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In deal with feds, Mass. will have to pay back $2.1 billion misspent by Baker administration
The costly mistake came to light soon after Gov. Maura Healey took office in 2023.
Massachusetts has agreed to repay the federal government $2.1 billion over the next decade after the Baker administration misspent federal pandemic relief funds on unemployment benefits that should have been covered by the state.
The costly mistake came to light soon after Gov. Maura Healey took office in 2023. Her administration said Monday an audit revealed a hefty liability to the state’s Unemployment Insurance Trust Fund, which stemmed from “an improper overdraw of federal pandemic unemployment benefits” under her predecessor, former Gov. Charlie Baker.
The error dates back to 2020.
The state’s final bill could have exceeded more than $3 billion once penalties, fees, and interest factored in, Healey’s office said, but an agreement with the U.S. Department of Labor shaved that number down and established a 10-year repayment timeline.
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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.
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The $2.1 billion settlement represents a year and a half of “extensive negotiations” with the Department of Labor to minimize the impact on Massachusetts’s residents, businesses, and economy, she said.
According to State House News Service, principal payments toward the $2.1 billion tab will come from Massachusetts’s Unemployment Insurance Trust Fund, which is funded through a tax on employers. Payments will begin in December, the outlet reported, and interest will be paid from the state’s general fund.
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“It is incredibly frustrating that the prior administration allowed this to happen, but we are 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,” Healey said.
To that end, the governor has instructed 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,” her office said.
Even before Massachusetts faced the billion-dollar repayment, its Unemployment Insurance Trust Fund was expected to be in the red by 2028. Given the repayment plan’s structure, Healey’s office said, businesses won’t see a further hike on their unemployment insurance rates through at least 2026, but long-term rates will depend on additional reforms aimed at the UI system’s solvency.
Some industry leaders say those reforms can’t come soon enough.
“The Massachusetts UI system is arguably the most abused, costly and anti-employer system in the country,” Retailers Association of Massachusetts President Jon Hurst told State House News service, emphasizing the opportunity to reform “what has been for decades an impediment to new investment and job growth in Massachusetts.”
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Massachusetts Taxpayer Foundation President Doug Howgate likewise noted the chance for change.
“As we develop a way forward, it is essential that the plan for repayment does not further burden the employer community and that we use this challenge as an opportunity for necessary unemployment insurance reforms,” he said.
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