Massachusetts owes the federal government $2.1 billion. Here’s why.

BOSTON – Massachusetts Gov. Maura Healey announced Monday that the state has agreed to repay the federal government $2.1 billion because of a mistake made years ago with pandemic-era unemployment benefits. 

An audit revealed “an improper overdraw of federal pandemic unemployment benefits,” a statement from the governor’s office said. Healey said that former Gov. Charlie Baker’s administration “misspent billions of dollars in federal relief funds” on unemployment payouts that were supposed to be covered by the state.

Massachusetts to pay back money over 10 years

Healey said her administration has negotiated with the U.S. Labor Department for the past year and a half to reduce the state’s tab that could’ve been more than $3 billion with penalties and interest. Starting in December, Massachusetts will pay the money back over a 10-year period. Anyone who received jobless benefits during that time will not be impacted, Healey’s office said.

“It is incredibly frustrating that the prior administration allowed this to happen, but we are going to use this as a moment to come together with the business and labor community to make meaningful reforms to the Unemployment Insurance system,” the governor said in a statement.

The agreement was finalized with former President Joe Biden’s administration, just before President Donald Trump took office. 

“Monumental error”

The National Federation of Independent Business said that small businesses in the state are already being “crushed” by unemployment insurance taxes.

“It is incomprehensible that the state made a monumental error, and it’s Massachusetts small employers that are required to today foot the $2.1 billion bill,” Christopher Carlozzi, the group’s Massachusetts state director, said in a statement.

Healey said businesses won’t see a hike on unemployment insurance rates through at least 2026. Whether they go up in the future depends on what the state does to reform the unemployment insurance system, she said.

The system is expected to be giving out more money than it takes in by 2028.

“We know Massachusetts’ unemployment insurance requires reform, especially as we focus on the long-term solvency of the UI trust fund,” Labor and workforce development Sec. Lauren Jones said in a statement. “Our administration is committed to working with all partners to propose and implement policy and system improvements that support employers and impacted workers.”