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Illinois Announces $1.4B Plan to Plug Unemployment Fund

Gov. J.B. Pritzker announced a bipartisan agreement to fill the financial hole in the state’s unemployment insurance trust fund, which once stood at $4.5 billion, that was depleted by the pandemic.

(TNS) — Gov. J.B. Pritzker unveiled a bipartisan agreement Tuesday, Nov. 29, to plug a nearly $1.4 billion hole in Illinois’ pandemic-depleted unemployment insurance trust fund, which would wipe out a debt to the federal government that once stood at $4.5 billion.

Pritzker’s announcement came as state legislators gathered at the Capitol for the final session of the year, with negotiations still ongoing over what’s expected to be the primary agenda item — tweaks to controversial criminal justice measures set to take effect Jan. 1.

The unemployment fund debt deal, in addition to having support of legislators from both parties, is backed by business interests and organized labor, but still requires legislative approval. Pritzker characterized the agreement as part of his administration’s ongoing effort to stabilize the state’s chronically shaky finances, a central theme of the campaign leading to his reelection earlier this month.

“Today, we complete the mission of extinguishing this debt,” said Pritzker, flanked by Democratic and Republican lawmakers and business and labor representatives in his statehouse office. “Government is at its best when we work together to solve problems.”

The agreement calls for using $1.8 billion in state funds to repay roughly $1.36 billion to the federal government and deposit $450 million into the unemployment trust fund as an interest-free loan from the state to be repaid by business taxes over the next decade. As the loan is repaid, the money would be deposited into the state’s rainy day fund.

The proposal would complete an effort that began in the spring, when Pritzker signed into law a plan that used $2.7 billion in federal coronavirus relief funds to repay Washington for a portion of the unemployment insurance loan. Like other states, Illinois borrowed the money in 2020 to keep unemployment benefits flowing during the height of the pandemic’s first wave.

A plan to erase the remaining deficit reached an impasse between labor and business at the end of the spring session. In September, the Pritzker administration said the Illinois Department of Employment Security would repay another $450 million of the federal loan with funds available due to low unemployment insurance claims.

The negotiations with business and labor groups to fill the remaining insurance fund hole had touched on the possibility of issuing bonds that likely would’ve been repaid through increased payroll taxes on businesses and reduced or shortened benefits.

Instead, the state is relying on higher-than-expected revenues in the current budget year to repay the loan and bring the trust back into the black. Earlier this month, the governor’s office projected an increase of nearly $3.7 billion in revenue for the budget year that ends June 30.

The governor’s office estimates the plan will save $20 million in interest costs for taxpayers. In the absence of a deal, businesses would expect to pay more than $900 million in additional taxes over the next five years.

The measure also includes provisions that supporters say would stabilize the fund, raising the portion of each worker’s salary on which employers pay unemployment taxes and increasing the target balance of the trust fund to prepare for future downturns.

“This is good news for business owners, workers and taxpayers,” said Pat Devaney, secretary-treasurer of the Illinois AFL-CIO, who represented labor unions in the talks.

Rob Karr, president and CEO of the Illinois Retail Merchants Association, said the agreement will save employers from “crushing tax increases in the midst of other challenges” brought on by the pandemic and an inflationary economy.

Deficits in the unemployment insurance trust fund are typically erased through some combination of tax increases for employers or benefit cuts for people receiving unemployment checks, but the historic nature of the pandemic called for a different solution, said state Sen. Sue Rezin of Morris, who participated in the talks for the Senate GOP.

“We understand that some people may not like this, but considering where we were, in unprecedented times after the pandemic, this is a good bill,” Rezin said, noting that many other states have taken similar steps to shore up their unemployment funds.

At least part of the deal is expected to be passed before legislators adjourn for the year on Thursday.

As Pritzker made his announcement about the unemployment insurance trust fund, lawmakers were hashing out possible changes to the Safety, Accountability, Fairness and Equity-Today Act, also known as the SAFE-T Act, before key provisions of the law go into effect on Jan. 1.

Written and passed last year by the Democratic-controlled legislature, the SAFE-T Act is intended to address inequities in the criminal justice system. But the law generated extreme heat during the just-completed election, as Republicans painted Democrats as soft on crime for backing a measure that does away with cash bail as of New Year’s Day, leading to assurances from Pritzker and other members of his party that clarifications would be made.

This fall, about 60 state’s attorneys across Illinois, including some Democrats, joined a lawsuit against Pritzker and other top Democrats contending that the passage of the SAFE-T Act violated the Illinois Constitution. A Kankakee County judge could issue a ruling on the lawsuit as early as next month.

On Tuesday, Pritzker said it’s important that any changes to the law make clear that it does not mean criminal defendants who’ve been held on bail will be automatically released on Jan. 1. Starting on that date, judges must weigh several factors in deciding whether to detain a defendant for being a flight risk or a danger to the community.

“It is very important that we address the misunderstandings, the misinformation that exists about the SAFE-T Act. Changes to the SAFE-T Act certainly would, should, include making clear what the purpose of no-cash bail is, making sure that people are not, in counties across Illinois, led to believe that they should be flinging the jail doors open on Jan. 1,” Pritzker told reporters. “That’s not what the legislation is.”

Pritzker shied away from offering a preview of what’s to come in the next few days.

“I’m going to let the negotiators do the work here and come up with their presentation,” he said. “We’ve got our people in the room as well. I don’t want to mess with that. But I think there will be a good bill that will be presented.”

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