News of the Day

GOP Lawmakers Propose Raising Retirement Age, Altering Pensions for New Public Employees

Two Republican lawmakers are proposing to raise the retirement age from 55 to 60 for most new public workers and change the way pension payments are calculated to ensure the future solvency of the state’s pension system.

The coming bill, authored by Sen. Duey Stroebel, R-Saukville, and Assembly Speaker Pro Tem Tyler August, R-Lake Geneva, is a revision of proposals Stroebel championed last legislative session that never got a hearing. The bills would have made similar changes to the state pension system for existing state employees, reducing their monthly pension payouts.

“A pension system is only as stable as a government’s ability to fund it,” said a memo written by Stroebel and August seeking co-sponsorship, adding that the bill would protect the Wisconsin Retirement System’s solvency and taxpayers by changing benefits for new hires to “bend the cost curve down” on a pension system that is generally considered one of the best in the country.

Currently, WRS uses a complex formula that includes years of service and the average of the highest three years of earnings to determine payouts.

Under the bill, payments would be determined by averaging workers’ top five years of pay instead of the top three. Stroebel has said the result of averaging the top five years of income will be more representative of workers’ salaries. Also under the bill, the minimum age at which a new worker could retire would be 60 instead of 55. Public safety workers could retire at 52 instead of 50.  Government pension contributions would be $59 million lower if the measures were in place today, according to the co-sponsorship memo released this week.

Public employees can retire at age 65 and get full pension benefits, but they may opt to retire earlier and get reduced payments. The system covers 605,049 active employees, retirees and former employees with deferred benefits and paid out $4.9 billion in 2016, according to the state Department of Employee Trust Funds, which oversees WRS.

As of Dec. 31, 2015, the $92 billion system was 99.97 percent funded and its unfunded liability was $24.1 million, according to the department.

Lawmakers Target Welfare Fraud in Wisconsin

In 2012, Brown County sheriff’s investigators spent thousands and used 30 officers to crack a welfare-fraud case that officials say saved taxpayers $1.3 million. For their efforts, which sent three people to prison, the county received $0 in reimbursement.

State lawmakers from the Green Bay area are introducing a bill they hope will change that. Rep. Andre Jacque, R-De Pere; and Sen. Robert Cowles are circulating a bill to allow local and tribal governments to keep up to 20 percent of the money they save the federal and state government when they stop fraud. The bill covers the FoodShare, Medicaid, and Wisconsin Works programs. They plan to seek co-sponsors for the next two weeks. The bill would also:

» Limit the reissuance of FoodShare cards — a common tactic used by people who commit fraud — to four times,

» Freeze “carryover balances” that have gone unused for six or more months, and

» Wipe out balances on cards that have been unused for a year or more. Authorities have found unused balances in the thousands of dollars, including one of more than $14,000.

Welfare fraud investigations have frustrated Wisconsin’s local police, district attorneys and lawmakers for years. It’s a crime, so it must be investigated and prosecuted. But unlike other types of investigations, the police agency is prohibited by law from seizing proceeds, or otherwise profiting financially, when they take a bite out of crime. Federal law — welfare money originates in Washington — prohibits it.

The Jacque-Cowles bill would direct the state to work with the feds to change that, Jacque said.

That would make a difference in places such as Brown County, where the sheriff’s office spends about $100,000 annually for salaries and benefits for two full-time fraud investigators who together handle about 200 cases per year. About 20 or 25 investigations become criminal cases each year, District Attorney David Lasee said, with dozens of others resulting in charges for ordinance violations. The caseload accounts for less than 20 percent of one prosecutor’s time.

 

Bill Aims to Change Madison-Centric State Leases

In real estate the mantra is, “location, location, location.”” So it goes for the state’s agency leasing program.

But when it comes to the Department of Administration, the government’s leasing agent, location is most often Madison, Madison, Madison.

A bill authored by state Rep. Joe Sanfelippo, R-West Allis, and Sen. David Craig, R-Town of Vernon, aims to change that singular point of view. The measure would require the DOA to identify the “most appropriate and cost efficient locations to place an agency when securing or renewing a lease.”

Leasing agents would have to consider situating a state agency where it provides the most services, and identify multiple locations – at least two of which are outside Dane County.

“When considering leases to house state agency headquarters, the Department of Administration (DOA) currently restricts eligible property locations to a limited geographical area,” Sanfelippo wrote in a legislative memo. “This practice has created an artificial market for commercial real estate which is inflating the cost of lease rates and resulting in taxpayers paying unnecessarily high prices.”

DOA’s general policy, Sanfelippo said, is that the state agencies have to be located in Dane County, and primarily in the county seat and state capital, Madison. “You see these buildings all right there around the Capitol, for the most part,” the lawmaker said in an interview Tuesday with Wisconsin Watchdog. “These landlords know (about the DOA policy) and they screw us 10 times from Sunday when it comes to these leases.”

DOA spokesman Steve Michels said the agency is happy to look at any proposal that might save money and improve its services. “We are aligned in our shared goal to deliver value to the taxpayers through a more efficient government,” he said.

The argument has long been that Madison is the seat of state government. The infrastructure is there and that’s where state government operations should remain. There is no bigger advocate of that position than the city of Madison, a ready benefactor of state centralization.

Keeping state agencies together in the same city or geographical area makes it much easier for departments to interact with the executive and the Legislature, proponents say. Sanfelippo says those arguments no longer apply, particularly in the Digital Age.

“The vast majority of employees that work in these agencies do not interact on a daily basis with the Legislature, and most of the secretaries don’t. That pretty much goes out the window,” the legislator said. “In 1848, when we became a state, maybe that made sense back then, with communications and transportation primitive at the time. In 2017, you don’t have to be in one place. It doesn’t make sense anymore.”

It’s also not fair to citizens who live hours away from Madison, the bill’s authors assert. Some government services arguably are much better suited for other locations around the state.

 

Big Box Stores Gird for Battle with Wisconsin Cities

A battle pitting big-box retail giants including Menards and Wal-Mart against Wisconsin towns and cities is headed to the Legislature.

Republican-backed proposals, written in conjunction with the League of Wisconsin Municipalities, are designed to close the so-called dark store loophole and increase how much the mega-retailers pay local communities in property taxes.

The bills come in reaction to court rulings in Wisconsin and nearby Midwestern states — starting in Michigan — that have helped the retail giants lower the value placed on their stores for levying property taxes. The retailers have successfully challenged their tax assessments in communities across Wisconsin, and the Midwest, by arguing they are overtaxed and should pay the same rate as a store that is closed and vacant.

That results in a shift of the property tax burden to smaller retail stores and property owners, said Jerry Deschane, executive director of the League of Municipalities.

“We just think that’s fundamentally unfair,” he said. “The bottom line with the property tax is it has to be uniform.”

The cities will have to overcome opposition from the powerful state chamber of commerce and deep-pocketed retail giants that stand to lose millions from a change in current practice.

Wisconsin Department of Revenue rules require that assessments be based on the fair market value of a property. The stores argue that the value of the underlying real estate should be determined by looking at comparable building sales, prices that usually fall far below the assessment of an operating store.

Assessing the building as if it were empty has long been the standard in Wisconsin for determining its value, said Don Millis, a Madison attorney who has represented Target and other retailers in assessment challenges. Millis is also lobbying for the Wisconsin Manufacturers and Commerce against changes to the law.

“You value the sticks, bricks and mud,” Millis said. Cities have been incorrectly assessing the property based on the potential lease value, he said.

“We don’t think they’re being undervalued,” he said. “We think assessors are being overly aggressive.”

But Republican state Sen. Duey Stroebel, who plans to introduce a bill next month addressing the issue, said the potential lease value of the property should be considered when valuing it for tax purposes. That is what the bill he and others are working on will do, he said.

Millis warned that changing the law “could have long-term unintended consequences” affecting how all property is valued.

Big box stores including Menards, Lowe’s and ShopKo have filed more than 20 lawsuits against Wisconsin municipalities in the past year challenging their property assessments.

In one, Menards successfully argued last year that the value of its store in Fond du Lac assessed by the city at $9.2 million should be no more than $5.2 million. A similar lawsuit from Target argues that Fond du Lac should reduce its taxes on the retailer by about a third.

The dilemma for small cities is that the cost of defending lawsuits can equal or exceed the amount of property tax revenue at play, so they are more inclined to settle than fight it, said Deschane, who’s with the League of Municipalities.

Lawmakers in nearby states have had mixed success in tackling the issue.

A proposal in Michigan that attempted to require the taxable value to be based on the highest and best use of a property failed to pass last year. But in Indiana, the Republican-controlled Legislature, along with then-Gov. Mike Pence, enacted legislation to block what opponents call a tax loophole. The Wisconsin bill is modeled after the Indiana law.

Total Netted from State’s Misclassification Fight Exceeds $1.1 million

State officials’ efforts to crack down on companies that misclassify direct employees as independent contractors has generated more than $1 million for the state’s unemployment-benefits system over the past few years.

The state began stepping up its enforcement of misclassification laws several years ago. Since then, those efforts have recovered nearly $1.13 million worth of in unpaid unemployment-insurance taxes, penalties and interest, according to a report on the state’s unemployment fund released by the Wisconsin Department of Workforce Development on Wednesday.

Worker misclassification is believed to be particularly rampant in the construction industry, where frequent seasonal layoffs can blur the line between a permanent employee and someone hired for a particular job. Industry officials say deliberate misclassification not only deprives the state of unemployment taxes and other resources; it also gives dishonest companies an advantage by enabling them to avoid the sort of costs that their more scrupulous rivals often end up rolling into bid prices.

The state reported Wednesday that auditors found 8,613 misclassified workers at Wisconsin companies last year. The same year saw tipsters use a state-run website to report 59 instances of suspected misclassification.

Those tips led to 44 separate investigations, according to the DWD. On average, every audit conducted by the DWD discovers 10 workers who have been misclassified and recovers $3,605 in unpaid unemployment taxes, according to the Wednesday’s report.

Last year saw state legislators pass a law increasing the penalties for companies that misclassify workers. Violators can now be forced to pay $500 for every employee who was misclassified, although no more than $7,500 for a single incident of misclassification.

Employers who end up having to pay those administrative penalties and nonetheless go on to misclassify workers again are then subject to criminal fines. They can be made to pay $1,000 for every employee who is found to be misclassified, not to exceed a total of $25,000.

Wisconsin’s Push to Combat UI Fraud & Support Re-employment of Claimants Produces Results

Today, the Department of Workforce Development (DWD) presented the 2017 Unemployment Insurance (UI) Fraud Report to members of the Unemployment Insurance Advisory Council (UIAC), covering DWD’s efforts to combat fraud against the UI program in calendar year 2016 and support re-employment of UI claimants. The report shows that the rate of fraud being committed against the UI program dropped by more than a third, while Wisconsin ranked best in the Midwest and second nationally under a federal measure of UI claimant re-employment outcomes.

“Today’s report shows that our efforts to ensure that the UI program supports those who lose their employment through no fault of their own and move quickly to re-employment are working,” DWD Secretary Ray Allen said. “By instituting strong measures to prevent, detect and take action against attempts to defraud the UI system, we are supporting a strong UI Trust Fund, which helps employers who pay UI taxes and claimants who utilize the system properly. Additionally, Wisconsin ranks second nationally at re-employment outcomes for UI recipients, which is a testament to the strong work ethic of Wisconsinites, the continuing improvement of the labor market and our success in developing and connecting skilled talent to new opportunity.”

Highlights of the 2017 UI Fraud Report include:

  • Total UI benefit payments in 2016 dropped 15.5 percent, while fraudulent payments dropped by 35.3 percent.
  • DWD’s efforts to rapidly reemploy individuals who must rely on UI benefits during a career change are helping to ensure Trust Fund solvency. According to the United States Department of Labor, Wisconsin ranked 2nd among states when measuring the rate of UI claimants who were reemployed in the quarter following a first UI payment.
  • DWD’s efforts to educate claimants and provide free, fast, secure and easy-to-use online services are paying off as non-fraud overpayments dropped by 25 percent in 2016.
  • Wisconsin’s efforts to enforce the state’s worker misclassification laws are helping to level the playing field for Wisconsin employers who participate in the UI program. Since its launch, the program has generated over $1.1 million in UI tax revenue from employers who were previously misclassifying their employees as independent contractors.

The report also highlights DWD’s efforts to modernize its online systems and provide UI claimants and employers convenient and easy-to-use online systems. Since the launch of DWD’s modernized online initial claims system in 2014, 93 percent of UI claimants who begin their initial claim online are able to complete the claim without contacting a claims specialist by phone and four out of every five UI claimants accessed DWD’s online portal at least once in 2016. DWD is moving to retire its 1990s-era automated phone system this year as online claim filing activities gain popularity.

Secretary Allen noted the decline in UI payments and growth of the Trust Fund are due in large part to the success of Wisconsin’s economy under Governor Scott Walker’s leadership. Key economic indicators include:

  • Initial UI claims ended 2016 at their lowest level since 1988. Continuing unemployment claims ended 2016 at their lowest level since 1973.
  • Wisconsin’s labor force participation rate outpaced the national rate and ranked among the best in the United States.
  • After adjusting for inflation, total private sector wages in 2015 grew 5.1%, the best growth since 2001, and average weekly wages in 2015 increased 3.6%, also the best growth since 2001.

Higher Interest Rates Could Explode Budget Deficits and Our National Debt

The Federal Reserve is expected to raise the target interest rate next week, continuing its long climb back to traditional levels. While the economic impact of rate hikes is intensely debated, less attention has been focused on the extraordinary impact they will have on federal spending and the national debt.

The short answer is that higher interest rates can cost taxpayers trillions of dollars.

The budget outlook is already perilous: After gradually declining since 2010, annual budget deficits are projected by the Congressional Budget Office (CBO) to soar past $1.4 trillion a decade from now, and then keep growing thereafter. And that is the rosy scenario; it assumes no recessions, wars, terrorist attacks, tax cuts, or federal spending expansions.

It also assumes only modest interest rate increases, which is important given that the national debt already sits at $20 trillion and is slated to increase by another $10 trillion over the next decade. CBO estimates that each one-point rise in interest rates adds $1.6 trillion to the ten-year budget deficit — $262 billion of which comes in the tenth year, as costs accelerate. Thus, a four-point interest-rate hike would cost taxpayers $6.4 trillion over the decade, and more than $1 trillion in the tenth year alone — far more than the cost of defense or Medicaid spending.

But now, CBO’s rosy assumption that rates will remain low seems mistaken.
First, the Federal Reserve is expected to continue phasing out its policy of keeping interest rates extraordinarily low, meaning rates should normalize over the next few years.
Second, interest rates have been constrained by the weak recovery that followed the Great Recession. If the economy eventually returns to its more typical 3.0 to 3.5 percent growth rate, demand for business, auto, and home loans should go up, thus raising interest rates.
Finally, and most importantly, the soaring national debt will eventually push interest rates significantly higher, because added demand raises prices. With the national debt in the process of rising $20 trillion over 20 years, all of Washington’s new borrowing represents a historic increase in the demand for savings, resulting in higher interest rates for the government (as well as for families and businesses).
The effect this has on the budget could be enormous. If interest rates merely return to 1990s levels, the resulting costs would raise the 2027 budget deficit from $1.4 trillion to $2.2 trillion. And if the large increase in government borrowing somehow brings back the 10.5 percent interest rates of the 1980s (unlikely, but not impossible), the annual budget deficit would approach a staggering $3.2 trillion a decade from now. At that point, interest on the debt would cost $2.5 trillion per year, or $17,000 per household — nearly as much as Social Security and Medicare spending combined.

This should give pause to any lawmakers seeking large tax cuts or spending increases. A $1.4 trillion deficit within a decade is risky enough, and deficits of $2 trillion or $3 trillion would be economically catastrophic. Perhaps the CBO is correct that interest rates will remain historically low, but it would be irresponsible to bet the economy on that assumption. Instead, responsible deficit reduction can ensure that future generations are spending their tax dollars on their priorities, rather than making cataclysmic interest payments on earlier expenditures they never voted for.

Op-Ed: Wisconsin Must be Doing Something Right

Here are five more often-overlooked features of Wisconsin’s economic upswing.

Wisconsin Works: Our state boasts the highest labor force participation rate in the Great Lakes Region and ninth highest in the country; up from the twelfth spot five years ago. As of January, 68.1% of the state’s population was in the labor force. That’s above the rate for January 2015 and equal to the rate in January 2014.

Wage Growth Comeback: Wisconsin’s total private wages grew 5.3% in 2015. While this is a solid number by itself, remember there was no inflation to artificially pump up the number. Wisconsin’s total and average private sector real wages and salaries increased by 5.0% and 3.5%, respectively; the strongest gains since 1998.

Wisconsin is Less Taxing: Wisconsin’s tax burden has been steadily declining. Our state and local tax burden is now the lowest in over 40 years. In 2000, Wisconsin ranked fourth among the states in state and local tax burden and was 14.5% above the national average. Even as recently as 2010, Wisconsin ranked ninth and was 7.9% above the U.S. average. Today, Wisconsin’s tax ranking has dropped to sixteenth, just a tad, 1.5%, over the U.S. average. Not only has Wisconsin fallen out the top 10 states in tax burden overall, it has also no longer among the top 10 states for income taxes, corporate taxes, sales taxes and property taxes.

The Kids Are All Right: Wisconsin’s millennials are better educated than their parents and out-work their counterparts in the rest of the country. They are also more likely to be fully independent, either on their own or married.

More than 33.6% of Wisconsinites ages 25 to 34, have bachelor’s degrees or higher, very close to the national average. That is a big shift from their parents and grandparents, as just 27.4% of the state’s population as a whole has that education level.

Wisconsin millennials participate in the workforce at higher rates than their counterparts in the rest of the country. The percentage of Wisconsin residents aged 20-24 years in the labor force is 76.7%; ages 25-29 is 82.2%; and 30-34 is 83.5%. The national average percentages for those age groups are much lower, 64.7%, 75.2% and 76.4%, respectively.

So, it should not be a surprise Wisconsin millennials are more independent than their counterparts in the rest of the country. Nationally, 34% of 18-34 year olds still live with their parents. In Wisconsin, it is 27%.

We’ve Got You Covered: Wisconsin ranks sixth best among the states in health insurance coverage. More than 94% of the state’s residents are covered by health insurance, nationally that figure is 90.6%. Between 2013 and 2015, 195,000 more Wisconsin residents added health insurance. In Wisconsin the dominant form of coverage is employer sponsored health insurance. Wisconsin also ranks sixth in the nation for employer provided health insurance.

These five factors are not meant to be comprehensive. That would be difficult. There are other overlooked metrics that point to why Wisconsin’s economy is performing at its highest level in the past fifteen years or more.

As I said, Wisconsin must be doing something right.

John Koskinen is the chief economist for the Wisconsin Department of Revenue.

U.S. Job Growth Rises Briskly, Wages Continue to Climb

U.S. job growth increased more than expected in February and wages rose steadily, which could give the Federal Reserve the green light to raise interest rates next week despite slowing economic growth.

Nonfarm payrolls rose by 235,000 jobs last month as the construction sector recorded its largest gain in nearly 10 years due to unseasonably warm weather, the Labor Department said on Friday. The economy created 9,000 more jobs in December and January than previously reported.

Last month’s brisk clip of hiring was accompanied by steady wage growth, with average hourly earnings rising 6 cents, or 0.2 percent.

January’s wage growth was revised up to 0.2 percent from the previous 0.1 percent gain. That lifted the year-on-year increase in wages to 2.8 percent from 2.6 percent in January.

The unemployment rate fell one-tenth of a percentage point to 4.7 percent, even as more people entered the labor market, encouraged by the hiring spree. Economists polled by Reuters had forecast employment increasing by 190,000 jobs last month.

With the labor market near full employment, wage growth could speed up as companies are forced to raise compensation to retain employees and attract skilled workers. According to economists, wage growth of between 3 percent and 3.5 percent is needed to lift inflation to the Fed’s 2 percent target. But inflation is already firming, in part as commodity prices rise.

All sectors of the economy, with the exception of retail and utilities, expanded payrolls in February. Manufacturing employment increased 28,000, the largest increase since August 2013, as rising oil prices fan demand for machinery. Construction payrolls surged 58,000, the biggest gain since March 2007, boosted by warmer weather. Retail sector employment fell 26,000 after a gain of 39,900 jobs in January.

 

Assembly Poised to Ban Project Labor Agreement Requirements

Assembly Republicans are poised to pass a bill that would limit union influence on bids for public projects.

The Assembly is set to vote on the measure Thursday. The bill prohibits state and local governments from requiring contractors bidding on their projects to enter into collective bargaining agreements called project labor agreements.

The bill’s sponsor, Rep. Rob Hutton, says it gives non-union firms more opportunities to bid on public projects. Opponents say the bill is the latest Republican attack on unions. Both sides acknowledge few places in Wisconsin currently use project labor agreements.

The Senate passed the measure last month on party lines. If the Assembly passes it, it will go to Gov. Scott Walker for his signature.

More than 20 other states have passed similar legislation.