Illinois joins 8 states asking to escape interest on unemployment loan
Illinois borrowed $4.2 billion from the federal government to replenish its unemployment trust fund, missed the deadline to repay it and now wants to avoid the interest that is due.
Illinois Comptroller Susana Mendoza is leading seven other state financial officers in an effort to convince the U.S. Treasury Department to waive interest on loans that should have been repaid in September.
Illinois borrowed $4.2 billion from the federal government when it ran out of unemployment funds during the COVID-19 economic downturn. It missed the Sept. 6 deadline to repay the loan, and now taxpayers face paying $60 million in interest per year. The unemployment fund has been depleted as a result of record unemployment created by pandemic shutdowns, and without additional funding either payroll taxes will rise or unemployment benefits will be cut.
Mendoza argues the deadline and interest shouldn’t be honored because the pandemic isn’t over.
“Taxpayers should not be on the hook for interest just because the pandemic is lasting longer than projected,” Mendoza said. “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.”
If interest isn’t reimbursed by Sept. 30, 2022, the state would owe $100 million in total interest.
This isn’t Illinois’s first struggle with repaying federal loans.
To avoid automatic payroll tax hikes during the Great Recession, the state borrowed $1.5 billion from the feds to supplement the unemployment fund. It took five years to repay that debt. Now, Illinois is on the hook for three times the amount owed during the Great Recession.
To make matters worse, Illinois’ economic recovery from the pandemic has lagged other states. Ohio and Pennsylvania, the two closest states to Illinois in population, had a more robust economic recovery.
Ohio used $1.5 billion in federal money to repay unemployment loans, preventing added tax pressure on businesses. Illinois could’ve used federal pandemic relief funds to refill its unemployment insurance trust fund, but chose to pay off other debt brought on by the state’s irresponsible spending.