Baker: $500m for unemployment insurance fund not debatable

GOV. CHARLIE BAKER on Tuesday said putting the state’s unemployment insurance trust fund on sound footing requires a $500 million infusion from the state’s share of American Rescue Plan Act funding and a still undetermined amount of money from a $7 billion bond authorization.

At a press conference in Watertown, Baker addressed the financial status of the unemployment insurance trust fund for the first time since state Sen. Patricia Jehlen of Somerville last week suggested the fund was in much better shape than the public has been led to believe.

Jehlen made her comments last Wednesday during debate on an amendment to the Senate’s ARPA spending plan that would have boosted the contribution to the unemployment insurance trust fund from $500 million to $1 billion. The Republican sponsor of the amendment said the fund was running a $7 billion deficit, but Jehlen said federal data indicated the fund actually had a small surplus – a $2.9 billion balance offset by $2.3 billion owed to the federal government for money loaned to the fund during the pandemic.

The Baker administration hasn’t provided an update on the financial status of the unemployment insurance trust fund since June, so Baker was asked on Tuesday if the Legislature should go ahead and approve the $500 million infusion without knowing whether the fund actually needs it. The Legislature recesses for the holidays on Wednesday.

“Whether or not the unemployment insurance trust fund needs the $500 million is not debatable, it does,” Baker said. “In the middle of the greatest economic expansion in state history back in 2019, when our unemployment rate was 2 percent, we had a $2 billion balance in our trust fund — $2 billion, that was our balance, and there were a lot of people who were concerned that it wasn’t enough.”

Records, however, indicate the pre-pandemic balance was $1.73 billion.

The bigger policy question, Baker said, is how big a balance the fund should carry in the future, which would dictate how much the state would need to borrow, on top of the $500 million, to reach that target.

Baker said the state also needs to determine the balance in the fund currently. “We need to figure out exactly with all the puts and takes on $24 billion that has gone back and forth between the state and the feds over the course of this pandemic, what’s the right number we should assume we’re starting with when we borrow that money, probably sometime in December,” Baker said.

Asked whether the unemployment insurance trust fund is running a deficit, Baker said: “Yes, absolutely.”

It’s unclear whether Baker meant the fund is currently in deficit, or if he meant it is in deficit relative to where he believes its balance should be.

The unemployment insurance trust fund takes in assessments on businesses and uses that money to pay benefits to workers who lose their jobs through no fault of their own. The fund nearly ran out of money during the pandemic, when unemployment soared, and remained solvent with the help of federal loans. Since May, federal data indicate the fund has moved in the opposite direction, with collections from businesses soaring, payments to unemployed workers declining, and federal loans no longer necessary.

The Legislature in April approved issuing up to $7 billion on behalf of the unemployment insurance trust fund. The reasoning was that the fund was running a huge deficit and, rather than raising assessments on businesses to reduce the shortfall, the state would borrow money to put the fund immediately on stable footing and use lower assessments on businesses to pay off the bonds over 20 years.

The governor’s remarks on Tuesday suggest he now wants to stabilize the unemployment insurance trust fund with $500 million in ARPA money plus a still undetermined amount of bond money to provide a cushion in the account. He previously supported funneling $1 billion of ARPA money into the trust fund. Business groups, believing the fund was in dire straits, had pushed for $2 billion.

“The governor seems to have backed off his plan for a $1 billion cash infusion,” Jehlen said. “So the issue right now is whether to borrow $2 billion as the governor has suggested.  If the governor has any data to support that, he should make them public.  He has not filed the required reports since June, but the federal Treasury reports don’t seem to justify something of that scale,” she said.

Jehlen said she doesn’t object to funneling $500 million of ARPA money into the unemployment insurance trust fund, but she strongly disagreed with the idea of issuing 20-year bonds to add a cushion for hard times.

Jehlen said it would be smarter to forego the bond issuance and rely instead on easily obtainable loans from the federal government if the trust fund balance gets too low at some point this winter. She said the government loans carry an interest rate of 2.2 percent and can be paid off at any time. By contrast, bonds last 20 years and could carry higher interest rates, driving up costs unnecessarily.

Jehlen said the Baker administration needs to provide a complete accounting of the unemployment insurance trust fund, something it has failed to do since June. Baker aides say the process of reconciling funds in the account is complicated, but Jehlen is skeptical. “There has never been a problem until now,” she said.

Phineas Baxandall, senior policy director and advocacy director at the left-leaning Massachusetts Budget and Policy Center, said states are not supposed to use state funds to bail out the unemployment insurance trust fund.

“The state is supposed to set employer contribution rates at levels that allow balances to slowly build back up to strong levels. Federal guidelines spell out exactly what those levels should be. All Massachusetts needs to do is follow those federal guidelines. We should also follow state law for reporting on unemployment insurance accounts,” he said in a statement.

“Funds are badly needed for dozens of other public purposes,” Baxandall said. “These funds should not be diverted to bail out the UI account when it has sufficient money to pay its debts. We certainly shouldn’t consider such a bailout before the administration discloses its own financial records for these accounts.”