State council votes to increase unemployment tax

CARSON CITY -- Happy New Year, Nevada employers.

Starting Jan. 1, you will be hit with a 50 percent increase in the taxes you pay to provide unemployment benefits to workers, the state Employment Security Council decided Tuesday.

But that won't be the last of your increases.

As early as September, your unemployment taxes are expected to be boosted again to help the state pay back another $300 million it will borrow from the federal government.

Nevada already has borrowed $526 million and economists told the council of employers, union leaders and public representatives that they see no quick end to the state's already record unemployment and recession.

"Nevada is in a pretty big hole," state economist David Schmidt told the council.

Over some business leaders' protests, council members unanimously voted to increase the unemployment tax rate to an average of 2 percent -- assessed on the first $26,600 of each employee's wages -- up from the current 1.33 percent rate.

Veronica Meter, a Las Vegas Chamber of Commerce government affairs executive, urged the council to keep the current rate since higher taxes only will force some businesses to lay off workers.

"Businesses are struggling to keep their doors open," she said. "Don't put additional burdens on them."

The economic experts expect the state unemployment rate, now 14.4 percent, to peak at 14.7 percent in 2011. They also see declines in the number of employed residents through 2012 at least.

Actual unemployment in Nevada is more like 21.5 percent, said chief economist Bill Anderson, when you count the number of people who have quit looking for jobs and consider people working part time who want to have full-time jobs.

By increasing the tax rate to 2 percent, the state estimates it will take in $410 million in unemployment taxes from companies in 2011. The tax burden would have been $273 million at the 1.33 percent rate.

The council would have had to hike the rate to 3.5 percent to secure enough money from employers to end the need to borrow more money from the federal government.

Ray Bacon, a lobbyist for the Nevada Manufacturers Association, had proposed the council adopt a 3 percent tax rate, even though it would mean taking about $150 million more money from companies than the 2 percent rate.

"You have to take a fairly aggressive stance to stop the hemorrhaging," Bacon said.

He was concerned about the state having to continue borrowing money from the U.S. Department of Labor.

To this point, Nevada and other states have borrowed a combined $40 billion. They will be required to start paying interest Jan. 1 on their loans, unless they pay off their debts by Sept. 30, 2011.

Bacon said economists he has spoken with don't see any end to the recession in Nevada for five years.

While the average unemployment tax rate in 2011 will be 2 percent, what individual employers pay varies, from a low of 0.25 percent to a high of 5.4 percent, depending on the frequency in which they lay off workers.

To achieve the higher average tax, the state will move many employers into higher individual tax brackets.

Now 56 percent of employers pay the minimum 0.25 percent. That percentage will drop to 33 percent at the higher tax rate.

At the 2 percent average rate, the typical employer in 2011 will pay $532 to provide unemployment benefits for each employee. That is up $180 from 2010.

The council's decision is a recommendation. The final say falls to Cindy Jones, administrator of the Employment Security Division. She will decide on Dec. 7.

But no administrator ever has gone against the council's wishes.

During Tuesday's four-hour meeting, state Treasurer Kate Marshall released a proposal that she believes could save employers $50 million a year on the costs they ultimately will incur to pay off the federal loan.

Instead of paying the federal government, Marshall said her office could float a bond before Sept. 30 and use proceeds to pay off the federal debt entirely. The interest rate on the bonds would be much less than the federal rates, she said.

But Marshall acknowledged it will take action in the Legislature to permit the treasurer's office to use this strategy. Under her scenario, bond payments, which would be paid by employers, could be $180 million a year.

Marshall had urged the council to approve an unemployment tax rate that would obviate the need for additional federal loans. More loans only will increase what employers ultimately must pay, she said.

"Debt is a four-letter word in our office," she said.

Six states already have used similar financing to reduce what they must pay on their federal loan.

Jones said the governor's office also is developing similar plans, which would require legislative approval.

She said she has spoke with members of Nevada's congressional delegation and they don't expect Congress to reduce the state's debt obligations in the near future.

Unemployed workers in Nevada receive weekly benefit checks that average $325.

The taxes paid by Nevada employers cover the maximum 26 weeks of state benefits that some workers receive.

The loans with the federal government cover only these state benefits.

But some workers qualify for up to 99 weeks of total benefits, with 73 of those weeks paid entirely by the federal government.

The unemployment tax rate for 2011 is the highest assessed in Nevada since the early 1980s. Rates topped 3 percent in the late 1970s.

At the end of 2007, the state unemployment trust fund contained $803 million and Nevada was considered one of the most solvent states.

But with a tripling of the unemployment rate since then, the fund was exhausted by October 2009 and Nevada started borrowing. The debt to the federal government now is expected to reach nearly $825 million by the end of 2011.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.