Employment Security officials take two major steps today toward issuing bonds to pay off Nevada’s $523 million unemployment benefits debt.
In the morning, Administrator Renee Olson is set to ask the Board of Finance for permission to sell the bonds. In the afternoon, she is set to go before the Legislative Commission seeking approval of the regulations dictating how to issue those bonds.
Olson was given the go-ahead Wednesday to set unemployment insurance rates for Nevada businesses that must pay off those loans. All businesses are assessed a percentage of payroll to cover the cost of unemployment benefits. The rates approved Wednesday are 2.25 percent of payroll if bonding isn’t an option and 2.1 percent if bonds are issued.
She said she is convinced issuing bonds will be the best option for the state and for Nevada’s businesses, given that that would pay off the federal loans immediately. That would not only eliminate interest payments the state must make to the government but reduce the federal tax on the state’s unemployment program, effectively saving businesses money while restoring the depleted unemployment trust fund.
She said the no-bonding option is there only in case something dramatically bad happens with the bond market in the next couple of weeks.
Olson said Employment Security is on a tight schedule to issue those bonds because, unless it does so by Nov. 9, the state will get hit with more federal interest and penalties on that debt. Its most recent annual interest payment was $16.7 million, and every year the state owes on federal loans, the federal tax rate increases by three-tenths of a percent.
The Employment Security Council, headed by Paul Havas, also voted to give Olson flexibility to adjust the tax rate depending on what the amount needed to pay off the bonds comes in at. Economist Dave Schmidt of ESD said the amount needed to pay the bond debt should come in at about a half-percent, but could be as high as eight-tenths.
That is offset by the fact that, once the federal debt is paid, the federal unemployment tax rate will drop back from 0.9 percent to 0.6 percent.
The 2.25 percent tax rate for the no-bond option is expected to generate about $579.8 million next year. To that, the small rate to pay federal interest would have to be added.
While staffers had not yet done the calculations, the 2.1 percent tax rate for the bond option should generate about $542 million. The bond-repayment rate would have to be added to that total.
The debt to the federal government peaked at $846 million. With the Nevada economy recovering, the state has paid off some of that total, reducing the debt to about $523 million this week. The bonds will generate enough money to eliminate the debt.