Politics & Government

Kentucky pays $28 million interest payment on federal loan

FRANKFORT — Gov. Steve Beshear announced Thursday that the state has paid a $28 million interest payment on a federal loan used to pay unemployment benefits.

The state has been debating for several months how it will make the first interest payment on the unemployment insurance loan, which was due Sept. 30. If Kentucky had not made the interest payment, the state's businesses could have lost a federal tax credit worth about $600 million.

Beshear said Thursday that despite repeated pleas from business and state leaders, Congress did not want to delay the interest payments. The federal government had waived the interest payments for the past two years.

Republican senators questioned whether Beshear had the authority to pay the $28 million interest payment if there was no money appropriated in the two-year budget to do so.

Beshear said about $9.8 million of the money used to pay the interest payment came from a penalties and interest account. The rest, about $18.4 million, will be borrowed from elsewhere within state government. The $18.4 million will have to be repaid before June 30, 2012, the end of the current fiscal year. The state will manage the loss of the $18.4 million by shifting money throughout state government.

Mary Lassiter, state budget director, said Beshear has the authority to move money within state government to make the payment because there is language in legislation that says that the interest payment has to be made in a timely manner.

Kentucky has had to borrow money from the federal government since 2009, when the state's unemployment insurance trust fund — paid for through a tax on businesses — went dry. In 2010, the legislature approved a measure that would decrease benefits but increase taxes to rebuild the account. However, the legislation did not address the interest payments on the loan, which totals more than $900 million. By law, the interest payments cannot be paid for through the unemployment insurance trust fund.

Beshear said he will gather business and union leaders and unemployment insurance experts to develop a long-range plan on how the interest will be repaid.

Senate President David Williams, who wants to unseat Beshear in the Nov. 8 general election, has repeatedly asked that Beshear call a special legislative session to address the issue of the interest payment.

Beshear said he did not believe a special legislative session was necessary.

Kentucky is one of 29 states that have borrowed from the federal government to pay unemployment insurance benefits.