CARSON CITY – Getting a $703 million loan with an interest rate of 1 percent is a much better deal than the same loan with a rate of 2 percent or more.
Most house hunters and car buyers know that basic financial fact.
Gov. Brian Sandoval knows it, too, and wants to get a lower interest rate on the $703 million that Nevada employers owe the federal government for unemployment insurance benefits paid during the Great Recession.
Getting a lower rate in the private sector than is being charged now by the U.S. Department of Labor could save state employers $9 million, he said in his State of the State address on Wednesday.
Nevada is paying the U.S. Department of Labor a 2.58 percent interest rate on that borrowed money this year. The rate fluctuates each year and has been as high as 4.08 percent. A rate in the private sector could be as low as 1 percent, depending on conditions at the time Nevada sought such a loan.
A private loan also would provide consistency to employers during the repayment period, said Dennis Perea, deputy director of the state Department of Employment, Training and Rehabilitation.
“It just really makes fiscal sense,” he said. “One of the biggest benefits is employers will get a consistent rate.”
The state general fund, and thus Nevada taxpayers, are paying the interest charges in the current budget, which total nearly $63 million.
The proposal would provide another financial benefit to Nevada employers.
Because the state has borrowed the money and has not yet been able to significantly reduce the debt, the federal unemployment tax rate paid by Nevada employers is increasing.
The normal tax rate charged by the federal government is 0.6 percent on the first $7,000 of a worker’s wages. But because of the borrowing, the tax rate being paid in Nevada is rising and has doubled to 1.2 percent. It will rise again, to 1.5 percent later this year, unless the proposal is implemented by the Legislature and the debt is fully repaid.
If the debt is fully repaid by Nov. 9 this year, the tax rate will return to
Gerald Gardner, chief of staff to Sandoval, said: “By bonding it, not only do we have the entire debt paid off by 2016, it will do so at a lower interest rate to everybody, to the employers, and we’ll have the fund solvent by 2018. So, it happens much quicker this way at a better cost.”
Contact reporter Sean Whaley at firstname.lastname@example.org or 775-687-3900.