With state running out of options, businesses could pay more unemployment insurance fees

08/16/2011 06:46 PM

Facing a $28 million bill next month, Kentucky’s best hope is that the federal government gives the state more time to make that full interest payment for the $1 billion in unemployment insurance borrowed from the U.S. government.

Otherwise, Kentucky businesses will likely have to kick in higher fees to the unemployment insurance trust fund to repay the federal government.

Joe Meyer, the secretary of the education and workforce development cabinet, returned from a trip to Washington at the end of last week without getting clear answers on whether Kentucky will be penalized for not making the full interest payment.

Currently, the cabinet has about $9 million available.

And after reviewing the laws, Gov. Steve Beshear’s administration determined the state can’t tap government “rainy day” funds to make the payments for an account that is supposed to be funded by fees from businesses.

And it’s unlikely the federal government will forgive the interest or delay the payment deadline. But Meyer said he’s awaiting word about whether the federal government might give Kentucky and other states a break if they can’t make the full interest payments right away.

This isn’t the first time Kentucky has been in such a quandary.

In the recession of the early 1980s, unemployment in Kentucky spiked to more than 12 percent in 1982. That wiped out money the state had to pay unemployment benefits to all those out-of-work Kentuckians. So the state borrowed from the federal government.

It took more than five years and millions of extra dollars for Kentucky to dig out of that financial hole in the unemployment insurance fund. That prompted a series of reforms in the mid-1980s to make sure that didn’t happen again.

But between 1998 and 2000, the legislature undid many of those reforms and lowered taxes on businesses while raising benefit levels for the unemployed amid happier economic times.

So when the economy tanked in 2008, it was like the ’80s all over again.

The skyrocketing unemployment rate quickly wiped out the money from the unemployment trust fund. And Kentucky began borrowing emergency funds from the U.S. government in January 2009.

Last year, the General Assembly approved changes to reduce unemployment benefits and call for a tax increase on businesses as a last resort to paying back the federal government.

Dave Adkisson, president of the Kentucky Chamber of Commerce, served on the task force that recommended those changes. And he explained on Pure Politics how the business fees into the unemployment trust fund could increase 10-fold.

- Ryan Alessi with the report from Frankfort by Kenny Colston

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