Kentucky’s unemployment rate hits 11 percent, a 26-year high

FRANKFORT — Kentucky has borrowed more than $300 million from the federal government to pay unemployment benefits this year and the state’s jobless rate continues to rise, reaching 11 percent in July, state officials told lawmakers on Thursday .

The last time the unemployment rate reached that level was in August 1983, when it topped out at 11.1 percent, said Helen Mountjoy, secretary of the Education and Workforce Development Cabinet.

Kentucky’s jobless rate is up from 10.9 percent in June and 6.5 percent in July 2008. Nationally, the unemployment rate fell from 9.5 percent in June to 9.4 percent for July.

Statewide, approximately 227,431 people are out of work, Mountjoy told an interim committee on labor and industry. Although the unemployed tally continues to increase, it’s growth is slowing, she said.

Still, Kentucky is nearing its all-time high of 12.1 percent unemployment, recorded in December 1982. Records go back to 1976.

Since January, the state has borrowed $338 million from the federal government to pay unemployment insurance claims, which Mountjoy warned will become a vexing problem for state lawmakers in coming months.

The state must repay the federal government and, at the same time, build up its unemployment insurance fund, which relies on taxes paid by employers.

A task force has been studying the issue and will likely have final recommendations in October, well before the beginning of the legislative session that begins in January, she said.

However, Mountjoy cautioned that there is no silver bullet that will fix the ailing unemployment fund. “We’re going to need platinum buckshot,” she said.

The task force has hired consultants to model how changes to unemployment tax rates would effect businesses and the fund. Kentucky is also looking at what other states have done to fix their unemployment funds, Mountjoy said.

David Adkisson, president and CEO of the Kentucky Chamber of Commerce and member of the unemployment task force, said the business community is waiting to see the cost-benefit analysis by the consultants before taking a position on how to fix the problem.

“It’s hard for us to lean one way or the other until we see some numbers,” Adkisson said. “We have been encouraged by the administration’s position that we’re going to take a balanced approach.”

The task force is also examining whether the state should change its eligibility requirements for unemployment benefits and what it can do to get people back to work more quickly, Mountjoy said.

Since 2002, the fund has been paying more in benefits than it has received in contributions, which led to its insolvency in January.

Rep. Bill Farmer, R-Lexington, noted that previous actions by the state have contributed to the current crisis. In 1998, a flush year for state government, the legislature decreased the tax rate on employers and increased unemployment benefits.

“We didn’t get here overnight and it’s going to take a long time to get us out,” Farmer said.

He recommended on Thursday that the state consider establishing a minimum balance in the fund. Mountjoy said the task force is looking at that issue.

Kentucky is one of 17 states that has had to borrow money from the federal government to pay its unemployment benefits. The state does not have to pay interest on the $338 million it has borrowed until Dec. 31, 2010, and can continue to borrow money from the federal government to pay its unemployment claims indefinitely, Mountjoy said.

But the more the state borrows, the deeper it crawls into a fiscal black hole. The last time the state borrowed money from the federal government to pay unemployment benefits, it took several years to pay off the debt.

Kentucky borrowed $332 million between Dec. 31, 1980 and April 1985, said Kim Brannock, a spokeswoman for the Kentucky Education and Workforce Development Cabinet. The state didn’t finish repaying the debt, including more than $11 million in interest, until September 1988.

– Beth Musgrave

Filed Under: State Budget • State Government