Nevada Employment Security Council deals with growing jobless benefit debt

With Nevada $486 million in debt to the federal government for loans to pay unemployment benefits, business officials said Tuesday the tax that pays those benefits will almost certainly have to go up, even if it means hurting job growth.

The Employment Security Council was given a full report from staff Tuesday and told that debt will probably come close to $1 billion by the time the recession ends. Staff advised the panel headed by Paul Havas that it will take several years just to pay off those loans, let alone rebuild the now-bankrupt trust fund that pays unemployment claims.

Nevada's unemployment trust is funded by a tax on employers, currently averaging 1.3 percent on the first $27,000 in wages. It pays 26 weeks of claimants' jobless benefits and does not include the additional 73 weeks of unemployment extensions currently paid by the federal government.

Scenarios presented Tuesday to pay back those loans included more than tripling the current state unemployment tax to 4.5 percent.

The Nevada Employment Security Council will hold another hearing in October before recommending the unemployment tax rate for 2011 and deciding how Nevada should pay back its federal loans and shore up the trust fund for future economic troughs.

Nevada's trust was in good shape in 2007 leading up to the recession, said David Schmidt, an agency economist.

Schmidt said raising the tax rate won't restore the trust fund to

solvency, just "to the point at which the loans are repaid, when we're at zero dollars."

Schmidt told the council the state has no choice but to pay the government back - with interest.

Nevada isn't alone. As many as 40 states are expected to borrow more than $70 billion before the economy recovers.

"There's no good answer," said Ray Bacon, director of the Nevada Manufacturers Association.

He said the current insurance tax brings in about $313 million a year.

"We need to get to $600 (million)," he said. "That's going to decrease the hiring rate but I don't believe it will push too many companies over the edge."

Trey Abney of the Reno/Sparks Chamber of Commerce said that a year ago, he and other business representatives recommended leaving the rate at its current rate of 1.33 percent to help business through the toughest part of the recession in the hope the economy would begin to recover by this year.

"But we can no longer kick the can down the road," he said.

The longer the rates are kept low, the more Nevada will have to borrow in the next couple of years, he said.

"I don't want to keep the rates low and pay a lot more interest or up the rates so much it would push a lot of people out of business," Abney said.

Employment Security Administrator Cindy Jones said the good news is the number of new unemployment claims has been dropping in Nevada this year. But, she said, borrowing will have to continue well into the coming years.

She said Nevada isn't being charged interest on those loans this year but that interest is set to kick in next year. She said she and others are hoping the federal government will eliminate interest payments for the states next year and until the economy recovers.

• With Associated Press reports.