Recession adds $2.2 billion to Illinois' debt

[August 06, 2010]  SPRINGFIELD -- As Illinois faces a $13 billion budget deficit, a separate $2.2 billion debt has quietly accumulated during the recession -- and because of the recession.

Illinois started borrowing from the Federal Unemployment Account last summer to bolster the state's dwindling unemployment trust fund. The federal account serves as a line of credit for states across the nation so that unemployment benefits can continue to be paid to eligible out-of-work residents.

"It is continuously something that we monitor on a daily basis," said Greg Rivara, spokesman for the Illinois Department of Employment Security.

Rivara said borrowing from the federal account is simply a necessary evil during a lingering recession that has left more than a half-million residents dependent on unemployment checks while the state grapples with an unemployment rate of 10.4 percent for June. The national unemployment rate for June stood at 9.5 percent.

"If we were not borrowing money, we'd have to take a higher contribution from the business community or decrease benefits, or a combination of both," he said.

Illinois joins 31 other states in looking to the federal account, which has been tapped for more than $39 billion nationwide. According to federal data as of Wednesday, Illinois ranks fifth in most owed at $2.2 billion, Rivara said. California leads the pack at $7.76 billion, with Michigan ranking second at $3.8 billion, New York third at $3.1 billion and Pennsylvania fourth at $3 billion.

Businesses annually pay a contribution to the state's unemployment trust fund based on their industry and previous history of layoffs. For 2010, the amount businesses paid annually per worker ranges from $81 to $908, Rivara said.

Because second-quarter contributions have recently been collected, the state has not had to borrow from the federal account for a couple of months, he said, leaving the state trust fund with a balance of $275 million.

However, the $2.2 billion still needs to be repaid, and a likely 4 percent interest rate will be tacked on come Jan. 1, if Congress doesn't vote to extend the waiver of interest on the loans granted by the federal stimulus program.

Rivara noted the $2.2 billion is separate from the $13 billion budget deficit since the budget relies on General Revenue Fund dollars. The budget dollars cannot be used to repay the unemployment loan, which is repaid partially through a portion of the business contribution.

However, that's not enough to whittle down the entire $2.2 billion, meaning options such as borrowing, increasing the business contribution, decreasing benefits or a combination of all three may have to be looked at, Rivara said -- after Congress decides whether or not to extend the loan interest waiver.

"This does not jeopardize claimants receiving benefits," he said.

Illinois, like other states, chances losing federal funding if it maintains a deficit balance in January for two years in a row, Rivara said, putting at risk $1.5 billion in annual tax credits for businesses and more than $100 million annually awarded for Illinois Department of Employment Security operations.

But he also noted that because of the nature of the state unemployment trust fund and its ties to a fluctuating economy, the fund is expected to run a deficit balance at times.

"It begs a debate of what is the appropriate fund balance for the trust fund," he said.

However, he said he believes Illinois is "probably through the worst of times," noting that Illinois follows the national economy in a recovery. The nation is gaining jobs and so is Illinois -- 60,000 since the end of 2009, he said.

An economist at the University of Illinois Urbana-Champaign agreed the worst appears to be over but noted that the pace of Illinois' recovery is "painfully slow."

J. Fred Giertz has the numbers to prove it in his just-released "Flash Index," showing the index rose to 91.6 in July, up three-tenths of a point from its June level.

A Flash Index level below 100 indicates the economy is in contraction, while readings above 100 indicate economic growth.

"Recessions always end, but this time it's not going to be in six months," Giertz said. "It's going to be in one or two years."

[Illinois Statehouse News; By MARY MASSINGALE]