Request By:
Hon. Buddy Adams
Secretary
Cabinet for Human Resources
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear
This is in response to a letter from your immediate predecessor, recently updated by Mr. John Cubine, Commissioner, Bureau for Social Insurance, regarding the Unemployment Insurance Fund in the Commonwealth. We have been referred to a United States Department of Labor, State ES Agency Instruction, pertaining to the interest-charging provisions of P.L. 97-35, which is the Omnibus Budget Reconciliation Act of 1981. Pursuant to the pertinent provisions of P.L. 97-35, any request for Title XII Advancements on or after April 1, 1982, will be subject to repayment, but will now also be subject to interest charges in specific circumstances. The State ES Agency Instruction has advised your Cabinet to request a State Attorney General's Opinion regarding the payment of interest on Title XII Advancements.
The necessity of infusing Kentucky's Unemployment Trust Fund (KRS 341.490 et. seq. ) with Title XII Advancements has occurred. The Trust Fund is exhausted and advances have been secured from the United States Department of Labor to continue benefits. The question arising from this necessity is chiefly that of the Commonwealth's legal obligation to pay any required interest on the Title XII Advancements resulting from the Covernor's application for such advancements under the Federal Statutes and Regulations. The issues of where can this interest money come from and whether an unlawful state obligation is being created must be addressed. It is the position of this Office that other than general fund account money is available and may be used to pay these interest charges to be incurred.
In support of our conclusion, we begin by noting that Unemployment Insurance Benefits are funded from employer taxes and there are no general fund appropriations for this purpose. The potential sources of monies for this fund are set out in KRS 341.490(1)(a) thru (g) as follows:
"(1) There shall be a special fund known as the unemployment insurance fund which shall be administered separate and apart from all public money or funds of this state. This fund shall consist of:
"(a) All contributions, payments in lieu of contributions, and money collected under this chapter, except those imposed under KRS 341.290 and fines, penalties, and interest on delinquent contributions collected under KRS 341.300;
"(b) Interest earned upon any money in the fund;
"(c) Any property or securities acquired through use of money belonging to the fund;
"(d) All earnings of such property or securities;
"(e) All money received from the federal unemployment account in the unemployment trust fund in accordance with title XII of the social security act as amended;
"(f) All money credited to the account of this state in the unemployment trust fund in accordance with section 903 of the social security act as amended; and
"(g) All money received from the federal government as reimbursement, pursuant to section 204 of the federal-state extended unemployment compensation act of 1970."
The manner in which the determination is to be made of the employer's contribution to the Unemployment "Trust Fund Balance" is set out in KRS 341.270. This section of law was amended in 1982 by House Bill 746 establishing the possibility of a varying rate schedule depending upon the balance of money in the Trust Fund. In Subsection 6(a) the term "Trust Fund Balance" is defined to mean "the amount of money in the Unemployment Insurance Fund, less any unpaid advances made to the State under Section 1201 of the Social Security Act. " It is perspicuous that "advances" from the Federal Government to the State's Unemployment Insurance Fund is an accepted fact. Also, from our reference to KRS 341.490, supra, we know that "fines, penalties, and interest on delinquent contributions collected under KRS 341.300" are not to be deemed a part of the Unemployment Trust Fund. This point is important because pursuant to P.L. 97-35 the interest that is being required with respect to the advancements may not come from a state's Unemployment Fund, directly or indirectly.
Taking the above into consideration, if the Unemployment Insurance Trust Fund Balance is depleted at a point in time to the extent it is impossible to repay the advances without incurring interest charges, which as we understand it, are the present circumstances, then we believe, and it is believed by staff in the Cabinet for Human Resources, that the so-called "P and I Account," a non-appropriations dollars account, presently in place, can be legitimately turned to. KRS 341.300, referenced in KRS 341.490, in subsection (1) reads as follows:
"Contributions unpaid on the date on which they are due and payable, as prescribed by the secretary, shall be subject to a penalty at the rate of one percent (1%) per month or fraction thereof, not to exceed sixty percent (60%) of the amount of such contributions, from and after such date until payment is received by the department, irrespective of whether such delinquency has been reduced to a judgment or not as provided in subsection (2) of this section. These penalties shall be paid into the unemployment compensation contingent fund."
KRS 341.295 must also be considered in that it directs that the "fines, penalties and interest on delinquent contributions collected under KRS 341.300 shall be credited to the Unemployment Compensation Administration Fund to be used for the administration of this chapter." We have been informed by Commissioner Cubine that other states have paid the subject interest charges from penalty and interest accounts, which again, are monies generated from employers and the P and I Account is replenished thereby. He has further informed us Kentucky's P and I Account has sufficient funds to pay the interest on advancements owed this quarter. We believe using the Penalties and Interest Account to pay the interest on the advancements received to the Unemployment Insurance Trust Fund would be legal.
Although perhaps not specifically presented as a question to us, we nevertheless feel obligated to recognize and discuss as necessary any potential Kentucky constitutional issues posed by the incurring of interest to be paid on the advancements discussed above. Those concerns, if there are to be any, are presented by Sections 49 and 50 of Kentucky's Constitution dealing with the contracting of a debt.
Sections 49 and 50 of the Kentucky Constitution, as interpreted in
Turnpike Authority of Kentucky v. Wall, Ky., 336 S.W.2d 551 (1960) prohibit agencies of the Commonwealth creating obligations payable from the general funds of the Commonwealth for periods extending beyond the biennium from which the General Assembly may appropriate such funds. Even though it may be reasonably believed that the P and I Account is now and will be sufficient to pay the interest on the advancements, we must be cognizant of the possibility such would not be the case. However, we take the position that should the P and I Account become insufficient, there would still be no Sections 49 and 50 problem created.
Our Kentucky Appellate Courts have fairly recently had a couple of occasions to look at the constitutional problems associated with the incurring of debt by the Commonwealth. Most recently in
Bd. of Trustees of Univ. of Ky. v. Commonwealth, Ky. App. 625 S.W.2d 867 (1981) the Court of Appeals reiterated the conclusion that a contingent liability is not within the concept of debt as used in Section 50 of the Constitution, citing the case of
State Budget Commission v. Lebus, 244 Ky. 700, 51 S.W.2d 965 (1932). The Court determined there was no liability created against future general revenues but only a mere possibility of liability and that a mere possibility of liability did not offend the Constitution.
Therefore, based upon the above considerations, we are of the opinion the Commonwealth may legally incur the obligation to pay required interest on Title XII Advancements to Kentucky's Unemployment Insurance Fund.