As the economy attempts to pull itself out of a slump, the unemployment level in Illinois remains stubbornly higher than the national level. No surprise there. Illinois traditionally gets hit harder by recession than the country as a whole.

Knowing that, the state has in place a plan to ensure there will be plenty of cash to pay jobless benefits during a recession, right? Wrong.

Our unemployment insurance system is overseen by business and labor leaders. And it's going bankrupt. The best guess is that the fund will be a half-billion dollars in debt by the end of this year, $1.2 billion by the end of next year, if nothing changes.

No need to panic, however. Benefits will continue to be paid because taxpayers are coming to the rescue. The trust fund already is borrowing from the federal government--money Illinois employers will be expected to repay, with interest, over time.

So the question isn't whether unemployed workers will continue to receive their weekly checks. The question is: Who's going to pay and how much?

The fund hasn't always been in the red. In fact, during the go-go '90s, it was flush. With a balance of $2 billion, employers decided they deserved a tax break. Rather than continue to pay so much into the unemployment insurance trust fund, they would cut their own taxes and keep that money for themselves.

That's what happens in a pay-as-you-go system: You pay less when the bills aren't as high. The downside, however, is that sometimes you have to pay up. Just as dot-com investors learned that it's a fun ride until the bubble pops, Illinois employers are learning that a trust fund--even a $2 billion trust fund--can disappear pretty fast in a recession.

Only now they don't really want to pay.

''Employers will pay,'' said Jay Shattuck of the Illinois State Chamber of Commerce Employment Law Council. ''The question is how much and how quickly.''

The other question is: What will workers contribute? At the very least, benefits could be frozen at current levels (ranging from a low of $51 a week for a single worker to a high of $438 for a worker with a spouse and children--replacing, on average, 37.5 percent of income, the national average). Some employers would like to see weekly benefits cut.

In Illinois, unemployment is governed by an ''agreed bill process.'' That means representatives of organized labor and organized business sit down with folks from the governor's office and hammer out a deal. Once they have agreed, the bill is rubber-stamped by the Legislature.

Rick McHugh, an expert on unemployment for the National Employment Law Project, says the current funding system, agreed to in 1987, created a structural problem with the system.

When the trust fund operated as a savings plan, the money was deposited with the federal government, which paid interest on the savings. That interest--as much as $135 million in one year--helps grow the fund and offsets employer expenses. The pay-as-you-go system we have now, however, means the opposite: We borrow from the feds when the fund goes dry. That money has to be repaid with interest, adding to the employers' tax burden.

Because it no longer operates as a savings plan, the system is in danger of always being in the red when the economy goes south. That means employers are asked to pay up when they can least afford to do so. Or workers see their benefits cut when they need them the most. Neither approach is sound public or economic policy.

McHugh has a number of pretty sensible proposals for fixing it--including requiring employers to pay unemployment insurance tax on more than just the first $9,000 of wages--a figure that hasn't changed since 1988.

But none of that is even in discussion in the agreed-bill process. Negotiators are simply debating: Who will pay for this mess and how much?

It's a short-sighted approach that doesn't serve anyone--employer or employee--well.

http://www.suntimes.com/output/richards/cst-edt-cindy11.html