Governor Signs Bill to Repair Unemployment Insurance System

Press Release

Gov. Steve Beshear today signed House Bill 5, a measure aimed to restore stability to an unbalanced unemployment insurance (UI) system and to shore up the state's depleted UI Trust Fund. The legislation is based on recommendations by a task force of Kentucky business and labor representatives and lawmakers convened by the Governor last year to study the state's UI system.

"High unemployment rates and an outdated revenue-benefits formula have decimated Kentucky's fund and thrown the system out of balance," said Gov. Beshear. "I'd like to thank the Unemployment Insurance Task Force and the General Assembly for working together to see beyond short-term sacrifices in order to provide a long-term solution that will bring solvency to the fund, stability to the system and savings to Kentucky employers."

House Bill 5 modernizes the state's unemployment tax and benefits structure. Beginning in 2012, the law increases the taxable wage base from $8,000 to $12,000 over a 10-year period; implements a waiting week after eligible workers file a claim before they can begin to receive benefits; and reduces the statutory replacement rate used to calculate a claimant's weekly benefit amount from 68 percent to 62 percent.

"I want to commend all of the members of the Unemployment Insurance Task Force for their perseverance as we worked through these complex issues," said House Speaker Pro Tem Larry Clark, of Louisville. "Our work can be a model for resolving significant issues going forward. I want to also extend special thanks to Task Force Chair Helen Mountjoy and current Education and Workforce Development Cabinet Secretary Joe Meyer. Ms. Mountjoy's encouragement kept us on task, and she and Sec. Meyer expertly managed their staff to provide us with timely information and necessary support. We could not have done the job -- or ultimately passed the bill -- without them."

Since 2000, Kentucky has paid out more in unemployment benefits than it has taken in through employer contributions. Until 2009, the difference was made up by drawing on reserves accumulated in the UI Trust Fund. The fund was depleted in January 2009, and the state has since borrowed nearly $800 million from the federal government to continue paying UI benefits to eligible Kentuckians. Many other states have been forced to do the same because of the economic downturn.

Instead of a "do-nothing" scenario that would have triggered an increase in federally mandated taxes to begin paying off the debt, it is estimated that changes in the tax structure as outlined in the legislation will save Kentucky employers more than $450 million in federal tax and interest charges over time. These changes also ensure that the balance in the trust fund will eventually be significantly higher to protect against future downturns in the economy.

"It is very important to get the state's Unemployment Insurance Trust Fund back on sound footing -- for the unemployed and for employers whose taxes fund the system," said David Adkisson, UI task force member and president of the Kentucky Chamber of Commerce. "The compromise reached by the Governor's task force of business and labor representatives is an excellent example of getting the right stakeholders around the table and creating a solid plan."

The bill also implements changes in tax schedule trigger amounts and institutes other process changes to improve the overall unemployment system in the Commonwealth. These include employer notification procedures, increasing the protest period, increasing efforts to inform the public of fraud detection efforts, instituting random audits, updating UI publications, reviewing management of the appeals process, offering employer training programs and enhancing re-employment strategies.

"Working together, representatives of the labor and business communities found common ground and agreed on a series of measures that formed the key elements of HB 5, which will restore long-term solvency to Kentucky's Unemployment Insurance Trust Fund and protect benefits for Kentucky's unemployed workers now and in the future," Larry Roberts, director of the Kentucky Building and Construction Trades Council said.

In March 2009, Gov. Beshear created the Unemployment Insurance Task Force to study Kentucky's UI system and propose recommendations that would enable the system to generate sufficient funds to temporarily assist displaced workers, provide a cushion for future economic downturns and treat employers equitably while positioning them to be competitive with other states. The group -- consisting of employers, employees and members of the General Assembly -- consulted regularly with leading UI economists, heard differing perspectives on UI issues and compared Kentucky's status with that of its contiguous states as it explored a wide range of potential policy options.

The panel agreed on the recommendations with unanimous consent from Kentucky's business and labor communities. To access the full report of the task force, go to www.educationcabinet.ky.gov.

Source