Unemployment insurance rate to rise
Nevada businesses will pay $136 million more in taxes in 2011 to try to put some cash back into the state’s Unemployment Insurance Trust Fund.
That fund, which started this recession with a balance of more than $700 million, was depleted in October 2009 by benefit payments to record numbers of out-of-work Nevadans. Since then, Employment Security Division Administrator Cindy Jones said the state has had to borrow $579 million to cover checks for more than 100,000 on unemployment each week.
Through the end of September this year, she said, the state collected $570 million from employers but paid out $1.8 billion.
The situation forced the state Employment Security Council to recommend in October an increase in the average employer tax from 1.33 percent of wages to 2 percent. That recommendation was adopted Tuesday.
Jones said that despite the increase, she expects total borrowing from the federal government to hit $820.5 million by the end of September 2011. Without the increase, she said that total would be $136 million higher.
She said not only must the state continue borrowing, eventually it must pay the federal government back and begin to rebuild the unemployment insurance trust fund.
“We’re in a constant state of borrowing now,” she said.
Jones said if the state doesn’t act to raise its UI tax rate, the federal government will simply raise its rate and in a way, she said, that would put more of a burden on businesses with lower wage employees. Nevada’s system, Jones said, spreads the taxes more fairly across the board.
The 2 percent is an average of the 18 different employer classes based on how much turnover they have by workers. The actual percentages charged range from a quarter-percent, the rate paid by a third of the 56,600 Nevada businesses, to 5.4 percent paid by the 7 percent with the highest turnover.
The increase will raise the average unemployment insurance tax businesses pay the state for each worker from $353 a year to $532. In addition, those businesses pay a federal tax which will rise $21 to $77 a year – making the total average cost to business $609 a year, a 33 percent increase.
At the same time, Jones said she is waiting to see what compromise is worked out in Congress to reinstate the federally-funded benefit extensions that expired Nov. 30. With four federal extension tiers and the State Extended Benefits program also funded with federal money, those out of work could get a total of 99 weeks of benefits. If they aren’t renewed, those losing their jobs would be eligible for just 26 weekly checks.
Jones emphasized that, contrary to what some reports have said, the proposal before Congress doesn’t restore benefits to those who have been out of work 99 weeks or more. It just reinstates the extensions for those who haven’t used all 99 weeks yet.
Jones and her staff said 26,893 Nevadans have hit that wall as of this week.
Unless Congress acts, another 19,600 Nevadans will lose unemployment benefits by Dec. 11. An additional 4,300 Nevadans will lose benefits each week after that until fully 65,000 of the 109,000 on unemployment are without benefits by the end of March.
One issue she said she hopes Congress includes in that bill is an extension of the interest-free status for the loans the state has taken from the federal government. If not, she said the state will owe nearly $30 million in interest on its loans by next September. She has requested legislation to allow her division to charge businesses a small increase to cover interest payments if the interest-free period isn’t extended. Otherwise, she said, the money would have to come from the state’s depleted General Fund.
If the overall unemployment tax rate remains at 2 percent, Jones said the state should pay it off by 2018, unless the economy slumps again.