Beshear administration makes loan payment to feds for unemployment insurance

09/08/2011 05:43 PM

UPDATED: Gov. Steve Beshear on Thursday moved funds from certain state government accounts as a “internal loan” to cover a $28.2 million interest payment to the federal government for money borrowed to pay unemployment benefits.

The move temporarily avoids a hit to Kentucky employers. They would have lost federal tax credits if the state missed the Sept. 30 interest payment. Still, it means the state legislature — and business leaders — will have to come up with a more stable payment plan to repay this internal state government loan and make future interest payments to the federal government.

Beshear, in a statement, announced he would call business and labor leaders together “to find a permanent solution to the current and future interest issue” that legislators would have to approve.

House Speaker Greg Stumbo, D-Prestonsburg, applauded the move.

“I believe the governor acted responsibly and appropriately in dealing with this issue in the manner he did at this time,” Stumbo said.

Stumbo noted that those funds from the internal loan would have to repaid to those state accounts before June 30, 2012.

But one state Senate Republican questioned whether Beshear was setting a dangerous precedent because of how it was paid.

“I’m disappointed because basically what we’ve done in Kentucky is written a check for an account that doesn’t have sufficient funds in it,” said state Sen. David Givens, R-Greensburg. “When you can say you can write a check with no known revenue stream to make an internal loan, then what power does the General Assembly have?”

Kentucky borrowed from Washington nearly $1 billion to cover unemployment insurance for out-of-work Kentuckians during this recession.

And the state had risked tripping a penalty that would cost Kentucky businesses $600 million if they lost the Federal Unemployment Tax Act credit unless it made its first interest payment on time.

Businesses pay fees into an unemployment insurance trust fund. And that fund ran out of money in 2009 after the recession hit. Because that money comes from employers, the Beshear administration determined it couldn’t tap state general funds to pay the interest bill on the money the state trust fund borrowed from the federal government.

The options appeared to be to wait to see if the federal government would waive any penalities or Beshear could have called lawmakers into a special session — at a cost of $60,000 a day — to authorize a state payment.

Instead, Beshear moved $18.4 million as an “internal loan” to go with the $9.8 million available in the state’s unemployment trust fund.

“It is clear that in this political climate, Congress is not interested in helping states to protect businesses as our economy rebounds. We have taken matters into our own hands,” Beshear said in a statement.

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