Gov. J.B. Pritzker vows to sign plan to use $2.7 billion in federal relief to reduce unemployment fund debt

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Lawmakers have approved Gov. J.B. Pritzker’s proposal to use about one-third of the state’s federal coronavirus relief money to pay off more than half of a $4.5 billion debt in the state’s pandemic-depleted unemployment insurance fund, but a plan to erase the remaining deficit is still being negotiated.

The Democratic-controlled state Senate voted 39-16 along party lines Thursday to approve the plan, which would deposit $2.7 billion of the roughly $8.1 billion in direct aid Illinois received last year from President Joe Biden’s American Rescue Plan into the unemployment insurance trust fund.

The measure also would use about $1.4 billion in surplus state funds to pay off old employee health insurance bills, shore up a college savings plan that has been headed toward insolvency and make additional deposits into the state’s woefully underfunded pension plans.

The measure was approved in the House late Wednesday in a similar party-line vote. After the Senate vote, Pritzker said he plans to sign the bill into law when it gets to his desk.

“This is a tremendously important package to resolving our state financial situation,” House Majority Leader Greg Harris, the Chicago Democrat who sponsored the proposal, said during Wednesday’s House floor debate. “We are taking care of in a day what took years and years to build up.”

Pritzker and Democrats in the General Assembly previously allocated about $3.8 billion from the federal relief plan for purposes including grants for hospitals, violence prevention programs and infrastructure projects.

But Republicans, who since last spring have repeatedly criticized the majority party for not addressing the unemployment fund debt in the current year’s $42 billion operating budget, maintained that only about $1.2 billion of the federal relief money has actually been spent. That would leave enough to cover the full unemployment fund debt if the other allocations were abandoned..

“This bill leaves a debt in the unemployment system,” said state Rep. Tom Demmer of Dixon, who’s running in the June 28 GOP primary for state treasurer. “The only way to close that debt is to raise taxes and to cut benefits.”

GOP lawmakers contend Democrats would rather spend the federal relief money on pet projects in their districts during an election year than on shoring up the unemployment fund.

Ongoing negotiations with business and labor groups over separate legislation to fill the remaining insurance fund hole have touched on the possibility of issuing bonds that likely would be repaid through increased payroll taxes on businesses and reduced or shortened benefits.

“I think it’s incredibly disingenuous this afternoon and after last night’s action in the House for Democrats to be painting today’s action as a win or a success for fiscal responsibility,” said Sen. Donald DeWitte, a St. Charles Republican. “Employers who have been treated with absolute disregard throughout this pandemic will literally be left holding the bag and will be responsible for filling the remaining deficit in the unemployment insurance trust fund.”

Sen. Michael Hastings, a Democrat from Frankfort, chided Republicans for criticizing a proposal that would pay off “major debt” that Illinois owes, such as the College Illinois fund and various group health insurance bills.

“Guys, I understand the political posture of both sides of this chamber,” Hastings said to the Republicans. “But to say, to vote no, to a bill that business is not opposed to, to vote no to a bill that labor is not opposed to, is hypocritical at its finest moment.”

A coalition of organizations representing manufacturers, retailers and other businesses said in a statement Thursday they “appreciate the governor and members of the General Assembly for taking this positive step” and are “hopeful that negotiations will continue to resolve the remaining balance of this unprecedented deficit.”

In responses to the GOP accusations of pork barrel spending, Democrats counter that federal relief money that’s already been budgeted is for necessary expenses allowed under federal guidelines and that Republicans are the ones playing election-year politics.

“Not one bill to fix this problem or to address this problem has been introduced by your side,” Harris said during Wednesday’s House debate. “We’ve seen a lot of press releases, we’ve seen a lot of stunts, we’ve seen a lot of letters, but nothing to really solve the problem.”

Illinois, like a host of other states, borrowed from the federal government in the early phase of the pandemic to keep checks flowing to out-of-work residents as businesses shut down, in large part due to Pritzker’s executive orders. The state unemployment agency was overwhelmed with new jobless claims — both real and fraudulent.

The Illinois Department of Employment Security has yet to say exactly how much it believes was paid out to fraudsters using stolen identities.

During a Senate confirmation hearing this week, IDES Director Kristin Richards acknowledged that other states have released estimates, including Michigan, which has estimated it paid out $8.5 billion in fraudulent claims.

Lawmakers are up against an April 1 deadline to allocate the federal relief dollars to the unemployment fund. If they don’t act by then, rules from the U.S. Treasury Department would prohibit Illinois from reducing the amount or length of unemployment benefits until 2025.

The state has to pay off interest accrued on the money borrowed for the unemployment fund, which is approaching $42 million and would grow to about $80 million if left unpaid, by September and the remaining debt by November.

Earlier this month, Illinois Democrats in Congress championed a bill that would waive interest payments on federal unemployment loans to help Illinois and other states recover financially through the pandemic.

“Interest payments are penalty payments that we pay, which is essentially nothing more than setting taxpayer dollars on fire,” Illinois Comptroller Susana Mendoza, who is also up for reelection this year, said last week and supports a waiver on interest.

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In addition to addressing the unemployment fund debt, the measure heading to Pritzker’s desk devotes $300 million toward the state’s $139.9 billion unfunded pension liabilities, reducing the long-term liability by roughly $1 billion, supporters estimate.

It also repays nearly a $900 million backlog in the group health insurance plan for state employees and directs $230 million toward paying off what’s owed to College Illinois, the state’s onetime prepaid tuition program.

Since the start of the year, Democrats and Republicans in the state legislature have been working with the governor’s office and IDES, along with business and labor interests, to figure out a way to pay off the debt.

Rep. Jay Hoffman, a Swansea Democrat, accused House Republicans of undermining those negotiations.

“At some point, you’ll become part of the solution, and I can’t wait to (get to) that point,” Hoffman said.

“We made a commitment that this was going to be one of our top priorities in using these federal funds to close this gap that put it in range of getting an agreement between business and labor,” Hoffman said.

Petrella reported from Chicago.

dpetrella@chicagotribune.com

jgorner@chicagotribune.com