FRANKFORT — Kentucky businesses could lose $640 million in federal tax credits if the state doesn't appropriate money to make interest payments on a federal loan that is bankrolling unemployment benefits, Gov. Steve Beshear's administration told lawmakers on Thursday.
Senate President David Williams quickly urged Beshear to call a special legislative session to approve using some of a $121 million surplus from the fiscal year that ended June 30th to pay for part of a $28.5 million interest payment due on Sept. 30.
"We are fighting to hold on to every job that we can," Williams said. "The fact that every employer in the state could lose up to $400 in federal credit for each of their employees could be devastating."
According to the state's two-year budget, Beshear cannot spend any of the $121 million surplus, which was deposited in the state's "rainy day" fund, to make the interest payment unless he has legislative approval.
Williams, who is challenging Beshear in this year's election, said he offered the idea of a special session to address the issue because it appears the Beshear administration has no plan to address the problem.
Earlier in the day, State Budget Director Mary Lassiter told a legislative committee that the administration is looking for solutions, and he said the business community is actively lobbying the federal government to defer the interest payments.
"We are very concerned," Lassiter said.
Kentucky borrowed more than $900 million from the federal government in recent years after its unemployment insurance fund ran out of money to pay unemployment insurance benefits for out-of-work Kentuckians.
Unemployment insurance benefits are funded entirely by employer contributions through corporate taxes, not through state General Fund dollars.
In 2009, Beshear established a task force to determine how the state should repay the loan and keep the unemployment insurance fund solvent in the future.
The task force of business and labor leaders developed a proposal that included some increases in taxes for employers and decreases in benefits for workers. However, the task force's recommendations — which were approved by the legislature in 2010 — did not address the issue of interest payments on the loan.
Lassiter said the governor's task force had believed the federal government would defer interest payments on the loan.
The plan that passed the legislature in May 2010 was sold as a solution that would repay the loan while also saving businesses $700 million from 2012 through 2022.
Lassiter told a legislative committee on Thursday that the state has about $8.5 million it can put toward the $28.5 million interest payment. That leaves a balance of $20 million.
If the state defaults on the interest payment, the federal government has said that businesses could lose a federal tax credit they currently receive in connection with paying the unemployment insurance tax.
The tax credit is worth roughly $377 per employee in Kentucky, state officials said. There are currently 1.6 million people in Kentucky in jobs that are covered by unemployment insurance benefits.
Sen. Alice Forgy Kerr, R-Lexington, chastised Lassiter and Beshear's administration for not having a plan to address the $20 million shortfall during a meeting of the Interim Joint Committee on Appropriations and Revenue.
Lassiter noted that the plan was approved and vetted by the legislature and a committee that is chaired by Kerr.
"But I'm not the governor," Kerr said, noting that it was Beshear's task force.