Wisconsin Policy Forum report focuses on unemployment fund

The Wisconsin Policy Forum says the state is “clearly better prepared” for a recession that it was in 2007.

A new report focused on the state’s unemployment fund shows the state’s unemployment fund balance hit $1.74 billion at the end of last year. That marks the highest it’s been since 2010, when the fund bottomed out with a negative value of about $1.36 billion.

Still, the fund’s 2018 balance was below the federally recommended level of $1.9 billion.

The WPF report details the factors behind the fund’s drop and rebound. It also highlights a strategy for being better prepared for the next potential economic downturn.

Because unemployment benefits in the state have lagged behind the national average and rising inflation, report authors say some might want to boost those benefits, especially given the fund’s relatively strong balance and current low interest rates.

But interest rates could always rise again, and report authors say others might lean toward continuing to build up the fund’s balance.

“Of the many potential compromises, one might be to link higher benefits to certain triggers such as a rising unemployment rate,” they wrote in the report. “Such as approach would help to ensure expanded benefits — and the reserves to pay for them — are available when they are most needed.”

It’s noted that Wisconsin was “caught unaware” by the increasing number of unemployment claims as the state approached the Great Recession. Between 2000 and 2010, the state paid out more each year than it was taking in, despite the economy continuing to grow.

In order to pay all the claims being made, Wisconsin had to borrow money from the federal government.

The fund’s balance declined in part due to “sluggish” job growth following the recession of 2001, according to the report. But WPF claims the state also failed to adjust “key parts of the unemployment system” to reflect changes in the economy.

As an example, the amount of worker’s wages subject to unemployment taxes remained at $10,500 for most of the 2000-2010 period and was not adjusted to reflect rising incomes. A law was passed in 2008 raising the taxable portion of incomes — currently at $14,000 — but not before the Great Recession had already begun.

The report shows employers in the state had to pay higher state and federal unemployment taxes in order to cover the increased benefits, which were boosted in 2014, and also to repay the more than $1 billion in federal loans. The state also pitched in $25 million in general purpose revenue from taxes on sales and income.

By the end of 2014, the fund balance was positive once more. By the end of last year, the fund reached $1.74 billion in reserves.

State unemployment tax collections have fallen from $1.19 billion in 2012 to $598 million last year. Between 2009 and 2018, the number of initial benefit payments to workers fell from 447,970 to 106,770.

See the full report: http://wispolicyforum.org/focus/is-the-unemployment-fund-job-ready/