Kentucky is one of more than 30 states that together have borrowed $40 billion from the federal government to prop up insolvent unemployment insurance funds — and now, with Congress in an uncharacteristically ungenerous mood, $1 billion in interest payments are coming due.
A number of states — at least 16 turned up in a quick Internet search — are assessing employers to raise the money to make the interest payments.
Divide the $28.5 million Kentucky owes in interest by the roughly 1.6 million workers covered by the unemployment system, and you get an average assessment of about $18 an employee.
Employers should be more than willing to shuck out this amount considering how much they stand to lose. Failure by the state to make the interest payment by Sept. 30 would trigger the loss of a tax credit worth about $377 per employee or $640 million to Kentucky businesses.
The problem is it's unclear whether the executive branch of state government has the authority to impose such an assessment on employers without legislative OK.
Senate President David Williams is calling for a special legislative session to deal with the matter. Still in a generous mood with the taxpayer's dollar, Williams wants the $28.5 million payment to come from the state's General Fund.
Williams would no doubt say that imposing even a small fee on employers could smother the fledgling economic recovery. We suspect the Republican gubernatorial candidate's real motive is to curry favor with the business community and its political donors. State unemployment insurance funds are paid for by taxes on employers, though the federal government picks up half the cost of extended benefits.
It was shortsighted of Gov. Steve Beshear and lawmakers not to have included a provision for assessing employers to make the interest payments in legislation in 2010. That's when business and labor came together on a plan for ensuring the unemployment fund's long-term solvency by increasing employer contributions and trimming benefits.
At the time, Congress was waiving the interest payments on unemployment loans as part of the economic recovery act, but the waiver has not been renewed.
Perhaps Congress will come to the rescue again, though in the current cost-cutting climate that would be a risky bet.
Beshear is scheduled to meet today with business leaders to discuss the situation. It would be ridiculous for Kentucky to default on the loan and suffer the loss of tax credits worth much more than the payment due. If there's any way to also avoid the cost of a special session, all the better.
Meanwhile, let's not forget why unemployment funds around the country have gone bust: Too many Americans have been out of work or underemployed for too long. With consumer demand so uncertain, corporations are sitting on their cash, afraid to hire or invest lest the economy bottom out again.
All the hoopla in Washington over the debt ceiling has done nothing to fix this fundamental weakness. Cutting federal spending won't create jobs in the short run, if ever.
Instead, the cuts will very likely create more joblessness, just as a premature deficit-cutting program in 1937 plunged the recovering economy back into Depression.