Nevada’s Employment Security Council on Monday recommended raising the tax employers pay to the Unemployment Trust Fund to 2 percent of wages for calendar 2022.
While that is one-third of a percent higher than the current tax level of 1.65 percent, it is significantly lower than the 2.65 percent businesses had to pay during the Great Recession.
Members, including Chairman Jeff Frischmann, pointed out that, unlike the end of the Great Recession, businesses don’t have to repay the $332 million Nevada had to borrow from the federal government to cover unemployment benefits during the pandemic.
Dave Schmidt, chief economist for the Nevada Department of Employment, Training and Rehabilitation, said the state was able to pay that debt using federal grant funds under the American Rescue Plan, saving business operators from having to pay it.
In addition, he and fellow DETR economist Jason Gotari told the council Monday what Nevada borrowed was far less than the $800 million borrowed during the Great Recession because, this time, the state’s Trust Fund was $2 billion when the economy shut down compared to $1 billion in 2008-09.
The recommendation was supported by Ray Bacon of the Nevada Manufacturers Association, the only person to testify during public comment. He said this is the first time in his 30 years of following the unemployment insurance rate he has seen the federal government allow states to use federal grant funding to repay loans from the federal government — and he doubts it will happen again.
The 2 percent rate, however, was between the two top rates presented by staff — 1.85 percent and 2.05 percent. A rough calculation indicates the 2 percent will generate a total of just over $675 million in calendar year 2022.
Council member Mark Costa said if they stuck with the 1.65 percent rate, it would take three-plus years to rebuild the Trust Fund for a potential future recession.
He recommended 2 percent, to get there quicker.
“I tend to agree with Mr. Costa,” said Frischmann. “Coming out of this recession, the Trust Fund is in very sad shape.”
Member Tom Susich expressed some concern that raising the rate significantly would hinder the ability of employers to continue hiring.
But Frischmann pointed out that not having to pay back the $332 million in federal borrowing is a huge benefit to employers.
Nevada businesses paid back the huge debt after the Great Recession by bonding for the cash instead of paying upward of 6 percent interest to the federal government. But Nevada employers had to pay off the bonds, which resulted in significantly higher UI rates for several years.
The 2 percent rate would be spread over 18 categories of business based on the unemployment benefits their workers use during a year. Those with the best records and the lowest percentage of worker payments pay just a quarter of a percent of the first $36,000 in wages per employee. Those with the worst records — highest use of unemployment benefits — pay 5.4 percent.
New businesses all pay 2.95 percent for the first three years of operation until the DETR formula can rank them fairly compared to other businesses in the state. The process is designed to eliminate industry-based bias in charging employers.
The council vote Monday was 5-1 with Peter Guzman voting no. He gave no explanation for his vote.
Monday’s action is just a recommendation that will be forwarded to Lynda Parven, the head of the Employment Security Division, who will make the final decision. The ESD administrator normally follows the recommendations of the council.