Why does Illinois’ Unemployment Insurance Trust Fund have a large deficit?
A new analysis explores the connection between Illinois’ high unemployment rate, market disruption brought on by the COVID-19 pandemic, and the consequences for Illinois’ unemployment trust fund.
The Policy Spotlight from the University of Illinois System’s Institute of Government and Public Affairs (IGPA), titled “Why does Illinois’ Unemployment Insurance Trust Fund have a large deficit?,” discusses the Unemployment Insurance (UI) system and how the economic disruption brought on by COVID-19 and other policy factors led to Illinois having one of the largest UI deficits in the nation. The trust fund provides income support to eligible people who have lost their jobs through no fault of their own. The system automatically provides economic stimulus when the unemployment rate increases during economic downturns. This report explores reasons why the trust fund has a high deficit.
Due to layoffs resulting from the pandemic and economic disruption, UI benefit payments quickly decreased Illinois’ UI trust fund balance. To continue paying the benefits, Illinois borrowed more than $4.5 billion from the federal government. Illinois had the third-highest outstanding federal debt among U.S. states at the end of both 2020 and 2021. In response to the pandemic and the associated economic downturn, the federal government provided temporary fiscal relief to states through the Coronavirus Aid, Relief, and Economic Security Act (CARES) and American Rescue Plan Act of 2021 (ARPA). Many states allocated some of these federal funds to pay down their trust fund deficits soon after CARES and ARPA were passed. Illinois did not use federal funds to support its UI program until March 25, 2022, when Gov. J.B. Pritzker signed a bill dedicating $2.7 billion of the state’s $8.1 billion ARPA funds to its UI fund.
“Illinois’ unemployment rate has usually been higher than the national average since the 1970s,” said David Merriman, a co-author of the Policy Spotlight and the James J. Stukel Presidential Professor of Public Administration in the College of Urban Planning and Public Affairs at the University of Illinois Chicago. “After the COVID-19-induced economic recession, the discrepancy between Illinois’ unemployment rate and the national average grew larger.”
