New Illinois Budget Ignores $5 Billion Hole In Unemployment Insurance Fund – Wirepoints

By: Mark Glennon*

Despite federal supplements, the spike in unemployment benefits during COVID-19 shutdowns produced a hole in the State of Illinois’ unemployment trust fund of $5.2 billion. The hole was ignored in the budget passed this week by the General Assembly.

First, some background on how funds like Illinois’ work. Employers pay insurance premiums in the form of payroll taxes into the funds which are used to cover unemployment claims. Federal rules help assure that the funds stay solvent. When balances dip too low, the state must fix the deficiency by either 1) reducing unemployment benefits, 2) increasing premiums on employers, 3) paying into the fund from other state revenue sources, or 4) some combination of the above.

In the short term, pending that fix, the funds can also borrow from the federal government to assure that unemployment claims are paid. That’s not unusual during recessions, and most state unemployment funds, including Illinois’, borrowed during the pandemic.

A new report by the SPN, the State Policy Network, provides the status of each state’s fund. It shows the hole for each state, which is comprised of two parts: the depletion of the fund during the pandemic (which SPN measured from February 2020 to May 2021) plus amounts borrowed from the federal government.

Illinois’ fund was depleted by $1 billion during the pandemic and it borrowed $4.2 billion from the federal government, leaving the total hole at $5.2 billion.

For the nation, the total hole is $93 billion. Per capita, Illinois’ hole is roughly about average for other states. California’s hole is exceptionally large at about $24 billion.

I spoke to the study’s author, Michael Lucci. The responsible thing for states to have done, he and SPN believe, would have been to use at least some of the federal bailout money to help fill the holes in unemployment funds. That bailout money has been vastly in excess of the damage done to states in the form of lost revenue and direct costs, and that includes Illinois. And the Treasury Department provided guidance making it clear that funds from the American Recovery Plan Act could be used for that purpose.

Illinois didn’t do that and it isn’t alone. Treasury was slow providing its guidance and most other states, at least so far, have not faced up to the holes in their unemployment funds.

Illinois Republican lawmakers were also angry about how the fund deficit was ignored. As reported by The Bond Buyer, “House GOP members slammed Democrats for leaving little time to digest the budget by releasing the plan earlier in the day and failing to use the ARPA funds to help cover a $5 billion hole….” House Leader Jim Durkin “warned the unemployment fund ‘might be the most important social safety net program we have in this state’” and the deficit could result in benefit cuts or drive up business costs. And State Rep. Tom Demmer (R-Dixon) said on Tuesday, “Instead of prioritizing something like unemployment insurance which affects every employee and employer across the state, we saw $1 billion in capital projects that came from Democrat only member requests.”

Both the Illinois Manufacturers Association and Illinois Chamber of Commerce also criticized the budget for ignoring the hole in the unemployment fund.

The bottom line is that most Illinois lawmakers pretended the hole in the unemployment fund doesn’t exist. It was left to be addressed by future measures unknown, but they almost certainly will include higher payroll taxes on employers.

*Mark Glennon is founder of Wirepoints.