Politics & Government

State leaders scramble for plan to pay $44 million interest on unemployment loan

FRANKFORT — Business and labor leaders are working to come up with a plan to make a possible $44 million interest payment on a nearly $950 million loan from the federal government that was used to pay unemployment claims during the recession.

Labor and business leaders were able to develop a plan to repay the $948 million loan, which was approved by the Kentucky General Assembly in 2010. That plan includes decreasing unemployment benefits and increasing costs to businesses.

But federal rules say interest payments on the loan may not come from the unemployment insurance trust fund, funded entirely by business taxes. Last fall, the state used money from various pots in state government to make the first interest payment of $28 million.

A way to pay the remaining interest is being worked out.

A lot is at stake if an agreement is not reached.

If the state misses an interest payment, businesses could see part of their federal tax burdens go from $63 per employee to up to $420 an employee, Gov. Steve Beshear said in a recent speech.

Beshear, during an appearance last week before the Kentucky Chamber of Commerce, said he thought labor and business leaders would have time to hammer out an agreement and come up with a proposal before the legislative session ends in mid-April.

The second interest payment is due Sept. 30. It could be $44 million, depending on interest rates at the time.

Kerri Richardson, a spokeswoman for Beshear, did not say whether Beshear had given the group a specific date to have the proposal ready.

"We fully expect their work will result in an acceptable recommendation for the legislature," Richardson said. She did not say what options the group was discussing.

But there appears to be a split in the legislature on where money to pay the interest should come from.

The Democrat-led House does not want to use money from the general fund.

House Speaker Pro Tem Larry Clark, who served on the task force that developed the plan to make the unemployment insurance trust fund solvent, said labor groups already have given up hundreds of millions of dollars in unemployment benefits as a concession to make the trust fund solvent.

House Speaker Greg Stumbo, D-Prestonsburg, said he thought the interest payments should come from the business community.

"It should not come from the general fund," Stumbo said.

In Thursday night's speech to the chamber, Beshear said most of the 29 states that have borrowed money from the federal government for unemployment benefits have added an additional assessment or tax on businesses to pay the interest.

But the Republican-led Senate says asking businesses for a special assessment to pay the interest might cripple the still-fragile economy. Industry already has seen an increase in unemployment insurance taxes at the state and federal levels.

"I can't imagine that the chamber or the larger business community could afford another increase in unemployment insurance" taxes, said Sen. David Givens, R-Greensburg, who served on the unemployment insurance task force.

In addition to coming up with a way to pay the possible $44 million in interest by Sept. 30, the group might come up with a way to repay the state about $18.4 million of last year's $28 million interest payment. The state used about $8 million from a penalty account that came from businesses. But it also used more than $18.4 million from other pots of money in state government. At the time the payment was announced, Beshear said he expected that money to be repaid.