Labor commissioner: unemployment trust fund paid down, but $51.9M loan, grant clawbacks remain key budget risks

Department of Labor Commissioner Dr. Gary Malloy told the Legislature’s Budget Committee on June 26 that the department’s FY2026 general‑fund request of $12,984,698 is intended to sustain workforce programs, unemployment insurance administration, occupational safety and health (VY‑DOSH), workers’ compensation administration and a range of workforce development and youth programs.

“Mystery and complexity aside, our major challenge is not receiving our annual assessments in a timely fashion,” Malloy said, summarizing constraints that come from matching federal grants with local operations and from the ongoing need to administer unemployment and workers’ compensation systems.

Unemployment trust fund and loan. Malloy said the unemployment insurance (UI) trust fund held roughly $28.4 million as of June 18, 2025, but the territory still carries a federal loan balance of $51,974,488.96 plus accrued interest (commission staff referenced $1.26 million of accrued interest at the time of the hearing). The department reported it made a substantial $20 million payment earlier in FY2025, reducing an earlier $71 million balance to the current figure, and said it expects, barring major economic shock or additional borrowing, to eliminate the outstanding loan by 2027. “We should be able to get this loan cleared up by 2027,” Malloy told senators.

Commission staff discussed interest accrual and said interest costs will grow until the balances are eliminated; the department is evaluating timing of additional pay‑downs and noted a potential July payment window for interest relief.

Federal grants and clawbacks. The department functions with a sizable federal grant portfolio. Malloy told the committee the department anticipated $6,161,081 in federal grant funding for FY2026 for OSHA, Employment Service and Labor Market Research, UI administrative grants, Bureau of Labor Statistics, and Workforce Innovation and Opportunity Act (WIOA) funding. Department staff also described several previous federal awards tied to pandemic responses and modernization that were later clawed back by federal agencies. Assistant commissioner legal counsel Nisha Christian Hendrickson told the committee a $12.5 million grant awarded for UI modernization in 2023 (funds received in 2024) had been clawed back by the awarding agency in May 2024; the department says the monies were late and some procurement steps were still underway when the clawback occurred.

Commission staff explained other CARES/ARPA era grants have ended or expired and some unspent balances were returned per federal rules. Department leaders told senators they are working with regional U.S. Department of Labor officials and their consultant network to assess timing and obligations for grants that expire in June and September 2025.

Workers’ compensation, VY‑DOSH and operations. Commissioner Malloy described the major change accomplished in FY2025: Act 88‑59 moved the government insurance fund into the Department of Labor and established a workers’ compensation trust fund administered by the department. Staff reported collections of $6.826 million in employer contributions and payouts of roughly $1.17 million to medical providers and $1.03 million in wage replacement to injured workers since October 2024. The department said the move centralizes claims administration and underwriting and will improve claims management, premium setting and compliance.

Workforce development and youth programs. The department described ongoing workforce services including WIOA training, registered apprenticeships and a summer youth employment program. For FY2025 the department said it received 1,240 youth applications and planned to serve up to 817 participants this summer; staff said the program’s annual size is driven by available funding and will change if appropriations change. Commissioner Malloy and workforce staff briefed senators on sector priorities (healthcare, hospitality, maritime, construction and trades) and on partnerships with schools and employers.

The department asked the committee to approve its FY2026 general‑fund request to maintain core services and urged continued support for grant administration and modernization work. Senators asked for a detailed accounting of federal grant balances, grant expiration dates and the amounts clawed back; department staff said follow‑up documents would be provided.