Time is running out for Governor Maura Healey to clean up a $2.5 billion mess left behind by her predecessor. That’s how much federal money Charlie Baker’s administration used — apparently in error amid the crush of pandemic claims in 2020 — to pay jobless benefits that were the state’s responsibility.
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As the Globe’s Jon Chesto and I reported in June 2023, Healey’s team says it didn’t uncover the bookkeeping blunder until the spring of that year. In drawn-out negotiations since then, they’ve been trying to persuade the US Labor Department to forgive the debt.
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Because a waiver would almost certainly violate federal law, the governor may have little choice but to take a low-interest Treasury loan that local employers would repay through assessments — unless she and lawmakers opt to use taxpayer funds to defray the cost.
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What’s new: Donald Trump’s imminent return to the White House has triggered a last-minute rush by the Healey administration to defuse this fiscal time bomb.
The governor and the state’s all-Democratic congressional delegation, which has been lobbying on Beacon Hill’s behalf, know a Republican-led Labor Department will be far less likely to cut true-blue Massachusetts any slack.
“There is a last-minute push to work it out,” said Michele Evermore, a former Labor Department official who is now a senior fellow and unemployment insurance expert at The Century Foundation.
At stake: the aforementioned $2.5 billion, believed to be the largest accounting error ever made by a state’s unemployment insurance (UI) system.
The money should have come from the Massachusetts UI trust fund, which is financed by employer taxes. Instead, the Department of Unemployment Assistance used federal dollars that had been allocated for new COVID-related jobless benefits.
The state’s UI fund has long been squeezed by a structural flaw: a mismatch between the money businesses contribute and the benefits paid out to laid-off workers.
Its balance, $2.42 billion as of Sept. 30, is projected to fall below $1 billion by next year, driven by rising wages and an expanding labor force, according to the 2024 annual report from the state. A $298 million deficit is estimated by the end of 2028, excluding any disbursement to the feds.
Moreover, if unemployment exceeds the optimistic forecast of 3.7 percent through 2028, the fund’s red ink will only worsen.
Options: The Healey team hasn’t given up hope of getting the federal government to wipe away the debt.
“Massachusetts thinks there is some legal argument that the debt can be forgiven,” said Evermore, the UI expert. “I don’t see how the state gets around current law.”
The fallback is repaying the feds over many years.
Under this scenario, the state would borrow the money from the US Treasury at very low rates, as it did during the pandemic when the UI fund was quickly depleted. Employers are already on the hook for $3 billion through 2028 to pay off the bonds the state sold to repay that loan.
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A Labor Department spokesperson declined to comment except to say the issue “is a complex matter, and the resolution process . . . is ongoing.”
A spokesperson for the state Executive Office of Labor and Workforce Development declined to comment.
Step back: Local employers are fed up.
Their UI taxes are already among the highest in the country, but still aren’t enough to maintain a system that combines lenient qualification requirements and generous benefits.
Adding to their frustration are projections that UI tax rates will climb steadily as the trust fund balance declines.
“The last thing business owners need is billions of dollars in additional UI tax liabilities piled on top of the existing mess,” said Christopher Carlozzi, Massachusetts director of the National Federation of Independent Business.
Final thought: If there was an easy fix for the state’s massive UI mistake, it would have happened a long time ago.
The governor’s team took a calculated risk by holding out as long as they could for an improbable waiver. With the polls tight all year, a new Trump administration was always looming over the negotiations.
Unfortunately, as the clock winds down to Inauguration Day, it looks like Massachusetts employers are poised to take another hit on jobless claims tied to the pandemic.
Larry Edelman can be reached at larry.edelman@globe.com.
Deadline looms for Mass. to resolve $2.5 billion unemployment insurance error
