The COVID-19 economic crisis has created enormous strain on our unemployment insurance (UI) system and made clear how outdated and inadequate the system was going into the pandemic. House Bill (HB) 406 would take a major step toward shoring up those inadequacies and preparing Kentucky for both the next crisis in our economy, and the crisis each Kentuckian faces when they lose a job. These improvements are a win-win for workers and for businesses, creating a better-functioning and more sustainable unemployment system that will allow our economy to more fully and quickly recover from recessions.
HB 406 creates a benefit system for a modern workforce
The past 10 months have served to demonstrate a host of weaknesses in Kentucky’s UI system that stem from decades of neglect. This long-standing inattention meant we were unable to quickly and accurately handle major program changes (such as the special CARES Act benefit programs) and a massive swell in claims as a result of COVID-19. And because our system is very restrictive in its determination of who can get benefits, the federal government had to step in to provide special benefits so that a large share of jobless Kentuckians wasn’t left out.
HB 406 addresses many of the shortcomings of our unemployment system to mitigate future harms to Kentuckians seeking jobless benefits, including by:
- Establishing an “Alternative Base Period” (ABP) that opens up benefits for workers with low incomes and inconsistent work histories, including many part-time workers.
- Improving our laws about when extended benefits (EB) trigger “on.” Our current EB statute was triggered on in September 2020, but then ended Thanksgiving weekend, leaving thousands of long-term unemployed Kentuckians with no income support.
- Allowing more consistent employer contributions into a permanent service capacity upgrade fund so we always have the resources necessary to update the UI computer system.
- Allowing part-time claimants to seek part-time work rather than the current requirement to seek full-time work, which is especially beneficial for women who are more likely to opt for a part-time job.
- Allowing claimants to receive benefits while training for a new profession.
- Broadening good cause reasons for separation from employment — including allowing Kentuckians to claim benefits because they must move away with spouse who got a new job, because they have an illness/injury (including COVID-19) that prevents them from working and because they must flee due to domestic abuse.
- Raising the minimum benefit amount from $39/week to $100/week — still far below a livable income.
- Allowing the Secretary of the Labor Cabinet to waive the requirement that claimants pay back benefits they were mistakenly awarded if the mistake was not the claimant’s fault — as in the case of many Kentuckians who were approved for Pandemic Unemployment Assistance benefits. Senate Bill 7, sponsored by Senator David Givens, also seeks to enact this important provision.
- Re-establishing in-person help with unemployment claims throughout the commonwealth.
- Providing an extra $25 per dependent, per week for claimants with children.
- Creating a work-sharing program that allows employers to reduce hours and use UI to make up some of the resulting wages lost, while keeping workers employed and allowing them to keep their benefits like health insurance and retirement. This element is attractive to businesses because it gives them more flexibility to manage downturns, while also helping workers stay attached to their jobs.
HB 406 targets employer contributions to trust fund solvency
Kentucky’s outdated UI tax system doesn’t put enough money away in good times in order to avoid borrowing large amounts in bad times, as the state has had to do during the last two recessions. In fact, our employer contribution rate was lower than at any time in the 83-year history of the program going into the crisis, when the economy was strong and we should’ve been putting more into savings. This has had the effect of spiking employer contributions when the economy is in a downturn — including for the payment of interest and principal on loans.
HB 406 addresses this issue by targeting the employer contribution rate to trust fund solvency using metrics provided by the U.S. Department of Labor. It does this by determining a financing rate based on Kentucky’s actual history of paying benefits, as opposed to the current approach pegging it to the size of the trust fund balance, which is not directly related to what benefits are owed. Then it tasks the state Labor Cabinet with assigning employers their specific contribution rate based on their experience rating — with employers who have recently had high layoffs paying above a base financing rate, and employers with low recent layoffs paying below the base financing rate. Under this financing system, the state will be less likely to need to take out loans in hard times because employers will be paying more into the trust fund based on a solvency target in good times. It will make the trust fund more sustainable and the tax rates that employers pay more steady and predictable.
Kentucky is long overdue for unemployment insurance modernization
Even before the COVID-19 downturn, fewer than 1 in 5 unemployed Kentuckians received benefits. When there was a swell in claimants due to the pandemic, our system had atrophied for so long that tens of thousands of Kentuckians went months with no benefits, with no word on when they would receive them. Many who are still jobless have still never seen a dime in benefits. In fact, in December 2020, 44.4% of Kentuckians who had filed initial claims still hadn’t received their first check 70 days or more later — the 4th-worst delay in the country. Making changes — such as regularly improving our information technology, adopting an ABP, opening more in-person assistance locations, opening up benefits to people looking for part-time work or who need to leave their jobs for a broader range of reasons — will help ensure we don’t end up in this situation again.
Additionally, Kentucky has had to borrow money in order to pay claims in each of the past two recessions, even while benefits were cut after the Great Recession. This borrowing then leads to an increase in employer contributions even while the economy is just beginning to recover. By targeting the employer tax to solvency, it will be far less likely that Kentucky will need to borrow in the future. That will lead to less volatile labor expenses for state businesses and lower pressure to cut crucial benefits further.
We should not make the same mistake twice
These changes to our unemployment system are not new ideas. Just after the Great Recession, the federal government offered Kentucky a $90 million bonus if the state implemented several of the above policies. But Kentucky left that money that could’ve paid for a brand new UI computer system on the table, helping create the crisis of today. Dozens of states have implemented one or more of these improvements (Kentucky is just one of nine states that have not adopted an ABP, for example). We should learn from this mistake of the past and modernize our system now, so that our workers, our businesses and our economy are prepared for the next downturn.