Businesses Face Higher Taxes After MN Legislature Fails to Reach Deal on Unemployment Insurance

Talks have broken down, with both sides blaming each other.

The Minnesota Legislature has so far failed to come to an agreement to replenish the state’s unemployment insurance (UI) trust fund. If a deal isn’t done soon, it could cost local businesses a lot of money.

The divided Legislature is tasked with coming up with a plan to repay the debt and rebuild the trust fund, setting a goal of March 15 in order to prevent tax increases on businesses that would be used to replenish the fund. And that deadline has passed.

This all stems from the start of the COVID-19 pandemic. An increase in unemployed Minnesotans depleted the state’s UI trust fund, forcing the state (and a dozen other states in similar situations) to borrow more than $1 billion from the federal government to pay out unemployment claims. Minnesota’s UI trust fund is currently more than $1.3 billion in debt.

The Minnesota Legislature hasn’t struck a deal on a UI trust fund fix despite discussing the issue since December, but both Democrats and Republicans agree it needs to happen. So what’s the hold-up? Let’s break it down.

Linking bonus pay to UI fix

To put it simply: The DFL-controlled House wants to link the UI trust fund fix to frontline worker bonuses. Democrats want Republicans to approve a bill the House passed last month that would use $1 billion of the state’s budget surplus to provide up to $1,500 in hazard pay to about 667,000 Minnesotans who worked on the frontlines during the COVID-19 pandemic, including first responders, nurses, child care providers, janitors, meat plant workers, and others.

However, the GOP-controlled Senate doesn’t want to link so-called hero pay with the UI fix, creating a stalemate. The frontline worker bonus pay proposal has been stalled for months despite lawmakers promising workers bonus pay in June 2021, albeit Senate Republicans want a smaller package targeting fewer frontline workers than Democrats are proposing.

The Senate passed a $2.7 billion bill in February to pay off the debt and replenish the UI fund (something Gov. Tim Walz, a Democrat, expressed support of).

But Democrats are tying an issue they want — enhanced frontline worker hero pay — with an issue Republicans want — replenishing the UI trust fund — in hopes of guaranteeing the DFL gets what they want. MinnPost wrote all about this strategy known as “linkage” last month, calling it a “storied legislative technique” that’s “praised when your side uses it, condemned when the other side does.”

House Speaker Melissa Hortman, DFL-Brooklyn Park said Republicans need to stand by the pledge they made last year to provide bonus pay for workers. The Senate has yet to vote on or introduce a hero pay proposal.

“If the Senate Republicans aren’t willing to live up to the agreement that we made in June to Minnesota’s workers who were on the front lines during COVID-19, it’s going to be a long, tiring session,” Hortman said, according to MPR News.

Senate Majority Leader Jeremy Miller, R-Winona, hasn’t said the Senate won’t vote on hero pay but has stressed it shouldn’t be linked to the UI trust fund issue.

“House Democrats want front-line worker pay. Senate Republicans want permanent, ongoing tax relief. The governor has proposed one-time checks,” Miller said. “Let’s put all the proposals on the table to put more money back in the pockets of Minnesotans, but that’s a separate discussion than UI,” Miller said, according to MPR.

Hortman noted there isn’t a reason both sides can’t come to an agreement, the Minnesota Reformer said. She said, “It’s not like we’re debating gun violence prevention policies or Roe vs. Wade. There’s a middle. This is really a math problem. Of all the negotiation problems we have to solve, math ones should be the easy ones.”

Walz has also joined in on the negotiations, which lasted about 15 minutes earlier this week before Hortman walked out, telling the Reformer the GOP’s negotiating position was “A pile of bull crap on top of a pile of bull crap.”

Costly to businesses

While lawmakers have missed the March 15 deadline, businesses don’t technically have to pay the quarterly tax bill until April 30.

However, Minnesota DEED Commissioner Steve Grove said on March 11 it was important to pass a $2.73 billion bill for the UI trust fund to stop tax increases on businesses, noting employers have already started submitting tax information and are paying a higher rate. Grove said the rate goes up “dramatically” after March 15.

First-quarter business tax bills could go up by 30% on average if a deal isn’t reached, reports note.

Now that the deadline has passed, employers are facing an accounting headache even if lawmakers reach a deal before April 30. Grove explained:

“UI taxes are complex, and we want to make sure everyone has an accurate, timely bill. Delaying past March 15 creates confusion for businesses, and it might take months to recalculate bills and provide refunds to businesses who overpay.”

(Bring Me the News)