[image_credit]MinnPost photo by Peter Callaghan[/image_credit][image_caption]Gov. Tim Walz has not yet decided how to approach the issue of how and when to pay the UI debt.[/image_caption]
At least not in Minnesota. And at least not yet.
To meet the surge in applications for jobless checks once the economic brunt of the pandemic hit in March of 2020, the state spent its unemployment surplus. It also borrowed heavily from the federal government to cover those payments.
But unlike a majority of states, Minnesota has not dipped into federal American Rescue Plan money to help repay the debt. Now lawmakers, and Gov. Tim Walz, will need to decide whether to follow current law and practice, which assesses employers for those costs, or look at other ways to lower the expected hike in payroll taxes.
There will be an increase in unemployment insurance taxes whichever way policymakers move, as new rates are already programmed into the system for next year. Those tax hikes will be much larger, however, if they are relied upon to pay back the federal loans, replenish the trust fund and pay the interest being charged by the federal government.
Those rates could increase by as much as 14 percent just to repay the borrowing. Notices of rates for 2022 will be sent this month, and whether those are the rates that will be applied when employers send their first quarter of 2022 payments on April 1 is up to the governor and legislators.
[image_caption]Lauryn Schothorst[/image_caption]
Legislature has time to act
Business leaders, and some lawmakers, think there are better ways to address the issue than to increase taxes on businesses still struggling with a litany of challenges, including the difficulty of recruiting and retaining workers and ongoing supply chain disruptions.
Minnesota could follow other states by dipping into unspent American Rescue Plan money, or it could use some of the expected state revenue surplus. Coincidentally, the debt owed the feds for covering unemployment insurance ($1.07 billion) is nearly identical to the ARP funds left on the table when the 2021 session adjourned ($1.15 billion).
“The biggest thing to take away from this is that it is a preventable tax increase,” Schothorst said. While the tax rates will be sent to employers this month, the payments aren’t due until the end of March 2022. “There is time for the Legislature to act.”
“Almost 30 states have used federal pandemic relief funds to avoid or lessen UI tax hikes on employers who were able to survive the past two years,” wrote seven members of the House GOP leadership to Gov. Tim Walz. “Minnesota has used none to help reduce UI debt to date, placing the entire burden on struggling businesses.”
In response, seven members of the Senate DFL caucus issued a statement calling the House GOP request “unconscionable.”
“These funds are meant for our recovery, not to enhance corporate profits,” wrote the seven. “As COVID-19 rates reach alarming heights in our state, and with the discovery of the new Omicron variant, it is all too likely that we will encounter further COVID-19 related expenses in the near future.”
But both of those groups of legislators are in the minority and won’t be making decisions on how to deal with the unemployment insurance debt. While they do show the two all-or-nothing options available, the end result could be something different.
Walz Press Secretary Claire Lancaster said the governor has not yet decided how to approach the issue of how and when to pay the UI debt. “The governor is looking at all options,” Lancaster said. “Our administration is listening to business leaders, legislators and workers to determine the best path forward.”
[image_caption]State Rep. Mohamud Noor[/image_caption]
“We need to have a consensus,” Noor said.
He said he is open to using money from surpluses or unspent federal dollars to ease the increases in payroll taxes, but there are competing uses for those dollars as well. “We have a new variant right now in the state of Minnesota and we’re trying to figure out where we stand,” Noor said.
There also remains a hope to spend $250 million in ARP money for bonus checks to essential workers and a desire to invest more in affordable housing. “The question is how and who and how much,” Noor said of the competing priorities.
The unemployment tax issue “is one of many things included in what we are looking into,” he said. “There is time. We’ll be in session.”
Noor also said that the state and federal governments have already done much to help businesses in Minnesota, from not penalizing sectors of the economy like hospitality that were hit unequally by layoffs with higher UI taxes to providing both large and small businesses with grants and forgivable loans.
Senate Jobs and Economic Growth Committee Chair Eric Pratt, R-Prior Lake, said in September that he favors using other funds like ARP to reduce the impact of the payroll tax hikes on employers.
[image_credit]MinnPost photo by Peter Callaghan[/image_credit][image_caption]State Sen. Eric Pratt[/image_caption]
Minnesota one of 10 states that still owes the feds
The federal government sprang for many of the extra unemployment benefits offered during the pandemic, such as the $600 a week top off to regular benefits as well as checks for gig and contract workers, and several eligibility extensions beyond the normal 26-weeks.
According to a report from the Tax Foundation, the federal government spent $660 billion across the U.S. for those benefits. In Minnesota alone, they totaled more than $7 billion and are credited with helping thousands of families and allowing the state recover from the recession in record time.
But regular benefits paid to the surge of laid off workers sapped the state’s trust fund and triggered borrowing from the federal government. Such borrowing is a normal part of the safety net by which states are expected to build UI surpluses in good economic times but can borrow from the federal government when a recession is deep enough to deplete their own accounts. Minnesota ran down its surplus of $1.5 billion and began borrowing; it is that debt that must be repaid now, including interest at a rate of 2.27 percent interest. Minnesota is one of 10 states that still have debt.
The federal system allows repayments to be made gradually over many years. And the state could use other funds to reduce the size of any payroll tax hikes, as the House GOP members proposed. During the last legislative session, the Minnesota Chamber of Commerce asked that $600 million in unspent ARP funds be used to lessen the need for payroll tax hikes.
In addition to the unspent ARP funds, Minnesota is expected to show a projected revenue surplus in the billions of dollars when the state releases its economic and revenue forecast Tuesday. Its rainy day savings account is $2.4 billion.
“There is time….” Right. I own a small business. On Jan 1, I need to know what my UI tax rate is. I may not have to pay it until the end of the 1st quarter, but my accounting system needs to be programmed to deal with this on Jan 1.
It would be nice if our elected officials had some vague clue of how the real world operates and had a sense of urgency to get their work done in a timely manner.
Good luck Mike. You are the “bad guy” – a small business owner.
I hope all of them remember what Walz and the DFL did to them in the last two years.
I suggest we try to understand the complexity of the problem. First of all, The employer’s (your) rate may be based on past history of hiring and layoffs. But this time, some employers may have taken PPP, and thus were forgiven for threat of losing ones employees due to the drop in business the COVID caused.
The new rate needs to be established by technical calculations in the midst of an all-out declared opposition to the Walz administration by the Republican Senate. This is their only issue– ANTI-WALZ.
You need the Department of Labor technicrats, commissioner and legislative committees to look in detail at the new rates, taking the COVID initiatives, COVID damages, and current UI rates into consideration.
The angry fighting and pretend scapegoats simply blur a pragmatic problem.
The issue is technical, not ideological. The R candidates cannot solve this without some rare form of cooperation with the DOL COVID problem.
They choose so far to simply blame Walz and do nothing to help, hence increasing anger and hate of the governor.
This may seem nitpicky, but that “There is time…” quote came from the Chamber of Commerce spokesperson, not an elected official or state government employee. I do agree that the Chamber should employ people who understand how the real world works as the positions they take would indicate they often don’t.
How is a desire to invest more in affordable housing in any way associated with COVID relief funds? Use the money to pay it back or some of the money and some of the budget excess. Minnesota is one of 10 that owes debt. I’m shocked. And 1 of 13 that taxes Social Security.
We are great and saying one thing for revenue and using it for something. Look back at when we approved the lottery. It was changed to the general fund (mostly) before the first ticket was sold.
Housing? No reply to my reply?
In a democracy, we discuss issues instead of making up more issues. I suspect you will not change your opinion and will continue to bark up the wrong trees.
Payroll accounting is not housing.
Walz’s administration is not Xi’s.
Did you read the article?
There also remains a hope to spend $250 million in ARP money for bonus checks to essential workers and a desire to invest more in affordable housing. “The question is how and who and how much,” Noor said of the competing priorities.
The reality is, decisions made by Gov. Walz using his “emergency powers”and the Minnesota Department of Commerce deciding who was “essential” forced businesses closers. These forced closures created much of this unemployment. To both force the closure of businesses creating unemployment and then raise UI insurance because of it, is unconscionable.
Nope, what closed businesses was the refusal to take Covid seriously and get ahead of it. Republicans hate business and jobs. That is why they elected business failure/trust fund kid Donald Trump as president.
What is the correct rate? Which businesses suffered from the forced closings? Which ones did not? Why do you think rates will be higher on your business?
This is not solved with ideology and anti-government ranting.
It is solved with democratic principles between Department of Labor officials, commissioners and the legislature (if they provide input and answers to the above.)
So when Big Box stores were allowed to be open and get products but Mom and Pop stores get regulated out of business by Walz and emergency powers, who should pay? Professional politicians have no idea about having to plan for taxes, payroll or any other expenses small businesses deal with.
Try a direct response to my points. Big box stores, mom-and-pops, Dollar (and a quarter) General. There are guidelines for COVID relief. If the employer was injured by COVID there are programs. Trump used PPP and other COVID relief programs– maybe he got your share (haha).
Do you need COVID relief for your business? APPLY.
Richard I’m fairly sure you’ve never owned a business. If you had, you’d know that the money provided by the government for covid relief was a drop in the bucket, assuming you would even qualify. Those programs did not make anyone whole by any means.
You’re wrong about me. I guess I have no reason to believe you either.
As a former multiple business owner, I will tell you that Minnesota has one of the highest Unemployment insurance rates in the country. Taxes, and the cost of doing business in Minnesota was a huge consideration when I sold them. I also owned the exact business in Wisconsin, and my costs were over 50% less than Minnesota.
I’ve never really understood why the Democrats in Minnesota don’t understand this. Maybe they do, but they don’t care.
Regardless, to think that businesses should now pay the increased rate is nothing more than a giant slap in the face to small business. Allowing the big box stores to stay open, while they were shuttered was the nail in the coffin in my opinion.
Use the Rescue Plan money to cover the shortfall. Such a no brainer. If Walz doesn’t, I predict he loses the general election next year. And you can take that one to the bank.
Which state did you open your business in first, cause if it was Wisconsin, and then you thought to expand to Minnesota and you saw expenses were so much higher, one wonders why you even made the move, or, the 50% number is fabricated. I’m going for the later.
Minnesota first. I’ve lived there most of my life
Wisconsin has a property tax rate for all property based on valuation. MN has a separate commercial tax, which is considerably higher
Let’s hope he loses. He never has had any “skin in the game”. Always on the public teat.
I have had or do have several business, plus a full time career.
A projected 7 billion surplus. Thw obvious answer is to raise taxes to repay rhe debt
I just had my year end conference with my accountant. His opening line: “60 percent of my clients just had their best year ever.” Part of that…the gift from the Feds and the State of making the PPP money tax free. Now that’s a windfall. Minnesota’s a great place to do business, the long-standing success of Minnesota and the metro in attracting, retaining, and growing business is clear. We pay a bit more (not a lot more than most) in taxes, but we get a more in services. For all its challenges, Minnesota works.
Would it be nice to get yet another gift and have the state use the “free” federal money to pay off the unemployment loan? Sure, I’d take another windfall. Why not? But there are tons of other needs. All the complaining and belly-aching has gotten really old. If you business model is worn out, maybe you should take your failing business and move to Wisconsin, or Texas, or wherever. If not, just do your job, make payroll, pay your taxes, and quit complaining. That’s what I’m doing.
You obviously have never owned commercial property, nor have you owned a business in Minnesota. I have. I also owned both in Wisconsin and Florida. All you need to do is pull up tax rates for all states, and you will see the differences. And yes, this is why business owners in MN and most of the northern states are selling and moving.
Now you tell Scott what his experience offers and even make the claim he knows nothing about commercial property (and you do!), because you know he never owned any?
Your posts are disrespectful, inaccurate and pretentious.
Don’t worry Scott, she told me I never owned a business despite the fact that I grew up in one, started another and made my living from my own proprietorship.
Ms. Larey you should stop telling others who they are. RESPECTFULLY.
This isn’t sane. The state of Minnesota just over taxed its citizens by almost 8 billion dollars. Give it back. All of it. So your accountant says 60% of his clients had “their best year ever”. Good for them. Thats why they went in to business. I can’t help that the government decided to give away 3 trillion dollars that your kids, grand kids, great grand kids and great great grand kids will have to pay for. All I hear when you say “pay your taxes” is that you don’t pay much. Go ahead and take another windfall. Someone else is paying for it.
Use the surplus!
I agree – to give back to taxpayers – not non-taxpayers
Sadly, I just meant using $1 billion of the surplus to pay the unemployment debt which encouraged workers to stay home rather than work. But debts must be paid. I would just bank the rest of the money because it will likely be gone within 3 years.