Illinois unemployment insurance time bomb: Crain’s Juice Springfield Memo

On Tuesday, Illinois Comptroller Susana Mendoza joined seven other states in a letter to Treasury Secretary Janet Yellen asking the federal government to pause interest the Treasury is charging states that received billions to prop up their unemployment insurance trust funds during the pandemic.

Illinois still has $4.5 billion outstanding on that federal loan, known as a Title XII advancement. On top of it, the state has accrued $19.6 million in interest charges since September, when the federal government began charging again. If left unpaid at the current interest rate—2.27%—the state would log $100 million interest charges due next September, according to Mendoza.

“States are wrestling with how best to replenish their COVID-depleted unemployment funds and they should not have to do that with the meter running,” Mendoza said in a release.

In the letter, signatories asked that the Treasury not reinstate the interest waiver until the end of June, “giving adequate time for our states to address this financial dilemma appropriately” as the pandemic continues. Illinois’ outstanding balance is the third largest of the states that asked for the freeze, behind California ($19.4 billion) and New York ($9.2 billion). Money to pay back those interest charges comes from the state’s general fund.

Neither Gov. J.B. Pritzker nor leaders in the General Assembly have yet laid out how they plan to pay back that $4.5 billion. Pritkzer’s office did not respond to a request for comment. 

State Rep. Tom Demmer, a Republican from Dixon and a lead budget negotiator for the House GOP, says Illinois should take the lead of 32 other states and use a portion of its $8.1 billion in American Rescue Plan (ARPA) federal relief dollars to pay back the loan. The state is allowed to use that money to go beyond paying back the loan and restore the trust to pre-pandemic levels, but it was underfunded even before COVID hit. 

Pritzker’s 2022 budget spends $2.8 billion of Illinois’ $8.1 billion American Relief Plan dollars. As the Tribune reported, he can spend another $2 billion without the Legislature’s approval “to make up for ‘lost revenues.’” That leaves less than $3.6 billion that federal rules say must be obligated by the end of 2024 and spent by the end of 2026.

But not having a plan to address the unemployment insurance deficit is a mark of fiscal irresponsibility, Demmer argues. “How many times can we go back to the federal government to ask for a bailout? And is it reasonable to think they’re going to give this when less than 20% of states find themselves in this situation? We’ve ignored the problem, we haven’t done anything to try to correct it, now we’re going to ask them to waive the interest penalties,” he told Crain’s. 

The longer the state goes without a solution, the more worried workers—and employers—should get, Jared Walczak, a researcher at the center right-leaning Tax Foundation argued in a September report. Unemployment insurance trust deficits are traditionally filled via a mix of reduced benefits for workers and a hike in payroll taxes for businesses.

Illinois Retail Merchants Association President Rob Karr, who has been sounding the alarm about the costs of refilling the unemployment insurance trust for some time, said he was “supportive of using a significant portion of the remaining ARPA dollars to restore the trust fund to solvency. . . .At least a couple billion.” 

“Projections in November were that the trust would finish the year about $5 billion under water. The largest previous deficit that Illinois’ trust fund has had is $2.3 billion,” Karr continued. Employers “can’t afford to carry this by ourselves.”

One lingering threat—a so-called speed bump that would have boosted those payroll taxes and cut down on the number of weeks the unemployed could collect benefits as well as their wage repayments—has already been neutralized, for the time being. Flying under the radar in the most recent veto session in Springfield, lawmakers moved the date the speed bump would kick in from this coming January until July. 

For now, the only ticking time bomb is the interest payment, which grows by roughly $2 million each week.

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