DALLAS - Kansas' dwindling unemployment insurance trust fund could run out of money in two months, forcing the state to borrow millions of dollars from the federal government to keep payments flowing to 96,000 unemployed workers.

Labor Secretary Jim Garner said a sharp rise in the state's unemployment rate over the past few months has caused the fund to be depleted more rapidly than originally anticipated.

The global economic downturn has affected all sectors of the state's economy, Garner said, with the aviation manufacturing industry experiencing significant declines.

He said Kansas is sending out about $18 million a week in unemployment compensation, up from $5 million a week in August 2008.

The insurance trust fund had a balance of $566 million on Jan. 1, Garner said, but currently has a balance of $349 million.

The total includes $69 million in federal funds the state received in June in a grant under the unemployment insurance modernization provisions of the American Reinvestment and Recovery Act.

Kansas paid out $78 million in unemployment benefit claims in June, which Garner said is 25% of the total claims paid in 2008.

Before the beginning of the current recession, the highest monthly benefit payment was $39 million in July 2003. The monthly benefit payment in December 2008 totaled $46 million.

The Kansas Employment Security Advisory Council will meet next week to consider how to repay a loan from the U.S. Department of Labor. A provision of the stimulus act allows states to borrow money for unemployment compensation payments at no interest if the funds are repaid by Dec. 31, 2010.

"Our first priority is to ensure unemployed Kansans receive the benefits that help them get through this difficult economic time as they return to work," Garner said.

He said 18 states are borrowing from the federal government to cover unemployment claims. The number of states seeking assistance is expected to swell to 30 by the end of the year, Garner said.

Kathy Toelkes, director of communications for the Kansas Department of Labor, said the state has never had to borrow from the federal government to continue unemployment payments.

"We've never done it before," she said. "The advisory council will meet next week to make recommendations to the department and the state on how to build up the fund to make it solvent. The council will also advise on the legislative steps necessary to repay the loan."

Toelkes said the amount of the loan has not been determined.

"We started this process of notifying the public and beginning communications with the federal Department of Labor when we first determined the fund would be exhausted before the end of the year," she said. "It looks like we would run out of money in November without the federal loan."

Unemployment compensation is financed with employers' contributions through the unemployment insurance tax and the interest earned from that money.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.