Illinois’ Unemployment Insurance Trust Fund Faces $5 billion Deficit

Unemployment insurance benefits are paid by the Illinois Department of Employment Security (IDES). The program is funded by the Illinois Unemployment Insurance (UI) Trust Fund, a rainy-day fund built up though taxes paid by employers. With unemployment spiking at high double-digit rates during the height of the COVID-19 pandemic, the Illinois UI Trust Fund was depleted. Furthermore, the insolvent fund was forced to borrow money from the U.S. Department of Labor in order to enable the continued payout of benefits already promised to unemployed workers.

This put the Illinois UI Trust Fund deep into the red. IDES reported to policymakers in mid-May that the UI debt to Washington, D.C. had already reached $4.2 billion. This meant that the system was $5.2 billion “in the red,” counting at least $1 billion to restore the rainy-day portion of the fund to a significant positive level. Current projections call for this accumulated debt and repayment requirement to rise up to $8 billion.

Congress has granted the states a temporary clock stoppage on pandemic UI debt. No interest is due on this massive debt through the summer of 2021. However, the clock will start up again in September 2021. Starting after Labor Day, Illinois and its UI Trust Fund will begin to owe interest to Washington, D.C. on these billions of dollars in UI debt. Knowing that federal interest would soon come due, House Republicans vehemently pressed in May that Illinois allocate a significant portion of its one-time American Rescue Plan Act (ARPA) federal aid money to partially pay down this massive debt. However, the Pritzker Administration and Democrat majorities in the General Assembly only allocated a crumb ($100 million) of ARPA money to chip away at this massive new UI debt.

The remainder of this debt will have to be paid for in other ways by Illinois employers and workers. This multi-billion-dollar UI debt load is separate from other massive debts owed by Illinois, including general-revenue bonded debt, non-general-revenue bonded debt, and unfunded pension obligations.