By: Mark Glennon*

To cover its share of exploding cost of unemployment benefits, the State of Illinois has borrowed $2.6 billion from the federal government to prop up its unemployment insurance fund. That’s separate and apart from loans by the Federal Reserve Bank to the state for other purposes that we recently wrote about, which will increase to $3.2 billion when Illinois completes a recently announced addition to its Fed loans.

Unemployment funds in most states are under stress, but Illinois’ is among a few in particularly tough shape, as reported last week by Bloomberg. “A handful of states account for the bulk” of the Treasury borrowing by unemployment funds, which now total $40 billion according to Bloomberg. Through Nov. 9, California has borrowed $15.8 billion, New York $8.4 billion, Texas $5.3 billion, and Illinois $2.6 billion, Bloomberg reported.

Loans by the federal government to state unemployment funds are a bit complex. The system is intended to have states run up a surplus in good times then draw it down during recessions, sometimes with the help of loans from the Treasury. Those loans from the Treasury therefore are not unusual, though they are exceptionally large now.

Repayment is required in about two years. However, if a state doesn’t or can’t pay Treasury back the loan, the state can instead adjust benefits downward or essentially charge more to employers who pay the premiums on unemployment insurance.

The bottom line is that one way or another state residents pay back the loan, whether through taxes paid to cover the repayment by the state, lower benefits to the unemployed or higher cost to employers.

Many states, including Illinois, didn’t run up surpluses before the pandemic when the economy was hot, as the system is intended to work. That’s shown in the U.S. Department of Labor’s annual report issued in February, just before the pandemic set in.

The 22 states that were below recommended standards as we went into the current recession are at the bottom of the ranking below. Illinois is forth from the bottom.

Source: US Department of Labor.

The wild card in how this will sort out is what, if any, pandemic relief package Congress will authorize for states. That will depend heavily on the Georgia election in January which will determine who controls the Senate. If Democrats win, it’s widely expected that Congress will authorize a very generous federal relief package. That package may or may not specifically include direct help for unemployment funds, but money is fungible and the worst-off states like Illinois are hoping for broad relief.

And the ultimate size of the problem remains unknown. For last month, Illinois reported the largest increase in initial unemployment claims of all states, so stay tuned.

*Mark Glennon is founder of Wirepoints.

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1 month ago

We have to pay every single penny back..makes no sense to have it..most have overpayments of up to thousands of dollars

1 month ago

This is bs, Illinois is not paying people. They are holding claims. I have certified 8 times and they still have not released payment. Nor are they calling me back. Who can I talk to, I have lost my job due to the pandemic. I’m facing eviction, can’t pay my bills or feed my child. Illinois is keeping the money to fill voids in other areas, not paying people

Thee Jabroni
1 month ago
Reply to  Michelle

Lets make something clear Michelle,im sorry you lost your job but its not because of this “pandemic”-its because of these idiotic lockdown,shutdown politicians!-they cost you your job,not this so-called “panded mic”!

1 month ago

And still not one word on the communists re: budget cuts.

Goodgulf Greyteeth
1 month ago

Well, I suppose the good news is that at least IDES is effectively managed – keeping track of every penny, well-able to prevent waste, fraud and abuse.

That, at least, is a comfort. I’d hate to think that they’re like someone trying to coral a herd of angry barn cats while riding a lame horse.

1 month ago

My comment from Bloomberg articale…. Fascinating article. Another gigantic debt burden that goes completely unreported While it looks like other states like NY & Calf have borrowed more on per capita bases from feds to fund unemployment, article raises so many questions–1.) Why does Illinois collect so little in unemployment from employers in the fist place? Maybe because all the other taxes required by state & local gov and wc rates are so high the state doesn’t want to burden employers further with high unemployment fund contribution rates? 2.) Other states in article, like Georgia, are using CARES ACT funding… Read more »

1 month ago
Reply to  NB-Chicago

Also, per wsj, back in may illinois was approved for highest in nation fed line of credit for unemployment funding of $12.6 BILLION!!!–SAY WHAT!!!

1 month ago
Reply to  NB-Chicago

Illinois holding the CARES Act money might be smart.

The State Finances are bad, and they’ll need real money if the debt market stops funding.