While COVID lockdowns ended more than three years ago and a public health emergency was declared over last May, Massachusetts taxpayers will be feeling the effects of pandemic spending for years to come. Between 2025 and 2028, they will fork over an additional $1.3 billion. Boston lawmakers must immediately reprioritize fiscal discipline.
One program, the COVID-19 Recovery Assessment, costs Massachusetts residents hundreds of millions of dollars annually and will do so until 2031. The most recent Unemployment Insurance Trust Fund report shows that employers in the commonwealth will shell out an additional $465 million in payroll taxes in 2024. Once again, Boston policymakers are using residents as their personal ATM.
This assessment is a tax meant to shore up the Unemployment Insurance Trust Fund and pay down debt from expanded unemployment benefits during the pandemic. This fund comes from taxes associated with employees’ wages and is meant to ensure the ability of the state to pay unemployment insurance claims even during substantial economic downturns. The fund, as of January 1, 2024, does not meet the minimum standards identified by the U.S. Department of Labor and is even considered “dangerously low.” This important detail is missing from the state’s unemployment reports.
All the while, Gov. Maura Healey has spent thousands of dollars on travel and accommodations. This travel, however, is small compared to the $60 billion in debt and $34.8 billion in promised pension benefits to state employees the state owes on top of the unemployment insurance bonds.
Rather than tighten their belts and properly prioritize spending, politicians in Boston decided to put tax burdens on families and businesses. These burdens have helped push residents out of the state. The Pioneer Institute found that Massachusetts has lost an estimated $3.87 billion in 2022 from outmigration to states as near as New Hampshire and as far as Florida. So why did Massachusetts issue these unemployment bonds in the first place?
The pandemic, and the response to it, led to the largest expansion of unemployment insurance in history. The Families First Coronavirus Response Act allowed states to relax conditions for receiving unemployment benefits such as waiving requirements that applicants are actively seeking work. The Coronavirus Aid, Relief, and Economic Security Act also expanded benefits to self-employed workers, independent contractors and part-time workers, and extended benefits by 13 weeks for anyone who had exhausted regular benefits.
To cover these expansions, in addition to direct funds, the federal government also extended loans to 21 states, including Massachusetts, to cover expanded unemployment insurance benefits. While these provisions were set to expire on March 14, 2021, the American Rescue Plan Act extended these provisions through September 6, 2021.
Predictably, unemployment claims skyrocketed. Massachusetts saw nearly a quarter of adults 18 and older apply for benefits (1.13 million) and by June 2021, Massachusetts still had 8.6 percent of the workforce filing unemployment claims — the highest claims rate in New England.
To finance these payments, Massachusetts borrowed $2.268 billion from the U.S. Treasury. To pay off those Treasury loans and increase the balance of the unemployment insurance trust fund, Massachusetts issued $2.68 billion in special obligation bonds. In 2023, those bonds started to mature, meaning they reached the date the principal amount of a bond is due and is payable to the bondholder, with two additional bonds maturing aanually (with the exception of 2028) until July 2031. The payments on these bonds are paid by a tax on Massachusetts employers and are paid directly into a “Pledge Fund” whose sole purpose is to pay these bonds.
The August 2024 Quarterly Report issued by the Executive Office of Labor and Workforce Development about these bonds states, “For 2023 and until no bonds remain outstanding, the Commonwealth will assess employers a COVID-19 Recovery Assessment which must be at least 125 percent of the annual debt service on the bonds.”
While the tax is paid by employers, its effects go far beyond them. The money that employers pay into the assessment could have gone toward growing their businesses, hiring employees, and/or increasing compensation for current employees. Ironically, the tax designed to help improve the unemployment insurance trust fund solvency is contributing to sluggish employment and labor force growth, which has yet to return to pre-pandemic levels.
Instead of placing the burden on employers and, ultimately, employees, policymakers in Boston should cut spending. Research shows that Massachusetts spends far above population and inflation growth, even when excluding federal transfers. Cutting spending across the board could help Massachusetts pay off its debt without burdening residents.
If Massachusetts wants to be prepared for the next recession, it should start by fixing its budget and letting businesses and residents keep their hard-earned money.
