Nevada's Borrowing To Pay Jobless Benefits On Target Despite Record Unemployment

CARSON CITY – Despite Nevada’s record high unemployment rate, the amount of money the state expects to borrow from the federal government to pay jobless benefits remains on target, a state official said this week.
Cindy Jones, administrator of the Employment Security Division, said the state has borrowed $424 million so far and is on a pace to borrow between $1 billion and $1.2 billion through the end of the recession to pay the state’s 26 weeks of unemployment benefits to laid off workers.
Jones said Nevada’s record 14 percent jobless rate reported in May includes all those seeking work, not just those eligible to receive benefits. The long-term unemployed also don’t have any new wages on which to file claims, she said.
“The increase in the unemployment rate does not necessarily translate into an increase in unemployment insurance claims,� Jones said.
“We’re still seeing very high claim volume compared to anything we’ve experienced at any other time in the program’s history, but we’re not seeing the rapid rise that we saw last year,� she said.
That $1 billion or more in borrowed funds will likely have to be repaid to the federal government, which means higher unemployment taxes imposed on Nevada businesses to make good on the loans.
The average tax paid by most Nevada employers was kept at 1.33 percent for the current year, despite the knowledge that the rate would be inadequate to pay all unemployment claims. The rate was held steady to help businesses weather the economic slowdown.
Jones said over 40 states are expected to borrow about $100 billion from the federal government to pay benefits during this recession. Nevada began borrowing money in late October of 2009 to keep paying claims, holding off longer than many other states because of a healthy trust fund.
The states are getting a break in that no interest is accruing yet on the borrowed funds, she said. Interest was waived this calendar year but will begin on Jan. 1 unless Congress acts to extend the interest free period, Jones said. Nevada’s first interest payment of about $60 million is scheduled to come due in the fall of 2011.
Nevada was prepared for a recession and had a healthy trust fund available to pay claims, Jones said. But no one was prepared for a slowdown of the magnitude that hit the nation, she said.
Mary Lau, president and chief executive officer of the Retail Association of Nevada, said the expectation that businesses will have to repay the federal loans through higher unemployment tax rates could negatively impact job growth when the state does emerge from the recession. Employers may not be as quick to hire, she said.
“Everybody is going to be paying more,� Lau said. “Some of the jobs may not come back.�
Other factors, including the new minimum wage requirements, will also affect hiring, she said.
The state’s minimum wage is set to go up to $8.25 a hour on July 1. The current rate is $7.55 an hour.
It is highly unlikely the federal government will forgive the loans, Lau said.
audio clips:
Cindy Jones says unemployment rate doesn’t directly correlate with jobless claims:
062410Jones1 :14 eligible for benefits.”
Jones says Nevada not alone in borrowing to pay claims:
062410Jones2 :21 certainly not alone.”
Jones said Nevada was ready for normal slowdown:
062310Jones3 :28 find ourselves in.”
Mary Lau says increased unemployment taxes may slow job creation:
062410Lau1 :14 that much more.”

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