Senate GOP reveals plan to resolve unemployment fund deficit

Published 6:05 pm Tuesday, February 8, 2022

ST. PAUL — Minnesota Senate Republicans on Monday released a $2.73 billion proposal to repay the state’s debt to the federal government for unemployment benefits during the pandemic and prevent a looming tax hike on businesses.

Minnesota’s unemployment trust fund swung from a $1.7 billion balance in January 2020 to a deficit of $1.2 billion after businesses closed or laid off workers due to the pandemic and more than 1.3 million Minnesotans applied for unemployment benefits from the start of the pandemic through September 2021.

Lawmakers want to use the state’s projected $7.7 billion surplus and more than $1 billion in leftover federal aid to replenish the fund, urging fast action on the issue before a March 15 deadline when an automatic payroll tax hike would put businesses on the hook to repay the federal loan debt.

“There’s no better way to kill their job growth coming out of this recession than to have this tax go on our small businesses,” said Republican Sen. Jason Rarick of Pine City at a Monday news conference with business owners. “That’s going to keep them from hiring people back. They will not be able to afford it because it’s based on payroll. So this is for both workers and for small businesses especially.”

At least 30 other states have used some of their federal coronavirus aid to shore up their unemployment trust funds and prevent the tax increase on businesses. Minnesota is one of several states and the Virgin Islands that are paying interest on the federal debt.

Businesses statewide have already been notified of what new tax rates would look like should the federal debt not be repaid by March 15. Steve Grove, commissioner of the state’s employment and economic development agency, told a House workforce and business development committee on Monday that it would take employers about a decade of payroll tax payments to replenish the trust fund.

Kristin Gruhot of D & E Excavating in Marshall said her business would see a $26,000 increase in addition to $109,000 in unemployment insurance taxes the company paid last year, and Rebekah Hagstrom of Liberty Classical Academy — a K-12 Christian school in White Bear Lake — said their increase would cut into funding that could be used for supplies or a part-time teacher’s salary.

GOP senators and leaders in the Democratic House have both signaled support for paying back the debt and replenish the unemployment insurance trust fund early during the legislative session to avoid the tax increase on employers, who are still struggling due to the pandemic. Democratic Gov. Tim Walz also pitched a similar $2.7 billion proposal to repay the debt in his supplemental budget rollout last month.

While there’s support on both sides of the aisle to replenish the trust fund, some Democratic House members expressed concern that large businesses and corporations that did well financially during the pandemic would also benefit. Democrats have also suggested tying the trust fund debt repayment to a provision for “hero pay” checks for frontline workers but Democratic Rep. Gene Pelowski of Winona, who joined Republicans at the Monday news conference, said that the unemployment insurance bill should stand alone.

“It’s time to return to a Legislature where individual bills are brought up on the House floor and sent to the governor,” Pelowski said.