Department: Bonds could more quickly pay unemployment loans
March 28, 2013
Authorizing bonds to pay down the state’s unemployment-benefit loans could save money and restore the trust fund that pays those benefits faster, the head of Nevada’s Employment Security Division told lawmakers Wednesday.
The bonding plan goes hand in hand with authorizing a special assessment on employers to pay the interest on outstanding federal loans taken to pay unemployment benefits through the recession, Renee Olson said.
The two are separate because federal law prohibits using trust fund money to make interest payments, she said.
According to her economist, David Schmidt, the state’s total loan debt was $695 million as of Tuesday. Schmidt said that is down about $120 million from a year ago but that the state should have a positive balance of $808 million in case of an economic downturn.
He said interest rates in the bond market are as much as 1.5 percent lower than the total 2.6 percent employers are currently paying, so bonding to pay off the debt this year could save a significant amount during the next few years.
The bonds would not only pay off that debt but restore the trust fund, Schmidt said.
“If we reduce the debt to zero and put money into the trust fund, we will have more opportunity to earn interest on those reserves,” he said. “Bonding beyond repaying the debt to actually re-establish the trust fund provides more flexibility.”
Doing nothing, Schmidt told lawmakers, will keep the average cost to employers at 2.4 percent of payroll through 2018. If the bonds were issued, not only would that average cost drop to 2.3 percent, the trust fund would be restored by 2016. While that difference might sound small, it is significant when calculated as part of the estimated $24 billion in annual payroll paid out in Nevada.
Interest on those federal loans, Olson said, will be about $17 million next year and $14 million the year after that. She emphasized that the interest can’t be paid from the trust fund — including the bond itself. She said that’s why the division is asking permission to impose a separate assessment on employers to pay off the interest. It would seek the separate assessment to pay interest whether or not the state bonds to pay the debt, Olson said.
After the meeting, she said the interest assessment would be one-tenth of 1 percent or less. The only other option is for the general fund to pay the interest, Olson said.
The joint Senate Finance-Assembly Ways and Means subcommittee took no action on the proposals.
The idea of bonding to pay the unemployment trust loans off was first suggested two years ago by Treasurer Kate Marshall, but the governor didn’t include it in his plan.
Olson also told lawmakers she can’t really spell out the effects of sequestration on her division.
“It depends on how quickly we (Nevada) recover compared to other states,” she said.
Workforce Investment, she said, has been receiving about $30 million a year. Because Nevada is recovering from the recession more slowly than other states, it will receive $32 million next year.
Olson said she hopes that is an indicator for some of the other programs for people including veterans and unemployment programs.
“If we’re one of the states slowest to recover, we could see that funding be stable for the next few years,” she said.