(Andrew Doughman/Nevada News Bureau) – Nevada’s unemployment-insurance benefit fund could be in the red until 2018 as the state continues to borrow from the federal government to keep sending unemployment checks.
To make matters worse, a report today shows a 0.2 percentage point jump in the unemployment rate from 14.3 percent in November, 2010 to 14.5 percent during December.
The state’s Employment Security Council had already raised the unemployment tax rate on businesses from 1.33 percent in 2010 to 2 percent this year to help account for the fund’s deficit. But the tax won’t help pay down the millions of dollars in loans immediately.
“Even with this rate increase, the state will continue borrowing funds to pay benefits,” said Cynthia Jones, Employment Security Division administrator.
Assuming that the average tax rate remains at the 2 percent threshold, Jones said she expects the loan repayment to end in 2018.
Gov. Brian Sandoval, however, has said that he would support the expiration, or “sunset,” of any recent tax hikes.
The Employment Security Council annually recommends a rate based on the financial position of the unemployment benefits trust fund, the impact of any rate change to businesses and the balance of revenue versus expenditures.
Dale Erquiaga, the governor’s senior adviser, said that he’s unsure whether the governor would want to cut the rate back the lower 2010 rate.
Doing so, however, would most likely push the 2018 projection for loan repayment further into the future.
Meanwhile, the federal government is asking states to begin paying interest on the money they’ve borrowed. The loans began accruing interest this month, and the first payment is due this September. For every year that the states still owe money, the rate of that increase will jump 0.3 percent until the loan is paid off.
The state government was able to defer interest payments last year because of provisions in the American Recovery and Reinvestment Act of 2009. But starting this month, those federal loans begin to accrue interest at a rate of 4 percent, said Mark Mathers, senior deputy state treasurer.
In order to pay the interest, lawmakers could authorize a separate, special tax for that purpose. They could also follow state Treasurer Kate Marshall’s idea to levy a bond that would help pay off the interest, thus softening the burden for state businesses.
The governor, however, has promised again and again that he will not increase taxes. Although businesses would become subject to the federal tax this September, the governor said at a Jan. 19 press briefing that $60 million would be allocated to cover the interest payments through the upcoming biennium.
That money, however, would come out of the general fund. This would leave less money for health care, education and other vital state functions in the general fund.
Regardless of whether the employer-rate decreases or increases and leaving unanswered the question of who picks up the tab for the interest payments, the fact remains: Nevada owes the federal government $645 million.
“That financial cost will be with us for several years,” Erquiaga said. “That will be with us, arguably, for the whole time we’re here.”