Fiscal Focus
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Fiscal Focus



On March 17, Comptroller Mendoza met with U.S. Sen. Dick Durbin to thank him for his leadership on the Continued Waiver of Interest on State Unemployment Loans during the Pandemic Act and to discuss additional strategies for saving the taxpayers of Illinois money. Credit: Erik Unger/IOC

Comptroller Mendoza is leading a national effort to save states hundreds of millions of dollars in interest costs for all the unemployment they had to pay out during the COVID-19 pandemic.

Illinois alone owed the federal government $4.5 billion in debt related to unemployment benefits due to the pandemic. Meanwhile, the state was on track to owe nearly $100 million in interest tied to the loan.

On March 25, Gov. JB Pritzker signed into law a bill aimed at paying down debts, including a designation of $2.7 billion in American Rescue Plan Act (ARPA) funds to pay down a portion of the unemployment debt.

Comptroller Mendoza and other state and federal officials are asking for the federal government to reinstate an interest waiver on the unemployment-related loans. Without the waiver — which expired last September — the clock on interest is still ongoing, costing businesses, workers and taxpayers in Illinois and other states this onerous interest.

Unavoidable unemployment costs due to pandemic

The unemployment rate in the U.S. grew massively in 2020 as a result of the COVID-19 pandemic and subsequent shutdowns of many businesses.

As unemployment grew, so did the state’s debt.

Between the fourth quarter of 2019 and 2020’s second quarter, unemployment rose from 3.6% to a historic high of 13%, according to the U.S. Bureau of Labor Statistics. What had been a decade of economic expansion up until 2019 was quickly decimated by the pandemic.

Both the federal and state governments had to step up to provide much-needed unemployment insurance so that people could meet the basic, primary necessities of paying for mortgages, rent, groceries, health care and more. The federal government enhanced unemployment benefits which were provided by the states during much of the pandemic.

Under the Federal Pandemic Unemployment Compensation program, many individuals who collected unemployment benefits were provided an extra $600 per week.

States were also allowed to extend benefits and borrow additional federal advances for their respective unemployment trust funds.

For Illinois, that meant drawing down its entire unemployment insurance trust fund during the economic downturn caused by the pandemic. Illinois, along with 21 other states, had to borrow from the federal government more than $45 billion combined in order to maintain unemployment payments in calendar year 2020.

Only four states had paid it all back by the end of 2020. Illinois owed $3.3 billion by the end of 2020 and $4.5 billion by the end of 2021. As of March 24, 2022, Illinois’ current interest tab to the federal government was more than $41 million.

Data reported as of March 24, 2022 of Title XII Advances, via Check most recent tabulations here.

When Comptroller Mendoza learned Illinois was being charged $2 million per week in interest, she gathered together her fellow chief financial officers from seven other states — New York, Pennsylvania, Colorado, Minnesota, Connecticut, New Jersey and Massachusetts — in seeking to extend the federal waiver on interest that expired on Sept. 6, 2021.

Together, the state-finance officials penned a letter to U.S. Secretary of the Treasury Janet Yellen in December asking for her support as they seek congressional action to waive the interest fee.

“Taxpayers should not be on the hook for interest just because the pandemic is lasting longer than projected,” Comptroller Mendoza said. “States are wrestling with how best to replenish their COVID-depleted unemployment funds and they should not have to do that with the meter running.”

When the interest deadline was given by the Federal Reserve, it was under the assumption that the pandemic would likely be over, and that the economy would be in full recovery. However, Comptroller Mendoza has argued that the crisis is clearly ongoing and therefore the interest waiver is still necessary for states such as Illinois.

U.S. Rep. Danny Davis is one of the sponsors of the Continued Waiver of Interest on State Unemployment Loans During the Pandemic Act. credit: Erik Unger/IOC

Davis, Durbin lead the charge in Congress

In March, Congressman Danny Davis introduced House Resolution 6922 to retroactively reinstate the interest waiver that was suspended in September.

“States are on the front lines of helping Americans and businesses recover from the pandemic,” said Rep. Davis. “The suspension of interest gives states more time to cope with the effects of the pandemic, strengthen their economies, and thoughtfully reform their unemployment financing for the long term without suddenly increasing employer taxes or diverting tens of millions of dollars that could be used for economic recovery.”

U.S. Sen. Dick Durbin joined in by backing the legislation.

“Illinoisans endured incredible hardships during the pandemic,” said Sen. Durbin. “To ease the financial burden on Illinois and other states, we must extend the waiver of interest payments on federal unemployment loans. By extending the waiver, we can give our communities time to recover from the economic pain of the pandemic.”

Comptroller Mendoza began making the rounds on Capitol Hill in March to bolster support for Davis’ and Durbin’s effort. Rep. Brad Schneider and Sen. Tammy Duckworth signed on as co-sponsors, as have senators and members of Congress from other affected states.

Following meetings with Comptroller Mendoza, Illinois Congressmen Raja Krishnamoorthi and Mike Quigley signed on as co-sponsors. In meetings with the legislators, Comptroller Mendoza, Asst. Comptroller Kevin Schoeben and the elected officials discussed the best potential vehicles for getting the waiver extension passed.

What are unemployment insurance trust funds?

Unemployment insurance is a term used to describe the program that federal and state governments use together to provide laid-off workers with temporary benefits.

Unemployment insurance taxes are paid primarily by employers on the wages paid to employees. The dollars flow into states’ unemployment insurance trust fund accounts maintained by the U.S. Treasury. These accounts are then the source of benefit payments to eligible claimants in a state’s unemployment insurance program.

There are no federal requirements for how much money is kept in a state’s trust fund, but states operate on a forward funding basis by building up reserves to pay benefits in periods of economic distress.

If a state uses all its funds, it can borrow money from the federal government through the Advances to State Unemployment Funds act, also known as the Title XII program. The federal government charges daily interest to the states on the advances. States can repay those loans through regular payments of unemployment insurance tax receipts.

States can also use private-sector borrowing instruments, such as revenue bonds, to repay the federal government for outstanding loans. Additionally, states can use funds provided through federal legislation such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act or the ARPA funds to repay Title XII advances.

The U.S. Treasury Department measures the health of each individual state’s trust fund by calculating its “solvency level” which compares the state trust fund balance to the average of the three highest years of benefit payments. A level of “1.0” is the recommended minimum funding level.

“I’m glad to discuss how these federal initiatives have empowered Illinois and hear how diligently Comptroller Mendoza and her team are working to continue strengthening our state’s economy. I’ll keep doing all I can on the federal level, including through efforts like the recently introduced Continued Waiver of Interest on State Unemployment Loans During the Pandemic Act,” said U.S. Rep. Tammy Duckworth in a news release about Comptroller Mendoza’s visit to D.C. credit: Erik Unger/IOC

Unemployment insurance solvency

The federal government, through unemployment insurance guidelines, suggests states keep at least one year of estimated benefit payments held in reserves.

States estimate that cost based on the highest level of payments over the past two decades. A U.S. Department of Labor report from March 2021 determined 40 states and territories had fallen below the recommended solvency standard.

At the start of 2020, 20 states and territories whose trust funds met the recommended minimum solvency standard had dropped below that level by Jan. 1, 2021. In that same time period, 13 other states remained at or above that standard. Illinois, along with 19 other states and territories, remained below the recommended level over that same time period. This means that at the beginning of 2021, 40 states and territories were below the recommended solvency level while 13 states and territories met or exceeded that level.

In 2020, 22 states took Title XII advances, with 18 of them still having a balance on Jan. 1, 2021 totaling $45.5 billion combined. By Aug. 18, 2021, this figure had climbed to $53 billion, before dropping to almost $45 billion as of Sept. 14, 2021.

Some states paid down their advances during the year by using funds provided through the federal relief programs. In fall 2021, Texas paid back its $7.2 billion advancement with its federal ARPA allotment.

The amounts still owed by states now totals more than $40 billion. Illinois currently has a “solvency level” of 0.0 — meaning it owes more money to the federal government than it has in its unemployment insurance trust fund.

Illinois has made a significant step toward paying down it’s own portion of the debt owed with the passage of legislation signed by the Governor on March 25. “I’d like to join business and civic groups around Illinois praising the General Assembly and Governor Pritzker for a great step in the right direction to responsibly pay down $4 billion of Illinois’ bills with the passage of SB 2803,” Comptroller Mendoza said.

Meanwhile, she continues to help lead the effort in getting interest fees on that debt waived through September 2022. ■

This publication is designed to provide fiscal information of general interest. Fiscal Focus is published by the office of Illinois State Comptroller Susana A. Mendoza, 201 Statehouse, Springfield IL 62706. Questions or comments may be directed to 217-782-6000.

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Illinois State Comptroller

Illinois State Comptroller

The official account for Illinois State Comptroller Susana A. Mendoza. Follow us for office services and #ILbudget updates.

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