Massachusetts must pay feds $2.1B after mistakenly using pandemic funds to cover unemployment benefits

Massachusetts must pay the federal government $2.1 billion over the next 10 years to resolve a debt after the state under former GOP Gov. Charlie Baker’s administration mistakenly used federal pandemic funds to cover unemployment benefits.

Current Gov. Maura Healey, a Democrat, and her deputies released details on Monday of a settlement they reached with the outgoing Biden administration last week in which the state will repay most of the money it owed because of the error, the State House News Service reported.

In 2023, Healey announced that her administration uncovered that the prior administration improperly used about $2.5 billion in federal pandemic relief funds to cover unemployment benefits that should have been funded by the state.

The total liability exceeded $3 billion, including fees and interest, according to Healey’s office. Negotiations with the U.S. Department of Labor dropped the total owed to $2.1 billion over the next decade.

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“We were dismayed to uncover early on in our term that the previous administration misspent billions of dollars in federal relief funds and that our state was facing what could have been a more than $3 billion tab to pay it back,” Healey said in a statement on Monday.

“For the past year and a half, we have engaged in extensive negotiations with the U.S. Department of Labor to minimize the impact on Massachusetts residents, businesses and our economy,” she continued. “Today, we have reduced our potential liability by over $1 billion and negotiated a decade-long payment window to mitigate the impact.”

The governor added that it is “incredibly frustrating that the prior administration allowed this to happen” but that the current administration is “going to use this as a moment to come together with the business and labor community to make meaningful reforms to the Unemployment Insurance system.”

Payments will begin Dec. 1 and continue each year for the next decade.

The agreement states that principal payments must come from the Unemployment Insurance (UI) Trust Fund, which is funded by a tax on employers and is also used to cover benefits, according to the State House News Service. Interest payments will come from the state’s General Fund.

Healey’s office said businesses will not face higher rates on their unemployment insurance payments through at least the end of next year, at which point rates will depend on system reforms.

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The governor vowed to pursue changes to soften the burden on employers, who already face higher costs to support an uptick of claims during the pandemic, according to the State House News Service.

Healey directed state Labor Secretary Lauren Jones and Administration and Finance Secretary Matthew Gorzkowicz to “conduct a comprehensive review of the solvency of UI and assess potential reforms.”

The Healey administration projected the UI Trust Fund would be hundreds of millions of dollars in debt by the end of 2028, even before taking into account the $2.1 billion in additional payments.