Journalism in the Public Interest

Illinois’s Unemployment Insurance Fund Goes Broke

Job seekers wait in line for a job fair in June in Chicago, Ill.  (Scott Olson/Getty Images)

Illinois has just become the 16th state forced to borrow money from the federal government to pay unemployment insurance benefits because its trust fund has run dry.

The roughly $34.7 million Illinois has borrowed so far pales in comparison to the unemployment insurance debt of states like neighboring Michigan, which has borrowed $2.2 billion so far.

But since Illinois, like many states, received most of its unemployment insurance revenue in the first two quarters of the year, the borrowing has probably only just begun.

“The borrowing is a result of the national economic challenge,” a state workforce department spokesman told Crain’s Chicago Business.

Au contraire.

Going into the recession, Illinois had a dangerously low level of reserves, a situation that’s gone on for years. Indeed, Illinois was forced to borrow federal money in 2005, relatively good economic times.


To make matters worse, the tax rate on employers was not high enough to sustain benefits paid, let alone to accumulate a safe level of reserves to prepare it for a recession—even one much milder than the current train wreck. The red line is what the Department of Labor estimated a sustainable tax rate to be. The yellow line is the average tax rate Illinois employers paid.


As we detailed in our series on unemployment insurance with public radio’s Marketplace, the Land of Lincoln is not alone. Many other states underfunded their systems in good years and are now forced to borrow just to keep benefits checks in the mail.

States have until 2011 to pay back the loans, but without significant increases in taxes or benefit cuts, many states will be unable to do so. After that, Uncle Sam starts charging interest, which must be paid out of a state’s general fund.

Illinois is due a temporary boost of about $300 million in stimulus money as a reward for expanding unemployment insurance eligibility. But given that the state paid out about $1.8 billion in benefits in 2008, when the state’s unemployment rate was a paltry 6.5 percent (it is now over 10 percent), the stimulus funds are not likely to fend off more borrowing.

As part of our series last month, we did an interactive feature detailing the health of states’ unemployment systems. One state we warned was on the brink: Illinois. 



Which of the states which are bankrupt in a de facto sense will be the 1st state forced to seek the protection of de jure bankruptcy or forced into de jure bankruptcy by creditors or the federal government?  Perhaps the 111th Congress, US Federal Bankruptcy & other Courts & Pres Obama’s administration will be forced to draft & enact enabling legislation & set up the procedures for the several states of the USA to seek the protection of de jure bankruptcy or to be declared bankrupt in a de jure sense.  This story will be interesting.  A court, agent of the court, receiver in bankruptcy, or some responsible person will have to be designated to organize & supervise the reconstrution, liquidation of each state which goes into de facto bankruptcy by any means.  It is doubtful that there American precidents to allow such actions to be taken.  An army of highly skilled attorneys will be needed to accomplish these very technical & delicate tasks.
This story, as I said, will be interesting.  Sites similar to Pro Publica will be occupied in collecting the facts for this story & telling this story.  This story could become a very long term project for the MSM.

Jessie James Marcellones

July 18, 2009, 5:15 a.m.

The Job Fair is Very Successfull but there are many unemployed too…
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NCOA Processing

July 20, 2009, 9:44 a.m.

The job fair very helpful in life but there are many unemployed.Bcoz the economy is fall down.

About Me

What a rat race, borrow the money and then tax the very people who need it the most. Once they start borrowing from the general fund all kinds of services will be cut and that affects all of us. It looks like there is no light at the end of the tunnel.

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