THE IRISH WRITER Oscar Wilde once observed that “experience is simply the name we give our mistakes.” Perhaps that is an overly optimistic way of saying that when a mistake occurs, a learning opportunity presents itself to avoid repeating errors.
If Wilde’s aphorism is true, the state of Massachusetts has paved the way for an enormous teaching moment when it comes to the $2.1 billion unemployment insurance fund snafu. But will state policymakers learn from this incident or are they predestined to repeat past blunders?
For a bit of backstory, Massachusetts has historically ranked worst in the nation among the states for unemployment insurance taxes on small businesses, with the Commonwealth just clawing its way from the bottom to the 47th spot this year.
Even before the pandemic, Massachusetts was a notorious outlier for unemployment insurance policy, providing overly generous benefits and lax eligibility requirements. The fault lines in our broken UI system were truly exposed when the pandemic hit and the state’s unemployment rate soared to 17 percent in 2020, the highest rate in the nation at the time.
State-imposed shutdowns and restrictions all resulted in layoffs beyond the control of Massachusetts employers. As the state worked expeditiously to pay claimants during the fog of a worldwide pandemic, it became a period of rampant UI fraud and overpayments, in which the true cost has yet to be fully examined.
The federal government was expected to provide $115 billion in total coronavirus response funding to Massachusetts, with almost $9 billion offered in American Rescue Plan Act (ARPA) aid. While many states used federal dollars to build up their UI trust funds, Massachusetts opted for extraneous projects and one-time spending, incurring additional future budget revenue demands, instead.
Maryland, Georgia, Ohio, and Illinois all used billions of dollars in ARPA and CARES Act money to shore up their unemployment insurance trust funds, while Massachusetts lawmakers opted to provide a mere $500 million, a fraction of what was necessary, leaving businesses with $2.7 billion in debt to repay.
Then a bombshell dropped in 2023 when an external audit notified the Healey administration of a $2.5 billion accounting error. It appeared someone in Charlie Baker’s administration was charging unemployment claims to the wrong account. Instead of withdrawing from the state fund, they were incorrectly paying claimants from federal unemployment dollars.
This was not permitted, and the Biden administration required that the Commonwealth pay for this egregious mistake. After months of negotiations, a deal was reached, resulting in an additional $2.1 billion of unemployment insurance tax debt dumped in the laps of Massachusetts employers.
The real question is, will state elected officials return to their default settings by expecting job creators to shoulder the burden through higher taxes, or will they learn from past UI missteps and seek meaningful reforms?
When a massive, $2.1 billion error is made one should expect a certain level of contrition from the Commonwealth. A step in the right direction is using some of the state’s nearly $9 billion rainy day fund to cover what is owed to the feds.
Part of why Massachusetts was able to amass such an impressive nest egg was from neglecting the UI trust fund when the pandemic federal aid was flowing, instead leaving employers to foot the bill. Aside from using stabilization funds, employers will also gladly welcome an olive branch from the state in the form of meaningful unemployment insurance reforms to begin reining in our irresponsible, outlier policies.
These are crucial changes employers requested for decades that would place Massachusetts UI benefits and eligibility more in line with the rest of the nation.
Ultimately, there is no denying that this is a difficult problem compounded over many years for the Commonwealth to fix, involving several tough choices. But as another great Irish writer, George Bernard Shaw, famously noted, “[S]uccess does not consist in never making mistakes but in never making the same one a second time.”
The smart and responsible path – for small business owners, workers, and the state – is to take this opportunity to secure the long-term security of our UI system while providing desperately needed relief for Massachusetts employers. We have a window to do the right thing now, rather than being forced to take stark actions down the road.
Massachusetts is a recession away from a much worse UI fund crisis. The time for leadership is now.
Christopher Carlozzi is the Massachusetts state director of the National Federation of Independent Business.
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