Council urges no change in business jobless tax

By Cy Ryan (contact)

Tuesday, Oct. 6, 2009 | 1:36 p.m.

CARSON CITY – Ignoring a suggestion from Gov. Jim Gibbons, a state advisory council has recommend the state's business unemployment tax remain the same in 2010 for nearly 60,000 businesses in light of the depressed economy.

Business groups told the state Employment Security Council they have seen a 30-40 percent decline in their business and an increase in the tax would result in more layoffs.

After a two-hour hearing, the council decided to keep the average tax on businesses at 1.33 percent of the first $27,000 a worker earns next year.

Gov. Gibbons had recommended a decrease to 1 percent, or a $70 million lowering of the tax collection.

But Ray Bacon of the Nevada Manufacturers Association and Danny Thompson of the Nevada AFL-CIO said it would be a mistake to lower the rate.

The unemployment trust fund is broke and the state will have to borrow $100 million each month from the federal government to pay the benefits to the record number of jobless. The unemployment rate in August was 13.2 percent, the second highest in the nation.

Bill Anderson, chief economist for the Department of Employment Training and Rehabilitation, is predicting the jobless rate will rise to 14.4 percent in 2010. He said construction is expected to lose 13 percent of its jobs next year and employment in the food service industry will likely decline by 5.5 percent.

Anderson said Nevada would not return to the boom days of 5-6 percent growth for many years.

Council members were worried, however, about future hits on employers. Council member Ross Whitacre said the economy will “stay bad for a long time.” He said “drastic action” may have to be taken in raising the insurance tax rate in future years.

He suggested a small tax increase. But no other council member backed the idea.

Jones said the state may see a “shortfall” in its trust fund of $1.2 billion in 2010 and it will have to borrow from the federal government. The government won’t start charging interest rates of 4.6 percent until 2011, she said.

Jones said she would probably follow the recommendation of the council to keep the present rate. Asked about the suggestion of the governor, she said, “I’m not going against the governor, I’m following the council’s recommendation.”

She will formally adopt the tax rate on Dec. 7.

Jones called it a “Pay me now or pay me later situation” for employers who will have to come up with the money to return the trust fund to solvency and repay the federal government in the future.

Forty states expect to borrow $80 billion to $90 billion from the federal government to be able to pay the benefits to the unemployed, Jones said.

In Nevada, the maximum weekly payment to a jobless person is $400 plus an extra $25 added by the federal government.

Both the Las Vegas and Reno-Sparks chambers of commerce urged the council to retain the same rate. Veronica Meter of the Las Vegas Chamber said raising the tax rate now would be “harmful.” She said 85 percent of its 6,500 members were small businesses.

Meter said the loan from the federal government could be repaid in better economic times. “Leaving the current rate will be a prudent decision,” she told the council.

Bacon urged the council to “go as lightly as you can” because any increase in the rate would be in effect for a long time.

Thompson said once construction is complete on CityCenter, there will be no place to go for building and trades workers.

“We have not hit bottom yet,” he said. He called the future “bleak.”

Anderson backed up Thompson, but added that CityCenter would create jobs. “But the difficulties other properties are experiencing will swamp away the impact of CityCenter,” he said.

Under the current tax rates, employers are assessed based on the turnover in their businesses. The highest rate is 5.4 percent and the lowest is 0.25 percent on the first $26,600 of salary of a worker this year.

There are 35,116 employers who enjoy a so-called “experience” rating with 19,362 or 55.2 percent paying the lowest 0.25 percent rate. There are 1,433 businesses that are assessed at the highest rate of 5.40 percent.

And 24,053 are new businesses that must pay a 2.95 percent rate for several years until they qualify for an “experience” rating.