The Senate bill, which passed Tuesday in a vote of 35-0, would require the agency to waive the recovery of improperly paid benefits if they were distributed more than three years ago. The first cases of COVID-19 in Michigan were identified in March 2020, five years ago. The pandemic and government efforts to combat the spread of the virus spurred a rush of unemployment claims and a wave of fraud.

The bill still allows the state to seek repayments that were “the result of the claimant’s fraud.”

Both Democratic and Republican senators — Democrats have a majority in the Senate — voted for the measure Tuesday. However, it will have to be approved by the GOP-controlled House and signed by Democratic Gov. Gretchen Whitmer to become law.

Jason Palmer, the Unemployment Insurance Agency’s director, said in a statement on Sept. 8 that his staff was “legally obligated” to seek the repayments from the pandemic if they were improper. Roughly 350,000 workers with claims in collections dating back to March 2020 would be required to return the unemployment benefits they received, the agency has said.

The value of the overpayments, many of which lawmakers believe were made or sought by accident, has been estimated at $2.7 billion. The Unemployment Insurance Agency faced a tidal wave of claims and fraudulent activity during the COVID-19 pandemic, as the state’s jobless rate reached as high as 22.7% in April 2020.

Palmer has said the overpayments primarily resulted from claimants not providing the requested or required proof of employment or income, starting a job but continuing to certify for benefits as if they were unemployed and not satisfying the required work search activities.

“In these situations, we have a legal and fiduciary duty to recover the funds,” Palmer previously said. “The unemployment trust fund is taxpayer money, and we must be responsible stewards of it.”

Much of the unemployment money in question flowed through the federal government. Many business groups, like the National Federation of Independent Business, have voiced concerns that the U.S. Department of Labor might try to force the state to reimburse the federal government for the overpayments if they’re specifically forgiven by the Legislature.

“We would still like to see a waiver or waiver language because we don’t want to see the state end up with a budget crisis,” said Amanda Fisher, Michigan state director for the National Federation of Independent Business.

Lawmakers attempted to address that concern in the bill by adding a provision that says the new policy doesn’t obligate the Unemployment Trust Fund for any amount of money.

Brian Calley, president and CEO of the Small Business Association of Michigan, called the new language an improvement. But Calley said he wants to see a specific statement in the bill that makes it clear that employers will not be assessed any additional liability because of the policy.

Forgiving the overpayments isn’t the problem, Calley said. It’s the potential liability to the small businesses that fund the Unemployment Trust Fund, he said.

“You could inadvertently create a massive obligation for small businesses,” said Calley, a former lieutenant governor.

Senate Minority Leader Aric Nesbitt, R-Porter Township, who’s running for governor, was among 16 Republicans who voted for the bill Tuesday. He said it was a shame that lawmakers were still dealing with the “ineptitude” of Whitmer’s administration.

From the other side of the aisle, Irwin said the Unemployment Insurance Agency was acting “irresponsibly” in seeking the repayments from the pandemic.

“They bully our residents,” Irwin said. “I’ve had residents … who have paid UIA back money, not because they owed, but because they’re scared. They’re bullied. And they’re harassed by the agency.”

Sen. Darrin Camilleri, D-Trenton, the proposal’s sponsor, called on the House to pass it next week before the holidays.

“They should do the right thing,” Camilleri said Wednesday in an interview.

cmauger@detroitnews.com