BOSTON -- A state fund that pays for jobless benefits will be more than $2.4 billion in the hole by the of the year, and that will likely mean higher taxes next year for business owners.

The Unemployment Trust Fund, which totaled $1.1 billion last year, had a deficit of nearly $750 million as of July 31 amid a tsunami of unemployment claims tied to the coronavirus pandemic, according to the latest data by the state Executive Office of Labor and Workforce Development.

By Dec. 31, the deficit could mushroom to $2.4 billion, the agency said. Next year, the fund could be nearly $5 billion in the red.

“As a result, Massachusetts will need to rely on advances from the federal unemployment insurance account,” the agency noted in a report.

Massachusetts has already borrowed at least $1.3 billion from the federal government to replenish the fund, according to the U.S. Treasury Department. The state has also received funds from the federal CARES Act, a pandemic relief package approved by Congress and signed by President Donald Trump.

But businesses that pay into the state’s unemployment trust fund will also need to dig deeper to keep it solvent.

Contributions paid by employers are projected to increase by nearly 60% next year, from an average per employee cost of $539 to $858, according to the Labor Department’s projections. The employer contribution will rise to $925 over the next four years.

The Baker administration says current contributions aren’t sufficient to cover the cost of keeping benefits flowing to the jobless, even with help from the federal government.

Business groups say the tax hikes will add to the financial burden of employers struggling to reopen after months of being shut down.

“It’s a huge problem,” said Christopher Carlozzi, Massachusetts state director of the National Federation of Independent Businesses. “In one breath, the state is looking to these businesses to create jobs, but it’s also making it far more expensive to create that job by increasing unemployment taxes.”

While the number of workers filing new unemployment claims has slowed, the state’s 16% unemployment rate in July was the highest in the country.

Nearly 1 million jobless workers are still collecting regular state unemployment benefits and federal pandemic-related benefits.

Unemployment benefits in Massachusetts are capped at 30 weeks, though most people only qualify for 26 weeks. How much someone gets from unemployment depends on a number factors, but the weekly benefit generally amounts to half of someone’s regular wages.

Jobless workers got an extra $600 per week for 13 weeks from the federal CARES Act, on top of regular state unemployment benefits. The federal government is also providing pandemic-related unemployment benefits to jobless workers who don’t qualify for state regular benefits.

Greg Sullivan, a senior analyst at the Pioneer Institute, a Boston-based think tank, said the federal government could ease the burden on business owners by reimbursing the state for the trust fund’s deficit or forgiving some of the loans.

He said the state Legislature could also borrow money to pay down the deficit or freeze employer contributions to the unemployment trust fund, as it did during the Great Recession.

But saddling business owners with the cost of replenishing the fund would hurt the state’s economic recovery, he said.

“It’s like throwing an anchor to a drowning person,” he said. “These businesses are just starting to recover and they’re getting hit with a big bill.”

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhi.com.

 

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