(The Center Square) — Minnesota owes the federal government more than $1 billion to cover the state’s unemployment trust fund deficit, but it’s unclear when and how it will pay it back.
Officials missed the Sept. 6 deadline to repay the loan despite the state getting billions of federal stimulus money and taxpayers are footing the cost. In fiscal year 2021 alone, Minnesota has accrued $1.2 million of interest with a 2.27% interest rate.
Federal law mandates states keep unemployment funds solvent. If the state government doesn’t pay off the deficit, it will trigger automatic tax hikes on employers to refill the state unemployment fund. Minnesota’s unemployment trust fund was $1.5 billion pre-pandemic but flipped to a $1.13 billion deficit on Sept. 5, 2021.
The state’s job loss is slowly recovering from the pandemic. Minnesota’s seasonally adjusted unemployment dropped to 3.8% in August. However, jobs lost during the pandemic haven’t recovered. The state lost 416,300 jobs from February through April of 2020 and has recovered 272,700 jobs so far. The private sector has recovered 67% of jobs lost.
Department for Employment and Economic Development (DEED) Commissioner Steve Grove said on Sept. 16 the state is confident it can repay the money owed over time.
“It is specifically designed to take that repayment schedule and pull it out over a long period of time so as to not immediately make life harder on companies when they’re trying to get out of difficult economic times,” Grove said. “We’re confident that we can do that over time.”
Grove said “there’s a specific and time-honored process for how a trust fund is paid back,” including statutory provisions for how employer taxes can be adjusted to repay the debt.
Minnesota government received about $2.6 billion in federal funds as part of the American Rescue Plan.
Minnesota Chamber of Commerce President and CEO Doug Loon urged lawmakers to spend that one-time money to pay off the debt to the federal government and avoid another financial hit to businesses.
“The Chamber has recommended using American Rescue Plan Act funds to address this deficit,” Loon told The Center Square in a statement. “We are obviously concerned that Minnesota employers — many of whom are still seeking workers or are still recovering from the pandemic’s economic hit — are going to have to weather another significant cost to restore the Trust Fund to its required reserve levels.”
Other Midwest states, such as Ohio, have used federal money to clear the loans.
“By repaying this loan in full, we ensure that Ohio businesses won’t see increases in their federal unemployment payroll taxes,” Ohio Gov. Mike DeWine said in a statement. “Without this added tax burden, our employers can invest more money into their businesses and hire more staff.”
Grove said some states are hoping the federal government will give additional aid for unemployment.
“We would be thrilled if the federal government continued to consider additional aid, specifically for this challenge because this system in Minnesota and so many other states really kept our workers afloat during a cataclysmic year and a half for our economy,” Grove said.
Scott McClallen
Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.
