Illinois’ unemployment fund will need federal infusion to pay surge of claims, Pritzker says

Gov. J.B. Pritzker said the state’s unemployment fund doesn’t have enough money to cover the surge in unemployment benefit claims spurred by the COVID-19 pandemic, but the governor said he was counting on another loan from the federal government to pay those claims.

“The answer is ‘no,’ but fortunately, the federal government in the latest stimulus package provided a significant amount of funding for unemployment,” Pritzker said Tuesday when asked if the state’s unemployment fund would remain solvent. “We are also allowed in a state to dip below the reserves that exist if we need to borrow from the federal government.”

Pritzker praised the federal government on that score.

“The federal government has done a great job of providing funding,” he said. “I believe we’re going to need more.”

The governor said more federal dollars would be needed, not just for the state’s unemployment fund, but other budgets.

“I think I said this at a press conference when [U.S.] Sen. [Dick] Durbin was here – we’re going to have to see another relief package because not only is there an unemployment problem – which hopefully it will only be four months or so long – but there’s also a challenge to all of our city budgets and state budgets and it goes beyond what was provided in the federal stimulus that was passed just recently,” Pritzker said. “We have to address these things. I know that Sen. Durbin and Sen. Duckworth and the entire congressional delegation is concerned to make sure we’re able to meet our obligations in the state and in the cities. So I know we’ll get more help from them, I’m hopeful the United States Senate, the United States House and the President will come to an agreement as they finally did on this latest relief package.”

Illinois’ unemployment fund has gone dry in the past.

In November of 2011, Illinois lawmakers rushed to borrow $2.4 billion to pay back the federal government for the emergency loan they had to take out at the height of the Great Recession because the state’s unemployment fund was one of a handful of state funds without enough cash on hand to handle even a moderate unemployment spike.

In the first week of Gov. J.B. Pritzker’s stay-at-home, which closed all non-essential businesses, unemployment claims spiked to record highs. The 133,000 people who applied in one week was ten times higher than the number of people who filed for unemployment in the same week in 2019. U.S. Labor Secretary Eugene Scalia said that more aid was on the way, the Wall St. Journal reported.

States share a partial responsibility in paying out unemployment benefits from a fund called the unemployment insurance trust fund. States have varying levels of money in their respective funds.

February report from the U.S. Department of Labor showed Illinois’ trust fund had the fifth-lowest solvency level of all U.S. states and the Virgin Islands.

The reserve ratio, found by taking the trust fund balance and dividing by the state’s total wages paid annually, is the department’s measure of solvency. The most common average high-cost multiple value for states was 1 to 1.5, meaning those states have adequate funds to pay for a repeat of their three highest years of unemployment payouts.

Illinois’ average high-cost multiple value was 0.42. Its reserve ratio was 0.66. Only Texas, New York and California were worse off.

“Illinois and a bunch of other states have somewhat not as well-funded unemployment insurance system funds,” University of Illinois economist Alexander Bartik said. “That’s going to be a concern.”

Others said the low funding ratio, which could lead to borrowing, would extend the state’s recovery time frame past that of other states.

“Some states are going to be in much better shape than others,” said Steven Malanga, editor of City-Journal and senior fellow at the Manhattan Institute. “The federal government will loan those states money because they are going to make sure that the unemployed get their unemployment insurance checks, but those states will have to pay that money back and that will be another drag on their recovery.”

The $2.4 billion bond approved by lawmakers in 2011 was issued through the Illinois Department of Employment Security, meaning the interest and fees were paid for by businesses’ contributions to the unemployment fund. Had lawmakers not paid off the federal loan, the state would have been on the hook for tens of millions of dollars in interest the following year alone. The bond issuance was fully paid off in 2017, according to a report from the Illinois Comptroller.

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