Kentucky has borrowed nearly $474 million from the federal government to pay unemployment benefits this year and the total will likely reach $1 billion before the state's economy improves.
An ongoing debate about how to repay that money and stabilize the state's unemployment insurance fund reaches a critical crossroads Wednesday, when a divided task force on the issue hopes to agree on an action plan.
The group appointed by Gov. Steve Beshear has been meeting since April and must come up with recommendations to give the General Assembly in January, when legislators must also grapple with a budget shortfall for the next two years that may reach $1 billion.
More than 225,000 Kentuckians are looking for work, putting the state's unemployment rate at 10.9 percent.
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Not surprisingly, the debate over how to fix the unemployment fund has split between those who represent employees and those who represent employers.
Union leaders want the task force to recommend increasing the unemployment tax for employers. Business leaders prefer a wait-and-see approach on any tax increase and perhaps a reduction in benefits.
"It's time for us to come to the table to seriously consider what it will take to resolve this question," said Larry L. Roberts of the Kentucky State Building and Construction Trades Council, who is a member of the task force. He and other labor representatives put out a news release on Monday pushing for a quick resolution to the debate.
Dave Adkisson of the state Chamber of Commerce said another idea would be to wait and see what action the federal government might take. Under the federal unemployment tax rules — if Kentucky still owes money after two years — automatic triggers would kick in that would raise taxes for employers until the money is paid back. "Wednesday's discussion will be very important," he said.
The final result may be a compromise between the two sides, said Helen Mountjoy, the outgoing secretary of Education and Workforce Development who is chairing the group.
"Both sides are going to have to have skin in this game," Mountjoy said. "There will have to be concessions on the parts of those representing employers and those representing employees."
Currently, the average employer is taxed 2.8 percent on the first $8,000 of every employee's wages.
The task force has heard from two national consultants, and has seen a variety of possible scenarios, Mountjoy said. One compromise scenario, she said, would be raising the taxable wage base to $12,800 in stages. At the same time, laid-off workers would have to wait a week before drawing benefits.
"You would have employers contributing more money through taxes and workers reducing their expectations as far as benefits," Mountjoy said. "The idea is to come up with a system that is balanced to add money back in, pay off the debt, still provide basic services to those out of work and ensure our employers remain competitive."
Currently, the state pays out 79 weeks of benefits, although Beshear announced Tuesday the state is working to quickly implement a new federal law that allows 20 additional weeks of payments to those who have already exhausted their benefits. In addition, Beshear recently signed an agreement with the U.S. Department of Labor to temporarily increase the weekly payout by $25.
Roberts acknowledges there will have to be some compromise but said the average taxable wage base in Kentucky's neighboring states is about $10,000.
Meanwhile, lawmakers in the Democratic-led House and the Republican-led Senate also appear to be at odds over the issue.
Sen. Gary Tapp, R-Shelbyville, is a member of the task force and chairman of the Senate Tourism, Economic Development and Labor Committee, which could deal with possible legislation on unemployment insurance starting in January. He said the wait-and-see approach might allow the federal government to grant states more flexibility in paying back their debts.
"All depends on what the feds may do later on," Tapp said. "That money will have to be paid back, however, it will be pretty tough to go to businesses and say we're going to increase those taxes at a time when businesses are barely making it now."
But Democratic Rep. Rick Nelson of Middlesboro, who also serves on the task force and heads up the Labor and Industry Committee in the House, said the state can't afford to wait any longer.
"We're going to have to compromise or do nothing," he said, "and doing nothing would be a mistake."