FRANKFORT — Business leaders will meet with Gov. Steve Beshear on Tuesday to discuss how the state can make a $28.5 million interest payment on a federal government loan used to shore up the state's unemployment benefits.
If the state defaults on the payment Sept. 30, Kentucky businesses and the state could lose more than $571 million in federal tax credits and appropriations.
Bryan Sunderland, vice president of public affairs for the Kentucky Chamber of Commerce, said Friday that business leaders will meet with Beshear to discuss solutions.
Without a plan to repay the interest, Kentucky businesses could lose a federal tax credit that could cost 80,000 Kentucky businesses about $357 per employee, according to the latest estimates by the Office of the State Budget Director. There are more than 1.6 million Kentucky workers who are covered by unemployment insurance benefits.
"It could result in job losses," Sunderland said.
He stopped short of saying whether a special legislative session was needed to address the issue. Senate President David Williams, R-Burkesville, who is running against Beshear in the fall election, asked for a special legislative session Thursday so the legislature could give Beshear the authority to use about $20 million of a $121 million surplus to repay the loan.
Beshear officials told a legislative committee Thursday that the state has about $8.5 million it can use to repay part of the $28.5 million interest payment.
But House Speaker Greg Stumbo, D-Prestonsburg, said Friday that he is not sure a special session is needed, and he questioned whether state General Fund money should be used for the interest payment. Unemployment insurance is supported by taxes levied on businesses.
"It is premature to ask for a special session since Congress is currently in budget-related negotiations and Sen. (Mitch) McConnell and U.S. Rep. Hal Rogers are in key positions to protect Kentucky's interests," Stumbo said. "The other concern I have is that I don't think we should use tax dollars in this situation. I would like to see the Kentucky Chamber and other business leaders come up with a plan to see how we resolve this without costing the state's taxpayers."
Since 2000, the unemployment insurance fund has paid out more than it has taken in. The fund ran out of money in 2008 — at the height of the economic downturn. The state has borrowed more than $948 million from the federal government since January 2009 to pay for unemployment insurance benefits.
Beshear appointed a task force in 2009 to develop a plan to repay the federal government and to shore up the unemployment insurance trust fund. Business and labor leaders agreed on a proposal that the legislature eventually approved. It included an increase in taxes for employers and a decrease in benefits for workers.
The 2010 legislation did not address how the interest payments on the loan would be repaid.
The federal government says the interest payments cannot be paid from the unemployment insurance fund. The task force noted in its report that interest payments would have to come through a direct appropriation or another assessment — a fee or tax — on businesses.
Williams questioned Thursday why the Beshear administration had not discussed during the past two years how the interest would be paid.
But Mary Lassiter, the state budget director, told the Joint Interim Appropriations and Revenue Committee on Thursday that the task force did not address the issue because, at the time, the federal government had agreed to defer the interest payments. Many thought the federal government would extend the deferment, Lassiter said.
Kerri Richardson, a spokeswoman for Beshear, said the governor and the business community have been discussing the issue with congressional leaders for some time. In a statement, Richardson did not say whether Beshear would call a special legislative session or whether the administration thinks that part of the $121 million in surplus funds should be used.
"The governor continues to direct his cabinet to explore every possible option for his consideration," Richardson said. "He will continue actively communicating with business groups, the labor community and legislators to discuss possible solutions."
Williams said Thursday that because the surplus generated during the past fiscal year — which ended June 30 — was largely because of corporate income taxes, it would make sense to use the surplus to pay the interest. The surplus money came from the business community, he said.
Sunderland said Friday that President Barack Obama's administration and several Republican members of Congress had proposed extending the deferment on the interest payments, but the legislation was never approved.
Sunderland said he and other business leaders have been to Washington, D.C., to talk to Kentucky's congression al delegation about deferring the interest payments.
"We are looking for a solution, whether that comes from the administration, the federal government or the Kentucky General Assembly," he said.
