Wednesday, November 11, 2009

State unemployment deficit forecast skyrockets to nearly $3 billion

unemployment insurance benefits

With jobless claims remaining high in the state, Wisconsin’s unemployment fund faces a projected deficit of nearly $2.8 billion by the end of 2011 -- more than twice the amount forecast earlier this year.

The projection delivered to lawmakers Tuesday means more state borrowing from the federal government to keep making payments to workers and possible higher taxes for employers and lower benefits for the unemployed to help the state pay the debt off.

One change being pushed by the state’s business lobby to help bridge the shortfall would be to force laid-off workers to forgo their first week of unemployment claims. That promises a big fight on the advisory council that helps set the state’s unemployment insurance policies.

“My position is actually no way. When somebody’s out of work they’re hurting more than any other time,” responded Dennis Penkalski, a labor representative on the advisory council. “It’s almost like a sacred cow.”

The latest figures on the state’s unemployment reserve fund were revealed in a briefing Tuesday to the Assembly Committee on Labor by Hal Bergan, administrator of the state labor department’s Division of Unemployment Insurance. The unemployment fund, which makes payments averaging $290 a week to jobless workers, is funded through taxes on employer payrolls.

With Wisconsin’s unemployment rate at 8.3 percent, the state has already had to borrow $734 million from the federal government to be able to meet federal requirements to pay jobless claims, joining some two dozen other states that have also been forced to borrow, Bergan said.

Through the end of 2010, the federal stimulus law is forgiving the state’s interest on that debt, Bergan said. But, absent action by Congress, starting in 2011 the state would owe about 5 percent yearly interest on more than $2 billion in projected debt — or more than $100 million in yearly interest payments alone.

Plus, if nothing is done quickly to pay off the loans, the federal government will also start taxing all Wisconsin employers until that debt is repaid, with a projected $51 million in new taxes imposed on businesses in 2012 and $102 million in 2013.

Those figures account for a state unemployment tax increase on employers that has already been passed and is being phased from this year through 2013, Bergan said.

To restore the fund to solvency, a combination of cuts to worker benefits and tax increases on employers worth between $200 million and $250 million a year will likely have to be made, said Jim Buchen, a vice president and lobbyist at Wisconsin Manufacturers & Commerce who sits on the state’s Unemployment Insurance Advisory Council.

The council, evenly split between business and labor, is seeking to make recommendations on how to close the unemployment fund shortfall so the Legislature could take up a bill to make those changes in the spring, Bergan and Buchen said.

Buchen said making workers pass up their first week of claiming unemployment benefits would save the state about $80 million a year.

Under that approach a worker could still collect their 26 weeks of standard state unemployment benefits, but only if they’re out of work for at least 27 weeks. A worker who was only out of work for one week would get nothing.

Doing nothing is a bad option because it will lead to federal taxes being imposed on all employers, even those companies that haven’t laid off workers, Buchen said. State taxes, on the other hand, are higher on employers with a history of lay-offs.

“We have to be realistic,” Buchen told lawmakers. “There are circumstances where we’re paying benefits where people don’t absolutely need them.”

Bergan said about 36 states have some waiting period before workers can collect benefits.

Penkalski said the state should have increased taxes on the fund sooner. Before the increases currently being phased in, the fund hadn’t benefited from a significant tax hike since the 1980s, in spite of the fact its reserves have been dwindling since the 2001 recession.

Penkalski said the state should increase the amount of employee wages that are subject to the payroll tax on employers. That amount is currently the first $12,000 of each worker’s pay and is scheduled to rise to $14,000 by 2013.