Illinois counting on help from federal government to cover cost of unemployment benefits

llinois soon could run out of state funds to pay jobless benefits during the COVID-19 pandemic. A new study produced by the Tax Foundation has found the state to be one of the least prepared for an economic crisis like the one the country is experiencing.

“Even though some of Illinois neighboring states have more claims, Illinois will exhaust its trust more quickly than most,” said Jared Walczak, director of State Tax Policywith the Center for State Tax Policy at the Tax Foundation. “Illinois has enough to pay out about 11 weeks of benefits before borrowing.”

That places the state 40th in the country in terms of how many weeks a state’s trust fund can cover. The ranking is based on 2020 fund solvency levels and initial and continuing claims as of April 4.

“States like Illinois have very little in the fund,” Walczak said. “Theoretically when that runs out, they could draw from other state funding sources, though Illinois doesn’t have a lot of those available as a state that has still a mountain of unpaid bills and basically nothing in the rainy day fund.”

When all state options are exhausted, Illinois could turn to the federal government to take out loans from the federal unemployment compensation trust fund. However, that could place a future burden on Illinois businesses.

“A state like Illinois, that went into this with what the federal government would consider an insolvent [trust] fund, will be further penalized by having to pay it back with interest,” Walczak said. “If it takes a while to pay that back, which in Illinois’ case, you’d expect it to take some time, businesses in the state will have to pay higher federal unemployment insurance taxes to compensate for the fact that the state is in arrears to the federal government.”

Other states were better prepared for an economic crisis, with six having funds to pay more than a year of benefits. Walczak said Illinois is among those that simply didn’t plan well.

“Illinois is in the red on its regular budget because of unpaid bills. It has $4 million in his rainy day fund,” Walczak said. “Unfortunately, the state did not use any of the last roughly 11 years of economic growth to prepare for this sort of event or any recession.”

Walczak said the recent CARES Act signed into law by President Donald Trump gives an additional $600 each week to unemployed workers, but doesn’t help the state pay its obligation.

“This is really helpful for those who are laid off, but states are still obligated to come up with the money for the regular benefits that they are supposed to provide in this combination federal and state unemployment compensation system,” Walczak said.

According to the report, Wyoming would have the longest-lasting trust fund, with money to pay 321 weeks of benefits. California is at the bottom of the list, likely lasting only four weeks before looking for new sources of money.


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