While the deal gives Massachusetts some clarity, this is only a first step state leaders must take over the next year or so to apply a more permanent fix to the ailing state unemployment insurance system.
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In the waning days of the former president Joe Biden Administration, Massachusetts Gov. Maura Healey struck a deal with the U.S. Department of Labor to fix a $2.5-billion problem created when her predecessor improperly applied federal COVID funds to cover some unemployment claims during the pandemic. Healey’s deal included waived penalties, reduced interest, and a 20% cut to the principal owed – a settlement bringing the debt to $2.1 billion to be paid over 10 years.
While the deal gives Massachusetts some clarity, this is only a first step state leaders must take over the next year or so to apply a more permanent fix to the ailing state unemployment insurance system. The fund, used to pay out the state’s generous unemployment benefits, is set to run out of money in late 2027 or early 2028, according to a January report from the Massachusetts Executive Office of Labor and Workforce Development. Those calculations don’t include the $2.1 billion in payments Massachusetts must make to fulfill the terms of Healey’s deal, so the unemployment fund could well be heading for insolvency even sooner than expected.
While we’ve all watched as Social Security’s steady march toward a cliff plows forward with little action from a reticent Congress, state government has a lot less leeway to kick the can down the road. In Massachusetts, business, government, and labor officials need to work jointly over the next legislative session or two to find a more permanent resolution before unemployment’s issues become a full-blown crisis. The solvency of the state’s unemployment system is paramount to our economy and social safety net, so all sides need to consider serious compromises. It’s in everyone’s best interest to get this problem fixed sooner than later.
While making the system more sustainable is paramount, the extra penalty of the federal debt payback adds some undue burden to the fund, and state officials ought to take a hard look into using a portion of the state’s rainy day fund to help stabilize the unemployment system. The rainy day fund has grown to nearly $9 billion, according to the state Department of Revenue, so utilizing a portion of that to help pay down the $2.1 billion federal debt only makes sense. Otherwise, the bill for Healey’s deal will have to be covered by the state’s employers, who pay for the unemployment fund through taxes and fees. On top of reaching a long-term compromise to stabilize the fund, the deal needs to include a way to ease the extra burden of Healey’s deal on employers.
Other reforms to the unemployment system need to be considered, too, including possibly lowering the maximum weekly payout of $1,033, which is the highest in the nation. The amount of time benefits will be paid needs to be reviewed, too, as the state covers unemployed workers for up to 26 weeks, which is about the national average, but that rises to a national high of 30 weeks when the unemployment rate climbs.
Businesses will have to come to the table with some concessions, too, likely paying more money into the fund through raising the taxable payroll threshold. That’s the nature of a well-negotiated compromise. A common sense proposal can get to the finish line. Let’s not kick the unemployment insurance can down the road.
This editorial is the opinion of the WBJ Editorial Board.
