Legislators should use federal funds, not the surplus, to pay back unemployment insurance loan

As the legislature convenes at the end of the month, one of their priorities will be figuring out how to pay back Minnesota’s unemployment insurance debt. The debt, which now stands at $1.19 billion, has accrued about 6.8 million in interest since the beginning of September.

Minnesota remains one of the only nine states that have not paid the federal government back for over $1 billion it borrowed to cover deficits in the unemployment trust fund. While Minnesota’s loan size is small compared to most other states –– like California’s $19.7 billion –– it is high enough to trigger unemployment tax hikes for employers.

Everyone would agree that, at a time when employers are having a hard time finding workers, anything raising the cost of hiring would hinder our recovery. So, prioritizing paying back the loan is a no-brainer.

However, with $1.1 billion of unspent federal relief funds, legislators must not rush into digging into Minnesota’s surplus to pay back the federal government. They need to do what most states have done –– use the unspent American Rescue Plan (ARP) funds to cover the debt.

In fact, this is something that should have been done when the U.S. government ruled that states could use ARP funds to pay the federal government back. Currently, unspent ARP funds total $1.15 billion –– enough to nearly cover the total debt.

Legislators should prioritize using unspent ARP funds over the surplus to cover total debt. And to ensure that Minnesota does not accrue any more unnecessary interest charges, they need to do so quickly.

The state should give back the surplus

Paying back unemployment debt and paying it quick is the optimal legislative choice. But the surplus belongs to taxpayers and the state should give it back. Using the unspent ARP funds is the only way to ensure that Minnesota repays the loan and taxpayers also get their money back — all while sidestepping tax hikes on employers.