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State's unemployment insurance fund could face $1.2 billion deficit in 2010, projection warns(Wisconsin State Journal, The Via Acquire Media NewsEdge) Feb. 10--With a flood of workers being laid off around the state, Wisconsin's reserve fund for paying jobless claims could see a more than $1.2 billion shortfall by the end of 2010, a state projection shows. The huge year-end deficits expected in the unemployment insurance fund -- stretching from this year out to at least 2013 -- will likely mean repeated rounds of borrowing from the federal government to ensure the state makes its required payments to the jobless, the report from the Wisconsin Department of Workforce Development projects. In the first round of that borrowing, the state has requested a federal loan of $400 million to be delivered within weeks-- the first time it has done so in more than two decades. If no state action is taken, employers in future years could see higher taxes as a result of some $165 million in decreased federal tax credits, according to the report. To rebuild the unemployment fund and pay off the federal loans and possible interest, state employer taxes and worker benefits could also be changed and federal bailout money might be used, experts said. "What's going on in the economy is reflected in that report and it is absolutely terrifying what's going on," said Phil Neuenfeldt, secretary-treasurer for the Wisconsin AFL-CIO and member of the state's Unemployment Insurance Advisory Council. The harsh recession has heightened the importance of what happens to the unemployment fund, sharply increasing demand for unemployment benefits for suffering workers and leaving struggling state businesses less able to handle possible tax increases. The financial stress on Wisconsin's unemployment program, the first of its kind in the nation, comes as the state budget faces a $5.7 billion deficit. The projected deficits in the fund come in spite of increases already set to take effect this year and the next several years in the employer payroll tax which finances the fund. This year, the state is increasing the amount of employee wages subject to that payroll tax of up to 9.8 percent from the first $10,500 to the first $12,000 -- the first such increase since 1986. The state's unemployment rate, though lower than the 7.1 percent national rate, climbed half a percentage point in December to 5.8 percent -- the highest in more than two decades. That increase hits hard for Wisconsin and a number of states, because the states hadn't built back reserves in their unemployment insurance funds that were drawn down during the 2001 recession. Depending on the severity of the recession, some 10 to 20 states will have to borrow this year to pay for their unemployment benefits, according to a report last week by the Urban Institute in Washington, D.C. The state's fund currently sits at $57.5 million, said Workforce Development spokesman Dick Jones, adding that the state will consider actions needed to restore the fund to health. "Wisconsin's program has a built-in mechanism to draw on federal resources to supplement its fund and ensure benefits," he said. The version of the economic stimulus bill passed by the U.S. House of Representatives could provide some help to states, including $44.5 million for Wisconsin's unemployment fund, said John Keckhaver, a research analyst with the Wisconsin Council on Children and Families. The state's fund could qualify for another $89 million if it adopted several changes such as covering part-time workers, though those could have added costs to the fund as well, he said. Jones said the stimulus bill currently being considered by the U.S. Senate also contains a provision to exempt loans to state unemployment funds from interest payments. The Workforce Development report doesn't list how much interest the state might have to pay on the federal money it would borrow, which could be paid for through a surcharge to employers' payroll taxes. But the report does note that without state action the borrowing could lead to a total of $165 million reduction in federal tax credits for Wisconsin employers in 2012 or 2013, leading to higher federal taxes. The report said the state needs to act soon to restore the fund, including considering cutting "benefits that do not serve the basic purposes of the program." Neuenfeldt said the state may also need to consider tax increases. James Buchen, a lobbyist for Wisconsin Manufacturers & Commerce who also sits on the state unemployment council, said it was too early to consider more than tweaks in the way the state taxes employers to pay for the fund. "We're not in crisis here," Buchen said. To see more of The Wisconsin State Journal, or to subscribe to the newspaper, go to http://www.wisconsinstatejournal.com. Copyright (c) 2009, The Wisconsin State Journal Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |