Businesses Shouldn’t Pay for the State’s UI Mistake

During the COVID-19 pandemic, Massachusetts inadvertently misallocated federal relief funds to pay state unemployment benefits. This error has resulted in a $2.5 billion debt owed to the federal government. The pressing question now is: how will the Commonwealth address this financial obligation without further burdening its businesses and residents?

Governor Maura Healey recently worked out a deal with the federal government to lower the amount Massachusetts has to pay back to $2.1 billion. (The amount would have been $3 billion with interest and fees.) But news reports suggest these funds will be paid out of the Massachusetts UI Trust Fund–which is presently on track to be hundreds of millions of dollars in debt by the end of 2028.

Without a fix, that means businesses will be on the hook to pay for a $2.1 billion mistake they didn’t make.

Voters Stand With Business Owners

Our January survey revealed that 71 percent of residents believe it’s unfair for businesses to shoulder the cost of state’s UI misallocation.

We agree: Massachusetts already imposes some of the highest UI tax rates in the nation, ranking 47th according to the Tax Foundation. This high employer tax burden contributes to Massachusetts’ declining national ranking for business tax climate, making the state less competitive overall. Unresolved UI challenges could lead to more businesses relocating or investing elsewhere, which would further erode Massachusetts’ competitive edge. A less favorable business climate can also make it harder to attract talent, especially as other states offer a lower cost of living.

Alternative Solutions

It’s not necessary to further burden businesses to solve this problem. 

For example, the state has a Commonwealth Stabilization “Rainy Day” Fund, which reached a balance of $8.831 billion as of August 2024. This fund is designed for emergencies and helping make right a $2.5 billion mistake certainly qualifies as one to us.

Further reform to the state’s UI system could help prevent future problems. By simplifying the system and possibly aligning policies with states that hit the national standard solvency rate, Massachusetts can lower costs for businesses while ensuring workers continue to receive support during hard times. These reforms would also improve the system’s resilience in case of another economic downturn.

Public Sentiment on Government Accountability

Our January 2025 polling underscores a broader demand for governmental efficiency and accountability. More than half of Massachusetts residents—57 percent, to be exact—believe that the state should follow the federal government’s lead and form a new agency similar to the Department of Government Efficiency (DOGE), which is newly formed by an executive order.

Amid rising state spending and an exodus of taxpayers, this new agency could help identify cost-saving measures to ensure the state government operates efficiently. It could also ensure that we don’t repeat the kind of mistakes that led to our current crisis. With greater accountability and transparency, the government could regain the trust of both residents and businesses.

New Hampshire’s Governor Kelly Ayotte recently created the Commission on Government Efficiency (COGE) in her first executive order. The Granite State is attempting to streamline operations and eliminate unnecessary spending. It seems Massachusetts could take advantage of a similar opportunity.

Conclusion

Massachusetts already has a high cost of living and heavy tax burdens, which are causing people and businesses to leave. If the state wants to stay competitive, it needs to show that it can handle financial challenges responsibly. Fixing the UI problem isn’t just about the $2.5 billion—it’s about securing a stable future where businesses, especially struggling small businesses, and families can thrive.