The fees Nevada’s employers may be assessed if the state issues bonds to pay off loans it took to pay unemployment benefits will be scrutinized at a public workshop being held by the Employment Security Division Wednesday in Carson City.
Nevada is considering issuing special obligation bonds to retire what remains of an $800 million federal loan it received to meet unemployment benefit obligations during the recent recession. If issued, the bonds would also replenish the Unemployment Compensation Fund, a fund that stood at more than $800 million in 2007 but was quickly depleted when businesses throughout the state started laying off workers.
The goal is to lighten the burden on the state’s 57,000 employers, who right now are paying the interest on the existing loan through an annual fee. If bonds are issued, the money raised would be used to eliminate the loan and replace it with debt serviced by businesses at a lower interest rate.
Much depends on the structure of the bonds, such as rates and costs, which has yet to be determined. If the bonds are issued, it will come at the request of the ESD administrator, Renee Olson, as authorized in Senate Bill 515 passed by the 2013 Nevada Legislature.
Employers’ representatives have been working closely with ESD, a division of the Department of Employment, Training and Rehabilitation, according to Ray Bacon, executive director of the Nevada Manufacturers Association in Carson City, and are cautiously optimistic about the solution.
“If we get a good rate on the bonds, our fees could be lower,” says Bacon. “We’ll be off the hook and out from under the feds. The number of people who understand this thing comprehensively is small, but the employer groups have been involved and I’m pretty convinced this is a pretty good deal.”
Getting out from under the federal government carries its own benefit. Right now, because the state owes money, employers are paying more in federal unemployment tax. Paying off the federal loan would restore the full 5.4 percent tax credit employers usually receive — reducing their 6 percent federal employment tax to less than 1 percent — for participating in a state unemployment program.
If the loan is paid off by Nov. 11, for example, employers would pay $105 per employee less due to the restored credit alone.
Because of that, there is some urgency in paying off the loan, says Bacon. Once the loan is five years old, the federal government can change employers’ unemployment rate structure, eliminating the credit or even raising the tax rate.
Not all employers would benefit equally. Businesses’ state unemployment tax rates vary depending on their reserve ratios, which is a calculation determined by a business’ experience with unemployment. For those employers with negative ratios and higher rates, a potential bond issue would slightly raise their state rates, from 4.89 percent to 5.05 percent for employers with a –10 percent reserve ratio, for example. And those at the other end of the spectrum can’t reduce their rates any lower.
But those employers, says ESD, will still benefit from the elimination of the annual fee now being assessed to pay the interest on the existing federal loan. That fee based on taxable wages is detailed in Assembly Bill 482, passed this session, including the relatively short deadline given to businesses. Employers received notice June 30 and payment is due Wednesday.
If the bonds are not issued, employers will continue to be charged the annual fee until 2016, when the loan is expected to be paid off.
“Hopefully it will be a one-time assessment,” says James V. Nelson, executive director of the Nevada Association of Employers in Reno, who says the fee worked out to about $25 per employee.
“We had Renee Olson talk to hundreds of our members and my sense is not too many employers are upset,” says Nelson. “They understand this is a little bit of pain to get past the demolition of the unemployment insurance trust fund and they understand it’s for the best.”
The public workshop to discuss the bonds and fees will be at the DETR office, 500 E. Third St., Carson City, at 10 a.m. Wednesday.