Employers deserve a break on the cost of waiving unemployment overpayments

Lawmakers should use federal stimulus money or the budget surplus to reimburse the employer-financed unemployment insurance trust fund.

Governor Charlie Baker holds a press conference at the State House on June 27.Pat Greenhouse/Globe Staff

Remember the fiasco when the state paid $4.3 billion on more than a half-million jobless claims and then told recipients they might have to pay the money back?

When my colleague Shirley Leung and I started writing about the issue in January, Governor Charlie Baker tried to downplay the financial hardship caused by the repayment demands, which were largely triggered by problems verifying the legitimacy and accuracy of federal pandemic unemployment filings. The administration also did a lousy job explaining what was happening and what recipients of the so-called overpayments could do.

But the state eventually did the right thing, announcing in April a three-pronged plan to resolve most of the outstanding overpayments — those that weren’t the fault of recipients — through full or partial waivers made under expanded eligibility criteria.

Problem solved. Or so it seemed.

Now, a July 18 deadline looms for making permanent the emergency rules the Department of Unemployment Assistance used to begin granting waivers. But approval of the permanent regulations by a little-known panel called the DUA Advisory Council has been held up amid a tussle over how to recoup the forfeited funds, raising the possibility that the waiver program could stall.

The issue boils down to this question: Will public or private money be used to reimburse the Massachusetts unemployment insurance (UI) trust fund for the overpayments the state has decided not to collect?

The administration has proposed using up to $300 million of federal pandemic recovery aid, state budget surpluses, or a combination of both. That idea has been endorsed by trade groups representing employers, who finance the UI trust fund through taxes.

“Don’t rely on business owners’ generosity” to offset the waivers, said Chris Carlozzi, state director of the National Federation of Independent Business. “It’s a step too far.”

Carlozzi and Sam Larson, a vice president at Associated Industries of Massachusetts, sit on the DUA Advisory Council, and the two business representatives voted last month to table consideration of the permanent waiver rules until the Legislature committed to using funds other than employer taxes to reimburse the trust fund.

John Drinkwater of the Massachusetts AFL-CIO, who, along with Rich Marlin of the Mass Building Trades, represents labor on the council, said he supports approving the regulations separate from any decision on funding by the Legislature.

“They make a lot of sense on their own merits,” he said.

(The two other council seats, designated for public representatives, are unfilled.)

But some lawmakers don’t want more state money to go to the UI system.

The Legislature previously allotted $500 million of the federal aid to help shore up the trust fund, which was decimated by record jobless claims in 2020 and early 2021. Ultimately it’s employers who keep the system financially sound, these lawmakers say.

Both sides make good arguments. But the state should pick up the tab, with this caveat: confirmation that the trust fund actually needs the money to be comfortably solvent. Here’s why.

1. Employers didn’t create the problem.

The UI system nearly collapsed under the weight of state-ordered pandemic lockdowns. Layoffs hit unprecedented levels, with many employers having no choice but to cut workers loose.

The only way the state could pay all the jobless claims was to borrow more than $2 billion from the federal government to keep the UI trust fund afloat. The administration is now working on a $2.6 billion bond sale to pay back the debt and bring the fund’s balance back to normal levels.

Employers will have to pay down the bonds over a decade through a special assessment added to their regular UI taxes. This is not a trivial burden on businesses that already finance the most generous jobless benefits in country.

2. Employers weren’t responsible for the overpayments.

Most of the overpayments were made by the DUA on federal jobless claims, primarily Pandemic Unemployment Assistance for the self-employed and gig workers who weren’t eligible conventional state benefits.

After Congress enacted new rules at the end of 2020, the agency had to go back and verify PUA claimants’ work histories, identities, and proper benefit levels. It found a lot of mistakes — and a ton of fraud by criminal gangs.

Of the $2.3 billion of overpayments outstanding in January, just 16 percent, or $375 million, was the responsibility of the UI trust fund, according to the DUA. Not all of that was eligible for a waiver. In April, the state pegged the trust fund’s exposure to waivers at $281 million, with $200 million representing money likely scammed by crooks.

Business groups say they don’t oppose the state’s waiver program, but they’ve argued all along that employers shouldn’t have to make up the trust fund losses. That seems especially fair for the large amount of fraud, which in the end the state failed to catch.

3. The state has the money.

The state has $2.3 billion in remaining American Rescue Plan Act funds, according to the Massachusetts Taxpayers Foundation. The budget surplus for the year ended June 30 will be about $3.6 billion, the foundation estimates, a record.

There are more worthy needs than the Legislature can fund, but offsetting the impact of the waivers on the UI system seems reasonable. In the end, the waivers themselves will cost the trust fund much less than $281 million. That’s because even if the state had decided to pursue every overpayment, it would have recovered pennies on the dollar.

So where do we go from here?

The Legislature has a long list of bills to deal with before the July 31 end of the formal session. It’s unlikely lawmakers will settle the UI funding issue before the emergency waiver regulations expire. Fortunately, the DUA can extend them for an additional 90 days.

Still, the Legislature should make a decision ASAP.

With the economy slowing and the chances of a recession rising, now’s not the time to put more financial pressure on employers.