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4/12/2010
Rep. Petersen: The Hidden Deficit
Wisconsin’s nonpartisan Legislative Fiscal Bureau estimates the incoming 2011 state legislature will grapple a $2.3 billion budget deficit. Compounding the deficit is dropping state revenues as employers continue shuttering their doors and laying off workers.
According to the Department of Workforce Development (DWD) from February 2009 to February 2010, approximately 100,000 jobs have been lost in Wisconsin. Recent numbers released indicate 44 of 72 counties in the state have double digit unemployment rates.
Because of the high numbers of unemployed, the unemployment trust fund (UI fund) – which pays unemployment benefits - is also running a deficit. Projected to hit $2.4 billion in 2011, it is a hidden deficit reported separately from the state’s overall structural deficit.
In 1932, Wisconsin became the first state in the nation to create an unemployment insurance program. Administered through the DWD, the program must comply with federal unemployment laws.
The DWD acts on recommendations made from an Unemployment Insurance (UI) Advisory Council. The UI Advisory Council is comprised of: five labor (employee) representatives, five management (employer) representatives, and one non-voting chairperson.
Statutory responsibilities for the council include: reporting its views on legislation and advising the DWD on administration of UI law. Additionally, the council submits its recommended changes in the UI law to the Legislature. Consequently, next session's legislators will be addressing both a $2.3 billion state budget deficit and a $2.4 billion UI fund deficit.
Payroll taxes on employers finance the unemployment trust fund. A portion of employee income is taxed at a rate that fluctuates depending on the solvency of the UI fund. If the fund is low, the rate is high. If the fund is flush with cash, the rate is low. Right now, the rate is high because the fund is running a $1.1 billion deficit.
With Wisconsin’s UI fund in the red, the state must borrow money from the federal government to cover unemployment claims. This money must be paid back which adds to employers’ payroll tax burdens thereby reducing capital to create jobs.
In the early 1980’s, Wisconsin borrowed $737 million from the federal government to pay UI benefits. The state paid back the money along with $125 million in interest. Of great concern is the pending payroll tax increase required in 2011 to pay back the estimated $2.4 billion while concurrently continuing to fund ongoing UI benefits. The hidden UI fund deficit’s looming increase in unemployment fund payments will be an additional burden that decelerates both employers and the state’s economic recovery.
Kevin Petersen is a Republican and serves the residents of the 40th Assembly District (Waupaca).
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| 2009 |
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• Important votes Tuesday, including Appleton Common Council
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