Private sector businesses are Minnesota's economic engine, providing opportunity and quality of life for citizens across our state. They have weathered a 20-month storm of constant uncertainty, taking every step possible to keep their businesses afloat, and their employees and customers healthy and safe.
As the economy recovers, they continue to grapple with disrupted supply chains, inflation and the worst workforce shortage in a generation.
But recently, many of them opened their mail to find an additional bill from the state — double-digit payroll tax increases.
Here's the background: When businesses were shut down early in the pandemic, hundreds of thousands of workers accessed unemployment insurance. By May of 2020, unemployment hit a record high 11.3%, and the state's unemployment insurance system processed nearly 800,000 applications. This emptied the Unemployment Insurance (UI) Trust Fund, which now has a deficit of over $1 billion.
At the same time, relief funds flooded into the state. The federal Coronavirus Aid, Relief and Economic Security (CARES) Act provided $2 billion, and the federal American Rescue Plan Act (ARPA) provided $2.83 billion, to help with pandemic related expenses. Most other states — 31 of them, to be exact — used relief funds to replenish unemployment. But Minnesota didn't use a dime for this purpose.
The state is now flush with cash. In addition to more than $1 billion in unspent federal funds and a $7.7 billion surplus, the state holds more than $2.6 billion in reserves. State spending will increase by 12% in this budget.
But if policymakers don't use this historic surplus and existing federal funds to replenish the UI Trust Fund, they would allow employers to be hit with double-digit increases in their UI payroll taxes.
Employers statewide are in fierce competition for workers, which means increasing wages, enhancing benefits, providing tuition assistance and training, offering greater employee flexibility, signing bonuses and more. Double-digit payroll tax increases make offering those enhancements and hiring more workers that much harder, or impossible.
When asked about this issue, Gov. Tim Walz said, "We'll get that one in negotiations. We'll get that one fixed."
Businesses have already received notice of these increases, and they will pay for them in April and for years to come. If the Legislature waits until the end of the session to use this as a bargaining chip in negotiations, these tax increases will already have been paid.
Political posturing delayed the "fix" to Paycheck Protection Program (PPP) loans until the end of last legislative session, resulting in uncertainty and hardship for many businesses that were required to pay the tax and are still waiting on a tax refund.
This is entirely avoidable.
We take pride in the legacy of business ingenuity and innovation in Minnesota. Business owners are hardworking people in our communities, people who pour their lives into creating meaningful employment and economic stability for the state as a whole. We have all withstood the pandemic together. Why would the state leave them holding the bill now?
Doug Loon is president and CEO, Minnesota Chamber of Commerce.