CARSON CITY — State Employment Security Division administrator Cindy Jones decided Tuesday to increase the average unemployment tax rate paid by employers by 50 percent starting in January.
Jones said she realized the increase will be a hardship on employers but added that she has a "responsibility" to keep the state unemployment trust fund from falling further into the red.
Because of Nevada’s highest-in-the-nation unemployment rate of 14.2 percent, the state has had to borrow more than $579 million from the federal government in the past 14 months to keep paying the state portion of unemployment benefits.
Consequently, the administrator increased the unemployment tax rate, now 1.33 percent for the average employer, to 2 percent starting in January. The tax is paid on the first $26,600 of each employee’s wages.
Even with the higher rate, Jones expects the state to have to borrow an additional $250 million from the federal government by Sept. 30.
"This increase only slows the digging of the hole," Jones said.
David Schmidt, an economist for the agency, doubts the revenue the Employment Security Division receives in unemployment taxes will cover costs of paying benefits before 2014 and that its debt to the federal government won’t be paid off before 2018.
In imposing the higher rate, Jones went against the wishes of Las Vegas Chamber of Commerce Government Affairs Vice President Veronica Meter, who had pleaded with her to postpone an increase until the economy recovers.
Meter said hundreds of companies already have laid off workers and an increase in the tax would only hurt them more.
"We want a deferment," said Meter, whose association represents 6,500 businesses. "A little breathing room."
Jones, who said the unemployment problem in Nevada is the worst since the Employment Security Division was created 75 years ago, replied, "It’s a tough decision. We couldn’t have dreamt this scenario."
Just three years ago the state had $800 million in a trust fund to pay unemployment benefits. But unemployment in the state has nearly tripled since 2007.
That fund ran out of money in October 2009. The borrowing from the federal government to pay unemployment is expected to reach $820 million by October and might pass $1 billion by the end of 2011 .
When she became administrator six years ago, Jones said the state was paying out about $4.5 million a week to unemployed workers. Now the payout in some weeks is $45 million.
About 109,000 Nevadans are receiving unemployment benefits.
Under state law, the administrator of the Employment Security Division has the sole authority to decide whether to increase or decrease the unemployment rate.
Because of the increase, the average employer will pay $532 per employee in 2011 to provide state unemployment benefits. That’s an increase of $178 per employee.
Also, the federal government will require employers to pay an additional $21 per employee per year in unemployment taxes on the tax returns they file in 2012.
The 2 percent unemployment tax rate is the average rate. The rate individual companies pay varies, depending on how frequently they lay off workers. Seven percent of the employers pay the maximum 5.4 percent tax rate. One-third pay the lowest rate of 0.25 percent.
The 2 percent average rate is the highest since the mid-1980s.
Jones’ action had been expected since October when the Employment Security Council, a group of citizens, employers and union members, recommended the increase. The administrator never has gone against the council’s wishes.
Contact Capital Bureau Chief Ed Vogel at email@example.com or 775-687-3901.