July 25, 2008 - Unemployment Insurance Advisory Council Meeting Minutes

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Unemployment Insurance Advisory Council Meeting Minutes

Friday, July 25, 2008 – 10:00 a.m.

State of Wisconsin Office Building
819 North Sixth Street, Room 40
Milwaukee, Wisconsin

Members Present

Department staff present: Hal Bergan, Tracey Schwalbe, Dick Tillema, Lutfi Shahrani, Ben Peirce, Jason Schunk, Andrea Reid, Brian Bradley, Troy Sterr, Tom McHugh, Mary Pronschinske, John Riester.

Others present: Jason Vick (Rep. Mark Honadel’s office), Bob Andersen (Legal Action of Wisconsin), Mary Petersen.

MINUTES

Mr. LaRocque calls the meeting to order at 10:05 a.m. Mr. LaRocque introduces Sally Feistel,
Sub-District Director of United Steelworkers District 2 in Menasha, as the new appointment to the Labor side and welcomes her to the Council.

1. Brief Remarks – Hal Bergan

Mr. Bergan announces that Andy Reid has been appointed to fill the position of Deputy Division Administrator. She is the current director of the Bureau of Tax and Accounting and will start as Deputy Administrator on August 1. Brian Bradley will be acting Director for the Bureau of Tax and Accounting.

Unemployment insurance has been in the newspapers. Claim counts are high. Our telephones are jammed and we are almost at the limit of our human and technical resources to handle incoming calls. This means that some claims are taking longer. We generally have a cyclical increase of calls on Mondays and Tuesdays. This Monday and Tuesday, the number of calls was extraordinary. We had many resources available and put central office people on phones. There were several calls from legislators and the Governor’s office. People called Mr. Bergan directly. We are expecting that this will be short-lived. We had made the announcement and sent out letters to 220,000 people telling them that they were potentially eligible for the federal emergency unemployment benefits. Claims rose because of the publicity about unemployment benefits. The spike in claims was nationwide. This was not necessarily due to a spike in unemployment but because of the increased visibility of the program. We expect that for this week and next we will see a much higher volume than usual for this time of year. In a week or so we will be looking at a backlog in adjudication as issues move through the system, and then more activity at appeals. The next few weeks will be particularly challenging and our resources will be strapped. We have had approval to hire 12 additional project positions for the next 18 months to two years, and we will continue to use our experienced central office resources for back up. We will get reimbursed by the federal government for the administrative costs associated with the emergency benefits.

Question (Gustafson): Is the first week of the extended benefits affected because Wisconsin does not have the one week waiting period? I thought there was a program where the federal government will not pick up the first week.

Mr. Bergan indicates that the federal government will pay for the first week for these benefits. Ben Peirce responds that the federal “extended benefits” program requires that states pay 50% of the benefits and the federal government will not pay for the first week. The program currently in place from the federal government is “emergency unemployment benefits” and is a different program, funded fully by the federal government.

Question (Penkalski): Do the administrative costs come out of Reed Act funds or are they grants?

Mr. Bergan responds that this is a reimbursement. The federal government has given us an advance of $1.4 million and we will have to justify the spending costs.

To relate the recent increase in claims to the newspaper story on the possibility of the trust fund being in a deficit situation, Mr. Bergan notes that we will be paying increased benefits. The emergency benefits will be paid out of the federal funds, but we also have an unexpected increase in the regular claims that will draw on the fund. Referring to the handout titled “Projected Reserve Fund Cash Balance,” the far right-hand column shows the reserve fund balance with a scenario of “high” level of claims. We are now tracking pretty close to the “high” claims level displayed on the right-hand column, so that is most germane to predictions for the balance of the reserve fund.

Question (Buchen): Do you know what the assumed insured unemployment rate is for the categories?

Mr. Bergan responds that it is looking back at individual years and what benefits were when they were low or average or high. The high column tracks benefits from 2002, the highest year from the last recession. Instead of focusing on the insured unemployment rate, we focused on the actual dollars paid out.

Question (Buchen): There would be some variation in the payments made during the recession, correct?

Mr. Bergan responds that this is correct. To the extent we have actual data, we used actual data through June 30, 2008. Our actual benefit payment data is tracking close to the high benefit period. We thought it was reasonable and the best number we could come up with for comparison. To give an additional idea of where we are to date, expenditures from the reserve fund are up year-to-date over last year by about 6.1%. This is not a huge number, but almost all of that increase comes after April. Until April, including the time when the bill was passed, we were doing pretty well. Then things started to change. The handout of the graph showing initial claims shows this. In about week 16, claims started to go up. Although for the year our expenditures are only up 6.1%, in June and July, we have a 16-17% increase over claims for the same period in 2007. We do not know if this will continue. The projection does not count what we know is coming from GM.

Mr. Shahrani responds that the average is 10,000-11,000 claims per week for a normal workload, up to 13,000-14,000. The Fourth of July week jumps to 16,000-17,000. When we go over 16,000-17,000 consistently, we must pay close attention. When it hits 20,000 per week, it is an aberration.

Mr. Bergan responds that the first round is expected to be around 700. We are not sure what the subsequent schedule will be, but the indication in the newspapers is that the schedule will be accelerated. For Rock County alone, when the shutdown is complete, the calculation is for 9,000 people to lose their jobs with GM, their suppliers and ancillary industries. This calculation is from the Southwest Workforce Development Board. We know what the outcome will be, but we do not know the schedule. On balance, looking at the data, we are probably operating in an environment of claims 16-17% over last year, with the expectation that this could change and more likely on the high side than the low side.

On the Projected Reserve Fund Cash Balance handout, the numbers were updated since the news article. At the end of March 2009, the figure was projected to be -$6.3 million at the time of the news story. Since that time, we have added the data from June 2008 and the projection has improved somewhat to -$1 million. The low point will be later in April 2009 before contributions come in. These are our best estimates right now. If it happens that we go into a deficit in the first quarter of 2009, we could handle that with no interest loans from the federal government. That would be our hope. Later in 2009, the balance on the high side projection goes as low as -$0.4 million ($400,000). Then we could be in a borrowing situation where we would have to borrow with interest.

Mr. Bergan indicates that the indicator apparently is two successive quarters of negative growth and the last numbers showed minimal growth in the last quarter.

Comment (Buchen): Those are the national figures. Wisconsin is doing somewhat worse than the national. We have to consider the average duration of a recession is 18 months.

Mr. Bergan indicates that if the recession is typical, there is reason for hope. Since the early 1980s, the recessions have been shallower and less long. That gives us reason for hope. However, there is a school of thought that this recession could be tougher than that.

Question (Lump): Is a change to Schedule A factored into this? Did you add in the increased contributions?

Mr. Bergan responds that since the projection only goes through March 2010, we would not see the revenue from the higher bracket. The increases eventually will help us climb out of a deficit, but we cannot predict how deep the recession will be.

Question (Buchen): The wage increase should also help with revenues. The high projection represents a scenario of a variety of unemployment levels, not just one, correct? The low projection would be similar to the late 1990s, correct?

Mr. Bergan responds that this is correct. It is experience-based, and does not adjust for inflation.

Comment (Buchen): I am surprised that the low projection scenario continues to draw down so much on the reserve fund.

Mr. Bergan responds that the Council did some work to improve the revenue, but there is work yet to be done. That accounts for the lack of growth in the reserve fund. The department would appreciate any help or advice on how to improve our ability to do the projections.

Question (Penkalski): In order to borrow, all funds, including the Reed Act funds, must be depleted, correct?

Mr. Bergan responds that this is correct. The Reed Act funds are included in the reserve fund balance. Once the Reed Act funds are gone, they are gone.

Comment (Lump): Is it possible to accelerate moving to Schedule A, or adjusting the trigger amount?

Mr. Bergan responds that this would need to be a law change. The date of June 30 gives the department less flexibility to respond and was likely created based on old technology. With new technology, we can move that date back. Most states have a fall date, such as October 31, as opposed to a summer date. It will adjust more quickly in response to the economy.

Mr. Bergan responds that this is in mid-October. Mr. Bergan will try to put together a regular update to track the reserve fund on a month-by-month basis using the actual expenditures out of the fund.

Comment (Buchen): If we think of other ways to look at the data, we may suggest that. The graph of initial claims shows differences, such as the spike in the Fourth of July week. In 2007, the spike was one week and in 2008 it continues to increase, which is scary. Maybe it means the people who usually shut down for one week shut down for two weeks this year.

Mr. Bergan responds that right now we do not know if that is an aberration or it indicates something else. In week 17 it starts the increased claims gap and that is where we think we are on an ongoing basis.

Comment (Gustafson): There is a change in the paper industry for labor force availability. All paper mills do not shut down for the same week as they might have in the 1930s or 1950s. They may be doing spot maintenance with a week off in the spring and fall, and not a complete shutdown. The paper industry’s impact on the spikes in claims would be less than it was 20 years ago.

2. Minutes of Meeting June 5, 2008

3. Proposed DWD 136, Wages Exempt from Unemployment Insurance Levy

Ms. Schwalbe explains that this is a follow up on the rule the Council approved at the June 5 meeting. The public hearing was held on July 22 and there were no comments or appearances. We did have a few minor comments from the Legislative Council. The comments and the department responses, and the text showing the language changes are provided to the Council. Specifically, the definitions of the federal minimum wage and the federal poverty guidelines are amended to show that these are the wages and guidelines in effect at the time the calculation for the wage exemption is made. The definition of household is amended to exclude group home situations. The changes were very minor. We will file the rule now with the Legislature before the August 31st deadline.

4. UI Treasurer’s Financial Statements

Brian Bradley presents the financial statements. On the Cash Analysis, the current activity shows that the receipts for the first quarter were $329 million. That compares to about $336 million last year, so the receipts are down somewhat. The June financial statement is handed out. On the Cash Analysis for June 30, the cash balance was $439 million and includes $150 million in the Reed Act balance. The cash balance determines the rate schedule for the following year. We will be using the rate Schedule B again for the fifth year. Benefits are up about 6.2% for the year and revenues for the first six months are down about 2.7% from the same period last year.

Question (Buchen): Is the decrease in collections also a function of decreased payroll?

Mr. Bradley responds that this is correct. Taxable payroll is down. Rates are not significantly down. We will not see the bump in collections from the tax changes until April 2009. We are in the process of collecting contributions for the second quarter. Most of those contributions come in at the end of the month so we do not have the figures for that.

Comment (Buchen): On the Projected Reserve Fund Cash Balance, there is a projection for April 2009 of revenue of $349 million, more than the $329 million in 2008.

Mr. Bradley presents a one-page summary of federal borrowing provisions. The borrowing process requires the Governor to make the request for borrowing at least 3 months in advance. Before we borrow any money, we have to exhaust all balances, including Reed Act funds. We borrow on a day-to-day basis depending on what our needs are. We draw down on the trust fund account on a daily basis to cover the benefit checks. When we make those draw down requests, Treasury will look at the balance in our account and give us the amount sufficient to make the payments for that day. Some of the loans are interest-free. In order to be considered interest-free, the money must be borrowed between January 1 and September 30 of a particular year and must be repaid by September 30th, and there cannot be any additional borrowing for the rest of that year. If we did have to borrow in the last three months, the federal government would charge interest back to the first date we borrowed. For interest-bearing loans, the interest rate is based on the trust fund earnings rate in the previous 4th quarter. The rate the federal government is charging for 2008 is 4.81%. The rate is capped at 10%. The money the state may use to pay the interest cannot be funded out of the tax collections. Interest accrues every year on September 30th. In the past when we borrowed, we made special assessments on employers to pay interest based on taxable payroll. That authority still exists in Chapter 108. Loans can be repaid voluntarily from any source. There is also involuntary payment. If the state has loan balances on two consecutive January 1sts, the federal government will automatically reduce the employers’ federal unemployment tax credits in 0.3% increments per year to reduce the loans. When that happens, the state is funding the repayment of the loans with a flat tax. In some cases, they will cap the reduction if the state demonstrates it is improving fund solvency.

5. Letters to the Council

Mr. LaRocque indicates that at the last meeting the Council was given a copy of the resolution from the Village of Twin Lakes concerning someone who was described as a “volunteer” serving on a police and fire commission. The person had claimed benefits based on a separation from another employer. The Village had reported the individual as an employee, though the department determined ultimately that the person was not in “employment” as defined by Chapter 108 and therefore benefits would not be charged to the Village’s account. We gave that explanation in a letter which is in the Council’s packet. They had a concern that volunteers would be picked up as employees. We explained to them that at least as far as this individual was concerned, the person was not in covered employment. Our statute takes out of the definition of employment those government employees who serve in major, non-tenured policymaking or advisory positions. We determined that this police and fire commission position fit into that exclusion. We received a letter on Thursday from State Representative Samantha Kerkman about the Village’s resolution and intend to call the Representative’s office and respond by calling attention to the previous letter. The other issue in the resolution had to do with whether an individual ought to be collecting benefits against an employer when they remain employed with that employer. We explained how the proration works and the combined wage claim in this case that involved employment in another state and Wisconsin.

Comment (Buchen): It might be helpful to summarize for Representative Kerkman that the employee was not covered.