FRANKFORT — State officials are waiting for more information from the federal government before deciding what to do about a $28 million interest payment due next month on a federal loan used to pay unemployment benefits.
Joe Meyer, Secretary of the Education and Workforce Development Cabinet, said Thursday that he met with officials with the U.S. Department of Labor in Washington, D.C., last week about the Sept. 30 interest payment.
"The federal guidance and procedures are very unclear," said Meyer.
The state borrowed more than $948 million from the federal government after its unemployment insurance fund went dry in January 2009. If Kentucky does not make the upcoming interest payment on the loan, businesses could lose a federal tax credit worth about $600 million.
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During a special legislative session in 2010, the legislature approved a plan backed by the business community and organized labor that would decrease benefits and increase taxes to shore up the unemployment insurance fund. However, the issue of how to fund interest payments on the federal loan was not addressed. At the time, leaders believed the federal government would continue to defer interest payments.
Meyer and state officials are waiting for more information about how quickly the federal tax credit would be taken away from businesses. Other states are in similar situations.
"What we are waiting for is information from the U.S. Department of Labor about the time lines and procedures for noncompliance determination," Meyer said.
Federal rules stipulate that the interest payments cannot come from the unemployment insurance trust fund, but other states have assessed businesses a surcharge to pay for the payments.
Meyer said Indiana just added a 13 percent surcharge. Illinois also has implemented one.
Senate President David Williams, R-Burkesville, has been critical of Gov. Steve Beshear's handling of the interest payments, saying the legislature should have known sooner that the interest payments were due in September. Williams is running against Beshear in the November general election.
Scott Jennings, an adviser to Williams' campaign, said Thursday that Williams does not support any plan that involves defaulting on the federal loan or assessing a surcharge on businesses .
"We think it's completely irresponsible to miss a loan payment or default on this loan," Jennings said.
Williams has encouraged Beshear to call a special legislative session so that lawmakers could approve spending some of the state's "rainy day" fund to make the payment.
When the legislature returns in January, a long-term solution for making the interest payments will have to be worked out, Meyer said.
"All options are on the table," he said of possible solutions.