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Governor Signs Unemployment Insurance Solution Bill; Will Save Kentucky Businesses $600 Million

Press Release

Location: Frankfort, KY

Governor Steve Beshear today signed House Bill 495, a measure that provides the resources to pay interest owed on the state's federal Unemployment Insurance (UI) loan and that will save Kentucky employers $600 million in federal tax penalties.

Sponsored by Rep. Larry Clark of Louisville, HB 495 preserves unemployment insurance benefits for the state's out-of-work families and protects a $600 million federal tax credit for businesses by approving a plan to pay interest on Kentucky's debt to the federal government.

The bill is the result of collaborative work by Kentucky employer groups including the Kentucky Retail Federation, the Kentucky Homebuilders Association, the Kentucky Association of Manufacturers, the Kentucky Chamber of Commerce, the Kentucky Small Business Coalition, the Associated General Contractors of Kentucky, and the Kentucky State Building and Construction Trades Council.

The Governor commended Kentucky employers and employees for working together to formulate a flexible and creative business solution.

"This is the perfect example of a business-helping-business solution," said Gov. Beshear. "In this fragile economic and political environment, it is imperative that we support our employers in Kentucky who have already endured financial hardships. I commend Kentucky's business community for working together to address this issue and providing a creative, workable solution."

Since January 2009, Kentucky has borrowed more than $960 million from the federal government to continue paying UI benefits to eligible Kentuckians. If HB 495 had not been enacted and Kentucky could not make the interest payment due Sept. 30, 2012, employers would lose all of the federal tax credit, and the UI tax payable by employers would rise. The total estimated cost to Kentucky employers would have been approximately $600 million.

House Bill 495 creates a financing mechanism to generate the funds necessary to pay interest on the federal loan in the short term, and a state level surcharge in the longer term to pay both the interest on the federal loan as well as any associated financing charges. The federal government waived the interest on the federal loan for the first year, and as 30 states have borrowed funds to support their unemployment insurance programs, the President has asked Congress to consider additional relief for businesses in the struggling economy.

The measure received unanimous bipartisan support from both legislative chambers.

"Passage of House Bill 495 provides the relief Kentucky's employers need to sustain the building momentum in our economic recovery," said Rep. Clark. "I am pleased to have sponsored this legislation, and I congratulate all of the participants, administration officials, legislators and employer and employee representatives alike, who were instrumental in designing this creative solution."

"With this legislation, we pay the interest on the UI loan, potentially freeze an increase in the Federal UI tax rate, and offer employees a state UI tax break. HB 495 represents a win for both large and small job creators in our state," said Sen. David Givens, of Greensburg.

Dave Adkisson, president and CEO of the Kentucky Chamber of Commerce, called HB 495 the most consequential piece of business legislation passed during the 2012 session.

"It took a lot of work, but in the end, we averted a substantial tax crisis for employers," said Adkisson. "Working together with the administration, Rep. Clark and Sen. Givens, we were able to arrive at a solution that not only prevents immediate tax increases, but also provides opportunities for tax relief."

"HB 495 may be the most important piece of legislation for manufacturers and business in general that was passed and signed into law this session," said Greg Higdon, president and CEO of the Kentucky Association of Manufacturers (KAM). "KAM and its members are grateful to the House, Senate and Governor for coming together on this important initiative."

This is the second time a bipartisan solution has been found to support Kentucky's unemployment insurance program. In March 2009, Gov. Beshear created the Unemployment Insurance Task Force, which included representatives from business, labor, and the General Assembly. The task force's recommendations on how to repay the federal loan needed to maintain benefits for Kentuckians and restore long-term stability to the Unemployment Insurance Trust Fund were codified by House Bill 5 in 2010.

Based on recommendations of the Governor's Unemployment Insurance Task Force, the Kentucky Education and Workforce Development Cabinet has implemented changes to modernize the unemployment insurance system in the Commonwealth to not only restore stability to the Unemployment Insurance Trust Fund but also to enhance re-employment strategies and services to meet the needs of the new economy.

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