CARSON CITY – The state Board of Finance unanimously approved an Employment Security Division plan Tuesday to issue bonds to pay off a $520 million debt the state owes to the U.S. Department of Labor.
Once the plan is implemented, employers will pay slightly less than they do now to provide unemployment insurance for their laid-off workers and the state will begin to build reserves to cover unemployment benefits in case of a future recession.
“I believe it would be malpractice not to do this,” said Gov. Brian Sandoval, the chairman of the board.
Employers would pay $720 for an average employee to cover unemployment insurance in 2014 once the loan is paid off.
That would be a few dollars less than they would have paid next year in combined state and federal taxes for unemployment benefits. What individual employers pay, however, varies widely. Those with a record of frequently laying off workers pay much more than those who seldom lay off employees.
A financial adviser said he believes the state can complete a bond deal by Nov. 9, a step that would pay off the federal loan immediately. The state needed to take out the loan when unemployment climbed to 14 percent and the state was forced to borrow to keep paying unemployment benefits.
Now employers pay a tax to the federal government each year to retire the loan. That tax rate increases each year until the debt is cleared. Employers also pay a state assessment to cover interest charges on the loan. Both charges would end once the bond funds pay off the loan.
Renee Olson, administrator of the Employment Security Division, said the current interest rate is about 2.5 percent, but the bond interest rate would be about 1.5 percent.
By paying off the loan through a bond issue, the state can begin using the state unemployment tax rate, now averaging 2.25 percent of the first $26,900 of each employee’s wages, to build back the bond reserve. Estimates are the now-exhausted reserves would rise to $190 million by the end of 2014. Analysts believe the state needs reserves of at least $1 billion in case another recession occurs.
Members of the Employment Security Council on Wednesday recommended that the state unemployment rate be reduced to an average rate of 2.1 percent on the first $27,400 of each employee’s earning. With the reduction — which Olson could put into effect in December — employers would pay a few dollars less per employee.
Representatives of the Nevada Taxpayers Association, the Las Vegas Chamber of Commerce and the Nevada Resort Association all testified in support of the bond plan.