Illinois unemployment fund faces potential $8 billion deficit

Illinois unemployment fund faces potential $8 billion deficit

Historic unemployment payouts related to the COVID-19 shutdowns left Illinois’ fund billions in the hole. State leaders did nothing to fix it, meaning there could be reduced benefits for the unemployed or higher taxes on employers trying to recover.

Illinois business leaders are worried after Springfield lawmakers twice passed a state budget, but neither time addresses the state’s Unemployment Insurance Trust Fund that is as much as $8 billion underwater.

Illinois’ unemployment insurance program, designed to offer partial wage relief to out-of-work Illinoisans, was $5.2 billion in the hole in mid-May, according to an analysis by the State Policy Network. But the deficit could now be as large as $8 billion, said Illinois Retail Merchants Association President and CEO Rob Karr.

Since the onset of the COVID-19 pandemic, the number of residents filing unemployment claims has soared to historic highs.

Claims peaked in April 2020, when over 202,000 Illinoisans in a week filed for unemployment. That’s more 12 times the number of claims the Illinois Department of Employment Security received in same period during the Great Recession.

The Illinois’ unemployment insurance program, which pays out claims through the state’s trust fund, spent $1 billion from the trust and borrowed an additional $4.2 billion from the federal government to address the surge in claims. The state continues to pay out those benefits.

While Illinois’ unemployment rate remained at 7.1% in May, Karr says employers who pay into the fund through payroll taxes are concerned about how the state intends to fill a hole that is at least $5.2 billion deep.

Illinois is federally mandated to assure the solvency of the trust fund. When the balance dips too low, the state must choose to either reduce unemployment benefits, increase premiums on employers, reappropriate funds from other state revenue sources or some combination of those fixes.

State lawmakers have expressed similar concerns over how to maintain the solvency of the fund, including Illinois House Minority Leader Jim Durkin, who warned the unemployment fund “might be the most important social safety net program we have in this state.”

Legislators pushed to reallocate a portion of state’s $8.1 billion share of federal American Rescue Plan Act funds to fill the deficit in Illinois’ 2022 state budget. However, the budget was passed twice without adding any such appropriations.

The fiscal year 2022 budget, which takes effect July 1, does include $100 million to provide unemployment funding for non-education employees in schools, such as janitors and cooks, through House Bill 2643. The bill also forgives payment made to people who did not qualify as long as it was no fault of their own.

Karr said these additional costs are expected to eat up the increased funding from the legislature.

The Illinois Chamber of Commerce and Illinois Manufacturers Association also criticized the state budget for failing to address the shortfall.

Manufacturers President Mark Denzler questioned the priorities in the budget, such as using $1 billion in federal funds and spending “it on projects back in home districts instead of taking on critical issues like helping replenish the unemployment insurance trust fund that provided a lot of benefits for workers over the last year.”

Karr said without an influx of money, lawmakers will be forced to cut benefits for unemployed Illinoisans or increase payroll taxes on employers trying to rehire displaced workers.

Illinois lost 7,900 jobs in May. The dismal jobs report leaves Illinois’ unemployment rate unchanged at 7.1%, while the national unemployment rate declined to 5.8%.

Unfortunately for the nearly 440,000 Illinoisans still out of work, the $42.3 billion budget Illinois lawmakers passed might not replenish the unemployment trust fund but it does contains a $655 million tax hike, while still remaining unbalanced. Those taxes specifically strike at job creation in a state already lagging the national recovery.

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