BOSTON — The pandemic led to record unemployment here in Massachusetts. It also led to massive fraud.
To keep up with the demand for benefits, the state borrowed more than $2 billion to pay unemployment claims.
It’s a huge amount of debt and, with the pandemic still raging, the state could end up in a larger financial hole.
The Baker administration projects the state could end up owing more than $6 billion by the end of 2021.
25 Investigates has been covering the unemployment crisis for nearly a year and we wanted to know who will foot the bill when it’s time to repay the debt to the federal government.
Investigative reporter Ted Daniel learned that barring legislative action, local businesses could end up picking up the very expensive tab.
Conor Mogan, a father of two from North Andover, says he filed for unemployment in December when he lost his job as a property manager. More than two months later, he’s still waiting to receive much-needed unemployment benefits and he’s starting to run out of savings.
“It’s been frustrating to say the least. That’s putting it mildly,” said Conor Mogan. “I was told that my case was going to be expedited four times. Then sometimes, I call the next day and there’s miraculously no notes about that previous conversation. So there’s like little to no consistency every time I call.”
If and when Conor’s claim is approved, his payments will come from the state’s unemployment trust fund. The fund had more than $1 billion in reserves before the pandemic. Now, it’s nearly $2.5 billion in the hole.
“The state has not been setting aside sufficient amount of money to make sure that the system can function as needed in downturns, and that needs to be addressed,” said Evan Horowitz, director of the Center for State Policy Analysis at Tufts University, who authored a detailed report on the state’s unemployment system.
According to the report, the interest on the money the state borrowed to pay unemployment claims will begin to accrue this year. “And unless the state can repay the full amount by fall 2022, the federal government will automatically raise taxes on Massachusetts employers,” the report states.
Employers are required to contribute to the state’s unemployment trust fund. On average, they paid $562 per employee in 2020. But that cost is projected to jump to $922 per employee by 2023.
“One thing I can do as a business is just say, ‘Well, maybe I’ll just pay that person a little bit less.’ So I’m not really paying the tax, that person is earning less,” said Horowitz. “There’s a fair bit of research to suggest that’s actually what happens. That workers end up paying this tax through in the form of lower paychecks.”
Gov. Charlie Baker filed legislation in December that would keep employer contributions from skyrocketing by selling bonds. His proposal is still being considered.
“So that means instead of paying back the feds in a few years, we pay back bondholders over 30 years. It also means that we sort of carry debt for 30 years and probably into new recessions,” said Horowitz.
In addition to money paid on legitimate claims, businesses will also have to payback what the state borrowed to pay fraudulent claims. Scammers scored as much as $700 million from Massachusetts.
Mogan, who’s still waiting for his first unemployment check, suspects fraud is one reason his claim is taking so long to process.
He says someone tried to redirect his payments to another address after his initial claim was filed.
“Somehow, even after waiting two months to get my identity verified, my account still got hacked,” said Mogan. “It has been the most frustrating ordeal in my life for something that I can’t even get a straight answer for.”
Massachusetts is among at least 20 states that borrowed from the federal government to pay unemployment claims.
The Baker administration expects it will continue to need help funding unemployment through 2024.
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