Eight states including Illinois and New York with unemployment trust loans owed to the federal government called on Treasury Secretary Janet Yellen to reinstate an expired waiver on interest to buy more time to resolve the debts.

The interest waiver expired Sept. 6 and states with remaining balances are now paying 2.27% interest on what’s owed. Nine states and the Virgin Islands still owe the federal government $39.3 billion for advances. The interest tab totaled $197.3 million as of Dec. 10.

The federal government provided advances to the states to avert shortfalls in Title XII Unemployment Insurance Trust Fund accounts as a means to ensure that unemployment benefits continued without interruption as jobless claims surged to record levels during the early days of the COVID-19 pandemic.

States have paid out $175 billion of benefits since the start of the pandemic through Sept. 11. That’s in addition to the $661 billion of federal government extended and expanded benefits between January 2020 and September 2021, according to a September report from the Tax Foundation.

“It is quite plain to see that this public health crisis is not over, and the benefit provided by this interest waiver is still necessary. Therefore, we respectfully request your support in reinstating this waiver until at least June 30, 2022, giving adequate time for our states to address this financial dilemma appropriately,” the group said.

Illinois Comptroller Mendoza spearheaded the effort, enlisting seven other states in joining forces to make the request that is limited solely to extending the interest waiver. “States are wrestling with how best to replenish their COVID-depleted unemployment funds and they should not have to do that with the meter running,” Mendoza said.

They include Colorado Controller Robert Jaros, Pennsylvania Chief Accounting Officer Brian Lyman, New Jersey Department of Labor and Workforce Development Commissioner Robert Asaro-Angelo, Minnesota Department of Employment & Economic Development Commissioner Steve Grove, New York Comptroller Thomas DiNapoli, Connecticut Comptroller Kevin Lembo, and Massachusetts Secretary of Administration and Finance Michael Heffernan.

The Treasury Department did not respond immediately to a request for comment.

Illinois has accrued $19.6 million of interest on its roughly $4.5 billion unpaid balance and that figure could reach $100 million if the loan goes unpaid for a full year, according to Mendoza’s office who manages state bill payments.

Colorado has about $1 billion of outstanding advancements and $4 million of accrued interest. “Colorado needs more time to address the repayment of the outstanding advancements,” Jaros said.

Of the nine states with outstanding balances, California, which did not participate in the letter signing, has the largest at $19.4 billion, followed by New York with a $9.2 billion balance then Illinois with $4.5 billion, according to Treasury Department’s Bureau of the Fiscal Service.

States are permitted to use a portion of the $195 billion of relief distributed under the American Rescue Plan Act relief to pay down their unemployment trust debts and some had tapped into that pool of funds.

Illinois is among those that has resisted using its $8 billion share of ARPA. Gov. J.B. Pritzker had pinned some hope on further help from the federal government to assist in managing the debt while Republicans have criticized the administration and Democrats who hold a legislative majority for not dealing with the unpaid balance during the fall veto session.

Pritzker’s deputy for budget and economy Andy Manar said on a recent radio show that the administration would work with lawmakers, business and labor leaders to come up with a plan to address the balance when the new session starts in January.

The lack of a fix in Illinois could trigger benefit cuts for the unemployed and tax rate increases or surcharges for employers as soon as January. “This is a big challenge for us, no doubt about it,” Manar said. “It’s going to be short-term solutions coupled with long-term solutions.”

Fixes used to manage the last big unemployment trust hole included a $1.5 billion bond sale in 2012 secured by a first lien on a portion of state employer contributions to the trust fund.

“The Pritzker Administration supports Comptroller Mendoza’s request that will give the administration, lawmakers and stakeholders additional time to address the pandemic driven challenges with the unemployment trust fund without incurring additional interest costs,” said Pritzker spokeswoman Jordan Abudayyeh.