Unemployment insurance rate will rise in January

With even most business groups admitting the employment insurance rate must go up to cover the state's growing debt from paying benefits, the Employment Security Council on Tuesday voted to raise the rate from 1.33 percent to

2 percent next year.

Ray Bacon of the Nevada Manufacturers Association urged the council to take aggressive action, suggesting it might need a rate as high as 3 percent.

"We cannot sit here today and say we need to keep kicking the can down the road," said Trey Abney of the Reno/Sparks Chamber of Commerce. "We need to start addressing this problem."

But he asked the council chaired by Reno businessman Paul Havas not to go to

2.5 percent or higher this year, arguing the economic picture will be much clearer next October when they meet to set rates for 2012.

Jim Nelson of the Nevada Association of Employers pointed out he had recommended the jump to 2 percent a year ago. He made the same recommendation Tuesday.

"We have to get to the point where we stop borrowing $100 million a month," he said.

Carole Vilardo of the Nevada Taxpayers Association conceded an increase is probably necessary but urged the council to "use the lowest rate possible," until everyone sees what the 2011 Legislature does to Nevada's tax system.

Only the Las Vegas Chamber of Commerce testified in opposition to any increase.

Council member Ross Whitacre said he would support an increase to 2.25 percent of base wages, but other members made it clear they favored 2 percent. The vote was unanimous.

Nevada is one of 35 states borrowing to cover unemployment checks.

The 2 percent is an average for all 35,000 employers in Nevada. Businesses pay percentages of the base employee salaries based on their worker turnover rates. The lower the turnover a business has, the lower the unemployment insurance rate. The businesses with the best records pay just a quarter percent of the first $27,000 in salary for each worker, or $67.50 a year. Those with the highest turnover pay the statutory cap of 5.4 percent, $1,458. Those totals will actually drop a bit in January since the base salary is going down by $400 because of the recession.

The change in the overall tax doesn't change what the businesses paying the highest rates must pay for each worker. Instead, it moves numerous businesses in the other 17 classes on the schedule up a class so that they pay a higher percentage. Where this year, 56 percent of Nevada businesses enjoy the lowest rate, just 33 percent will be in that class next year. The percentage of those paying the highest rate will rise from 5.2 percent to 7.1 percent.

Cindy Jones, administrator of the Employment Security Division, said Nevada had borrowed $526 million from the federal government to pay unemployment benefits as of Sept. 30. But she expressed hope that, with the impact of the recession at least slowing, the state's debt won't hit

$1 billion by the time things turn around.

The council also voted to back a proposal by Treasurer Kate Marshall to ask a statutory change that will allow the council to sell bonds to pay back that federal debt. Marshall told members she can get them a much lower interest rate than the more than 4 percent the federal government plans to charge and a longer term to pay back the money.

She said those lower interest rates could translate to more than $60 million in savings for the Unemployment Insurance Trust Fund. Marshall said several other states have used bonding already.

"You owe them money today," she said. "This is another way to pay it back at a lower interest rate."

The new rates will take effect in January. Marshall's proposal will be presented to the Legislature in February.