Minnesota Legislature passes bill on Unemployment Insurance Trust Fund, frontline worker payments

Joo Ning Lim
May 19, 2022

After months of negotiation, the Minnesota Legislature recently passed legislation that addressed three major issues of this session:

  • whether to allocate funds to the state’s Unemployment Insurance Trust Fund,
  • how to make good on last year’s agreement to provide financial payments to frontline workers, and
  • how to allocate the remaining $1.2 billion of state flexible federal dollars.

Senate File 2677/House File 3166 allocates $2.7 billion to the Unemployment Insurance Trust Fund and $500 million for payments for frontline workers whose jobs put them at great risk during the COVID-19 pandemic. This bill would use $2.3 billion in American Rescue Plan (ARP) funding to fill up the Trust Fund, leaving nothing remaining for investments in other areas.

We are glad that action has finally been taken to recognize the health threats that Minnesota’s frontline workers faced to keep the economy going during the pandemic. However, it’s a real lost opportunity that policymakers did not enact needed worker-friendly UI changes, and that support for employers was not targeted to those who most needed it, taking up important resources that could have gone to other efforts to address the heath and economic effects of the pandemic and build a more equitable recovery. 

Resources allocated to UI Trust Fund provide untargeted tax benefits

Senate File 2677 allocates $2.3 billion of the state’s flexible federal ARP funding and $406 million from the general fund in FY 2022 to the Unemployment Insurance Trust Fund. 

Typically, the UI Trust Fund is funded by Unemployment Insurance taxes paid by employers. Funds build up over time and are then used to pay UI benefits for jobless workers. If the Trust Fund does not have enough resources to cover UI benefits to jobless workers, states can receive loans from the federal government. 

As a result of the pandemic when UI benefits were in high need, Minnesota’s UI Trust Fund was depleted and Minnesota, like many other states, took a loan from the federal government. Minnesota already has an established process to replenish the UI Trust Fund and pay back federal loans gradually over time through additional UI taxes and assessments on employers.

For the most part, those additional UI taxes and assessments were scheduled to begin this calendar year. This legislation prevents that from happening, using state resources instead to pay back the federal UI loan and raise the balance in the UI Trust Fund so that no additional tax rates or assessments are triggered.

The benefit of this action goes to all employers who pay into the UI Trust Fund; it is not targeted specifically to employers who were hard hit during the pandemic or are struggling during this uneven recovery.

Policymakers had multiple opportunities to improve the UI system for workers, not only employers. The final legislation fails to include provisions that had passed the House, including repealing a current law that prevents hourly school workers from claiming UI benefits. This leaves in place a policy that especially harms lower-income, female, and BIPOC workers, many of whom faced significant health risks during the pandemic. It also failed to address barriers that workers face to being able to claim UI after they’ve lost their jobs.

Payments for frontline workers

Under the House and Senate agreement, an estimated 667,000 workers will qualify for this “hero pay” that is currently estimated to be about $750 each, but will depend on the number of workers who apply. Earlier this year, the House called for $1 billion for frontline worker payments that would allow eligible workers to receive up to $1,500. The state’s historic budget surplus and ARP dollars provided an opportunity to do more than the $250 million for this purpose that policymakers agreed to last year, but had not yet been allocated.

Importantly, the final bill’s language determining eligibility was adapted from the House bill’s more comprehensive approach, and includes some of the lowest paid frontline workers in fields such as long-term and home care, courts and corrections, health care, child care, food service, retail, maintenance, meatpacking, and manufacturing. It also includes emergency responders, school workers, and transportation workers. The Senate had proposed a narrower definition of eligible workers, including first responders, law enforcement personnel, and health care and long-term care workers. 

Details of the frontline worker payment program and how people can apply for it can be found on the Department of Labor and Industry’s Frontline Worker Pay website.

How this bill uses ARP and general fund dollars

In total, this bill allocates $2.3 billion of ARP dollars and $2.3 billion of general fund dollars over the FY 2022-23 and FY 2024-25 budget cycles.  

In addition to the $1.2 billion of flexible ARP dollars that were left to be allocated this session, the bill makes additional ARP available by reversing decisions made last year to use $1.2 billion of ARP funds to fund the state budget in FY 2022-23 and FY 2024-25. The federal government permits states to use their flexible ARP funds for “revenue replacement”, recognizing reductions in state revenues caused by the pandemic. Under Senate File 2677, $1.2 billion in state general fund resources were allocated over FY 2022-23 and FY 2024-25 to fund the budget instead of the ARP dollars allocated to revenue replacement last year. 

This means that essentially Minnesota has used up all its flexible ARP dollars, leaving only a nominal balance of $1,000. 

In addition to the UI Trust Fund and frontline worker issues, this legislation also allocates $190 million from the general fund for future COVID management expenses. Governor Tim Walz has authority over how these funds are used to address pandemic-related needs. Any expenditure greater than $2.5 million will be reviewed by the Legislative COVID-19 Response Commission, which was established in 2020 to review COVID related expenses. This is similar to special COVID funds set aside in earlier years for Walz to use for flexible and nimble responses to COVID.