Feb. 13—As Heidi Wyn puts it, the Curiosi-Tea House in North Mankato was doing as good as ever before the COVID-19 pandemic.
The cafe took a hit during the lockdown as restaurant business slowed to a crawl under public health concerns. Wyn had to cut employee hours, and last year alone two of her hires filed for unemployment. At one point, she used a North Mankato business loan program to help pay bills.
Wyn will get a sizeable bill this year as Minnesota grapples with tax issues stemming from the state’s depleted unemployment insurance fund. While she doesn’t yet know what she owes, she expects it will hurt businesses once again.
“Any increase we have right now isn’t helpful because none of us are back to where we were pre-COVID,” Wyn said.
Minnesota faces a $1.2 billion debt to the federal government after two years of spending down its unemployment insurance trust fund. At the beginning of the pandemic, that fund had about $1.7 billion to address unemployment issues.
About one in five Minnesotans filed for unemployment since the pandemic began, according to the Minnesota Department of Employment and Economic Development. That drove the trust fund down, forcing Minnesota to join 12 other states in borrowing money from the federal government to continue helping workers out of a job.
That borrowed $1.2 billion is coming due, however. Businesses across the state are seeing assessments on their unemployment insurance bills. Whereas many businesses see a smaller unemployment insurance tax rate — the state’s base rate is 0.1% — those assessments amount to thousands of dollars in increased taxes starting in April.
Andy Wilke of Greater Mankato Growth said he’s heard of a local bank that would see its unemployment insurance tax rate increase by 130% — meaning the bank would pay another $21,000 this year. Another local business would see its taxes raised from $6,000 to $32,000. And a local wholesaler would get an extra $12,000 on its tax bill this year.
There are plenty of area businesses that haven’t figured out how the unemployment insurance tax assessments will affect their bills, however.
“That’s the tough part. Many businesses may not even know that they’re getting a tax increase,” Wilke said. “There’s a lot of changes that happen in a payroll increase on the first of the year. It sometimes can get lost in all of that noise, this increase.”
Greg Dembouski, owner of MGM Wine & Spirits, said his unemployment insurance tax rate will double this year even before assessments. While MGM continues to do solid business, he said he’s concerned the Minnesota Legislature won’t come to an agreement on helping business owners by March 15 — when employers start to send in tax payments for the first quarter.
“It doesn’t seem fair,” Dembouski said. “The people that do employ workers, it seems like we’re at the back of the line when it comes to getting assistance.”
Course of action
Lawmakers appear to agree quick action is necessary, though they differ on what to do about the unemployment fund.
Senate Republicans and Gov. Tim Walz have similar proposals to use $2.7 billion of the state’s surplus and federal COVID aid to pay off Minnesota’s debt and replenish the unemployment fund. House DFLers have put forth a proposal to repay the state’s $1.2 billion debt but leave the fund to its own devices.
In addition, House DFL leaders have publicly debated whether to link unemployment insurance with federal COVID pay for frontline workers. Lawmakers were supposed to tackle that issue last year but stalled after Senate Republicans removed some of Walz’s commissioners from office and threatened to unseat others during special sessions.
Minnesota adjusts the unemployment insurance tax rate each year to address the fund. While employers pay little during good years, they make up for it when the fund is down.
House DFLers argue that mechanism is how things should work, and that allocating more money to the fund would simply give large corporations more of a tax break.
“I have a hard time giving businesses making record-breaking profits even more money,” said Rep. Luke Frederick, DFL-Mankato.
Frederick said he agrees with the House DFL position but would support aid for small businesses impacted by the tax increase this year.
GOP lawmakers, business advocates and even some House DFLers say not replenishing Minnesota’s unemployment fund now would cost businesses more money down the road and could constrict economic growth, even as the state’s economy stabilizes from an economic downtown caused by COVID.
Republican Rich Draheim, of Madison Lake, sponsored one of the Senate’s bills to build the fund back up. He called the issue “crucial” for southern Minnesota businesses.
“This is one thing we can do,” he said. “We can’t help the supply chain here in Minnesota, but we can look at some labor issues, and we can look at their tax issues.”
Draheim said he agreed more of the fund should go “toward Main Street rather than Wall Street,” but it wouldn’t be possible to only benefit small businesses using the unemployment fund if the Legislature chooses to replenish it.
If lawmakers do nothing, it could take up to 10 years of assessments for businesses to bring the fund back to solvency. It could take the state around five years to build the fund back up if Minnesota only paid off its federal debt.
“Many businesses are in a precarious position,” he said. “Efforts need to be made to avoid challenging the economy.”
Rep. Gene Pelowski, of Winona, is bucking the House DFL caucus with his own bill calling for the full $2.7 billion. He said at a press conference with Republicans last week he’d like to see the bill passed on its own.
Area business owners agree. Dembouski said he hopes the state uses part of its surplus to bring the unemployment fund back up. Peter Troecke, a local Republican who owns Riverfront Liquor, said he hopes the House DFL can go along with the Senate and Walz for the sake of the economy.
Other employers are still calculating how much this year’s assessments would cost them.
Wyn said she’s held off meeting with her accountant after getting COVID last month, but she expects to sit down soon to figure out her tax bill. The unemployment insurance tax formula figures in the number of workers from a business that filed for assistance, meaning she likely will see a tax increase even without the assessments.
“If things keep costing extra, if you’ve got extra costs, it’s hard,” she said.
