(Springfield, IL) — March 18, 2011. Business and labor groups are meeting to hammer out a plan to pay off the state’s $2.8 billion unemployment debt to the federal government, with both groups apparently sharing in the pain.
But neither side is talking much.
“We’ll have a solution by the end of the (calendar) year, but the debt will have to be repaid over a longer period of time,” said Jay Shattuck, executive director of the Illinois Chamber of Commerce’s Employment Law Council, who put the year-end debt at a potential $3.5 billion given the lagging economy.
Shattuck said business and labor groups will pay a large portion of the principle, which now stands at $2.8 billion. Who will pay the $80 million interest due Sept. 30 apparently is still under negotiation.
Secretary-treasurer of the Illinois AFL-CIO Tim Drea is the top labor negotiator. Beth Spencer, director of communications for the Illinois AFL-CIO, said, ”We’re opting to not comment on it at this time while negotiations are ongoing.”
With both groups helping to pay off the loan, possible options could include an increase in business contributions, a decrease in unemployment benefits, or borrowing by the state — or all three.
A spokesman for the Illinois Department of Employment Security cautioned against jumping to conclusions on a complex issue.
“It really is premature to characterize what the agreement will look like,” said Greg Rivara.
However, he did note that in 2003 the state issued bonds to cover its unemployment debt, and paid them off two years early.
Any borrowing would add to the state’s debt, which includes nearly $4 billion in bonds approved by lawmakers in January to make the 2011 pension payment, as well as $8.75 billion in borrowing Gov. Pat Quinn is calling for to pay off vendors and other financial obligations.
A small part of the business collections can be paid toward the debt, but not enough to cover the total $2.8 billion.
As part of the federal stimulus program, states could get interest-free loans from the Federal Unemployment Account – which acts as a line of credit — to bolster unemployment trust funds left depleted from the 2008 economic crash and the ensuing recession. Illinois started borrowing in July 2009, and as of the latest data available on March 15 tallies a total debt of $2.8 billion.
Illinois is not alone in the financial conundrum — 30 other states and the Virgin Islands have racked up a debt to the Federal Unemployment Account to the tune of nearly $45.4 billion, with Illinois ranking fifth behind California, Michigan, New York and Pennsylvania. First-place California owes $10.3 billion, while New Hampshire brings up the pack at nearly $11.4 million.
However, the loans from the federal government started accruing an interest rate of 4 percent annually as of Jan. 1, although there is talk in Washington of extending the interest-free borrowing.
The state in January and February made a total $60 million payment on the principle — the first payment since it started borrowing in 2009, according to Rivara. He noted the interest-free borrowing gave the state no incentive to pay back the principle during those times of high unemployment until it had to — which is now.
“At the end of the day, if the balance on the account is positive, it goes toward the principle,” he said.
The unemployment trust fund is also expecting a replenishment with a large influx of employer contributions beginning next month and continuing into May, after first-quarter collections are received.
Businesses contribute on the first $12,740 that would have been earned by the unemployed worker, meaning most of the total business collections will be collected in the first quarter. Many businesses also make their annual payment after the first quarter, Rivara said.
He said IDES expects to bring in up to $1 billion of business contributions by May, which is funneled directly into paying unemployment insurance claims, negating the need to borrow from the federal account.
“We went from the end of April 2010 to the end of December without borrowing,” he said. “It had enough dollars on hand to pay the obligation.”
He said the agency expects to bring in a total of $2.6 billion from business collections for 2011, up from $2 billion in 2010. That money goes toward paying unemployment claims, not the debt.
The amount businesses pay to the state’s unemployment trust fund depends on a three-year formula set in a 2003 law that takes into account the employer’s industry and previous history of layoffs. For 2011, the amount businesses annually pay per worker ranges from $89 to $1,070, according to Rivara — up slightly from $81 to $908 in 2010.
The jobs landscape for the state is brightening slightly, as the unemployment rate has fallen for 13 consecutive months, and mirrors the national rate for February at 8.9 percent, which is the most recent data available.
But few expect a quick rebound for the state.
The University of Illinois’ “Flash Index” as compiled by economist J. Fred Giertz hit 96.1 for February, marking the 10th consecutive monthly improvement. But the Flash Index, a monthly weighted average of Illinois growth rates in corporate earnings, consumer spending and personal income, has yet to break 100, which indicates economic growth.
“Slow recoveries are typical in recessions accompanied by a financial panic as occurred in the fall of 2008,” Giertz said in a statement.
Mary Massingale, Illinois Statehouse News