Business groups lobby state to use stimulus cash to offset big unemployment fee increase

Reducing employers’ costs for pandemic-related benefits, they say, is a perfect use of a $5 billion windfall from the feds

Business groups are facing an unprecedented increase in unemployment costs because of the pandemic, and they're looking for help from the State House to solve it.Jonathan Wiggs/Globe Staff

Employers may have won a reprieve from a shocking surge in unemployment insurance costs this spring, but they’ll need to pay up eventually.

So businesses are clamoring for a portion of the $5.3 billion in federal American Rescue Plan funds that Massachusetts received this month, to reduce the big burden on them.

State lawmakers included a fix in legislation they sent last week to Governor Charlie Baker that would extend the cost of what’s known as a solvency assessment over two decades, to cover $7 billion in unemployment payments tied to the COVID-19 pandemic. Businesses had been staring down an unexpected additional cost of as much as $1,300 per worker this year.

But business lobbyists don’t just want the damage to be spread out over time. They want the total reduced significantly, given the unprecedented circumstances caused by the pandemic. Many companies kept payrolls intact, while others reduced their staffs because of government-imposed restrictions. Those that hand out pink slips normally face steeper unemployment insurance hikes, but the costs of layoffs during the pandemic are required to be spread across all employers, driving up the cost for everyone.

The solvency surcharge is usually a nominal amount, tacked onto employers’ unemployment insurance bills. Not this time. This spring, the Department of Unemployment Assistance increased it by a factor of 16, to bail out the system after it was drained by pandemic-related layoffs. The decision enraged small-business owners and HR managers, especially those who thought state lawmakers had fixed the problem with different legislation in March.

Assuming Baker signs the new legislation, the cost for 2021 will be knocked back down. But employers would still need to pay the full $7 billion, without help from federal stimulus funds. They would have 20 years to do so, with the state borrowing the money in the interim. They would also need to pay special assessments for the next two years before the borrowing can begin.

The Baker administration has extended the deadline for the first round of 2021 bills twice now, presumably to buy time for a final resolution of this mess, although many employers have already paid the higher amount.

Advocates for small businesses aren’t going away quietly. Representatives of the Retailers Association of Massachusetts, the National Federation of Independent Business, and nearly 20 local chambers of commerce met via videoconference on Tuesday to work out a grass-roots strategy to lobby legislators and the governor about using federal aid for the unemployment system. Both the RAM and NFIB sent notes to members on Wednesday, urging them to pressure the politicians.

The Greater Boston Chamber of Commerce’s chief executive, Jim Rooney, asked lawmakers last week to set aside up to $2 billion in federal funds for the cause. Associated Industries of Massachusetts is keeping a list of states that are pouring federal stimulus dollars into their unemployment systems, to help make the case for doing so here. And Massachusetts Taxpayers Foundation president Eileen McAnneny argues that replenishing the unemployment trust fund fits the definition for how the US Treasury wants to see these funds being spent.

But there’s a growing concern that competing priorities for the $5.3 billion could leave the business community with crumbs, if anything.

Answers aren’t coming from the State House — at least not yet.

All a spokesman for Baker would say is that the administration “feels strongly that this issue needs to be addressed quickly” and is eager to work with the Legislature to accomplish that goal.

House Speaker Ron Mariano said a special committee charged with sorting out this once-in-a-lifetime infusion of federal funds has begun meeting, but more analysis is needed — with a goal of achieving “an equitable recovery.”

Representative Aaron Michlewitz, the House’s lead budget writer, said legislative leaders will look at “all the options, at how to best use these funds to kick-start our economy.” One of his priorities: making sure the state budget remains stable after the federal aid doled out to individuals and businesses in the past year fades away.

Senator Bruce Tarr, one of the few Republicans in the Legislature, tried on Tuesday to add a provision to the state budget that would require up to $4 billion in federal funds to be diverted to the unemployment program. His budget amendment was rejected.

As cochairman of the economic development committee, Senator Eric Lesser regularly hears from small-business owners and advocates. Lesser is among the lawmakers who say some federal funds should be used to offset these steep UI costs. The fee hike, he said, created an unfair situation in which employers that kept all workers employed now need to pay up. He said it also exposes broader problems with the state’s unemployment system.

Five billion dollars may sound like a mountain of cash. But Lesser is well aware of the pressing demand inside and outside the State House, and how quickly that money can be spent.

Phineas Baxandall, senior analyst at the left-leaning Mass. Budget & Policy Center, said lawmakers should instead focus on using the federal money to help vulnerable communities recover from the pandemic, such as building a world-class early education system. To some extent, he said, this problem was exacerbated by numerous UI rate freezes on Beacon Hill over the years that were designed to help employers.

Business groups such as the retailers association take the opposite view: that Massachusetts has one of the most generous unemployment programs in the country, if not the most generous, and now businesses are paying the price.

Consider the situation that Daniel Edwards faces, a situation shared by many small-business owners. Edwards owns a Handyman Connection franchise on the South Shore and is having a hard time finding workers. He said he could fill 10 jobs, but no one is applying. Part of the problem, he said, is that current unemployment benefits are encouraging many people to stay on the sidelines. He bemoans the fact he is now paying higher unemployment insurance premiums to help cover those benefits, an increase that “sucks any profitability” he has out of his business.

From his perspective, using some of that newfound stimulus cash to ease the pain for employers is the least that state government leaders can do.