Kentucky May Have To Apply For A Federal Loan

Hundreds of thousands of Kentuckians are relying on unemployment insurance to make ends meet during the coronavirus pandemic.

A policy non-profit called the Tax Foundation has projected Kentucky’s fund will run dry without a loan before the end of May.

The number of unemployment claims has put stress on the pool of money, paid through taxed businesses, used to pay unemployment claims called the unemployment insurance trust fund.

Governor Andy Beshear said last week that he fully expects to take a federal loan just like has done in the past.

Beshear said even if the state’s fund runs dry, and a loan is taken out, benefits will still be paid. But there could still be costs associated with taking out a loan.

The Associated Press reports the federal loans, if not paid by November 2022, could lead to higher taxes for businesses in future years to repay the debt of state trust funds.

In addition to that, it’s a setback for Kentucky, which had been working on beefing up the fund after the Great Recession.

Right now, loans to pay unemployment benefits are interest free. But, starting next year, as laws currently stand, the Labor Department could return to how it was operating before the pandemic.

Some states would be able to get interest-free loans, but only if they are in a determined solvent position.

For the state to be eligible to borrow without interest through the U.S. Department of Labor, it needs to have a solvency rate of 1.0 or higher. That means the federal government believes the state is able to pay for benefits for a year in an economic downturn.

The state government of Kentucky hasn’t met that threshold since 1974, according to a 2020 Labor Department report published before the pandemic. So, it may incur interest expenses that 31 other states wont have to pay.
Source: WAVE