The red ink borrowing was an emergency loan granted by the federal government, under the provisions of Title XII of the Federal Unemployment Tax Act (FUTA), so Illinois could pay unemployment insurance benefits during the COVID-19 pandemic. The loan reflected a time during pandemic shutdown orders when the State’s unemployment was spiking up towards 20%. The State of Illinois has since made several large Title XII payments to Washington to repay part of the debt, but more than $1.3 billion remains unpaid. Title XII loans are, by federal law, meant for short-term financing emergencies; unlike bonded State debt, Title XII loans are not long-term loans. Since January 11, 2022, this remaining Title XII loan has been past due. By law, this debt must be paid back no later than November 9, 2022. If it is not paid, the federal government is required by law to commence a collection action against Illinois.
The October 2022 congressional letter, which could be seen as the equivalent of a letter from a collection agency to a borrower about a past-due loan, contains warning provisions. Penalties that may be imposed by the federal government against Illinois are headed by partial withdrawal of the FUTA tax credit, a tax credit granted to employers and their workplaces in states that have maintained a solvent relationship with the federal government’s unemployment insurance system. The $1.3 billion outstanding loan balance violates the terms of the FUTA tax credit, and Washington is required to penalize Illinois by gradually dialing down the amount of the credit. The value of the lost credit will be applied to the past-due Title XII loan. This FUTA tax credit action will further impede Illinois’ ability to attract and retain good-paying jobs. The letter was signed by U.S. House Ways and Means Committee member Darrin LaHood of Illinois, and the Committee’s minority spokesperson, Kevin Brady.