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Charlie Baker leaves employers in the dark on unemployment taxes

The state’s jobless fund needs money. How much? Businesses and lawmakers have been waiting months for the administration to provide an answer.

The Baker administration needs to pay back $2.3 billion in federal loans that were used to pay jobless benefits when layoffs were soaring last year.
The Baker administration needs to pay back $2.3 billion in federal loans that were used to pay jobless benefits when layoffs were soaring last year.Jonathan Wiggs/Globe Staff

After being depleted by a crush of layoffs during the pandemic, there’s little doubt the state fund that pays jobless benefits needs a shot in the arm.

But how big of a shot? Good luck finding an answer.

The Baker administration won’t say. It’s still working on revised financial estimates for the unemployment insurance program, after planning to release the numbers in August. Monthly reports on the UI fund, which are required by state statute, haven’t been published since June.

The data blackout has exasperated lawmakers, who are relying on the administration for forecasts that will help them formulate much-needed fixes to the UI system, with their report due in mid-December. Private employers, who finance the jobless benefits through unemployment taxes, are frustrated that they don’t know how much they’ll be on the hook for next year.

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“They’re trying to solve for X, but we still don’t know what X is,” Chris Carlozzi, state director with the National Federation of Independent Business, said of state officials. “For our members, not knowing is also part of the problem.”

One big driver behind the debate: Governor Charlie Baker needs to repay the $2.3 billion that the administration borrowed from the federal government to keep the jobless fund afloat last year, and to build a comfortable cushion ahead of the next economic downturn. The loans began accruing interest in September and must be paid back by November 2022.

For months, business lobbyists pushed lawmakers to set aside as much as $2 billion of the state’s $5 billion in pandemic aid to shore up the UI fund. When that didn’t gain traction, they got behind Baker’s attempt to deploy $1 billion to the UI fund from the state’s budget surplus, combined with money raised by borrowing in the bond market.

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Now, the Legislature looks poised to allocate just $500 million, using a mix of American Rescue Plan Act money and the state’s surplus.

But the question remains: Will that $500 million be enough?

In March, the administration received the green light from the Legislature to sell up to $7 billion in bonds for the UI fund. Payments on the bonds, covered by employer taxes, would be spread out over 20 years.

“Maybe it won’t be $7 billion, but it’s clearly at least half of that,” said Jon Hurst, president of the Retailers Association of Massachusetts. “We need to know how much it is and we need to develop a plan on how it’s paid back.”

Here’s what we do know: The UI fund had $2.94 billion as of Nov. 22, according to data from the US Treasury Department. The balance, which fell to as low as $25 million last year before the state began tapping the feds for loans, has climbed higher as the number of people collecting unemployment checks has declined.

It’s a surplus, but not a particularly healthy one.

After making good on the $2.3 billion owed the federal government, plus interest, the fund would have about $600 million. But the administration says it owes a “significant” amount to employers who overpaid their UI taxes last spring. (As a point of comparison, the UI program balance was $1.6 billion in February 2020, before COVID-19 shutdowns began.)

The administration says $7 billion was meant to be an “upper limit” on potential borrowing. But officials have yet to answer key questions such as: how much they think the state needs to borrow, how much is owed to businesses for overpayments, why the state stopped producing monthly reports on the health of the UI fund, or when those monthly updates would resume.

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When asked about the matter on Nov. 16, Baker told reporters that the administration is working with the state treasurer and the federal government to figure out the UI fund’s balance and the size of the fiscal shot it should get.

“So at a minimum, you would have to borrow $2 billion just to get to the point where you had a balance that looks something like the one that we had in 2019 on a go-forward basis,” he said.

The administration’s opaque approach has vexed Senator Patricia Jehlen, cochair of the labor committee.

Earlier this month, Jehlen highlighted the UI fund’s $2.9 billion balance as an argument against setting aside $1 billion in state money for the benefits pool.

“We had all been under the impression that we had a $7 billion deficit, that we needed to issue these bonds, and then we were surprised to find out that we didn’t actually have a deficit, that we had a surplus,” Jehlen said.

Until the administration can present data justifying more, Jehlen said, $500 million should be enough, particularly given the competing priorities for the ARPA funds and other federal money, such as training funds to address businesses’ need for workers.

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Some argue that it’s inappropriate to allocate any public money to the UI fund, which is supposed to be the responsibility of the private sector.

Massachusetts “shouldn’t use pandemic funds to bail out the trust fund while available data show the fund has more than enough to pay off its own debts,” said Phineas Baxandall, senior policy analyst and advocacy director at the Massachusetts Budget & Policy Center.

Businesses argue that it wouldn’t be fair to make them shoulder the entire financial burden caused by the pandemic. Many companies struggled to keep workers on their payrolls during the first months of state-mandated shutdowns, they note, and more than half of the other states have used federal stimulus aid to replenish their jobless funds.

Disagreements over short-term financing notwithstanding, there’s a broad consensus that the state has to make substantial changes to keep the UI program viable over the long term.

That’s the mission of a legislative commission whose members include Jehlen, Hurst, Carlozzi, and representatives from other business, labor, and policy groups. The UI program has long struggled with a mismatch between tax revenue and costs. That tension — between providing some of the country’s most generous jobless benefits and leaning heavily on employers to pay for them — has made it hard to reach common ground on long-term changes.

The commission is examining a range of issues, including the appropriate level for employer tax rates and the fund’s surplus, and whether to impose a UI tax on workers. They face a Dec. 15 deadline for their report, but that will be tough to meet without more information from the Baker administration.

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Perhaps the most pressing issue is whether to boost the so-called wage base — the amount of a worker’s pay subject to employer taxes — and peg future increases to inflation, according to Alix Gould-Werth, a policy analyst at the Washington Center for Equitable Growth.

The wage base cap in Massachusetts, $15,000, has been in place for years, so it hasn’t kept up with rising employment costs. It also means that businesses with a lower-wage workforce end up paying a disproportionate share of UI taxes.

“That’s not sustainable,” Gould-Werth said. “This is the biggest and easiest problem to address.”

But as the current fight shows, there’s never anything easy about making changes to the state’s unemployment system.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto. Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.