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Lawmakers direct $2.7 billion in federal funds toward $4.5 billion unemployment fund deficit

House Majority Leader Greg Harris, D-Chicago, speaks on the House's action to pay down debt Thursday night. He's accompanied by Rep. Marcus Evans, D-Chicago, and Rep. Jay Hoffman, D-Swansea, in the Capitol news conference room.
(Capitol News Illinois photo by Peter Hancock)
House Majority Leader Greg Harris, D-Chicago, speaks on the House's action to pay down debt Thursday night. He's accompanied by Rep. Marcus Evans, D-Chicago, and Rep. Jay Hoffman, D-Swansea, in the Capitol news conference room.

The House on Wednesday advanced a measure to allocate $2.7 billion in federal American Rescue Plan Act funds to pay down more than half of its outstanding $4.5 billion Unemployment Insurance Trust Fund debt.

The measure, an amendment to Senate Bill 2803, also included over $1 billion in general revenue fund spending to pay down other state debts.

Debate lasted nearly an hour and became contentious at times as the bill passed 68-43 with only Democratic support. The Senate was expected to take it up when they returned Thursday.

The trust fund is the pool of money paid into by businesses that funds unemployment claims. The debt accrued as the state borrowed from the federal government at the height of the pandemic to keep the trust fund solvent amid an unprecedented crush of claims.

When states accrue trust fund debt, the ways to pay it down have historically included raising insurance premium rates paid by employers, decreasing unemployment benefits, or seeing a new influx of cash, such as federal, state or private funds.

Rep. Jay Hoffman, a Swansea Democrat who is a lead House negotiator on unemployment issues, said discussions continue with business and labor interests on addressing the remaining $1.8 billion. But at least $2.5 billion was needed to keep those negotiations moving forward.

“This is an agreed bill process. Business and labor have to agree or we're not going to move the bill,” he said of ongoing negotiations to pay down the $1.8 billion. “This was a budgetary measure in order to make it easier on the agreed bill process.”

Hoffman said in 2011 after the Great Recession, the state went to the private bond market to pay down a $2.3 billion trust fund deficit and dedicated a revenue stream from increased employer premiums to pay it down.

Such a path is being considered again this time around. The state needed to act by April 1 to keep all options – including increasing premiums, lowering benefits or bonding – on the table moving forward, according to House Majority Leader Greg Harris, a Chicago Democrat who sponsored the bill. Hoffman said he is hopeful the parties will agree by the April 8 adjournment date.

The governor’s office held closed-door meetings throughout the day to discuss the debt retirement proposal. A late amendment increased the previously planned allocation to the trust fund from $2 billion to the $2.7 billion sum.

Democrats said the money will come from an unallocated ARPA fund balance that sits at about $3.5 billion. Illinois received $8.1 billion directly from the ARPA stimulus plan signed by President Joe Biden last year.

But Republicans urged full repayment of the $4.5 billion, noting that about $6.9 billion in ARPA funds remains unspent, even if more than that has been promised in previous spending plans that passed the General Assembly.

Before the pandemic, the state had $1.2 billion in its trust fund, Rep. Tom Demmer, R-Dixon, said in a floor speech. Republicans urged the state to use ARPA funds to replenish that amount as well.

“So you might ask what happens when our unemployment insurance trust fund is in debt?” Demmer said. “Two things: One, a major tax increase on every job in the state of Illinois; and two, a benefit reduction for every worker in the state of Illinois. It's a lose-lose scenario. Taxes go up; benefits go down because the fund is in debt.”

Republicans urged reallocating other ARPA funds, particularly a $1 billion sum allocated last year to capital projects, to pay down the entire debt to stave off the negative consequences for employers and workers.

Democrats called their action a fiscally prudent measure that goes a long way to addressing the trust fund problem while allowing other necessary expenditures of ARPA funds.

“You know as well as I do that we've used the ARPA funding during this emergency to support those institutions and those businesses who have been on the frontlines and delivering health care in our communities,” Harris said in response to Republican criticisms.

He pointed to spending for hospitals, nursing homes and purchases of personal protective equipment, as well as trust fund payments to gig workers and increased unemployment payments to workers which were paid by the federal government.

“And actually, I'm proud that we spent that money to be sure that these Illinoisans were protected, and the fact that you want to take it away from them, you think we should have shorted them. Shame on you,” he said.

As of Wednesday, the state had already accrued $41 million of interest on the debt at a rate of 1.59 percent. That interest was due to be paid by Sept. 30, according to the U.S. Treasury.

By November, without action, that interest was expected to grow to $80 million, Hoffman said. Interest can’t be paid through ARPA, so it would require a General Revenue Fund allotment, he added. Taking action by November would diminish that amount, he said.

The measure also allocated $898 million to pay off old group health insurance bills, an added $300 million to pension payments beyond statutory levels and $230 million to pay off the unfunded liabilities of the College Illinois savings program – all cornerstones of Gov. JB Pritzker’s debt retirement initiatives put forth in his budget proposal. Those allotments will come from the state’s General Revenue Funds from an anticipated Fiscal Year 2022 surplus.

The pension spending would create $1 billion in savings to the state’s pension system over its life, while the group health insurance payments would save over $100 million in interest and the College Illinois payment would create a $75 million savings, according to estimates from House Democrats.

“Illinois is putting our fiscal house in order and paying off our debt. I applaud House Democrats for prioritizing legislation that will use our resources in the most fiscally responsible way…” Pritzker said in a statement. “I’m disappointed that Republicans are putting their politics ahead of fiscal responsibility while Democrats in the General Assembly are taking the lead to put our fiscal house in order.”

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government that is distributed to more than 400 newspapers statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.

Jerry Nowicki is bureau chief of Capitol News Illinois and has been with the organization since its inception in 2019.