A Budget Surprise: Departing from the Usual Consensus Procedure in Unemployment Insurance Policymaking

Wednesday, June 15, 2011 at 1:36 AM by

After observing Wisconsin politics and budgets for 30 years, I’m rarely surprised by the legislature’s actions. This session has been an exception, and one of the biggest surprises during the biennial budget process came in late May when the Finance Committee approved an amendment making a change to unemployment insurance (UI) benefits.

The committee voted 9-5 for an amendment that requires the newly unemployed to be out of work for a week before they become eligible for UI benefits, which will cut spending from the UI trust fund by somewhere between $41 and $56 million per year (depending on the unemployment rate). The same motion would also suspend UI benefits for a year for individuals who either fail a drug test or refuse to take one as a condition of employment. (A June 6 Journal Sentinel article reported that this part of the amendment appears to violate federal law.)

The substance of the amendment wasn’t the surprising aspect. What was highly unusual was the endorsement of changes in the UI system that hadn’t been reviewed and approved by the UI Advisory Council.  In addition, the committee only included half of a two-pronged UI proposal the Governor recommended to the Advisory Council in mid-May (see the May 18 Journal Sentinel article). His recommendation coupled the one-week waiting period with a change that would make long-time unemployed workers eligible for an estimated $89 million in federal money for extended benefits.

From the perspective of organized labor, the Governor’s proposal wasn’t a very attractive deal, since it requires a significant cut in UI benefits in exchange for the continuation of a federally funded benefit. But at least the Governor’s proposal had some semblance of balance and respected the longstanding practice of deferring to the Advisory Council.

For decades the unwritten rule in Wisconsin has been that any changes relating to UI benefits or financing have to be approved by the Advisory Council before they get voted on by the legislature. The Council is evenly divided between members representing organized labor and those representing management, and any legislation that it develops has to be negotiated and agreed upon by both sides. I believe the last time the legislature approved a UI bill that hadn’t been developed by the Council was almost 30 years ago. That policymaking process is by no means perfect, but it has generally served Wisconsin well – insulating the UI trust Fund and benefits from partisan politics and short-term political expediency.

An enormous challenge for the Council now is the extremely deep and rapidly growing deficit in Wisconsin’s UI Trust Fund, as benefit payments and interest costs far outpace UI tax collections from employers. The state has borrowed more than $1.5 billion from the federal government to be able to pay benefits. Eliminating that deficit will require compromise on the part of labor and management, and the prospects for productive negotiations may lessen after the Finance Committee’s vote, which appears to undercut the role of the Advisory Council in taking the lead on UI policy changes.

If I had tried to guess what UI issue the Finance Committee or full legislature would act on without deferring to the Council, I would have guessed the federal extended benefits, because that’s a 100-percent federally funded program (initiated by the Recovery Act). In mid-May, Governor Walker recommended to the Advisory Council that it approve the simple change in state statutes change that is needed for restoration of the extended benefits, in conjunction with the one-week waiting period.

The Advisory Council is scheduled to meet next week, but by that time the legislature may have already voted to enact the waiting period and the change relating to drug testing. If the meeting occurs, it will be interesting to see if the Council endorses the second half of the Governor’s recommendations from mid-May – i.e., the change that is needed for restoration of federally funded extended benefits. At a time when the long-term unemployment rate is so high, it would be extremely disappointing to turn down this opportunity to help struggling jobless workers. 

A longer term and more important question is whether the Finance Committee’s vote circumventing the Advisory Council creates an even larger rift between the business and labor representatives on the Council and exacerbates the very difficult political challenge of developing and approving a plan to close the widening deficit in the UI Trust Fund. We’ll report on the issue as developments unfold.

Jon Peacock

Categories: 2011-13 biennial budget, Blog, Joint Finance Committee, Recovery Act, unemployment benefits | Comments Off on A Budget Surprise: Departing from the Usual Consensus Procedure in Unemployment Insurance Policymaking

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