Updated: Kentucky Chamber working to avert major federal unemployment tax increase

August 3, 2011

In a meeting with the governor’s office last week the Kentucky Chamber – along with the state’s other top business groups – discussed the importance of dealing with the unemployment insurance issue facing Kentucky employers.  The administration acknowledged the serious nature of this issue and updated the business community on steps being taken to find a solution that will prevent a loss of federal tax credits.  Discussions with federal officials have already taken place, and the administration has scheduled meetings in Washington, D.C.  All options are still on the table, including federal or state administrative relief or legislative action.

The Kentucky Chamber and other business groups are committed to finding a solution and will provide whatever support necessary to do so.  In the coming weeks, we will be in close contact with the administration, our federal congressional delegation and legislative leaders to solve this problem. We will keep members informed as this process moves forward.

Along with more than 30 states, Kentucky has borrowed funds – more than $948 million to date – from the federal government to pay unemployment insurance claims. The first interest payment of roughly $28 million is due on September 30, 2011. If the interest is not repaid to the federal government, Kentucky employers stand to lose a significant Federal unemployment Tax Assessment (FUTA) credit. Loss of this credit would increase the current FUTA tax of $56 per employee to $434 per employee. The total impact to Kentucky employers would be more than $600 million.

The Chamber, along with a number of other business groups, worked on a task force to pass legislation to address the long-term solvency of the program that will save employers hundreds of millions of dollars in unemployment taxes over the next decade. The legislation was passed in 2010 after extensive negotiations with the Beshear administration, legislators and organized labor.

The governor’s task force noted in its report that “…payments on interest accrued cannot be at the expense of the UI Trust Fund and must be funded by other sources such as a UI surcharge, penalty and interest accounts or appropriations from the General Assembly.” However, the legislation did not include a mechanism to create additional taxing authority on employers. In 2011, employer groups did not actively seek higher assessments; nor did the administration seek authority to develop a repayment mechanism.

For several months, the Kentucky Chamber has been actively working with Kentucky’s Congressional delegation and other business groups to encourage the Beshear Administration to find additional ways to address this issue. This week, the Chamber received a letter from Gov. Beshear indicating he did not believe his administration had the authority to make up the funding. Secretary of the Governor’s Cabinet Mary Lassiter indicated the same to the General Assembly. In his letter, Gov. Beshear noted that the authority to appropriate rests exclusively with the General Assembly.

Senate President David Williams has called on the governor to call a special session of the General Assembly to deal with this issue to avoid a devastating tax increase on Kentucky employers. If the interest is not repaid to the federal government, Kentucky employers stand to lose a significant Federal Unemployment Tax Assessment (FUTA) credit. Loss of this credit would increase the current FUTA tax of $56 per employee to $434 per employee. The total impact to Kentucky employers would be more than $600 million.

The Kentucky Chamber believes this would be devastating to Kentucky employers and would not only limit job creation, but would likely lead to additional job losses. The Chamber, along with other business groups, requested a meeting with the governor and his key staff to discuss how to address this issue and prevent massive tax increases on our members. That meeting is scheduled for early next week. We are evaluating every option, including interest deferral requests, asking the administration to look for an approach that will permit an on-time payment or to schedule a special session of the General Assembly to avert this crisis. As this issue moves forward, we will keep you informed and, if necessary, will ask you to weigh in with your elected officials.