Wisconsin's unemployment claims keep going up. Will we have the money to pay for it?

As Americans get thrown out of work as part of the fallout of the COVID-19 pandemic, they have to file for unemployment with their state agencies. Wisconsin has had their share of this spike in unemployment, and Wisconsin Public Radio noted how the state's Department of Workforce Development has become overwhelmed in recent days, as their staff cannot handle the massive amount of phone calls and new applications that have been coming in.

According to newly released state data, some 115,679 people applied for unemployment last week. And on Monday alone, the number of initial claims for unemployment benefits topped 24,600, the highest single-day total since the outbreak. (another 18,000 was added on Tuesday, bringing the total to 55,000 for the week with 4 days left to go).

The Department of Workforce Development encourages all applicants to use the state website to apply.

For some, an online application is sufficient for the state. But other applicants who use the site receive messages saying they need to call a state hotline to complete the process. This can apply to people who have not applied before, or haven’t applied in a long time, or for employees of businesses not on file with the state. Those who get this message cannot complete their applications online.

But with the state’s call center swamped, they can’t complete them by phone, either. Last week the department received more than 1.5 million calls.

"The system was not built to handle this call volume," [Gov Tony] Evers said at a Monday press conference. "However, we're working to increase that capacity."

One of the ways Evers wants to raise that capacity to handle the increase in unemployment claims is through hiring more people, some of which have just come on, some are in the process of being hired and trained. But that will certainly cost taxpayers money to add that staff, and they'll likely have to stay on for a while (although I suppose they won't be taking unemployment themselves so...winning?)

So how are we going to pay for all of these claims? Like every other state, Wisconsin has an unemployment fund, which has dug itself out of a deficit that required it to take on loans from the federal government in the late 2000s just to pay the bills. Since then, Wisconsin rebuilt its fund as the state and nation recovered from the Great Recession.

The Wisconsin Policy Forum discussed this topic a year ago, and noted some of the steps that were taken in that decade to shore up the situation. This resulted in employers initially paying higher taxes, but recently that fee has been lowered as fewer people were out of work, and less benefits were needed to be paid out.

The reasons for the fund’s decline included sluggish job growth after the 2001 recession and the state’s failure to adjust key parts of the unemployment system to reflect the changing economy. For example, the amount of a worker’s wages subject to unemployment taxes remained at $10,500 for most of those years and was not adjusted to reflect rising incomes. In 2008, legislation was enacted to raise that taxable amount (currently $14,000) but by then another recession had begun.

To cover the higher benefits and repay more than $1 billion in federal loans, Wisconsin employers paid higher state and federal unemployment taxes. The state also used $25 million in general purpose revenue from income and sales taxes. By the end of 2014, the jobless fund had a positive balance and it is still growing. State unemployment tax collections fell from $1.19 billion in 2012 to $598 million in 2018.

The Policy Forum indicated that while there was enough in the unemployment fund to pay the bills in a short term, normal recession, the state was still in danger of getting caught short if...we got a situation where they had to pay benefits to hundreds of thousands of Wisconsinites.

On December 31, 2018, the fund had $1.74 billion in reserves – the largest year-end amount since 2000 without adjusting for inflation. The number of initial benefit payments to workers has also declined from 447,970 in 2009 to 106,770 in 2018. The state is clearly better prepared now for a recession than it was in 2007. This raises a question, however: Could more be done to prepare for another downturn?

The federal government recommends states maintain a minimum solvency level that accounts for a state’s current reserves as well as the potential claims that might have to be paid in a recession. The target looks at whether the state fund would be able to cover one year of benefit payments at a rate equal to the average of the three highest claims years within the past two decades.

This solvency target should be a 1 or higher and hitting this mark may qualify states for interest-free federal loans for the program. The federal government reports that, as of January 1, Wisconsin’s solvency level was .89, which was 32nd nationally and still below the DOL recommendation. Under current law the state is still building reserves and may be able to keep doing so as long as the economy remains favorable.

Those reserves are going to go away really fast, if the unemployment claims continue to rise and stay high in the next few months. And while the feds are going to help supplement unemployment payments by another $600 a week with a provision in the new stimulus bill, the state is still paying quite a bit of the freight as well. If things don't recover in the next 6 months, it seems that we're going to have to find some kind of funding source to make up the difference, either through higher taxes paid by employers or some kind of state spending.

At which point, you can add the lack of money in the unemployment fund to a list of issues that will be facing Governor Evers and the Wisconsin Legislature for the 2021-23 budget. That budget will likely be dealing with the fallout of lower economic activity, but likely won't be getting anything close to the amount of Federal help that is being sent out these days.