The 2009-2010 Hangover: Wisconsin Unemployment Bills Loom Large

MacIver News Service | July 19, 2011

[Madison, Wisc…] Because of the surge in unemployment claims made by its residents in 2009 and 2010, Wisconsin owes the federal government $1.3 billion. Plus interest.

If the amounts in Wisconsin’s Unemployment Reserve account in the U.S. Treasury are not sufficient to cover anticipated unemployment payments, the state can borrow funds from the federal government. In February 2009, it went insolvent. At the end of the first quarter of the year, the balance of the loan was at its peak ($1.6 Billion). At that time Wisconsin had the 11th highest loan of any state, and the 4th highest in the nation as a percent of total wages.

As of this month, the outstanding balance is $1,344,507,081.66.

In October of last year, State Representative Mark Honadel (R-South Milwaukee) was among the first to sound the alarm about this issue.

“This is one of the most under-reported stories about Wisconsin’s dire fiscal condition,” said Honadel. “Anti-employer policies in Madison lead to high unemployment and leave a legacy where we have to pay for the sins of the past.”

Now, even as the state prepares to extend unemployment benefits to the long-term unemployed, the Department of Workforce Development is trying to figure out a way to make Wisconsin’s unemployment reserve fund solvent again.

The state has used the fund to pay out unemployment benefits since 1932.  It has remained solvent for most of its history.  After a brief period of insolvency in the mid-80s, the fund grew to over $1.7 billion in 2000, and then took a nosedive.

Despite receiving $134 million in Stimulus funds, Wisconsin’s Unemployment Reserve Fund ended 2009 with a deficit of nearly one billion dollars.

Since then, Wisconsin has borrowed from the federal government in order to continue paying out unemployment benefits. While the balance is not due, the state may have to begin making interest payments.

“That’s going to be the focus of the Unemployment Insurance Advisory Council as they sit down and start meeting and coming up with various proposals to find a way to get solvency back to that fund so that we can actually create a positive balance for the next time the economy goes down and so we don’t have to borrow from the federal government,” Scott Baumbach, Secretary of the Department of Workforce Development, told the MacIver News Service.

Meanwhile, the loan from the federal government is accumulating interest.  Congress waived the interest in 2009 and 2010.  However, it has not made any indication it will do so for this year.  Wisconsin is currently looking at a $48 million interest payment due in September.  The bill is expected to come in next month.

A letter was sent last month to Wisconsin employers with payrolls over $25,000 last month to expect a .2% assessment increase to make the interest payment.

According to DWD, the assement will be calculated as a fixed rate multiplied by an employer’s 2010 calendar year taxable payroll. (Note that in 2010, the taxable wages per an employee are capped at the wage base of $12,000.) For example, a taxable employer with total taxable payroll of $500,000 in calendar year 2010, at an estimated rate of .2% the calculation would be as follows: $500,000 x .002 = $1,000

“The assessment [letter] generated a lot interest and a lot of questions from people,” said Georgia Maxwell, DWD Executive Assistant. “We got a lot of legislative inquiries from people contacting their lawmakers about what was this and again it was a notification that it could be assessed at the end of the summer.”

The actual Special Assessment for Interest statements will be mailed to affected Wisconsin employers in early August.

That assessment would do nothing to pay off the actual loan Wisconsin owes to the feds, and there is currently no plan in place to do so.  Right now, the state is more worried about the immediate interest payment.

“If the feds don’t waive it, we’ve got to pay it,” Maxwell said. “Just another example of [the impact of] credit card spending.”

While DWD deals with this issue, the state legislature is moving to extend unemployment benefits for another 13 weeks.  That extension would be funded mostly by the federal government, but would also require a contribution from Wisconsin employers. It would not, however, add to the loan balance with the feds.

The Senate approved the extension Tuesday by a vote of 30-3, with Republican Senators Grothman (West Bend), Lazich (New Berlin) and Zipperer (Pewaukee) voting no after the body added an amendment removing a required one-week delay in receiving benefits. The amendment undid a change in state law that was included in the just-passed state budget.  That amendment could cost between 41 and 56 million dollars, annually. The Assembly had been expected to approve the plan on Wednesday. Governor Scott Walker had indicated he was prepared to sign the original proposal, which was recommended by the Unemployment Insurance Advisory Council earlier this year.