Jobless trust coffers meager

For an idea of just how quickly Nevada's economy deteriorated in 2009, consider the state's unemployment trust fund.

The account, which pays jobless benefits to Nevada's unemployed, had $750 million on hand in December to cover payouts.

That stash had plummeted to $70 million by August, at the same time the state was paying out $38 million a week to jobless workers. Now, officials at the state's Department of Employment, Training and Rehabilitation say the fund could run dry by late September or early October, and on Oct. 6, the Employment Securities Council will meet to discuss a measure they eschewed in late 2008's flusher times: They'll talk about raising the unemployment tax that businesses pay to finance the system.

Current unemployment taxes range from 0.25 percent to 5.4 percent, depending on a company's record for laying off workers. The average is 1.3 percent. Businesses pay the levy on the first $26,600 of a worker's wages.

Business people offered mixed reviews on whether such a boost would hurt Nevada's companies, which have watched sales slump amid a deep recession that's endured for nearly two years.

Kelley Summerhill, chief financial officer of contractor Ryan Mechanical in Las Vegas, said a nominal jump in the joblessness tax probably wouldn't hurt the company.

"From the standpoint of our current tax base and the taxes that have a major impact on us, unemployment actually is a relatively minor tax," Summerhill said. "If we're talking about a minor increase, I wouldn't see it having any material bearing on our business."

But Debbie Banko, chief executive officer of Summerlin information-technology consulting firm Link Technologies, said any gain in outside expenses would affect her company's operation.

"It adds a cost to how we do business at a time when our margins are being reduced and squashed in every way, shape and form," Banko said.

Banko said she'd have to increase her consulting rates, and she'd be less competitive with out-of-state firms from areas with lower unemployment rates and smaller jobless taxes.

As the Employment Securities Council prepares to set the 2010 tax rate, Nevada will have to borrow $100 million a month from the federal government to continue paying jobless benefits.

Increases in the unemployment tax have been rare in the Silver State.

The last time the tax rose was in 2005, when the rate went up 7 percent, from 1.29 percent to 1.38 percent on the first $22,900 of each employee's wages.

In fact, state officials have cut the tax in the past decade more often than they've raised it, beginning in 2000 when the tax dropped from 1.4 percent back to its 1992 level of 1.29 percent.

In 2008, the rate dropped from 1.38 percent to 1.33 percent on the first $25,400 of every employee's wages. That saved companies an average of $12.70 per worker.

In most of the past 20 years, the tax has remained unmodified from year to year, including no change in the rate in 2009.

Cindy Jones, administrator of the state's Employment Security Division, said in December that the trust fund had more than enough money to weather the recession. State economists were predicting peak joblessness of just 8.8 percent through late 2009, and Jones said officials didn't want to increase levies on businesses struggling with faltering bottom lines.

"We raise taxes in good times, not during economic downturns," she told the Review-Journal at the time.

By late January, though, state economists had revised their jobless forecasts upward, to a projected peak of 11.4 percent. Jones and Larry Mosley, director of the state Department of Employment, Training and Rehabilitation, told members of a pre-session legislative budget subcommittee that Nevada might eventually need to borrow up to $750 million from the federal government to keep up with benefits.

Joblessness now rests at state and local records of 12.5 percent and 13.1 percent, respectively.

Mae Worthey, a spokeswoman for the employment department, said it's too early to anticipate what the 2010 unemployment tax rate might be. Officials of the Employment Securities Council won't forecast possible tax rates prior to their Oct. 6 meeting because the formulas they use to develop the percentage can be complex, Worthey said.

State economists will perform a solvency test to pinpoint how much money Nevada's unemployment trust fund will need in order to cover benefits and repay federal loans. Economists will give the council several tax-rate scenarios that account for interest costs, loan repayment and strategies for rebuilding the fund's reserves.

The council will accept comment from the public and from interested parties. The hearing that will set the 2010 rate would happen in November.

For now, Nevada will take advantage of a pool of federal money that increasing numbers of states are accessing.

The economic stimulus that passed Congress in February included $27 billion for states to continue paying laid-off workers. The law also added 33 weeks of benefits to the 26 weeks most state programs already offer, and it increased benefits $25 a week.

Several other states have borrowed from those funds as their moneys ran out.

California began in January to tap into a federal loan to cover unemployment benefits, and that same month, Ohio took out a $500 million federal loan so it could keep paying out-of-work citizens after it exhausted its trust fund.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.