The Benefits of Using $2.7 in ARPA Funds for Repaying Expanded Unemployment Insurance (UI) Debt

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CTBA’s Budget Blog

7 min readJun 27, 2022

Unemployment Insurance (“UI”) is a partnership program between the federal government and individual states in the United States. UI programs provide benefits — which differ from state to state — to provide coverage in the form of compensation to workers who become unemployed (involuntarily) and meet specific eligibility requirements.[i] In the State of Illinois, workers who find themselves involuntarily out of work are able to claim up to 26 weeks in benefits. In times of increased unemployment, the Extended Benefit (“EB”) program can be initiated, offering an additional 13 or 20 weeks of UI benefits.[ii] The maximum Weekly Benefit Amount (“WBA”) for an individual in Illinois is $542.[iii] This benefit compensation is fully taxable by the State of Illinois.[iv]

Illinois UI benefits are funded by taxes paid by employers through a payroll tax called the Employer Unemployment Insurance Contribution.[v] These taxes are deposited into the Unemployment Insurance Trust Fund. In addition to the state-level contributions, employers also pay an effective rate of 0.6%, up to $42 per worker to cover administrative expenses, fund loans for states that deplete their own reserves, and cover half of the EB benefits made available when states experience prolonged periods of high unemployment. States cover the other half of the EB benefits.[vi]

After the 2007 recession ended in June 2009, Illinois continued to realize increased unemployment rates. The unemployment rate peaked in January 2010, at 11.4 percent.[vii] However, in mid-July 2009, prior to this January 2010 peak unemployment rate, the Illinois Unemployment Insurance Trust Fund was depleted.[viii] By September 2011, more than a year and a half after peak unemployment in the state, Illinois had borrowed from the federal government almost $2 billion in advance funds to support UI benefits.[ix]

FIGURE 1 — Great Recession Unemployment Rate (percent)

Source: U.S. Bureau of Labor Statistics, Unemployment Rate in Illinois [ILUR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ILUR, June 27, 2022.

After the unemployment peak in January 2010, Illinois began recovering economically, realizing a downward trajectory of the unemployment rate. The state was subsequently able to reduce the debt borrowed from the federal government to cover UI benefits and replenish the UI Trust Fund for future recessions. Illinois reached a historically low unemployment rate in February 2020, with a seasonally adjusted rate of 3.4 percent and had a balance of $1.85 billion in its Unemployment Insurance Trust Fund as of February 2020.[x] That is, until the COVID-19 pandemic created a national emergency in March 2020.

FIGURE 2 — Post-Great Recession Unemployment Rate (percent)

As a result of the COVID-19 pandemic, within 2 months of the record low unemployment rate, the state unemployment rate reached a new historical high rate of 17.4 percent in April 2020 — six percentage points greater than at the previous peak during the 2007–2009 economic recession.

FIGURE 3 — COVID-19 Pandemic Unemployment Rate (percent)

In response to unprecedented circumstances, Congress passed legislation to expand UI benefits to offset some of the hardships created by the impact the pandemic was having on workers. The March 2020 CARES Act federally funded in full the EB program, federally funded supplemental weekly benefits, and expanded who was eligible to receive benefits for people who would not have ordinarily been eligible under the state UI program.[xi] This was extended until September 6, 2021, through multiple legislative expansions and extensions.[xii] Pandemic Emergency Unemployment Compensation (“PEUC”) provided extra weeks of benefits at the expense of the federal government for workers who exhausted regular state benefits. The Pandemic Unemployment Assistance (“PUA”) program passed under CARES also federally funded benefits for workers who exhausted their regular state benefits but also provided benefits for self-employed workers.[xiii] Initial benefits from the federal government included $600 a week to supplement the state-level UI benefits. After July 31, 2020, the weekly supplemental benefits were reduced to $300 through September 6, 2021.[xiv]

Overwhelmingly, extending UI benefits during economic downturns is a strong fiscal maneuver. The reason is because of the economic stimulus UI benefits have. For example, the extension of CARES Act assistance to unemployed workers via the Unemployment Insurance program projected in June 2020, was estimated to return $1.46 for every $1 the government spent on UI benefits.[xv] This is possible because workers who become unemployed must still pay a rent/mortgage, shop for groceries, and pay bills and debts, to name a few expenses. When one person pays for goods or services, that cost becomes income for another person, allowing this other person or business to spend additional dollars in the community. These ripple effects help keep the economy moving during economic downturns, often reducing the length of economic recovery after the downturn.[xvi]

After the expansions of the extended federal UI benefits in December 2020 and again in March 2021, Supplemental Unemployment Insurance was estimated to have a $1.49 return for every $1 the government spent.[xvii] Behind the expansion of the Supplemental Nutrition Assistance Program (“SNAP”), investment in the expansion of federal UI benefits has the second-highest return on investment — in other words, it has the second greatest fiscal impact on the government which makes an unequivocally good policy decision for legislators to invest in.

An additional benefit for economic stimulus from UI benefit expansion, particularly for Illinois, is that UI benefits are fully taxable in Illinois. This means Illinois is able to maintain similar levels of revenue to continue providing services to taxpayers, regardless of the economic situation.

However, even with the federal funding for expanded UI benefits, Illinois realized an unprecedented rise in UI claims being filed with the Illinois Department of Employment Security (“IDES”) during the pandemic. Under the federal Social Security Act, Title XII Advances to State Unemployment Funds (“Title XII”), Illinois was able to borrow from the federal Unemployment Trust Fund to maintain its distribution of UI benefits after its own state Unemployment Insurance Trust Fund was depleted.[xviii] The alternative to borrowing funds would have been a reduction in benefits for workers, which occurred in 2011 when Illinois reduced weekly benefits down from 26 weeks to 25 weeks.[xix] Knowing the impact that UI expansion can have on fiscal recovery as discussed above, preventing a reduction in benefits by borrowing from the federal government was a fiscally smart decision.

Unfortunately, with any borrowing of funds, there is repayment of funds. Illinois has not had an “advance draw” — funds borrowed from the federal government to cover state benefits — since December 2021.[xx] By February 2022, Illinois had accrued a balance of $4,512,645,003 in advanced funding for UI benefits.[xxi] The advanced funding for UI benefits must be repaid to the federal government with interest, which began accruing in September 2021 at a rate of 2.77 percent through the end of the calendar year 2021, and subsequently dropped to 1.59 percent, effective January 1, 2022.[xxii]

Under the American Rescue Plan Act (“ARPA”), states are eligible to repay UI Title XII advances using State Fiscal Recovery Funds.[xxiii] This is precisely what Illinois opted to do; Illinois appropriated $2.7 billion in ARPA funds in FY 2022 towards paying down the principal balance of the outstanding UI Trust Fund debt.[xxiv] Illinois still has an outstanding balance of $1.8 billion with about $48.5 million in accrued interest for FY 2022 owed by September 30, 2022.[xxv]

Using ARPA funds to pay down this debt, and not resorting to using other General Fund transfers or reducing services and benefits for taxpayers in Illinois is fiscally responsible. While the $2.7 billion in ARPA funds could have been used for other state programming or grants, given the economic impact of UI benefits, using the ARPA funds to pay down the debt that kept the UI benefits flowing was a strong fiscal choice.[xxvi]

It should be noted, however, that there needs to be more investment into modernizing the UI system to prevent the state from relying on borrowing funding from the federal government to replenish the UI Trust Fund in the incident of another economic downturn.

[i] https://www.taxpolicycenter.org/briefing-book/what-unemployment-insurance-trust-fund-and-how-it-financed#:~:text=The%20federal%20unemployment%20insurance%20(UI,during%20periods%20of%20high%20unemployment.

[ii] https://www.cbpp.org/research/economy/unemployment-insurance

[iii] https://ides.illinois.gov/content/dam/soi/en/web/ides/ides_forms_and_publications/CLI110L.pdf

[iv] https://www2.illinois.gov/rev/questionsandanswers/Pages/101.aspx

[v] https://ides.illinois.gov/employer-resources/taxes-reporting/rates.html; https://ides.illinois.gov/content/dam/soi/en/web/ides/ides_forms_and_publications/uitaxrates.pdf

[vi] https://www.taxpolicycenter.org/briefing-book/what-unemployment-insurance-trust-fund-and-how-it-financed#:~:text=The%20federal%20unemployment%20insurance%20(UI,during%20periods%20of%20high%20unemployment

[vii] U.S. Bureau of Labor Statistics, Unemployment Rate in Illinois [ILUR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ILUR, June 9, 2022.

[viii] https://www.propublica.org/article/illinois-unemployment-insurance-fund-goes-broke-717

[ix] https://files.taxfoundation.org/legacy/docs/bp61.pdf

[x] U.S. Bureau of Labor Statistics, Unemployment Rate in Illinois [ILUR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/ILUR, June 9, 2022.; https://www2.illinois.gov/sites/budget/Documents/Budget%20Book/FY2023-Budget-Book/Fiscal-Year-2023-Operating-Budget.pdf

[xi] https://www.cbpp.org/research/economy/unemployment-insurance

[xii] https://www.moodysanalytics.com/-/media/article/2022/global-fiscal-policy-in-the-pandemic.pdf

[xiii] https://www.cbpp.org/research/economy/unemployment-insurance

[xiv] https://www.cbpp.org/research/economy/unemployment-insurance;

[xv] https://www.economy.com/getlocal?q=400b3e4d2cabb6d80efa746d35ddb9a8&app=eccafile

[xvi] https://www.cbpp.org/research/economy/fiscal-stimulus-needed-to-fight-recessions

[xvii]https://www.moodysanalytics.com/-/media/article/2021/macroeconomic-impact-of-home-and-community-based-services-expansion.pdf

[xviii] https://fiscaldata.treasury.gov/datasets/ssa-title-xii-advance-activities/advances-to-state-unemployment-funds-social-security-act-title-xii

[xix] https://www.cbpp.org/blog/states-cutting-jobless-benefits-hadnt-adequately-prepared-for-recession