Wisconsin jobs numbers still poor

Jake’s blog is providing excellent analysis of DWD’s job numbers. So, see his September review of the “gold standard” job numbers and his examination of an ALEC report that tries to claim Wisconsin is doing better than Minnesota (short answer: Minn. is doing better).

As Jake writes:

I know administrations of all parties try to put a positive face on how things are going in their state/country. But when that crosses the line into blatantly dishonest campaign cheerleading that can be taken apart with 30 minutes of googling the source data, I get offended. And there are few more defining characteristics of the Walker Administration than offensive cynicism at taxpayer expense.

New Internet Claims Filing Process for 2016

The Department of Workforce Development is revamping its Internet Claims Filing process with a much more complicated and detailed series of questions and screens. At the December 17th Advisory Council meeting, the Department was scheduled to present to the council what these changes would entail. Because of other issues, however, the council never got to see this presentation. Luckily, the Department sent me a copy.

Those filing their weekly claim certifications will now be told about fraud warnings at the start and end of their claim filing. See pp.2 and 17. And, the 14 questions now being asked are at least 20+ questions. Furthermore, rather than simplifying the information being asked about, the new questions continue to be legalistic and leave key information out.

NOTE: For comparison, here are the questions Massachusetts asks claimants (in Massachusetts, the phone questions are the same as when filing by Internet).

NOTE: Also compare the information available in the Massachusetts Guide to Benefits for Claimants with Wisconsin’s Handbook for Claimants. Notice the kind of information available in Massachusetts and the tone of how that information is presented as compared to Wisconsin.

For example, in Wisconsin there will now be a question about school attendance. See p.3. Usually, when you attend school during your regular work shift you are ineligible for unemployment benefits. But, if you work during the evenings while attend classes during the day, you should still be eligible for unemployment benefits when laid off from your evening job. In this case, the schooling does not interfere with your availability on your typical work shift. The new Internet filing form, however, only asks about attending classes during the day and does not include or ask for any information about regular work shifts.

Able and available status are now two separate questions as well. See pp.4 and 5. Missing work because of illness usually leads to a reduction in weekly benefits because work was missed. The question on p.4, however, only asks about your regular employer. Because many claimants who have temporary, part-time work do not think of those employers as their “regular” employers, they will not think a question about missing work with a temporary employer because of sickness is included in this question. This question should be asking about any current or future employer and make no reference to a “regular” employer.

Problems with other questions continue. Claimants are supposed to report all wages earned in the week for which they are filing, regardless of when they are actually paid those wages. So, the Department goes into detail about how to report those wages and hours (and minutes) of work for employers (see pp.6-8) as well as how commission work and sales are to be reported (see p.9). But, then the Department asks about sick pay, bonus pay, holiday pay, and other kinds of pay (see pp.10-12) as already received for the week — “did you receive?” — or to be received — “will you receive?” As a result, these questions imply that regular wages that are to be paid in the future do not need to reported since there is no question about reporting wages that “will be received?” Instead of two questions for vacation pay et al., only one should be asked: “Are you to receive?” And, instead of all of these separate kinds of wage income that now has to be reported separately, the Department should simply ask claimants to report “Any and all kinds of income connected to the work with EMPLOYER you are to receive for the week at issue.” By breaking these kinds of income into separate categories, the Department is requiring claimants to have an accountant’s understanding of their income in order to correctly fill out their weekly claim certifications rather than just asking for the total, gross amount of all income regardless of kind.

NOTE: The Department will even have a screen for miscellaneous income, such as baby-sitting, that has to be reported. See p.13.

Specific work search information for each job action will also now have to be provided. See p.15.

Given all the information that has to be provided in the proper category now, opportunities for mistakes will abound. And, any mistake will be an opportunity for charging claimants with fraud. In short, this new Internet filing process will NOT make it easier for claimants to file their weekly claims. But, this new process will make it easier for the Department to charge claimants with concealment.

Wisconsin DOJ announces criminal concealment push

While a new definition of concealment is pending, Wisconsin’s Dep’t of Justice announced on December 15th an “expanded effort to prosecute Unemployment Insurance fraud cases.” The press release accompanying this announcement states:

An expanded effort to prosecute Unemployment Insurance fraud cases has led to an increase in referrals to the Wisconsin Department of Justice (DOJ) from the Wisconsin Department of Workforce Development (DWD) from 6 in 2014 to 36 in 2015. In a continuing partnership between the two agencies, investigations conducted by DWD are referred to DOJ where these cases are prosecuted for criminal behavior.

“It’s shameful to see this safety net, intended to help those going through a period of financial difficulty and vulnerability, ripped off by fraudulent unemployment insurance claims,” said Attorney General Brad Schimel. “Those who take advantage of the system and steal our hard-earned tax dollars should be held accountable and prosecuted for their misconduct. I applaud Department of Workforce Development Secretary Reggie Newson for prioritizing this type of crime by hiring additional investigators.”

In 2015, the Wisconsin Department of Workforce Development has referred 36 felony cases to DOJ for prosecution. Those cases generally involve situations where people continued to collect unemployment benefits while ineligible because they were employed but failed to report the income. An additional 73 unemployment fraud cases were referred to district attorneys statewide this year.

In one Unemployment Insurance fraud case prosecuted by DOJ, an individual reported wages totaling $2,345.19 during a three year period when in fact, payroll records show the individual actually earned $68,398.36. As a result of this individual’s false statements, he received $42,573 in unemployment benefits to which he was not entitled. In another case, an individual reported no employment for a period of 104 weeks, resulting in more than $19,000 in unemployment benefits for 98 of those 104 weeks. Further investigation revealed this individual had earned $29,169.55 from an employer during 96 of the 98 weeks for which she collected unemployment benefits.

The charges filed against individuals making fraudulent Unemployment Insurance claims can range from misdemeanors to felonies, depending on the amount of money fraudulently collected. Wisconsin State Statutes provide sentencing recommendations for Unemployment Insurance fraud that include full restitution, fines, jail time, and probation.

Having promised to make consumer protection a focal point of his administration, Attorney General Schimel concluded, “DOJ will ensure those in need receive the benefits for which they are eligible and the cheaters and liars who take advantage of public assistance programs do not find refuge in our state. We will continue to partner with other state agencies to root out fraud and hold criminals accountable.”

Certainly actual fraud/concealment should be prosecuted. But, fraud based on nothing more than a simple mistake is NOT unemployment concealment. Misunderstanding of questions or a lack of knowledge about how much total weekly wages were received are currently being charged as concealment by the Department despite no evidence of an actual intent to conceal wages for the purpose of receiving undeserved unemployment benefits.

NOTE: thanks to clinic representation, the claimant charged with failing to report wages he did not know about won his case before the Labor and Industry Review Commission. The Commission explained:

The employee explained his circumstances to department personnel on at least two occasions and thereafter followed the department’s instructions. He reported the wages he could ascertain and relied on the department’s assurances that it would verify his wages with the EMPLOYER and recalculate his benefits to reflect the wages, inclusive of service charge commissions, reported by the employer. The employee was never told to estimate his service charge commissions, which would have been difficult to do given how much they varied from week to week. The employee openly disclosed to the department that he earns hourly base pay plus service charge commissions or, as he referred to them, “tips.” The employee believed that he was filing his weekly claims correctly and that the system was operating as explained.

Unfortunately for the employee, the department’s mechanism for verifying the wages he reported with the EMPLOYER, and obtaining the missing piece of wage information, did not work as expected. Consequently, the employee was paid more in unemployment insurance benefits each week than he should have received. Yet, the erroneous payments were not due to the wrongful or fraudulent actions of the employee. The fact that the department did not anticipate there being discrepancies larger than a few dollars between the amounts reported by the employee and the amounts reported by the EMPLOYER does not transmute the actions taken by the employee in good faith into acts of concealment. The mistakes the employee made when reporting his work for and wages from the EMPLOYER were honest mistakes.

So, it bears repeating: Unemployment is increasingly becoming a trap for claimants, a trap they should avoid by not filing unemployment claims at all.

The first of the DWD-sponsored proposals have appeared in legislation

At the 12 October 2015 Advisory Council meeting, the council gave final approval to the following proposals:

• D15-10 — eliminating the publication of the claimant benefit tables within the statutes,
• D15-11 — changes to circuit review review previously described here,
• D15-12 — allowing the same protocols for unemployment taxes in regards to fiscal agents in adult care to apply to fiscal agents in child care situations, and
• D15-13 — ending the sunset date in 2034 for the program integrity fund (i.e., the fund for receiving some of the monies from concealment enforcement) since the Department now expects concealment monies to continue in perpetuity.

Previously, the council had approved the following Department proposals:

• D15-02 — adding the ability to issue determinations against out-of-state employers in combined wage claims for being at fault for an erroneous benefit payment to a claimant,
• D15-03 — applying the Treasury offset program to employers, as described previously in this post, and
• D15-07 — changes to how work share benefits are calculated so as to comply with federal requirements for work share programs.

With the legislature currently in session, these three proposals — D15-03, D15-07, and D15-02 — have appeared in bills AB416 and SB341. The legislature will most likely enact these provisions shortly.

Several Department proposals, however, remain in limbo or are still being debated. The council has extensively discussed D15-04 in regards to setting up essentially a backup insurance program for reimbursable employers who get their unemployment accounts swindled by identity fraud (and so have little to no hope of ever recovering the stolen benefits). The final recommendation from the council was for reimbursable employers to be taxed initially in order to create a fund of $1 million for covering themselves against identity fraud, essentially the second option of the three presented. Proposal D15-05 was to correct a hole in the statutes that accidentally left LLPs out of the definition of employer (see also this DWD memo on this issue). Appeals modernization, D15-06, continues to be discussed by council members. Perhaps the most significant change in this proposal — notice by Internet in place of postal mail — has NOT received any discussion of comment from council members, however. On the other hand, there has been no word on D15-09 — distinguishing able and available determinations from separation determinations — since this proposal was introduced at the 19 May 2015 council meeting. Finally, the proposed changes to the definition of concealment in D15-08 (described in this previous post) may be discussed again at subsequent council meetings.

Changes to unemployment venue now and in the future

In DWD v. LIRC, 2015 WI App 56 (“Froehlich,” after the claimant at issue in the case), the Department filed an unemployment appeal case in Milwaukee County even though none of the parties resided in that county.

Normally, unemployment cases in circuit court must be brought in the county where the claimant or the employer (i.e., the plaintiff in the case) resides. But, the Department also has the ability to appeal any LIRC decision even if the parties to that case do not. And, in Froehlich, the Department did just that. Under Wis. Stat. § 102.23(1)(a), when the Department of Workforce Development is the appealing party, venue is in “the county where the defendant resides.”

Typically, when a claimant or employer appeals a LIRC decision in the wrong county, the Commission immediately moves to dismiss the action for lack of venue. And courts routinely grant such motions, ending the unemployment appeals before the merits of the case are ever addressed.

But, in Froehlich the Department was the appealing party, and the Commission did not immediately move for dismissal. Instead, the Commission said it was willing to agree to venue in Milwaukee County subject to what other parties wanted and the circuit court’s permission. For some reason, the Department did nothing. When additional Department appeals were filed in numerous other cases throughout Wisconsin (and again in counties where no defendants resided), the Commission moved to dismiss Froehlich. The circuit court granted that request, and the Department appealed that dismissal to the appeals court.

NOTE: In the past, when the Department appealed a Commission decision because of a fundamental disagreement with the Commission over the meaning of unemployment law, the Department filed those appeals in Dane County, where the defendant Commission resided.

The court of appeals held that dismissal was NOT warranted in Froehlich because the Commission had accepted jurisdiction in Milwaukee County and the other defendants never objected to venue in Milwaukee County. Since the active parties to the case — the Department and the Commission — had indicated that Milwaukee County was a proper venue, dismissal for lack of venue was improper. But, the case was still remanded to the circuit court to determine whether it would agree to jurisdiction, and the appeals court strongly hinted to the circuit court that it should agree. See n.4 in Froehlich.

The end result in Froehlich is that a wrong venue no longer leads to automatic dismissal, at least when the Department is the plaintiff. Whether Froehlich might also lead to claimants and employers being able to keep their cases alive despite filing in the wrong venue remains an open question. But, a colorable claim is now viable that such cases should NOT be dismissed but remain either in the county where filed or transferred to another county where venue is proper before any dismissal for lack of venue takes effect.

For its sake, the Department is not sitting on its laurels. At the September 17th Advisory Council meeting, the Department presented a new proposal to create a new unemployment venue provision, D15-11. In place of Wis. Stat. § 102.23, a new Wis. Stat. § 108.09(7) is created and which includes a host of changes to how unemployment appeals will be handled in the future. These changes include:

• Who is a party — Under new 108.09(7)(c)1, “every other party to the proceedings before the commission shall be made a defendant.” So, the parties of interest from workers’ compensation precedents no longer have to be included.
• DWD is a required defendant — Under new 108.09(7)(c)1: “The department shall also be made a defendant if the department is not the plaintiff.” So, copies of complaints and summons have to made for the Department in every unemployment case. And, the Department explained to the Advisory Council that it will most likely file a routine answer in all of these appeals. Moreover, the Department may decide to take an active role in some cases. Certainly, if the Department does not receive its summons and complaint, expect a motion to dismiss from either the Commission or the Department for failing to serve a necessary party. See also new 108.10(4). At the very least, this new provision will make unemployment appeals that much more expensive, especially for large employers involved in numerous unemployment cases.
• Commission excluded as a defendant for purposes of venue — Under new 108.09(7)(c)2: “if the plaintiff is the department, the proceedings shall be in the circuit court of the county where a defendant, other than the commission, resides.”
• Proceedings in any court — Under new 108.09(7)(c)2: “The proceedings may be brought in any circuit court if all parties appearing in the case agree OR if the court, after notice and a hearing, orders.” So, the parties can agree to venue in a court whether or not that court agrees to venue. Or, a court might order the parties to file in another venue or accept venue itself if one of the parties disputes venue (and, as noted below, the court will have no reason for declining venue).
• Lack of venue is NOT lack of competency — Under new 108.09(7)(c)2: “Commencing an action in a county in which no defendant resides does NOT deprive the court of competency to proceed to judgment on the merits of the case.” In other words, the Department can file its own unemployment appeals in any county it wants, regardless of whether the claimant or employer have any connection to that county whatsoever.
• A 60-day time limit for submitting the record to circuit court is mandated. See new 108.09(7)(c)5.

Unemployment benefit payments continue to decline

The Advisory Council met yesterday, September 17th, and much information was put forward, including current financial reports for the state’s unemployment system.

As noted previously, unemployment taxes are slated to decline. Next year, 2016, will see a reduced tax schedule for employers, as the reserve fund had $735.4 million at the end of July 2015 and should meet the requirements for a reduced tax schedule next year.

The most stunning news, however, is that benefit payments continue to decline markedly. The Department’s Financial Outlook Report released in April 2015 reported that “UI benefit payments in 2014 were the lowest since 2000.” See Report at 21. Now in September 2015, the Department reports that: “Benefit payments charged to the reserve Fund were $371.2 million through July compared to $445.4 million last year.” See UI Reserve Fund Highlights at 1. This level of benefit payments is “$90 million below what is expected” and “has not been seen in Wisconsin since the 1990s,” the treasurer for the state’s unemployment funds told council members. In support of this observation, the financial report included this graph on the last page.

This chart shows that all benefits paid to claimants are taking a deep dive since the recession. Part of the decline is the end in 2010 of federal extended unemployment compensation benefits. But, if the end of those federal benefits told the whole story, then the decline in benefits should level off and possibly increase as employers go through cycles of hiring and layoffs. But, there has been no leveling off in Wisconsin. Rather, benefit payments continue falling off of a cliff. Keep in mind as well that these dollars are not adjusted for inflation or cost of living increases. So, this drop in benefit payments is even more devastating to claimants trying to pay rent and buy groceries than pictured here.

For why this decline in payments is occurring, the main reasons appear to be the Department’s efforts at charging concealment against claimants for their mistakes and the new substantial fault disqualification standard. See Why employer UI taxes are down: concealment and substantial fault. The Department is essentially making it harder for those losing their jobs to qualify for unemployment benefits. And, those that do qualify are increasingly facing concealment charges six to nine months after their claims have ended, forcing them to repay all benefits previously received, pay additional penalties for their mistakes mislabeled as concealment, and then forfeit years of future unemployment benefits as an additional penalty. In short, unemployment benefits do not really exist anymore for those who lose their jobs, and this outcome is by design.

What is concealment?

A bill is going forward for creating a seven year ban on benefits after two instances of concealment — aka two strikes and you’re out.

Basic matters in this debate turn on what exactly is concealment and how is concealment uncovered. A case on appeal to the Labor and Industry Review Commission (LIRC or Commission) illustrates how the Department of Workforce Development (DWD or Department) is handling these matters.

In this case, the claimant worked as event waitstaff for a hotel. He received an hourly wage around $4 per hour and a tip based on a percentage of the fee the customer paid for the event (those tips added anywhere from $50 to $300 to his weekly earnings). But, those tips went directly to the hotel, and so the claimant could not know the tip amount he earned until he received his bi-weekly check (and those tips were combined for the two-week pay period).

Unemployment benefit claims are filed on a weekly basis, however. Since he did not know what his tips were for each week, he called the Department to ask about how to file when he only knew his hourly wages. The Department representative told him the Department would get the weekly tips information from the employer when it completed its UCB-23 form about his weekly work for that employer. The difference between the hourly wages he reported and the total wages the employer reported would then be deducted from unemployment benefits in a subsequent week.

Such advice is certainly viable. The claimant does not know his weekly tips when filing, only the employer does. So, while there would be a week or two lag in what his correct benefit amount is, at least the corrected wage information from the employer would lead to corrected unemployment benefits.

But, in this claimant’s case, the employer never returned those weekly UCB-23 forms. And, for six years this happened. Not until the claimant took a second job and was discharged from that job did the Department finally act on the information that the claimant had not been reporting his weekly tips income (again, because he did not know that tips income when filing his weekly claims). The Department is charging this claimant with concealment for not reporting his tips income.

But, why did it take six years for the Department to act on this issue? First, Department representatives have discretion about when to note their advice to claimants. Naturally, when that advice is that there is no issue or problem as perceived by that Department representative, Department representatives usually do NOT note that there is NO issue with a claim filing. Only when there IS an issue will they usually note that something needs follow-up investigation in Department records.

Second, the Department could have seen a problem when the employer filed its quarterly unemployment tax returns. Those returns would have showed both the hourly wages and tips paid to the claimant. But, the Department does not check the accuracy of the claimant’s weekly reporting with those tax returns, except when those returns show wages being paid and the claimant has reported NO earnings from that employer. That is, the Department only compares a claimant’s weekly claim reporting to an employer’s unemployment tax reporting to determine if the claimant has failed to report any wages from the employer (moreover, the Department does not even make this comparison until six months later — aka the second quarterly tax return — for a claimant). Since the claimant in this case reported his hourly wages, no flags were raised despite the difference in what the employer reported on its quarterly tax returns.

NOTE: There are more timely ways to handle wage reporting discrepancies than relying on quarterly tax reports from employers. I have repeatedly suggested to the Department and the Unemployment Insurance Advisory Council mechanisms for matching claimants’ wage reports to employers’ tax withholding data. See, e.g., Findings of the unemployment audit (January 2013 e-mail message to Lutfi Shahrani and Scott Sussman describing a withholding match in other states). Neither the Department nor the council has demonstrated any interest in such mechanisms.

Third, even if the employer had supplied the weekly UCB-23 forms, the Department’s currently practice is only to note those discrepancies and adjust future unemployment benefits for those discrepancies (i.e., as the Department representative told the claimant, the claimant’s future unemployment benefits would be adjusted for the tip income not reported on the weekly claim certification). No flags will be raised about either the amount or quantity of those discrepancies until a new, separate investigation into concealment is instituted at a much later date.

In all, these three factors demonstrate that the Department really has no way of catching on-going mistakes in weekly claim certification except through a concealment investigation that occurs months or years (or even six years in this case) after the problem started. Instead of addressing these institutional deficiencies, the Department makes the claimant responsible for any mistakes in his claim-filing. Here, even though the claimant did not know and could not know his weekly tips income when filing his weekly unemployment claims, the Department still considers him responsible for including that income in each weekly claim he made. And, it is his fault the Department took six years to figure out what was going on when it alleged concealment against him. His mistake constitutes concealment regardless of his intention, his confusion, his employer’s inaction, or the departmental advice he received.

The Commission, however, has required that concealment actually be intentional. See, e.g., LIRC responds to DWD’s concealment agenda. So, the Department and the Advisory Council now seek to change the definition of concealment to make it nothing more than mere mistake and to prevent claimants from contending they were confused, disabled in some way, or the recipient of bad departmental advice. See Concealment redefinition approved: Watch out claimants. With this new definition of concealment, claimants who make mere mistakes in their weekly claim filing will be subject to severe concealment penalties.

NOTE: To understand how severe concealment penalties are, consider this example. Suppose a claimant with a weekly benefit rate of $200 under reports part-time wages of $78 on a weekly claim instead of $87, a mistake of $9. So, instead of $167 in unemployment benefits that week, the claimant should have received only $161 in unemployment benefits, a difference of $6. When concealment is at issue, however, neither the $6 difference nor the $167 actually received is the amount at issue. Rather, the entire $200 potential weekly benefit must now be repaid for that week. Furthermore, there is now a 40% (15% prior to the new state budget) administrative penalty ($80 in this case) that also must be immediately repaid. And, future unemployment benefits ranging from two, four, or eight times the weekly benefit rate for each week/act of concealment will be lost to the claimant (in this case, $400 for the 2X penalty, or two weeks of no unemployment benefits received). Finally, keep in mind that this example is only for one week. In almost all concealment cases, the Department does not allege concealment until months or years have passed, and so the concealment — since it is usually based on an ongoing mistake — concerns dozens of weeks of unemployment benefits. The claimant who did not report his tips income for six years, for instance, is subject to a repayment demand of $32,000+ and forfeits $50,000+ in future unemployment benefits even though his weekly benefit rate hovered around $130.

Keep in mind, the Department has also been making it easier for claimants to make mistakes on their weekly claim filing through too numerous and too confusing questions for weekly claim filing, see Important and comprehensive concealment analysis from LIRC, new job search requirements that ignore basic mechanisms job hunters use to find work and create hidden traps for those at temp agencies, see numerous posts about job search requirements, and new job search verification protocols, see New job search verification requirement starting, that seem little more than one more mechanism for tripping claimants up.

In these circumstances, claimants should most likely avoid unemployment altogether. The risk of making a mistake and being charged for concealment because of that mistake at some future date for some unknown reason is too great. But, most claimants probably will not know about these new issues when the likelihood of being charged for concealment when making a simple mistake on their claim filing is high. So, the proposed bill which will actually ban claimants from receiving unemployment for seven years is a good thing: it keeps claimants away from a Department that does not have their interests at heart.

Why employer UI taxes are down: concealment and substantial fault

A previous post noted that unemployment taxes for employers are going down because the reserve fund’s cash balance is currently and expected to remain more than $500 million.

This success is remarkable, especially since it did not come about because employers’ taxes have been raised substantially. To be sure, the higher unemployment during the Great Recession led to the highest tax schedule — Schedule A — being implemented. And, for three years, 2011 to 2013, the FUTA tax credit available to employers was reduced.

But, recall the UI debt hole Wisconsin was in during the Great Recession. In March 2011, Wisconsin owed just over $1.6 billion because of borrowing to cover unemployment benefits being paid out. Only eleven other states ever owed more during this recession.

One point six billion dollars is a big hole to climb out of. As noted in a recent GAO report, some states reduced the number of weeks claimants were eligible for benefits as a way to fix their UI debt problems. In short, rather than making employers pay more, these states limited the ability of claimants to collect benefits in the first place. With less benefits being paid out, the taxes employers paid went further.

Other than the introduction of a waiting week before unemployment benefits begin being paid out, Wisconsin did not shorten the total weeks of unemployment eligibility. But, Wisconsin did other things on the benefit side of the equation that have starkly reduced the amount of benefits being paid out to claimants.

As noted previously, Wisconsin has been exceptionally aggressive on charging claimants with concealment and is proposing both increased penalties and stricter compliance standards to be applied to claimants that would effectively charge them with fraud when making honest mistakes on their claims. As the Department’s own fraud report shows, DWD has been taking in over $20 million a year the past two years in over-payment collections alone. Forfeiture penalties and charges against future unemployment benefits add significantly to the amounts flowing back into the reserve fund from claimants.

But, forfeiture over-payments and collections only tell part of the story. Department staffers have publicly noted that benefit payments are now at historically low levels. Indeed, at the May 19th Advisory Council meeting it was noted that Wisconsin has not seen such low levels of benefit payments since 2000, fifteen years ago. The big question is why benefit payments in Wisconsin are so low right now.

A look at 2013 and 2014 financial reports to the Advisory Council show large declines in 2014 in benefits being paid to claimants. The benefits charged to taxable employers for the past three years when employees were discharged are:

2012 - $788,019,106.15

2013 - $714,257,663.70

2014 - $580,681,613.52

The ratio of current year benefit payments to benefits paid the previous year, are 0.91 in 2013 but 0.81 in 2014. In other words, there was a nearly 20% decline in benefit payments in 2014 when compared to 2013, nearly double the decline in benefit payments from 2012 to 2013.

Benefits being paid to employees who quit also declined sharply in 2014.

2012 - $85,799,497.23

2013 - $81,861,854.13

2014 - $69,388,417.56

The 2013 ratio of benefit payments relative to the previous for quits was 0.95. That ratio in 2014 declined to 0.85, nearly three times the decline seen in 2013.

These declines in benefit payments in 2014 directly arise from changes in unemployment law contained in the 2013 budget act — 2013 Wis. Act 20 — regarding the elimination of numerous quit exceptions and the adoption of a new, substantial fault standard for discharges (see this previous post about these changes being included by the Joint Finance Committee in the budget bill). Understand that the original estimates presented to the Joint Finance Committee for these changes in unemployment law were a reduction of $14.1 million in benefit payments during the first fiscal year and a $23.1 reduction in benefit payments during the second fiscal year. As noted above, the actual decline for quits alone in 2014 was just over $12 million, and for discharges the decline was approximately $134 million.

NOTE: The financial reports given to the Advisory Council lack specific data about the number of claims at issue. The recent report about the activities of the Advisory Council, however, states that the new substantial fault standard led to “4,654 denied cases in 2014. See p.7 of the activities report. Using the average claim duration of 15.3 weeks and the average weekly benefit amount of $285 from the Department’s 2015 financial report, see pp. 37 and 38, each substantial fault disqualification amounted to $4,360.50. Adding up all of the denied cases in 2014 means that $20,293,767 in benefits were NOT paid out that year, $4 million more than what the Department estimated in its 2015 financial report, see p.33 of the financial report.

Because the decline in benefit payments is significantly more than what can be pieced together from available data, using a ratio of benefit payments from one year to the next to track these changes indicates at least how extraordinary the declines in 2014 were and, as indicated below, provides a mechanism for predicting what will happen in 2015 using currently available data.

Estimates for 2015 show that the decline in benefits being paid pursuant to discharges will continue. Using data for the first four months of each year, the total amount of benefits estimated to be paid in 2015 to discharged employees will be just over $480 million, $100 million less than in 2014. And so if current trends continue, the estimated level of benefits going to discharged employees in 2015 will only be 83% of the already record low amount that went to discharged employees in 2014.

On the other hand, estimated benefit payments in 2015 for employees who quit will only be $3 million less from what claimants who quit received in 2014. That is, benefits paid to employees who quit are expected to be within 97% of the 2014 numbers. Accordingly, it appears that the application of the new quit standards to claimants has stabilized and subsequent declines in benefits pursuant to quits are unlikely.

The Department has yet to acknowledge the impact the substantial fault disqualification has had on the benefits being paid out to claimants. The Department’s estimates set forth in its 2015 annual Financial Outlook Report call for a $16 million reduction in benefits to discharged employees because of substantial fault (much less than the $100 million estimated here for 2015) and an $11.5 million reduction in benefits through the elimination of various quit exceptions (nearly $9 million more than estimated here for 2015 but similar to the decline in quit benefits seen in 2014). See pp. 32-3 of the report.

These estimates severely under count the impact substantial fault has had on claimants. In its Financial Outlook Report, the Department presents for the first time a public description of the new substantial fault standard:

Substantial fault essentially means that if an employer establishes a reasonable job policy to which an employee can conform, failure to conform constitutes substantial fault.

See p.33 of the report. According to the Department, then, employees are disqualified whenever they fail to follow a reasonable employee policy. Given how steep the decline in benefits has been for discharged employees in 2014 and the first four months of 2015, it is obvious that the Department has begun applying this broad conception of substantial fault.

And so, with less money being paid out as unemployment benefits, employers’ taxes could that much more quickly fill the hole in the reserve fund created by the Great Recession. There simply has been no need in Wisconsin to reduce the number of weeks claimants are eligible for benefits when those claimants are likely to be disqualified in the first place from receiving any benefits at all.

Finally, it should be noted that even though Wisconsin now has a positive reserve fund balance, the unemployment fund is still not all that healthy. Based on standard UI fund metrics, a recent Trust Fund Solvency Report shows that Wisconsin still fares about as well as most other states do — that is, not so well (see p.56 of the report). The fund’s solvency is rated at 0.13 and a minimum of 0.60 is needed for Wisconsin to be eligible for interest free loans to cover future benefit payments. For how Wisconsin compares to other states, see p.59 of the solvency report. Among mid-western states, Wisconsin fares worst except for Indiana and Ohio, which both still have outstanding debt. Presentations by the Department to the Advisory Council have described the reserve fund’s financial problems in detail. See, e.g., the presentation contained in the Advisory Council activities report, pp.16-44. But, raising employers’ unemployment taxes appears to be unnecessary when benefit payments to claimants continue to decline markedly.

Costs of Drug Testing

The drug testing provisions in the proposed budget have also been put into separate legislation — AB192 — and the Legislative Finance Bureau has prepared estimates for how much this testing would cost. While the Finance Bureau cautions that these numbers are not applicable to the proposed drug testing in the budget bill (see this post for details about that drug testing), everything I have heard and read indicates that the drug testing proposed in AB192 is very similar to what is proposed in the budget bill.

To start, here are the numbers for setting up this drug testing:

• Programming costs of just over $1.2 million.
• Training, program management, testing, communications, and database development costs of around $360,000.
• Vendor costs of $18,000.
• Policy and rule promulgation costs of $38,000.

So, the total costs to set up this drug testing are just over $1.6 million.

[AB192 also includes a requirement to survey employers about their drug testing requirements. The costs for setting up this survey would be more than $1.2 million. Subsequent surveys every ten years will cost $865,000.]

Obviously, there are also annual costs for this drug testing.

• DWD estimates that 85% of claimants will have to be screened to determine if drug testing is appropriate for them. That screening will cost $2 per claimant or $321,000 annually.
• DWD estimates that 2.5% — about 4,000 claimants — will end up being required to undergo drug testing. DWD believes around 300 will refuse these tests, and that tests for the rest — at $40 per test — will cost around $149,000 each year.
• DWD believes 318 of those tested will test positive — around 8.5% of those tested (a high positive test rate that is unlikely to occur when compared to prior testing). DWD also posits that only half of those testing positive will opt for treatment (an extremely low estimate, especially when treatment will be the only way for unemployment benefits to continue and these benefits are usually vital to paying rent and getting groceries). Treatment costs of $2700 per claimant, then, will only amount to just under $430,000 annually.
• Staffing costs of .75 FTE or nearly $69,000 annually will be needed for managing all of this testing, and printing and mailing associated with this testing will cost $5,000.
• Not yet known will be the costs for litigating disputes over test results or how much will be spent on test results that employers voluntarily submit to DWD.

With these numbers taken as is, drug testing will cost each year around $1.06 million.

Understandably, there are savings from this drug testing because claimants who test positive and do not seek treatment will not collect any unemployment benefits. Here, the Department of Workforce Development’s over-estimating the number of positive test results and under-estimating the number of folks who will seek treatment leads to significant savings. Nearly 460 claimants each year are expected to lose their eligibility for unemployment benefits, according to the Department’s estimates (NOTE: this number consists of of the 300 who refuse drug tests plus the 159 who test positive this number of claimants testing positive and refusing treatment is wrong, since only 318 are believed to test positive and only half of this number will presumably refuse treatment, leaving only 159 — not 459 as reported). Assuming an average benefit amount of $3,950, just over $1.8 million will then NOT be paid out to 459 claimants.

The Finance Bureau does not simply accept this number as the total savings, however. Employers’ unemployment taxes will be reduced somewhat for two reasons: (1) claimants who test positive and refuse treatment will not be paid any benefits that can be charged to employers’ accounts, and (2) claimants who test positive but seek out treatment will have their benefits paid out of the general balancing account rather than charged against their employers. In both cases, employers will be paying less in unemployment taxes (and even though benefits continue to be paid in the second scenario). Because the charges to employers’ accounts are being reduced, there will be a general reduction in employer’s unemployment taxes. So, according to the Finance Bureau, employers will see a general $194,000 reduction in their unemployment taxes. In addition, approximately $600,000 of benefits will be charged to the balancing account for those claimants seeking out treatment. As a result, the annual savings are down from $1.8 million to just over $1.02 million each year of this program.

In short, even with the Department’s generous estimates about how many will test positive and how few will actually seek treatment, this drug testing will still cost Wisconsin taxpayers around $30,000 each year. Keep in mind as well that, even though employers’ unemployment taxes are being reduced by $194,000 for the 300 refusing tests and the 159 testing positive, around $600,000 in benefits being paid each year to those testing positive and seeking treatment will be paid out of the balancing account.  As a result, the balancing account — which all employer pay a portion of their taxes into — is likely to have a negative balance that much sooner. Take out the generous estimates about how many will test positive and how many will refuse treatment, then the costs escalate further.

UPDATED 13 May 2015 (struck out reference to wrong number and added explanation for how that number is calculated; updated discussion at end of posts about costs of drug testing).

LIRC responds to DWD’s concealment agenda

At the 16 April 2015 Advisory Council meeting, the Labor and Industry Review Commission provided memoranda regarding potential legal problems with the Department of Workforce Development’s proposed legal changes.

My post yesterday discussed the Commission’s memorandum regarding the Department’s SSDI proposals. Today, the issue is the Department’s push to label everyday mistakes as concealment, previously noted in these posts regarding employees and employers.

Along with the cover letter explaining why these memoranda were drafted, the Commission presented to council members a memorandum regarding the Department’s latest concealment proposal, D15-08. The Commission’s memorandum is a thorough debunking of the Department’s rationale and alleged scope for its proposed changes to concealment.

But, before reviewing this memorandum, it is important to understand what is going on here between the Commission and the Department. Luckily, the Department provided the Advisory Council with some data on this subject.

LIRC concealment/fraud decisions

Year					Total					ATD found fraud; LIRC reversed															ATD found fraud; LIRC affirmed															ATD found no fraud; LIRC affirmed															Remand for add’l evidence
																																																																						2015					44					14															23															3															4
																																																																						2014					196					123															28															6															39
																																																																						2013					147					25															77															34															11
																																																																						2015 data only from January through 12 April 2015

These numbers reveal that two big shifts in concealment cases took place in 2014. First, the number of cases where appeal tribunals found no fraud declined markedly from 2013 to 2014 — going from 34 cases to only 6 — even though the total number of concealment cases increased. Second, the number of concealment cases being reversed by the Commission jumped significantly in 2014. In 2013, the Commission only reversed 25 appeal tribunals who found concealment. But, in 2014 nearly five times as many determinations — 123 — were reversed by the Commission. Now, this huge increase is partially explained by the fact that concealment cases usually involve multiple determinations. So, when the Commission reverses a concealment case, two to three initial determinations are usually at issue in that concealment case.

But, these numbers also show that in 2014 appeal tribunals were moving in the opposite direction to the Commission. The Department and the administrative law judges who issue appeal tribunal decisions seem to be finding concealment in circumstances that everyone agreed in 2013 was not concealment. Indeed, as the Commission’s decisions in 2014 reveal (see these posts), the Department and appeal tribunals are finding concealment in circumstances where only honest mistakes are being made.

The Department has not acknowledged this change in direction. Indeed, as described by the Commission in its memorandum, the Department has actively attempted to pretend that no change in concealment law has even occurred and has even implied to the Advisory Council that it is winning circuit court cases in reviewing the Commission’s concealment decisions. At the 19 March 2015 council meeting, for instance, the Department informed council members that a Dane County circuit court had already reversed one concealment decision by the Commission. As a result, the Commission’s memorandum also seeks to set the record straight to council members about what is actually happening with all of these concealment court challenges by the Department.

As described in the memorandum reviewing the history of unemployment concealment in Wisconsin, the Commission notes that five 2014 cases appealed by the Department have already led to courts affirming the Commission decisions at issue. See Commission concealment memorandum at 4. And, the Dane County case previously described by the Department as a reversal of a Commission decision was actually a remand because an “unnecessary” factual scenario, according to the judge, was not addressed in the Commission decision and the Department chose remand to address that issue rather than have the decision simply affirmed. See id. at n.9.

Understandably, the Department was not happy to have this memorandum in the hands of council members, and at the April 16th meeting Janell Knutson lashed out at the Commission for providing political analysis in place of legal reasoning. In addition, Scott Manley, WMC vice-president, publicly endorsed this view. As a result, the Commission’s memorandum may not lead to changes or a rejection of the Department’s proposed new definition of concealment. Even if the council takes no action on the Department’s proposed changes to concealment, this change may end up being added to the current budget bill just as the Department’s proposed substantial fault standard was added to the state budget after being rejected by the Advisory Council. See this prior post.

Still, the Commission’s memorandum is an excellent introduction to the issue of unemployment concealment and fraud. The memorandum not only details the flaws in the Department’s proposal — how the proposal mis-characterizes Commission decisions, mis-states the original intent of the concealment definition, runs contrary to information given to claimants and adjudicators, conflicts with federal fraud measures and standards, leads to fraud penalties for honest mistakes, and does nothing to stop improper payments before they occur — but it also offers an excellent description of the history of how the concealment definition was developed and applied. Anyone interested in unemployment law should read the Commission’s memorandum.