Illinois chips away at unemployment trust loan balance

Illinois will use surplus revenue in its unemployment insurance trust to pay down $450 million of the remaining $1.8 billion balance on the federal loan that allowed it to manage the surge in claims early in the COVID-19 pandemic, Gov. J.B. Pritzker said Tuesday.

The state borrowed $4.5 billion but earlier this year repaid $2.7 billion by tapping its share of $8 billion in American Rescue Plan Act relief.

Negotiations among lawmakers, labor, and business to fully repay the loan are ongoing but Pritzker said he expects a resolution by the end of the year. A plan to fully wipe out the loan may rely on some mix of higher employer premiums, benefit cuts, and bonding.

U.S. Air Force/Senior Airman Jay Grabiec

"Our unemployment system is back on track and the balance of the unemployment trust fund continues to experience strong and steady growth," Pritzker said, noting the state has hit a record low in unemployment claims and has a $1.2 billion surplus. "Today's action takes another major step toward eliminating pandemic related unemployment insurance debt which we intended to complete by the end of the calendar year and will."

While recessionary clouds loom, if the state's healthier economic performance continues on track, additional surplus revenue could be part of the final fix, Pritzker said.

Pritzker tied the decision on using the surplus to a series of actions taken over the last year to pay down the state's bill backlog and other debts and supplement pension contributions with an eye on putting the "state on firm fiscal footing."

Announcement of the latest paydown comes one day before Illinois takes competitive bids on $700 million of general obligation bonds.

The state's finance team met with investors last week ahead of the sale to pitch the fiscal progress that drew a round of upgrades in the spring. Rating agencies lifted Illinois to the BBB-plus/Baa1 level, two notches higher than where the state began the pandemic, though it remains the lowest rated state.

To manage skyrocketing unemployment claims in the early months of the pandemic, 22 states in 2020 took what's known as Title XII advances allowed under the Social Security Act. It's an automatic loan mechanism to ensure that unemployment benefits continue without interruption. The federal government reported that 18 of those states had an outstanding balance on January 1, 2021, totaling $45.5 billion.

Many states were able to supplement their unemployment funds during the year by using relief funds available through the 2020 Coronavirus Aid, Relief and Economic Security, or CARES, Act and many have tapped their ARPA relief to repay a portion of loan balances. Interest was initially waived but is now accruing at a rate of 1.59%.

As of Sept. 26th, five states and one territory had balances totaling more than $27.9 billion led by California with $17.9 billion outstanding, followed by New York with $7.9 billion and Illinois with $1.8 billion. Colorado, Connecticut and the U.S. Virgin Islands have balances of $33 million, $98 million, and $96 million, respectively. Illinois' interest tab for fiscal 2022 is now at $57 million, according to the U.S. Treasury.

The state announced its use of $2.7 billion in ARPA aid in March to meet an April 1 deadline that preserved its ability to cut benefits under the U.S. Treasury's final guidance for permitted uses of the government aid. Preliminary guidance did not include the ban on benefit cuts but the final guidance rules took effect April 1.

The state needs to pay off the full loan to avoid automatically triggering higher employer taxes later this year. The General Assembly is set to hold its fall session with meeting dates on Nov. 15-17 and Nov. 29-Dec. 1 and could act then on the final fix.

Illinois sold $1.5 billion of bonds in 2012 to repay an earlier federal unemployment loan. The Illinois Department of Employment Security issued the unemployment insurance fund building-receipts revenue bonds. That deal was modeled after the Texas Workforce Commission's $1.7 billion 2010 sale.

In August, Massachusetts sold $2.68 billion of bonds to pay off its pandemic-related unemployment loans, designating them as social bonds.

Minority Republicans previously pushed Pritzker to direct more of the state's ARPA dollars toward paying off the loan to avoid payroll tax increases, which would be sought to repay the bonding that is expected to play a prominent role in the full fix, and benefit cuts.