Massachusetts will have to repay $2.1 billion to the federal government after mistakenly using pandemic funds for unemployment benefits.

The state of Massachusetts is obligated to repay the federal government $2.1 billion over the next decade due to an error made during the tenure of former GOP Governor Charlie Baker, where federal pandemic funds were mistakenly used to cover unemployment benefits.

The State House News Service reported that the current Gov. Maura Healey, a Democrat, and her deputies disclosed on Monday the details of a settlement they reached with the outgoing Biden administration last week, which involves the state repaying most of the money it owed due to an error.

In 2023, Healey revealed that her administration discovered that the previous administration misused approximately $2.5 billion in federal pandemic relief funds to cover unemployment benefits that should have been funded by the state.

The total liability was reduced to $2.1 billion over the next decade through negotiations with the U.S. Department of Labor, according to Healey's office.

The previous administration misspent billions of dollars in federal relief funds, and our state was facing a potential $3 billion debt, which was discovered early in our term, according to Healey in a statement on Monday.

"We have engaged in extensive negotiations with the U.S. Department of Labor for the past year and a half 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."

The governor stated that it is "frustrating that the previous administration allowed this to occur" but that the current administration intends to use this as an opportunity to unite with the business and labor community to make significant changes to the Unemployment Insurance system.

Payments will begin Dec. 1 and continue each year for the next decade.

The agreement specifies that the principal payments for UI benefits must be financed from the UI Trust Fund, which is funded by employer taxes and also covers benefits. Meanwhile, interest payments will be made from the state's General Fund.

Through at least the end of next year, businesses will not see higher rates on their unemployment insurance payments, as this will depend on system reforms.

The governor pledged to implement measures to ease the financial strain on employers, who are already facing increased expenses due to a surge in claims during the pandemic, as reported by the State House News Service.

Healey instructed Labor Secretary Lauren Jones and Finance Secretary Matthew Gorzkowicz to conduct a thorough examination of UI's financial stability and explore possible changes.

The UI Trust Fund is projected to be in debt by hundreds of millions of dollars by the end of 2028, even after factoring in the $2.1 billion in additional payments.