CHICAGO – Seeking to resolve and prevent future financial problems with the Unemployment Insurance Trust Fund (UITF), Governor Rod R. Blagojevich signed legislation, House Bill 810, today that overhauls the way the UI system is financed. The new law restores solvency to the exhausted fund; expects to save the state $250 million in federal interest payments; prevents Illinois employers from paying more than $1 billion in federal taxes and penalties; and minimizes the financial impact on Illinois’ unemployed workers.
“The improvements to our Unemployment Trust Fund will aid businesses and workers by providing financial stability and avoiding future financial predicaments,” said Governor Blagojevich. “I want to thank labor and business, specifically Margaret Blackshere, Illinois AFL-CIO President and David Vite, Illinois Retail Merchants Association President for their hard work, leadership and commitment in developing an agreement that improves our unemployment insurance system and is in the best interests of workers, employers and the state.”
“Governor Blagojevich, assisted by representatives of each legislative caucus, created an environment in which employer and labor representatives could discuss thoughtfully the stranglehold that federal interest penalties and federal taxes would have on economic development prospects in Illinois. In that environment, business and labor creatively and agreeably found a solution to a $1 billion problem,” said Vite. “Without the guidance and sometimes tough encouragement of the Blagojevich administration, business and labor would not have been able to reach a successful conclusion.”
House Bill 810, which is the first major agreed unemployment insurance legislation in more than a decade, will return the fund to solvency by the end of 2009. The legislation recognizes that business and labor must share the burden of eliminating the current trust fund deficit. It corrects the problem gradually over several years to lessen the hardship on workers and businesses.
The solvency package relies on a combination of employer tax increases, benefit constraints and the issuance of $1.4 billion in revenue bonds to save on borrowing costs over the next six years.
While the solvency package increases taxes on employers, it provides them with greater predictability in their unemployment insurance taxes and will save employers money over the next six years compared to what they would have paid under existing law. Under current law, employers are projected to pay an annual average tax of $487 per employee in 2009. This legislation will reduce the annual average tax to $362 per employee, a savings of $125 per employee.
In addition, the agreement provides long-sought benefit improvements for workers, including changes in eligibility calculations that will allow more unemployed workers, especially those new to the workforce, to qualify for benefits more quickly.
Another benefit is for those victims of domestic violence. Beginning in 2004, workers who must leave their job because they are victims of domestic violence will be eligible for unemployment.
“Studies show 25 percent to 50 percent of domestic violence victims lose their jobs over the ongoing torment,” said Blackshere. “Now workers who must leave their jobs and even their communities to escape violent assaults can apply for unemployment assistance to help them get reestablished and back on their feet. We can help them feel safe again. This is an important UI reform.”
Another feature of the legislation is the innovative bonding proposal, which will be administered by the Illinois Department of Employment Security (IDES) to cover shortfalls in the benefits fund as it returns to a sound fiscal footing. The bonding proposal, which is guaranteed by unemployment insurance trust funds paid by employers not state funds, protects the state’s general revenue fund while allowing the state to take advantage of lower interest costs.
Depending on the individual employer’s history of worker layoffs, tax rates for 2004 will range from a minimum of 0.9 percent to a maximum of 8.6 percent. For 2004, the taxes will be levied only on the first $9,800 in total wages paid each worker, a level below the national average. That level will increase by a total of $2500 over the following five years to a maximum of $12,3000 in 2009. The Fund Building Rate will remain a part of each employer’s tax rate and will increase from its present 0.4 percent to 0.7 percent next year, 0.9 percent in 2005, then decrease gradually back to 0.4 percent in 2009. This portion of employer tax rates is what will be used to secure the bond financing. As a result, the bond issuance will not be a general obligation of the state.
To avert future financial problems with the fund, the legislation also includes structural changes designed to keep the trust fund solvent by making the system more responsive to changing economic conditions, including automatic adjustments in taxes and benefits based on the financial health of the trust fund. “By implementing these safeguards, we hope to avoid the present dilemma of having to consider benefit reductions and tax increases during an economic downturn when workers and employers can least afford it,” said the Governor.
On the benefits side, the percentage of prior earnings that workers will receive will be reduced slightly beginning in 2004. Rates for single workers will decrease from 49.5 percent to 48 percent through 2007 and 47 percent after 2008. Benefits for those with dependent children will decrease by .3 percent from 65.5 percent to 65.2 percent. Baseline benefits do have a yearly cost of living increase built in but that increase will be reduced by these percentages.
“The Chamber is pleased with the process where employers and labor came together to address this serious problem and developed a reasonable and timely solution,” said Doug Whitley, Illinois Chamber of Commerce President.
“The Funding plan just approved by the Governor is proof of the efficacy of the Agreed Bill process,” said IDES Director Brenda A. Russell. “With good will and determination, Illinois business and labor have assured the future ability of the state to help an increased number of workers in their periods of greatest need.”
“IMA is grateful for the cooperation and effort put forward by the Governor, legislative leaders, business and labor to bring the unemployment insurance system to solvency in an appropriate time frame,” Greg Baise, Illinois Manufacturers’ Association President.
The legislation, which becomes effective upon the Governor’s signature, is sponsored by State Representative Jay Hoffman and State Senator Carol Ronen.