A nonprofit publication of the Kentucky Center for Public Service Journalism

Early payoff of $972M federal loan will save Kentucky employers millions in unemployment insurance taxes


Kentucky has paid off the $972 million federal loan that was needed to meet unemployment insurance benefit obligations during the recent recession.

The payoff – at least two years ahead of schedule – means Kentucky’s Unemployment Insurance Trust Fund has a positive balance for the first time since January 2009, according to a press release from Gov. Steve Beshear’s office. Maintaining a positive balance ensures Kentucky employers will save approximately $165 million in federal UI taxes, the release stated.

At the height of the recession in June 2009, Kentucky’s unemployment rate hit a high of 10.9 percent. Kentucky’s latest unemployment rate in June 2015 dipped to 5.1 percent, the lowest it has been since June 2001. Covered employment, which includes workers covered by state UI laws, has increased by 36,700.

A positive balance in the UI Trust Fund on Nov. 10, 2015, will ensure Kentucky employers will not be subject to the additional credit reduction rate of 1.5 percent when they file their federal unemployment taxes in January 2016.

Even before the recession began, Kentucky’s UI Trust Fund experienced high demand for benefit payouts. Beginning in 1999, Kentucky paid out more in unemployment benefits each year than it had taken in through employer contributions.

According to the release, the difference had been made up by drawing down accumulated reserves. As a result of the recession, Kentucky exhausted its UI Trust Fund at an accelerated rate. By Jan. 28, 2009, the trust fund had been depleted, and Kentucky, like more than 30 states, began borrowing from the federal government.

House Bill 5 in the 2010 Special Legislative Session modernized the state’s unemployment system with a balanced plan to adjust revenues and benefits to secure the financial stability of the plan for the future. Beginning in 2012, the law increased the taxable wage base from $8,000 to $12,000 over a 10-year period; implemented a waiting week after eligible workers file a claim before they can begin to receive benefits; and reduced the statutory replacement rate used to calculate a claimant’s weekly benefit amount from 68 percent to 62 percent.

The bill also implemented changes in tax schedule trigger amounts and instituted other process changes to enhance re-employment strategies and services to meet the needs of employers and job seekers in the new economy. Both benefits and revenues are subject to automatic adjustments based on the balance in the Trust Fund in the future.

“This is excellent news. This savings will affect virtually every employer in state and shows that our bipartisan efforts have paid off handsomely,” said Dave Adkisson, president and CEO, Kentucky Chamber of Commerce.


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