Employment Security Council recommends tax break for NV businesses

CARSON CITY, Nev. — Nevada's Employment Security Council voted Thursday, Oct. 3, to recommend giving businesses a break on their unemployment insurance rates next year.

Employment Security Administrator Kimberly Gaa will hold a hearing to adopt the recommendation Oct. 23 and is expected to agree to lower the rate by two-tenths of a percent to 1.65 percent of taxable wages.

While that doesn't sound like much, the total tax paid by more than 79,000 Nevada businesses next year would be $600 million. That is more than $73 million less than if the tax remained at its current 1.85 percent rate.

The council headed by Fred Suwe made the decision after it was told the state's Unemployment Insurance Trust Fund is now over $1.8 billion. Economists for the division say that's enough to pay unemployment checks in a recession for 18 months.

Suwe said the council really has to decide what its goal for the trust fund is: two years worth of reserves or 1.5.

He said they have kept the rates high to replenish the fund that was depleted in the recession, forcing Nevada to borrow over $800 million from the federal government to pay unemployment benefits. Now, the council was told, the fund will hit $2 billion in 2021.

“It seems prudent to me that if we just wanted to maintain, we'd have to lower the rate,” Suwe said.

Member Tom Susich said even if they lowered it to 1.45 percent, the Trust Fund would continue to grow. But Supervising Economist Alex Capello said that is true only if there is no recession or other major economic event.

Suwe said he doesn't want to lower the rate that much and suggested a middle ground of 1.65 percent.

The council voted unanimously to make that recommendation to Gaa.

They did so after being advised by David Schmidt, chief economist for the Department of Employment, Training and Rehabilitation, that Nevada is now statistically overdue for a recession.

He was joined by economist Jeremy Hays, who said the U.S. economy has now been growing for 122 months, double the average length of time before a recession sets in, and has unemployment rates at their lowest level since the 1960s.

Schmidt said the Cleveland and New York Federal Reserve banks have calculated the potential for a recession next year at just under 40 percent. But he emphasized there is no way to tell how severe that recession might be and that most are far less severe than the great recession.

He added recessions don't hit all states the same. The great recession, he said, was especially hard on Nevada because it tanked the booming construction industry by 40 percent.

“It wasn't even 20 percent nationally,” he said.

The percentage is actually an average of the 18 classes of rates different businesses pay based on their employee turnover. Those rates range from just a quarter of a percent for the businesses with the lowest turnover to 5.4 percent for those with the highest rates. There are an estimated 7,531 businesses at the lowest rate and 2,340 at the top rate for the 52,363 businesses on the rated schedule.

There are another 26,991 new businesses not yet rated by the division. For new employers, the rate is set at an arbitrary 2.95 percent until the state has two to three years experience with each to rate them.

If approved Oct. 23, the new rates will take effect Jan. 1.