CARSON CITY — Nevada businesses suffering from tough economic times got good news from the state Employment Security Council today. They probably won’t face an increase in the unemployment tax next year.
But those looking for a quick recovery from the recession are not going to get one, council members were told. Unemployment will climb to 14.75 percent next year and force the state to pay out $828 million more in benefits than it receives in taxes.
The council voted to keep the state unemployment tax at an average rate of 1.33 percent in 2010.
State Employment Security Division administrator Cindy Jones later said that barring unforeseen circumstances, she will support the council’s recommendation when she sets next year’s rate, tentatively at a Dec. 7 meeting.
Gov. Jim Gibbons had wanted the unemployment tax rate lowered to 1 percent, but council members and Jones repeatedly said that Nevada must eventually pay the federal government back the more than $1 billion in loans it will need over the next 15 months to keep sending checks to unemployed workers. They said cutting the tax rate now would make it harder to pay back the federal loan.
“Pay me now, or pay me later,” Jones said.
The state unemployment trust fund, which stood at $800 million in January 2008, is due to run out of money by the third week of October. The state already has borrowed $264 million from the federal government to pay benefits through the rest of this year.
Even if the tax rate had been increased to 4.33 percent, which was studied as one option, the state could not have raised enough revenue to cover the cost of benefits paid to laid-off workers next year, officials said.
Employers pay the tax on the first $27,000 of each worker’s wages.
State Economist Bill Anderson predicted that Nevada’s unemployment will climb to a peak of 14.75 percent in the spring of 2010 and average 14.4 percent during the entire year. He said it will average 12.8 percent in 2011.
Nevada’s 13.2 percent unemployment rate is the highest since the Employment Security Division was created in 1937 and the second highest in the nation to Michigan’s 15.2 percent.
Anderson also told council members that “not in our lifetimes” will a boom return to Nevada such as the one during the 2004-06 period when Nevada job growth averaged about 6 percent a year and topped the nation.
Since the beginning of the recession in December 2007, Nevada has lost 125,000 jobs, including 75,000 so far this year. In the past year, Anderson said, the number of construction jobs in Nevada has declined by 25,000 while leisure and hospitality jobs have been cut by 22,200.
About 50,000 more jobs will be lost in 2010 before a slight job growth occurs in 2011, according to the economists’ projections.
In past recessions, the number of people employed in Nevada was flat or showed a small gain, Anderson said.
When asked by council members whether there was any good news about Nevada’s job market, Anderson said the mining industry has been doing well, although it employs a limited number of workers. Metal ore mining in August employed 10,000 people, up 200 from a year earlier.
Gold sold for a record $1,040 per ounce on New York markets today. Nevada mines produce nearly 80 percent of the nation’s gold.
About 10 business owners and labor representatives urged the council during its annual meeting to keep the 1.33 percent unemployment tax rate or lower it slightly in 2010. Most told stories about laying off workers and seeing their profits dissolve.
Andre Rochat, owner of Andre’s Restaurant in Las Vegas, said he closed one restaurant because of the lack of business, while income at another is down 30 percent to 40 percent.
“We even offered our first discount in 30 years,” he said. “A $45, three-course meal. A better deal than McDonald’s. Every week we hope for a good weekend to meet the next week’s payroll.”
“Clearly we have not hit bottom yet,” added Danny Thompson, secretary-treasurer of the state AFL-CIO.
Thompson said the “green industry” jobs that some had hoped would jump-start the state economy have not yet materialized.
The council is a group of private citizens, including labor and management representatives, who meet annually to recommend unemployment tax rates. By law, Jones has the sole responsibility to set the rate, although she generally supports the council’s recommendations.
Gibbons spokesman Dan Burns said the governor was disappointed by the council’s recommendation but will not lobby Jones to set a lower rate.
“Keeping it flat is not what he hoped for, but he is satisfied because they didn’t raise it,” Burns said. “The governor’s opinion was to kick-start the economy you have to do things to help business.”
The 1.33 percent tax rate for 2010 is the average paid by businesses. Tax rates charged individual businesses vary from 0.25 percent to 5.4 percent, depending on how frequently they laid off workers who receive unemployment benefits. New businesses pay a 2.95 percent tax for the first three to four years.
During the 1970s, the state’s unemployment tax reached an average of 3.22 percent during another recession. That was the only other time that Nevada needed a federal loan to keep paying benefits.
Under current federal law, Jones said, Nevada and as many as 40 other states that receive federal loans must pay a 4.6 percent interest rate beginning in 2011 on those loans. There is a move in Congress to postpone any interest on loans until 2012.
Typically loans are paid back by a supplemental tax paid by employers, according to Jones.
Nevada law, however, does not allow the levying of a supplemental tax. The Legislature could change that when it next goes into session in February 2011.
Jones said the state also could pay off the loan through the state’s general fund. But after a recent meeting with the governor, legislative leaders said the state budget funding might be $2.4 billion below what they perceive as needed when the 2011 session begins.
Thompson said during the meeting that raiding the general fund would only be another burden on state government.
Contact reporter Ed Vogel at email@example.com or 775-687-3901.