Like most Wisconsin businesses and citizens, Wisconsin government is facing significant negative economic consequences from the COVID-19 pandemic. As the state heads into the second fiscal year of the 2019-21 biennium, agencies and legislators are analyzing the numbers and looking at how to adapt the state budget for 2020-21 and beyond.
Unemployment Insurance Trust Fund & Tax Implications
On May 7, the Wisconsin Department of Workforce Development (DWD) released its analysis of the potential effect of COVID-19 on Wisconsin’s Unemployment Insurance (UI) Trust Fund.
According to DWD, “[c]urrently UI is experiencing unprecedented claim volume with over 300,000 weekly claims per week. This is 194% higher than the average number of weekly claims received during the first year of the Great Recession.”
DWD reported it has run three scenarios to model when the UI Trust Fund will be exhausted. DWD made the following assumptions in these scenarios:
- An average weekly benefit amount of $325;
- 85 percent of claims will paid from state Regular UI;
- 94 percent of benefits will be charged to the UI Trust Fund;
- Did not include future employer-paid unemployment insurance tax revenue.
Based on this, Trust Fund exhaustion dates range from approximately October 2020 in DWD’s high claim scenario (assuming a high of 255,000 payable claims per week) to September 2021 in DWD’s low claim scenario (assuming a low of 85,000 payable claims per week).
When the UI Trust Fund runs out of money, Wisconsin may borrow from the federal government so benefits may still be paid to unemployed workers, with the money ultimately being paid back by Wisconsin. This repayment and the replenishment of the Fund is paid for by taxes on Wisconsin employers (which, for an individual employer, depend on the size of the employer’s taxable payroll and the employer’s past unemployment experience).
LFB General Fund Update
On May 6, the Legislative Fiscal Bureau (LFB) distributed to legislators a memo outlining significant reductions in state tax collections for 2020. According to the memo, preliminary information from the Department of Revenue for April 2020 shows collections in April 2020 are $870 million below collections in April 2019. Collections are $313 million below collections at this point in 2018-19.
In January, LFB estimated the state’s general fund balance by the end of the 2019-20 fiscal year at $1.1 billion. The latest LFB memo notes that, though it is too early to project accurately, the estimated balance will “undoubtedly” decrease because of the reduced collections in April and likely May and June to follow. LFB said state spending cuts and federal funding from the CARES Act could mitigate the decline in the 2019-20 balance, in addition to potential enhancements from the state’s “rainy day” fund.
The LFB memo states that these numbers are skewed by the extended tax filing deadline for 2020 due to COVID-19. More information on the state of the 2019-21 budget and the impact of COVID-19 will be available after the new tax filing deadline in July.
DOA Spending Cuts
On April 29, the Department of Administration (DOA) announced steps to offset loss of revenue due to the public health emergency. DOA implemented a 5 percent reduction in state agency spending, equating to about $70 million. For state employees, DOA is limiting out-of-state travel, implementing a hiring freeze (excluding essential and COVID-19 positions), and suspending discretionary merit and retention programs. Republican legislators praised the move and encouraged the administration to look at more ways to cut state spending as the state continues to incur COVID-19 related revenue losses.