Gov. Steve Beshear has taken a sensible approach to saving a $600 million tax credit for Kentucky employers.
He tapped state government's cash flow to pay the interest on a federal loan to the unemployment insurance fund due Sept. 30.
But, as Beshear noted, this is the first of many interest payments on the almost $1 billion loan and a permanent solution will be necessary.
The General Assembly should provide that permanent solution when it convenes in January by restoring an assessment on employers to cover the interest payments.
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Kentucky had a surcharge on employers when it needed to pay off a similar loan in the 1980s. But the legislature eliminated the law enabling the surcharge in 1996.
The legislature had also lowered taxes on employers, which is part of the reason the unemployment insurance fund ran dry when the economy faltered in 2008.
Like 29 other states, Kentucky has borrowed from the federal government to shore up its unemployment fund. Unemployment insurance is a state-federal program paid for by a payroll tax on employers.
Of the states with loan balances, 19 have employer surcharges that they are using to make interest payments, including Indiana, Alabama, Arkansas, Florida and South Carolina. Five states enacted surcharges this year, according to the Kentucky Center for Economic Policy in Berea.
Under federal law, states may tap their unemployment insurance funds to pay off the loans' principals, but not the interest. States may pay the interest from separate interest and penalty accounts in their unemployment programs.
Kentucky's penalty and interest account contained almost $10 million to pay toward the almost $28.5 million in interest due this month.
Beshear came up with the remaining $18.5 million by borrowing it from the state's cash flow. That $18.5 million should be repaid through an assessment on employers as well.
We're not proposing an onerous new burden on employers. The entire $28.5 million Kentucky owed in interest this year could be covered by an average surcharge of $18 per employee.
Senate President David Williams, who is challenging Beshear for the governorship, and other Republicans have questioned whether the governor has the authority to loan money from the General Fund to make the interest payment. But the administration says there is precedent for the move.
Williams has said Beshear should have called a special legislative session to deal with the interest due and the payment should have been made from the state's surplus.
Defaulting on the payment was never an option since it would have cost Kentucky businesses a tax credit worth $400 per employee.
We're confident that most Kentuckians will agree that avoiding a special session to deal with a relatively minor problem was a good idea.