CHICAGO — Illinois Gov. Pat Quinn on Friday signed legislation authorizing the issuance of up to $2.4 billion in revenue bonds to pay off federal loans to fund the state’s unemployment insurance program.
SB 72 takes effect immediately after receiving the governor’s signature. The legislation bolsters an existing $1.4 billion authorization by an additional $1 billion. Finance officials have not commented on borrowing plans but several sources said it was expected that the state would soon issue a request for proposals for underwriters to establish a finance team.
Supporters promoted the plan as the most affordable means of restoring the Illinois Unemployment Trust Fund to solvency by lowering borrowing costs, and they touted the business perks included in the package as a way to promote job creation. The trust fund, used to pay out jobless benefits, is expected to end the year with $2.4 billion in outstanding loans from Washington to cover benefits amid continuing high unemployment.
Until last January, the loans were interest-free due to a stimulus act provision. Now many states, like Illinois, face interest payments of 4.1% starting this year. Without action, supporters warned that businesses across the state faced a greater burden in funding the trust.
The legislation is expected to save $240 million in interest. It leaves existing benefits intact and staves off increased business taxes. The bonds would be repaid with standard business payments into the trust fund. The funding changes are expected to save businesses at least $400 million through 2019 by eliminating penalty taxes that further federal borrowing would trigger. It also would provide a 16% unemployment insurance tax reduction for companies that did not lay off workers during the recession.
The legislation was one of the few accomplishments of the General Assembly’s recent veto session, during which pension reforms stalled and a revised gambling expansion bill was shot down. Lawmakers will return for a one-day session on Nov. 29.
Pressure is intensifying on lawmakers to act on pension reforms following the release of newly certified state contribution figures for the next fiscal year that starts July 1. An updated actuarial assessment raised by $540 million a previous estimate of what Illinois would need to contribute in fiscal 2013. That brings the total projected contribution to $5.9 billion, or $1 billion more than the 2012 payment.
The increase was not unexpected given changes in various assumptions the state’s actuaries used. The state borrowed to cover fiscal 2010 and 2011 contributions, but paid the 2012 amount from the general fund.
“Gov. Quinn is committed to making the full pension payment out of general revenue fund. For decades, the full pension payment was either not made or skipped, which has led to these huge pension payments that Gov. Quinn inherited when he took office,” said Quinn spokeswoman Kelly Kraft.
Illinois holds the unhappy distinction among states of having a retirement plan with the lowest-funded ratio, 45.4%, with $75.7 billion of unfunded liabilities. It’s cited as one of the state’s most daunting challenges by rating agency analysts. A new actuarial assessment is expected next month.
Proposed reforms would protect the accrued benefits already earned by current employees, but going forward, Illinois would offer a three-tiered system with employees paying more to maintain their current benefits.