Illinois Unemployment Fund Faces Huge $8 Billion Deficit Which Could be Passed on to Claimants and Employers

Business leaders in Illinois are concerned after state lawmakers have twice passed a state budget that failed to address the deficit in the Unemployment Insurance Trust Fund and what will be done to make up for as much as $8 billion dollars.

Illinois Governor J.B. Pritzker criticized for failure to allocate money in the budget to pay for enormous unemployment fund deficitWikipedia

The amount of Illinois unemployment payouts resulting from the pandemic related shutdowns has reached historic levels, leaving the state billions of dollars short. This could lead to significant reductions in the amount paid to future claimants as well as higher taxes for employers, as they attempt to recover from the financial downturn.

The Illinois’ unemployment insurance program, which exists to provide partial wage relief to out-of-work residents, had a $5.2 billion in mid-May, according to an analysis by the State Policy Network. But according to the Illinois Retail Merchants Association President and CEO Rob Karr, the deficit could now be as large as $8 billion today.

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 single week filed for unemployment. While claims have dropped off, the U.S. Department of Labor estimates that almost 28,000 unemployment claims were still filed in Illinois last week. According to Illinois Governor J.B. Pritzker, the large number of claims that have been and continue to be made are responsible for the huge deficit.

“IDES, as you know, was hit with something no one expected: 10 to 20 times the claims, even during the worst recession of my lifetime. That was the 2008-2009 recession,” Pritzker said. “No one expected that we could see a recession worse than that one.”

However, many have criticized the Illinois governor and IDES for failing to admit to a host of mistakes that some say are what really are to blame for the unemployment deficit in the state. The surge in unemployment claims and the institution of a special unemployment category making individuals eligible who had not previously been able to receive benefits have clearly contributed to the problem. However, critics also point to the role user fraud, and accidental overpayments played in the creating the current deficit.

Along with the huge $4.2 billion debt the state of Illinois already owes to the federal government, unemployment benefits are still being paid out, with new claimants constantly applying. This means that the deficit is continuing to grow. However, the budget passed at the beginning of June only allocates $100 million to provide unemployment benefits to non-education employees in schools, such as janitors and cooks, through House Bill 2643. The bill also forgives overpayment made to people or payments made to those who did not qualify, as long as it was no fault of their own.

State legislators pushed Pritzker to reallocate a portion of state’s $8.1 billion share of federal American Rescue Plan Act funds to pay part of the deficit in Illinois’ 2022 state budget. However, this was the second time the budget was passed without adding any such appropriations. Some lawmakers believe that such appropriations should have been made before deciding to forgive mistakes made by IDES in sending payments that people weren’t eligible for. Others say that penalizing people who are clearly in need, as justified by their unemployment claims, for action taken or not taken at the Illinois state budget level is unfair.

Many employers who pay into the fund through payroll taxes are extremely concerned about how the state intends to pay off the enormous deficit. They are worried that the debt will significantly increase the unemployment taxes they are required to pay, for a deficit that they had part in creating.

Illinois is required through federal mandate to assure the trust fund remains solvent. When the balance dips too low, the state must decide to reduce unemployment benefits, increase premiums on employers, reappropriate funds from other state revenue sources or use some combination of these options.

Illinois Director of the National Federation of Independent Business Mark Grant believes that lawmakers are making employers responsible for the large debt.

"Lawmakers are divvying up tens of billions of dollars in state and federal revenue while small businesses, the engine driving Illinois’ economic comeback, are about to be stuck with a $5 billion tax bill in the form of huge hikes in unemployment taxes brought on by the pandemic shutdowns,” Grant said.

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

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