Heads are spinning Friday after a yearly audit found officials mistakenly used $2.5 billion in federal pandemic-era relief funds to pay off unemployment benefits, a costly figure that was supposed to be covered by Massachusetts, not the feds.
It is unclear when the federal government will be paid back or how the error was made. The state’s Executive Office of Labor and Workforce Development said the discrepancy stems back to 2020, when former Gov. Charlie Baker was in office, and was “only recently identified” by the Healey administration this year.
Secretary of Labor and Workforce Development Lauren Jones said the Healey administration is “determined to provide a solution with the goal of minimizing impact to the commonwealth.”
“The Executive Office of Labor and Workforce Development has since taken steps to implement and enhance internal controls. We are also working closely with [the U.S. Department of Labor], outside auditors, and other necessary partners to resolve this issue,” Jones said in a statement.
The audit showed that in 2020 and through the pandemic, the state labor department withdrew $2.5 billion in federal relief funds for unemployment claims that should have been covered by the state’s Unemployment Trust Fund, which Massachusetts employers pay into, labor officials said.
Multiple audits over the past several years by two independent groups did not catch the error, the state said. And an outside accounting firm hired to review the state’s unemployment trust fund also missed the error, officials said.
The Boston Globe first reported the error Thursday night.
But some are questioning whether “error” is the best way to describe the mistaken use of $2.5 billion.
“It’s not millions, it’s billions,” said Eileen McAnneny, a senior fellow in economic opportunity at the Pioneer Institute. “The magnitude of this oversight is astounding.”
Business groups are calling on the state to keep the responsibility of cleaning up the mess out of the hands of employers or taxpayers. That comes as the Executive Office of Labor and Workforce Development made clear no claimants were impacted.
The $2.5 billion error was made by the state, and it is “reliant upon the state of Massachusetts to rectify this major oversight,” said Christopher Carlozzi, Massachusetts state director for the National Federation of Independent Business.
“However, in no way should employers be held liable for a $2.5 billion mistake that was not their doing. If Massachusetts must repay the federal government, they should use remaining federal funds or excess tax revenue and not rely on business owners to shoulder the burden,” Carlozzi said in a statement.
Carlozzi said the state should not raise the unemployment insurance taxes employers pay nor deplete the existing unemployment insurance fund balances “as small business owners are currently paying a hefty COVID-19 assessment on their UI bills to cover the cost of layoffs resulting from state-mandated shutdowns.”
And as the dust settled Friday morning, many in the Beacon Hill orbit were trying to wrap their heads around the situation and potential impacts the multi-billion dollar error could have on the state’s finances.
A spokesperson for House Speaker Ronald Mariano said the Quincy Democrat’s office is “in communication” with the administration and “will continue to monitor the situation as it develops.”
Senate President Karen Spilka’s office did not immediately return a request for comment.
Massachusetts Taxpayers Foundation President Doug Howgate said it might be worth taking a breath before any major decisions are made.
“I think we’re all kind of processing a lot of information and I think it’s worth us taking the time to figure out what the situation is before we jump to conclusions,” he told the Herald.
A U.S. Department of Labor spokesperson said they have been in discussion with state officials “about their error and is working with the state on options to rectify the situation.”
Massachusetts Fiscal Alliance spokesman Paul Craney said “under no circumstances” should local businesses be expected to pay for any portion of the $2.5 billion mistake.
“They’ve already paid more than enough. Any public comments even suggesting this will only continue to drive the narrative that Massachusetts is uncompetitive and does not support its small businesses,” he said in a statement.
