (1) to pay bond obligations payable in the subsequent year, offsetting the amount of the assessment that would otherwise have to be levied for the year under this subchapter; (2) to redeem or purchase outstanding bonds, (3) to deposit in the unemployment trust fund, or (4) to pay principle and interest on advances from the federal trust fund. Sec. 203.310 Bonds and credit agreements not obligations of the state (a) Bonds issued under this subchapter and related credit agreements do not constitute debt of the state or its agencies or political subdivisions and are not secured by a pledge of the full faith and credit or taxing power of this state. (b) The bonds and related credit agreements may be repaid only from the sources provided for their payment under this subchapter and in the proceedings authorizing the bonds and the credit agreements. (c) The provisions of this section and section 203.308 must be set forth in the bonds and the credit agreements. Sec. 203.311 State Not to Impair Bond Obligations As long as bonds are outstanding, the state will take no action to limit or restrict the rights of the Commission to fulfill its responsibility to pay bond obligations or in any way impair the rights and remedies of the bond owners until the bonds are fully discharged. Sec. 203.312 Bond Tax Exempt The bonds issued under this subchapter, and earnings and profits thereon, are free from taxation by this state, a political subdivision, or other taxing jurisdiction in the state. Sec. 203.313 No personal liability Neither the individual members of the Commission and its employees nor the Board of Directors and employees of the Authority shall have any personal liability as a result of exercising the rights and responsibilities granted to them in this subchapter. SECTION 5. Section 204.061 of the Texas Labor Code is amended to read as follows: Sec. 204.061. Ceiling and Floor of Compensation Fund In computing the tax rates under this subchapter: (1) the ceiling of the compensation fund is two percent of the total taxable wages for the four calendar quarters ending the preceding June 30; and (2) the floor of the compensation fund is equal to the greater of (A) $400 million; or (B) one percent of the total taxable wages for the four calendar quarters ending the preceding June 30. SECTION 6. Section 204.063 of the Texas Labor Code is amended to read as follows: Sec. 204.063. Deficit Assessment [Tax] a) If the amount of money in the compensation fund on a tax rate computation date is less than the floor of the compensation fund, a deficit assessment rate is added for the next calendar year to the general tax rate for each employer entitled to an experience rate for that year. (b) The deficit assessment rate for a calendar year is the lesser of: (1) the rate computed by multiplying the deficit ratio, as computed under Section 204.064, by the sum of the employer's general tax rate, the replenishment tax rate, and the deficit assessment rate for the previous calendar year; or (2) two percent. SECTION 7. Section 204.064 of the Texas Labor Code is amended to read as follows: Sec. 204.064. Deficit Ratio (a) The deficit ratio is computed by: (1) dividing the numerator computed under Subsection (b) by the denominator described by Subsection (c); and (2) rounding that result to the nearest hundredth. (b) The numerator is computed by subtracting the balance of the compensation fund, considering any federal advance [or other liability of the fund,] from the floor of the compensation fund. (c) The denominator is the amount of contributions due under the general tax rate and the replenishment rate for the four calendar quarters ending the preceding September 30 from employers entitled to an experience rate on the tax rate computation date. SECTION 8. The advance interest trust fund created by Section 203.102 of this Subtitle is abolished as of the effective date of this act, and any balance remaining in such fund is transferred to the obligation trust created by this act. SECTION 9. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2003.