There’s a battle brewing in the Illinois Senate over how much of the state’s remaining $3.5 billion in federal COVID aid should be used to repay the state’s $4.5 billion in unemployment debts. Illinois’ Unemployment Insurance Trust Fund, normally financed by taxes on state businesses, was wiped out after hundreds of thousands of Illinoisans filed unemployment claims as a result of the pandemic lockdowns. The federal government loaned Illinois the $4.5 billion so the state could issue unemployment checks.
Senate Republicans reportedly want to use the entire $3.5 billion in aid to help pay down the debt, while Democrats have recently passed a bill to use just $2 billion of the aid.
The decision should be an easy one. Every penny of remaining federal aid should go to repay the state’s debt. Otherwise, the burden will increasingly fall on employers through higher payroll taxes, making Illinois even less competitive when it comes to creating jobs. Illinois already had the 14th-worst unemployment rate in the nation in January 2022, according to the BLS.
In the short term, the state needs about $5.5 billion for the trust fund – $4.5 billion to repay the debt and another $1 billion to begin building a positive balance for future unemployment claims.
The Tax Foundation in late 2021 urged states to repay their unemployment insurance debts with federal American Rescue Plan Act (ARPA) aid: “Given the restrictions on the use of this federal funding, and the significantly higher tax burdens on employment that will result if trust funds are not replenished, applying federal aid to these trust funds should be an urgent priority.” (Emphasis added.)
Thirty-one states across the nation heeded similar advice and used their aid to fully pay down their unemployment insurance debts. Illinois ignored such advice and is one of just nine states that has not yet repaid its debts. The state is now accruing interest costs.
From the U.S. Treasury:
Other states like Nevada and Ohio were smart enough to avoid paying interest. From the New Jersey Monitor:
With the additional interest cost looming, officials in Nevada and Ohio paid off what those states owed just days before interest was set to begin accruing, sidestepping not only additional interest costs but greater costs on businesses within those states.
“By repaying this loan in full, we ensure that Ohio businesses won’t see increases in their federal unemployment payroll taxes,” Ohio Gov. Mike DeWine said in a news release Wednesday announcing a payment to the U.S. Treasury of nearly $1.5 billion. “Without this added tax burden, our employers can invest more money into their businesses and hire more staff.”
Illinois originally received $8.1 billion in total ARPA aid, an amount more than sufficient to have repaid the state’s full $4.5 billion unemployment insurance debt. Instead, Illinois used that money on other spending and today there is just $3.5 billion left.
The difference between the Republican and Democrat proposals matters to Illinois employers. The less federal COVID aid that’s used to pay off the debt, the bigger the unemployment taxes on businesses will have to be to fill the hole.
More taxes on employers will simply chase even more jobs out of Illinois. The state already lags the rest of its neighbors in job creation. Illinois’ unemployment rate of 5.0 percent in January was far higher than that of its neighbors. Indiana’s unemployment rate stood at just 2.4 percent and Wisconsin’s at 3.0 percent.
If Illinois’ January unemployment rate had been the same as Indiana’s, over 160,000 more Illinoisans would be employed today.
That fact alone should push both sides of the aisle to act as quickly as possible to use all available COVID aid to pay down the state’s unemployment insurance fund debt.
Anything less is a bad idea. State Sen. Win Stoller (R-Germantown Hills) asked the right question recently on Illinois’ Senate floor: “If we put this on the backs of our employers, it begs the question. How much do we hate jobs in this state?”