The COVID recession starts to hit the state budget. But we've got a few months

We’re getting our first indications of what effect COVID 19 may be having on the Wisconsin budget. One such hint came from the agency that has been tasked with trying to process the record number of unemployment claims in the state.

The Department of Workforce Development (DWD) announced [Wednesday] that its Unemployment Insurance Division (UI) has received 479,596 applications and has distributed more than $290 million in state unemployment benefits since March 15, 2020.

Official counts available April 25 showed claimants have filed a record number of weekly unemployment claims, totaling almost 1.2 million (1,185,952) since the COVID-19 public health emergency was declared. Nearly 750,000 (747,855) of those weekly claims have been paid. The number of claims processed in this five-week period are roughly equivalent to claims processed in an eight-month period during typical (non-pandemic) times for the UI Division. According to a recent Pew Research Center study, Wisconsin was in the top quartile of states for most claims processed through the end of March.

And if you look at Thursday’s release for the following week, it showed that there were nearly 50,000 initial claims in the last full week of April, and 321,000 continuing claims. And the daily numbers from DWD for this week show fewer initial claims, but still likely well above 35,000 - which would be significantly above what we were seeing at the depths of the Great Recession.



To give an idea about how much that $290 million compares to a normal year, take a look at what was given to Wisconsinites in unemployment benefits in each of the last 2 years, according to this DWD report from March that includes the total unemployment payments.

Net payments
2018 $402.9 million
2019 $396.1 million

If you figure $290 million has been spent in 5 weeks, that likely will put us over $400 million in payments by the end of next week (at the state level, this does not count the $600 the Feds are adding onto benefits). And those elevated amounts of payments are likely to stick around for quite a while.

That being said, those extra costs are coming out of a fund that had $1.74 billion in it at the end of 2018, so we can likely ride it out for a while. But the more immediate effect will likely come from a tax that will be raised on employers in a few months to keep the fund solvent, after years of it being a back-door tax cut as the state and US economy improved over the 2010s.

Still, if the fund is reduced to between $900 million and $1.2 billion by June 30 of this year, the state will shift from Schedule D to Schedule C — the next lowest tax rate schedule — for 2021. Under that schedule, tax rates will still range from zero to 12 percent, but more employers would likely have to pay higher rates.

“The tax rates themselves don’t change, it’s just the triggers for when you’d be required to pay that percentage that changes,” {WMC hack Scott] Manley explained.

For example, a company with the same unemployment insurance account balance would have a higher percentage tax on Schedule A than on Schedule D, he said.

“The tax system is experience rated and operates like an insurance program; the more charges against the employer’s account, the higher the tax rate. The fewer claims against the employer’s account, the lower the tax rate,” said DWD spokesman Tyler Tichenor in an email.

Gee, you wonder why WMC wants to force people back to jobs, no matter how risky they may be for workers? It's a nice way for their crowd to avoid spending more on unemployment.

On other fronts, we're starting to see the policy reactions to a looming budget deficit in the state. Theoretically, the $1.9 billion in federal help from the CARES Act should take some of the heat off of the state budget due to the lack of tax revenue and higher social spending. But the problem is that much of that CARES money can't be used on anything but COVID-19 purposes, and while some of that might take pressure off of state tax dollars at various state agencies and free up those dwindling resources to maintain daily operations, it won't be nearly enough to handle the extra social needs that have come up.

Which is why Governor Evers announced plans to cut $70 million from state operations over the next two months.

There’s some flexibility, obviously. Different departments have different needs,” said Evers on Wednesday. “And we will respect that. We estimated, not too long ago that the revenue shortfall this next fiscal year would be approximately $2 billion.”

That is far away from the revenue projections before the pandemic that predicted a large budget surplus. Evers called the 5% cuts — combined with previous orders requiring tight travel restrictions and a hiring freeze for jobs not tied to the pandemic — a first step.

“These things are important,” said Evers. “We think it’s one of our ways to get to a better place financially. Cutting the operations budget by 5% is approximately $70 million in savings which is important for us as government going forward.”

It's interesting to see Evers put in the savings in the 2020 Fiscal Year, which was projected to have $1.15 billion left over in it on June 30 when the Legislative Fiscal Bureau gave its revenue projections just over 3 months ago. That carryover was projected to be $705 million by the end of the 2019-21 budget, and a $2 billion decline in revenue certainly means more cuts in state spending would be required going forward, barring some kind of outside help from DC or other means.

My guess is that Evers' budget cuts are expected to cushion the blow to Year 2 of the budget, and not having state employee raises will be something that leads to savings in Year 2 as well. Given the large carryover, we are unlikely to see state government have its deficits show up in this Fiscal Year, so any long-term service and staffing effects can be delayed for a while.

That is not the case at the UW System, where they are having to refund many room and board bills and are not going to get Summer conferences (and students) that they count on. And this especially affects UW-Madison, which has larger numbers of on-campus students and services, and has had the largest in-year budget deficfit to fill. Which resulted in this story from this week.

UW-Madison is ordering most of its employees to take varying amounts of unpaid time off over the next six months and university leaders will take a 15% pay cut over that same time as COVID-19 costs grow and the campus remains mostly closed.

“We will face this challenge as a community, asking for a shared sacrifice among faculty, academic and university staff, while expecting the largest contributions from our leadership and highest earners,” Chancellor Rebecca Blank said in a Wednesday email to employees.

Officials estimate the furloughs and pay cuts will save UW-Madison up to $30 million of an estimated $100 million shortfall resulting from the coronavirus outbreak.

But you wonder if that's only the beginning, as the real test to the UW System will come in late August, when students usually would be heading back to school. Will they come back to crowded dorms and apartments...and will the university (or the students' parents) allow them to? How many will choose to commute from home and/or take classes elsewhere until we know that COVID-19 has been neutralized as a risk factor?

Will we see this any more in 2020?

There is a lot up in the air in Wisconsin. And while we won't see the budget crisis hit in the next few months for state government and the UW, due to one-time federal funding and left0over funds, we will likely start to see the really tough, painful choices have to be made before the new state budget comes into play in early 2021.