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The messy fight over Minnesota’s unemployment insurance trust fund, explained

What to know, why it matters — and what it portends for the rest of the 2022 session. 

House Speaker Melissa Hortman, leaving an unemployment insurance trust fund meeting after just a few minutes Tuesday: “I’m not wasting my time.”
House Speaker Melissa Hortman, leaving an unemployment insurance trust fund meeting after just a few minutes Tuesday: “I’m not wasting my time.”
MinnPost photo by Peter Callaghan

After a series of top-level meetings this week aimed at solving the first — but hardly the last — political crisis of the 2022 Minnesota Legislative session, a solution to the issue seemed further away than it had before. 

That issue is whether, when and how to fix Minnesota’s Unemployment Insurance Trust fund, which was drained during the COVID pandemic and had to borrow money from the federal government to keep checks flowing.

But legislative leaders now not only can’t agree on the size of the problem (is it $2.7 billion or $1.5 billion?), but also when the deadline for action is (March 15 or April 30?) and even whether an agreement on the related topic of bonuses for frontline pandemic workers is still valid.

“I’m not wasting my time,” said House Speaker Melissa Hortman, a DFLer from Brooklyn Park, as she left a meeting on the issue after just a few minutes Tuesday. 

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Without a resolution, higher taxes will start being assessed on businesses to gradually refill the trust fund and to repay the feds, even as Gov. Tim Walz continues to try to broker a deal to reduce those increases — and craft a way to refund or credit employers who are getting bills reflecting 30 percent rate hikes starting this week.

Here’s what you need to know about the issue, how it is affecting other legislation at the Capitol, and what it portends for the rest of the 2022 session: 

What are they fighting about?

When COVID hit in the spring of 2020, Minnesota’s UI trust fund had $1.7 billion in reserves, about what federal rules require. But the massive increase in jobless claims caused by government-order shutdowns quickly drained the fund.

The state-federal system allows state funds that get hit hard by recessions to borrow from the federal treasury to cover their UI obligations. During COVID, that was just for regular UI benefits — the federal government covered the entire cost of the extra pandemic benefits, including the $600 per week top off and checks for gig workers and contract workers. One the recession ended and the state got back on its feet, an automatic premium rate hike on employers was triggered in order to repay the loan to the feds, which now totals $1.35 billion. The state has accrued $10.3 million in interest owed.

Gov. Tim Walz: “At this point of time, with inflationary pressures, Russian aggression and activities in Ukraine, I think it makes a lot of sense.”
MinnPost photo by Peter Callaghan
Without a resolution, higher taxes will start being assessed on businesses to gradually refill the trust fund and to repay the feds, even as Gov. Tim Walz continues to try to broker a deal to reduce those increases.
Walz has proposed using some of the state’s massive surplus — $9.25 billion in state funds and $1.1 billion in unspent federal American Rescue Plan money — to repay the loan and get the UI trust fund back to $1.7 billion. Walz reasons that while employers are usually responsible for covering all costs of jobless insurance, the pandemic was the reason for layoffs, and he wants the state to help businesses impacted by COVID closures. Other states have used federal ARP funds to repay their loans.

All Republicans and many DFLers agree with Walz. But House DFL leadership has a different position, preferring to repay the loan but then only fill the fund enough for it to cover jobless checks and stop borrowing. Then, a much-smaller premium hike could gradually be used to build up the trust fund.

Does this have anything to do with so-called “Hero Checks” for essential workers who couldn’t work from home during the pandemic?

It has nothing to do with the checks, say Republicans. UI is a separate issue and action is needed to stave off large payroll tax hikes required by current state law. And they argue that businesses still digging out from the recession, additional closures, a tight job market and inflation don’t need a tax hike right now. 

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It has a lot to do with frontline worker bonuses, say DFLers. While there is disagreement as to how broadly the tax relief for unemployment insurance premiums should be spread — i.e. whether big corporations should benefit — DFL leadership supports using federal funds and the surplus for the job. But those same sources should also be used to keep the promise made by both parties last spring to deliver $250 million in bonuses to workers, DFLers say.

But aren’t DFLer lawmakers and Gov. Walz now calling for $1 billion in bonuses?

Yes. DFLers, including Walz, now say that since the surplus has grown so much since the original bonus pool of $250 million was agreed to, the pot should be increased to $1 billion. 

Republicans initially insisted that only direct care health care workers and first responders should get bonuses. A smaller pool of workers would allow checks to be in the $1,500 range. DFL leaders want a much-larger group of workers rewarded, including meat packers, grocery workers, day care staff and others. 

By growing the pot to $1 billion, the checks could still be in the $1,500 per worker range.

Senate Majority Leader Jeremy Miller had said $250 million is the top offer. Then last week he appeared to walk away from even that. Hortman’s storm off from that closed-door meeting last week reportedly came after the Miller said the deal agreed to by his predecessor Paul Gazelka was null and void once a group of lawmakers failed to reach a deal on distribution by last Labor Day.

When do they have to reach an agreement?

Legislatures are deadline driven because few politicians want to give up any positions before they absolutely have to. Each session, leaders list bills and issues that could be and should be resolved early. They rarely are, often waiting until the statutory adjournment date each May before passing a flurry of bills. 

Agreement becomes especially difficult when the two sides can’t agree on what the deadline is. State Department of Employment and Economic Development Commissioner Steve Grove, a Walz appointee, has been saying he needed the system fixed by March 15. That is when statements were sent to employers listing the amount owed for the first three months of the year. If the rates were being lowered to reflect a decision to repay the loans and refill the trust fund without rate hikes, Grove wanted to know so he could assess employers less. 

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Why shock employers with a higher bill when they won’t really have to pay it, he reasoned. And repayment won’t be easy, or fast. 

DFLers, however, called that date artificial. Those first quarter payments aren’t due until April 1, and no late fees or penalties are charged to employers until April 30. So Hortman says that’s the real deadline.

Walz agreed with Grove, but he also didn’t want to undercut the position taken by fellow DFLer Hortman. And so he now says DEED is working out ways to either refund or credit overpayments should the higher premium be canceled. 

This week, however, Walz admitted the burden that solution places on employers — from both a bookkeeping and cash flow perspective. If employers eventually get the money back, after all, they still have to find a way to pay it now.

“The only bad outcome in this deal is not getting a deal,” Walz said.

Don’t party lines seem more porous on this issue than normal?

Yes. Ten DFL state Senators voted for a $2.7 billion bill to replenish the fund bill in February, and Walz has been in agreement with GOP leaders, both on the total cost and on not linking it to Hero Checks. There are some DFLers in the House who support that approach as well.

But Hortman has something of a raucous caucus on this issue. Her more left-leaning members think the whole thing is a gift to big corporations, and if there was a way to reduce the tax on smaller employers and keep the higher rates in place for larger ones, they’d likely support that.

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Also, every dollar put into this problem is a dollar less to spend on other priorities, though the surplus has continued to grow, most recently from $7.75 billion in December to $9.25 billion in February. 

So what does this say about the rest of the session?

It is common for leaders to fight early on and then reach a deal at the end. But there has to be both a desire to reach a deal and a working relationship among the leaders to get there. In 2019, the rapport among Walz, Hortman and Gazelka made a budget deal possible. By 2021, the Walz and Gazelka relationship had soured over the pandemic response and Gazelka’s pending campaign for governor. This is the first test of how Miller will lead his caucus and work with Walz and Hortman.

“What Sen. Miller thinks negotiations consist of is him repeating his positions over and over again,” Hortman said. “I haven’t seen Sen. Miller negotiate, so I can’t give him a grade. Maybe incomplete?”

Miller described himself disappointed and sad that Hortman left the last meeting early. But he then restated that the UI fix will not be linked to any other issues. Once it is passed, he said he would have a discussion about what to do with the rest of the surplus, whether that’s tax cuts, rebates checks, or spending.

“The unemployment trust fund has a deadline of today,” Miller said Tuesday.

Said Walz: “The leadership is going to have to recognize the art of compromise. They’re gonna have to realize that to get this thing done, they’re gonna have to do frontline worker pay. I want both of these things to pass.”

Senate Majority Leader Jeremy Miller on Tuesday: “The unemployment trust fund has a deadline of today.”
MinnPost photo by Peter Callaghan
Senate Majority Leader Jeremy Miller on Tuesday: “The unemployment trust fund has a deadline of today.”
Unlike 2019 and 2021, when budgets were needed to abort government shutdowns, nothing has to happen this session. While both parties have designs on spending the surplus, GOP leaders might prefer to wait until after the election. At the same time, GOP incumbents are just as willing to brag about accomplishments — be they spending plans or tax cuts — as DFL incumbents. 

Why are there so many other issues tied to this one?

You’re new here, aren’t you? 

In the Minnesota state Legislature — with the House controlled by DFLers and the Senate controlled by Republicans — it seems both parties are constantly seeking ways to get the other body to do things they wouldn’t normally want to do. One of the ways caucus leaders do that is by linking something the other side wants with something they don’t want.