Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Labor and Industry was held on Thursday, July 19, 2012, at 10:00 AM, in Room 131 of the Capitol Annex. Representative Rick G. Nelson, Chair, called the meeting to order, and the committee assistant called the roll.
Present were:
Members: Representative Rick G. Nelson, Co-Chair; Senators Jared Carpenter, Denise Harper Angel, Ernie Harris, Kathy W. Stein, and Jack Westwood; Representatives C.B. Embry Jr., Bill Farmer, Wade Hurt, Joni L. Jenkins, Thomas Kerr, Adam Koenig, Mary Lou Marzian, Charles Miller, Terry Mills, Michael J. Nemes, Tanya Pullin, Tom Riner, Jim Stewart III, and Brent Yonts.
Guests: Joe Meyer, Secretary, Education and Workforce Development Cabinet.
LRC Staff: Linda Bussell, Adanna Hydes, Carla Montgomery, and Betsy Nickens.
Representative Nelson announced that Senator Kerr could not attend the meeting and reminded members who wish to attend the Labor-Management Conference in September to register.
In memory of former Representative Dewayne Bunch, the committee observed a moment of silence.
Representative Nelson introduced Secretary Joe Meyer to testify on HB 495, the unemployment insurance legislation enacted last session, the status of the trust fund, overall status of the unemployment insurance program, and an unemployment update.
Implementation of HB 495 and Update on Kentucky’s Unemployment Insurance Program and Trust Fund
Secretary Meyer first spoke about the progress of action required under HB 495. HB 495 authorized the cabinet to obtain financing to pay the interest on the advances (federal unemployment insurance loans) received under Title XII of the Social Security Act and to impose a surcharge on employers, beginning in 2014, to repay the financing. HB 495 also required the cabinet to report to the committee on the progress of complying with the provisions of the legislation.
Secretary Meyer said financing was obtained after a bid process from J.P. Morgan Chase. The cabinet borrowed $76 million at a fixed interest rate of 1.95 percent. The money is available in two draws. The first draw of $47.70 million has already been taken and was used to repay the interest that was advanced by the state to pay interest due last September and to have money in hand to pay the interest due September 30 of this year. The second draw of up to $26.3 million is available to pay the September 30, 2013 interest payment. Interest payments will be made to J.P. Morgan Chase according to the terms of the agreement and that money is in hand. The overall maturity date of the loan is September 1, 2018 and if the amount is repaid after September of 2017, there is no prepayment penalty.
Responding to a question from Representative Farmer, Secretary Meyer said there would be a prepayment penalty if the loan was repaid before September 2017 and the surplus in the state budget was not available to repay the financing obtained.
Secretary Meyer reported on the status of the unemployment insurance trust fund. At the beginning of this year, the state had borrowed $948,700 million from the federal government to pay unemployment benefits. An additional $35.7 million was borrowed for cash-flow purposes, and that amount has been repaid. The 0.3 percent federal unemployment tax credit offset that employers are paying has produced $30.855 million, which has reduced the current overall debt to the federal government to $917.80 million. The federal debt is anticipated to be reduced to $915 million at the end of the year. By the end of 2013, the federal debt is expected to be reduced to $768 million.
Secretary Meyer discussed unemployment insurance agency operations. The 2011 Unemployment Insurance Trust Fund report, included in members’ folders, contains detailed information about the unemployment insurance program. During the past year, the big issue for the program has been implementation of HB 5 enacted in the 2010 Special Session. All of the law changes and all of the process changes required by HB 5 have been implemented except for the changes required in the procedures for notifying employers. This is expected to be completed within a two-week period. On the matter of employer appeals, which is a process that employers feel is tilted against them, the report provides data that showed, for 2011, that there were 173,000 initial claims for benefits filed. Employers protested 83,000 of those claims and prevailed in 66 percent, resulting in a denial of benefits. In 2011, 23,000 cases were appealed to the lower authority appeals branch. Employees appealed 19,000 of those decisions and 31 percent were decided in favor of the employees. Employers appealed approximately 3,500 of the decisions and 31 percent, the same percentage as for the employees, were decided in favor of employers. Responding to questions from Representative Farmer and Representative Yonts, Secretary Meyer said progress has been made in reducing the time involved in the appeals process and in reducing the backlog of cases. More hearing officers and referees have been hired and ongoing efforts are being made in the training and compensation levels of hearing officers and referees.
Secretary Meyer testified about unemployment. The unemployment rate, just released, is 8.2 percent, which is the same as last month. During the past twelve months, Kentucky has added 37,700 new jobs, which exceeds the number of people looking for work. The number of claims for benefits has decreased by more than half over the past two years. By the end of the year, the total benefit payout is projected to be much less than anticipated. As a result of the federal extended benefit and emergency unemployment compensation program, Kentuckians have received $2,979,000 in benefits above what was paid from the state unemployment trust fund.
Responding to questions from Representative Koenig, Representative Pullin, and Representative Farmer, Secretary Meyer said no additional borrowing from the federal government will be made during the remainder of this year and contributions are expected to exceed the benefit payout for the year. He reported on the federal borrowing from other states compared to other states. Kentucky currently owes $930 million; California owes $9 billion; Ohio owes about $1.8 billion; and Indiana owes almost $2 billion. West Virginia and Tennessee do not owe the federal government. The year-to-date, unemployment insurance benefits paid by the state are considerably than half of all benefits paid to Kentuckians. The remainder has been paid from federal funds.
Representative Nelson reminded members that the August meeting will be at the Ford Motor Plant.
The meeting adjourned.