Massachusetts must pay the federal government $2.1 billion over the next decade after the Baker administration mistakenly used federal pandemic funds to cover unemployment benefits, officials said Monday.
Gov. Maura Healey, who succeeded Baker in 2023, and her deputies unveiled details of a settlement they reached with the outgoing Biden administration Friday in which the Bay State will repay most but not all of the amount it owed due to the error committed years ago.
The settlement saddles the state with a major new cost at a time when budget-writers are grappling with a series of other headaches and the unemployment insurance system already faces fiscal problems.
Healey announced in the summer of 2023 that her team discovered the Baker administration improperly used about $2.5 billion in federal pandemic relief funds to cover jobless benefits that should have been paid by the state.
With fees and interest, the total liability surpassed $3 billion, according to Healey’s office, who said talks with with the U.S. Department of Labor reduced the amount owed to $2.1 billion over the next 10 years.
The parties reached a deal at the end of last week, before Republican President Donald Trump took office.
“We were dismayed to uncover early on in our term that the previous administration misspent billions of dollars in federal relief funds and that our state was facing what could have been a more than $3 billion tab to pay it back,” Healey said in a statement on Monday. “For the past year and a half, we have engaged in extensive negotiations with the U.S. Department of Labor to minimize the impact on Massachusetts residents, businesses and our economy. Today, we have reduced our potential liability by over $1 billion and negotiated a decade long payment window to mitigate the impact.”
She added: “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…