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8 States Ask for Freeze on Unemployment Benefits Loan Interest

Illinois and seven other states want the federal government to reinstate a pause on interest rates for loans used to pay unemployment benefits in the beginning of the pandemic. If left unpaid for a year, Illinois could owe $100 million in interest.

(TNS) — Illinois and seven other states are asking the federal government to reinstate a freeze on interest that’s piling up on money they borrowed to pay unemployment benefits during the early phase of the coronavirus pandemic.

Illinois owes nearly $4.5 billion to the federal unemployment trust fund, which has been accumulating interest at a rate of 2.27 percent since Sept. 6. As of Friday, the state owed $19.6 million in interest, a tab that would grow to more than $100 million if the debt is left unpaid for a year, according to Comptroller Susana Mendoza’s office.

“Taxpayers should not be on the hook for interest just because the pandemic is lasting longer than projected,” Mendoza said in a statement. “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.”

Mendoza joined the chief fiscal officers of Colorado, Connecticut, Massachusetts, Minnesota, New Jersey, New York and Pennsylvania to ask U.S. Treasury Secretary Janet Yellen for the Biden administration’s support for reinstating a pause on interest charges that expired in September.

“We believe the waiver deadline was originally determined under the assumption that the pandemic would likely be over and that the economy and state governments would be in recovery mode,” they wrote in a letter Tuesday to Yellen. “However, it is quite plain to see that this public health crisis is not over, and the benefit provided by this interest waiver is still necessary.”

The financial chiefs are asking that the interest charges be frozen “until at least June 30, 2022, giving adequate time for our states to address this financial dilemma appropriately,” a move that would require congressional approval.

Altogether, 11 states — three of which did not sign the letter — and the U.S. Virgin Islands owed $197.3 million in interest as of Friday, according to the U.S. Treasury Department. Illinois’ outstanding debt is the third-largest among the states, trailing the $19.4 billion owed by California and $9.2 billion owed by New York.

The Treasury Department did not respond immediately Tuesday to a request for comment on the letter.

Mendoza has been discussing the issue with members of the Illinois congressional delegation and has gotten a “positive response,” spokesman Abdon Pallasch said.

Republican lawmakers have been critical of Democratic Gov. J.B. Pritzker and members of the legislature’s majority party for not addressing the deficit in the unemployment insurance trust fund in this year’s $42 billion state operating budget.

With Illinois receiving $8.1 billion in coronavirus relief funds from President Joe Biden’s American Rescue Plan, GOP legislators have called for the state to use some of that money to replenish the unemployment trust fund.

“We’ve known for many months that the unemployment insurance trust fund debt was a problem we’d need to solve,” said state Rep. Tom Demmer of Dixon, a lead budget negotiator for the House Republicans.

Pritzker and the legislature’s Democratic majority ignored calls from the GOP to use some of the federal relief money in this year’s $42 billion operating budget to replenish the unemployment trust fund, Demmer said.

“The reality is that 41 other states have addressed their own problems, and our strategy in Illinois should not be to simply hope the federal government bails us out again,” he said.

Mendoza acknowledged that without the federal action she and other fiscal officers are requesting, repaying the interest could result in higher unemployment taxes for businesses and lower benefits for people who are out of work.

“The cost of covering this federal initiative to extend unemployment benefits during the pandemic should not fall completely on the shoulders of businesses and labor,” Mendoza said in a statement.

©2021 Chicago Tribune. Distributed by Tribune Content Agency, LLC.
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