State must prioritize refilling unemployment fund or saddle businesses with tax hikes

Shortly after graduating from college, I purchased a 1995 Ford Taurus from my parents.

I loved everything about that car: the maroon interior, the slate gray exterior. I loved everything except the car payments. I had started my first job, and my disposable income was around $25 a month.

I remember one month money was especially tight. I called my mom, and she said, "Don't worry about the car payment this month." I was overjoyed. So did I pay down my student loans? Save it? No, I squandered it.

I had that flashback Feb. 2 as I listened to Gov. J.B. Pritzker's budget address. He claimed fiscal responsibility and touted $1 billion in tax relief for Illinoisans. It sounded great, but here is the issue: Illinois' financial situation was temporarily improved because of a federal bailout, not because of improved fiscal leadership.

With all the responsibility of a 21-year-old whose parents just took care of the car payment, Illinois just ignored the underlying problem.

For business owners, there is one critical issue the governor was notably silent on: What to do about the state's $6.3 billion net deficit in its unemployment trust fund?

Without the state paying down this backlog, businesses will face tax hikes in 2023 - adding more uncertainty and economic challenges.

Let me explain.

The COVID-19 pandemic and related mitigations created unprecedented economic challenges for Illinois businesses and workers. In the early months of the pandemic, weekly unemployment claims exceeded 200,000, more than 12 times the peak unemployment claims during the Great Recession.

This shock to the unemployment system caused the state trust fund to run out of money in May 2020. Illinois was one of 23 states that borrowed money from the federal government to pay employment benefits during the pandemic. We remain one of 11 states to still have an outstanding loan balance.

Despite receiving roughly $8.3 billion in flexible federal aid from the American Rescue Plan Act, and $14 billion total during the pandemic, Illinois still has not dedicated any federal dollars to refilling the bankrupt unemployment program.

And now, if the state does not repay its $4.5 billion federal loan by Nov. 10, 2022, the federal government will trigger automatic 0.3% increases in payroll taxes on businesses each year it's overdue. Not only that, state payroll tax hikes will be required to replenish the funds to their pre-pandemic balance of $1.8 billion. The lower the balance, the more pressure businesses and unemployed workers feel.

The result would be devastation: Business tax hikes would deter job creation and further hurt Illinois' business climate. In 2021, Illinois' unemployment rate remained higher than neighboring states while job creation lagged the national rate. We need businesses to grow and get stronger, not be hindered by higher taxes resulting from poor policy decisions.

The good news is we still have time to do something.

Pritzker's budget address was simply a list of recommendations for lawmakers. It is the General Assembly's job to take, or dismiss, those ideas and pass its own budget.

Business leaders need to look up and call their state representative and senator and tell them the $4 billion in remaining federal aid should all be used to repay the federal unemployment loan. Repaying the loan would protect businesses from future tax increases and cuts to unemployment benefits.

The federal loans gave Illinois an opportunity to do some work on its finances, but we need to fight back against the governor's budget recommendations. Otherwise, our business environment might look a lot like a 1995 Ford Taurus.

• Matt Paprocki is the president of the Illinois Policy Institute, a nonpartisan research organization.