JEFFERSON CITY -- The Missouri Senate on Wednesday approved legislation sponsored by Sen. John Loudon, R-West St. Louis County, that would allow the state to sell up to $100 million in bonds to make Missouri's Unemployment Compensation Trust Fund solvent.

Among the provisions of Senate Bill 2, the state would have an alternative to borrowing from the federal government to cover shortfalls in the unemployment insurance fund.

"Federal law requires this coverage, which is financed by employer-paid premiums," said Sen. Loudon. "If state reserves become depleted, the federal government lends revenue to the state, which is repaid by a 30 percent surcharge on employer premiums. The bonding provision gives us an alternative."

The federal government charges approximately 6 percent interest on these loans. The rate on the bonds is estimated at between 2.5 and 3.5 percent.

According to Sen. Loudon, by using the bonding approach interest costs would drop by half, sparing consumers and businesses the additional expense the employer surcharge would entail.

"It promises to be a real cost saving measure for all of the employers in the state," Sen. Loudon said. "When employers can save money, they can hire more employees. This is a win-win situation for everyone."

The state has already borrowed $10 million and is expected to need $100 million by year-end. The state debt could grow to $300 million if the legislature fails to act.

"The major function of this bill is that employers are stepping up to the plate with $100 million per year of new funding," said Sen. Loudon. "In exchange, the bill reduces some of our more liberal payouts. A worker fired for misconduct would have to get another job in order to be eligible for benefits in the future. This brings us in line with 40 other states. Our current system provides for a minimal penalty and then these problem employees are entitled to benefits."

The reform is expected to save the system $30 to $40 million annually.

This legislation has the backing of a number of Missouri's business organizations, including Associated Industries of Missouri and the National Federation of Independent Businesses.

Having been approved by the Senate, SB 2 has been sent to the House of Representatives where favorable consideration is expected.