Interest Owed Could Reach $22 million by October
MacIver News Service | March 21. 2013[Madison, Wisc…] Every day the State of Wisconsin owes the federal government another $60,000 in interest on a loan it took out to pay for unemployment benefits, and employers are getting an extra bill to pay for it.
The daily figure was announced at a meeting of the Unemployment Insurance Advisory Council last week. The council is made up of representatives from business and labor. The council “advises the Department of Workforce Development on the administration of unemployment insurance law” and develops policy recommendations for the legislature.
Unemployment benefits are paid out of the Unemployment Reserve Fund, which is funded by a special tax on employers. In February 2009, that fund ran dry and the state began borrowing money from the federal government. The balance on that loan at one point reached $1.6 billion.
The interest payments on a loan that large add up fast. Since Wisconsin’s last interest payment on September 30, 2012, the amount of interest owed is at $9.7 million. At the rate of $60,000 a day, the figure will reach $21.9 million by September 30th this year.
The feds do not allow the interest to be paid with money from the Reserve Fund. That means employers have been receiving special assessments in addition to the usual unemployment taxes they already pay.
“We’ve dug ourselves a hole, and we’re asking employers to dig us out,” Representative Dave Murphy (R-Greenville) told the MacIver News Service. “I call it a job tax.”
Murphy says it wasn’t just the economy in 2009 that led to the problem. Wisconsin has some of the most lax unemployment rules in the country. As MNS has previously reported, there are 18 reasons an individual can quit his or her job and receive unemployment benefits in Wisconsin, and people who refuse work can still qualify.
This could explain why Wisconsin’s $1.6 billion loan from the feds was the 11th highest in the country and 4th highest as a percentage of total wages.
When the MacIver News Service last reported on the federal loan in July 2011, the balance was at $1.344 billion. Over the next several months, it made very little progress paying that loan down. In February 2012, the balance was $1.334 billion.
The state is now working more aggressively towards paying the loan off. The balance now is at about $935 million, a 30 percent reduction from a year prior. Fortunately, the interest rate on the loan is also going down. It was 4.09 percent in 2011, and now it’s at 2.58 percent.
Murphy says it will probably take at least three years to pay off the balance. In the meantime, unemployment insurance taxes have doubled over the past few years.
“That makes it harder and harder for employers to hire those workers back,” Murphy said.
Fortunately Wisconsin’s unemployment rate has been steadily dropping since January 2010, when it was at 9.2 percent. It’s currently at 7 percent.
The last time the Unemployment Reserve Fund ran dry was in 1982. During that recession, the unemployment rate in Wisconsin reached 11.5 percent.