Business

The terms of payback remain unclear nearly two months after the state learned the former Baker administration erroneously used $2.5 billion in federal pandemic-era relief funds to cover unemployment benefits.

Whether or not Massachusetts is even on the hook for the money remains an open question.

The U.S. Department of Labor is in the middle of conducting “independent compliance and oversight work” with state officials, a department spokesperson said. A timeline for when that work will be completed was not available on Tuesday, with the spokesperson saying they had “no other information” in response to follow-up questions.

“The department appreciates the full cooperation of the state in understanding the scope of the problem, its causes, and any necessary corrective action required,” the spokesperson said in a statement to the Herald.

The June revelation that the Baker administration used $2.5 billion in federal dollars to pay off pandemic-era unemployment benefits, which should have been funded through state coffers, immediately loomed large over Beacon Hill.

Larger still is whether Massachusetts will have to find a way to pay back the federal government or if the state can breathe a sigh of relief and keep the error in the past.

In the meantime, state lawmakers have sent Gov. Maura Healey the fiscal 2024 budget and continue to negotiate a tax relief bill in private, among other legislative spending initiatives. Healey said Wednesday that the $2.5 billion error is not holding up tax relief discussions.

A spokesperson for Healey’s Executive Office of Labor and Workforce Development did not have any updates on the situation when reached for comment.

“The administration is continuing its discussion with [the Department of Labor], and we appreciate DOL’s collaborative approach,” the spokesperson said in an email to the Herald. “Our goal remains focused on reaching a resolution with DOL that minimizes impact to the commonwealth, especially Massachusetts employers.”

The error stems back to 2020 when former Gov. Charlie Baker’s Executive Office of Labor and Workforce Development’s finance department started to over withdraw the roughly $2.5 billion in federal relief funds to pay off unemployment benefits. The withdrawals continued throughout the pandemic, according to Healey administration officials.

The Unemployment Insurance Trust Fund, which local employers pay into, should have been used to cover the payments, according to the Healey administration. Because the error was the result of the source of funding, state officials said there was no impact to claimants.

The discrepancy was discovered this year by the Healey administration and was previously missed by multiple audits. The error also went undetected by an outside accounting firm hired in 2021 to conduct a “forensic review” of the Unemployment Insurance Trust Fund, Healey administration officials said.

Officials at the Executive Office of Labor and Workforce Development working under Healey have said the over-withdrawal points to the need to address the “fractured” online unemployment insurance system.

A Baker spokesman said in June that officials “worked hard” to set up new processes to ensure people received unemployment payments during the pandemic, including distributing tens of billions of dollars in benefits over two years.

“When complications were discovered, the administration immediately engaged an experienced outside consultant to help with reconciliation of the UI Trust Fund balance. The consultants issued a public report in December of 2021 that identified $300 million Massachusetts owed to the federal government, and the state acted quickly to resolve that issue,” the spokesperson, Jim Conroy, previously said.