Gov. Laura Kelly blocks GOP bid to pour federal relief money into unemployment fund

Gov. Laura Kelly, a Topeka Democrat, speaks at the Capitol with Senate Majority Leader Jim Denning, an Overland Park Republican. They disagreed on moving a portion of federal COVID-19 aid into the state's shrinking unemployment trust fund. (Sherman Smith/Kansas Reflector)
Gov. Laura Kelly, a Topeka Democrat, speaks at the Capitol with Senate Majority Leader Jim Denning, an Overland Park Republican. They disagreed on moving a portion of federal COVID-19 aid into the state's shrinking unemployment trust fund. (Sherman Smith/Kansas Reflector)

TOPEKA — Gov. Laura Kelly said the state’s unemployment trust fund is likely to hit zero by March after the COVID-19 crisis burns through more than $900 million set aside before the pandemic to support people thrown out of work.

The governor said the most likely strategy would be for the state to prop up the trust fund by borrowing at zero percent interest from the U.S. treasury in a manner reminiscent of steps taken a decade ago during a deep national recession. There is concern in Kansas and elsewhere unprecedented escalation of COVID-19 could drive joblessness higher and further compromise state unemployment funds.

Kansas unemployment peaked at 11.9% in April, but fell by half through September to moderate transfers from the trust fund.

“If things don’t get better, we’re likely to be bone dry some time in early spring at the latest,” Kelly said. “We will not be the first state to empty its coffers.”

Despite consensus the Kansas unemployment fund would be empty in early 2021, Kelly made use Friday of her authority as a member of the State Finance Council to reject a proposal to place unspent federal coronavirus aid into the state’s trust fund. A spokeswoman for Kelly said the governor preferred to inject the federal aid directly into the state’s economy as quickly as possible.

Senate Majority Leader Jim Denning, an Overland Park Republican, recommended transfer of a yet-to-be-determined amount, likely in the millions of dollars, to the trust fund before the Dec. 31 deadline for spending federal coronavirus aid. Under current federal law, any portion of $1 billion allocated to Kansas amid the pandemic must be returned if not spent by end of the year.

The five Republican legislators on the State Finance Council supported Denning’s proposal, but the two Democrats and Kelly opposed it. The governor holds veto power over the council’s recommendations.

Denning said the council appropriately earmarked $25 million from the federal allocation to bolster budgets of state agencies tied to the COVID-19 response. It also made sense, he said, to offer businesses a measure of relief in terms of rebuilding the unemployment trust fund.

“It’s only fair to give that amount of logic to the business unemployment fund, which is basically exhausted,” Denning said.

He said there was no question the state would be forced to borrow from the federal government to cover future unemployment claims. The state’s trust fund is typically fueled by contributions of businesses and, even with an infusion of COVID-19 federal dollars, will be rebuilt by employers, he said.

House Speaker Ron Ryckman, an Olathe Republican who backed Denning’s proposal, said placing a portion of the federal aid in the unemployment trust fund would be helpful to businesses and could ease anxiety of people without a job.

“This is something that can help the folks that are on unemployment that can’t find work, especially because of COVID,” he said.

In April, the state’s jobless rate surged to 11.9% with 179,000 people out of work. The rate declined for five consecutive months to 5.9% in September as 87,000 people remained unemployed in Kansas.