64°F
weather icon Mostly Cloudy

Business push back on proposed unemployment tax hike

A ball and chain tied around the neck is how Rick Pollock, the owner of Las Vegas trade show production firm Total Show Technology, described the potential tax hike employers may face to help replenish the state’s unemployment trust fund.

“With gas prices up 60 percent and insurance prices up 12 percent and rent is up another 10 to 15 percent — to have another tax increase on top of this, plus what I consider a tax increase of inflation, is just killing us,” said Pollock, who is also president of Total Show Technology. “I’ve had to take an 80-percent salary reduction. My employees have had to take a 25-percent salary reduction. I would love to bring them back to 100 percent next year, but I don’t even know if the business is going to support that.”

Pollock and several Nevada business leaders were protesting a proposal to raise the state’s unemployment insurance tax, during a virtual meeting Friday morning hosted by the Employment Security Division and Department of Employment, Training and Rehabilitation.

The meeting was held to solicit public feedback and review an Oct. 4 recommendation by Nevada’s Employment Security Council to raise the average UI tax rate by one-third of a percent from 1.65 percent to 2 percent — a move that would cost employers an estimated $130 more per employee. The council’s recommendation was passed along to ESD Administrator Lynda Parven, who will make a formal rate recommendation by Dec. 8.

In a slight turn of events, Parven announced shortly into Friday’s meeting that the division would not adopt the 2 percent increase.

“Based on the feedback and engagement we’ve had with the employer community, the ESD will not be adopting the increase to 2 percent recommended by the council,” Parven said. “Today, we will be reviewing the impacts of a more modest increase of an average rate of 1.85 percent.”

Nevertheless, public comments from Nevada businesses showed nearly all wanted to see the rate stay at 1.65 percent for another year. This means employers would continue to pay about $622 per employee in 2022, instead of $695 with a proposed 1.85 percent average rate or $750 with a 2 percent rate, according to DETR.

Not like the Great Recession

The UI tax rate, charged to Nevada’s employers, helps fund the state’s unemployment trust fund, which is used for paying jobless benefits to Nevadans. And a rate increase would help replenish a trust that was quickly depleted by the thousands of unemployment claims during the pandemic.

Nevada’s trust fund was $1.93 billion in January 2020. But a record number of unemployment claims saw the trust balance drop to $873.14 million at the end of June and empty to zero early December, according to data from the Treasury Department.

DETR borrowed federal funds to the tune of $332.4 million to continue paying jobless benefits. But thanks to Senate Bill 461 passed in July, the state was able to allocate a portion of its federal COVID-19 relief money to pay the loan back before the interest-free period ended Sept. 6.

“It took a massive investment at the federal level, making funds available for just such a purpose — something I’ve not seen done, even in the Great Recession,” said David Schmidt, DETR’s chief economist, in a press release last week. “We went through the COVID recession and recovery borrowing less than half as much as we did in the Great Recession, and repaying those loans without additional bonds, without needing the interest assessment, and with the ability to use the normal unemployment tax rate setting process to start recovering.”

During the Great Recession, the state borrowed an estimated $773 million to cover unemployment benefits. Nevada paid back the loan in 2017, nearly seven years after taking it out. And at the time employers were paying an average UI tax rate of about 2.7 percent.

Hedging your bet

Ray Bacon, executive director of Nevada Manufacturers Association, was the only person to speak Friday in support of the 2-percent increase.

He told the Review-Journal that funding the trust at a quicker pace through a higher tax rate will protect employers from having to face an even steeper tax hike later should the economy face another downturn, citing the 2.7-percent rate following the Great Recession.

“We have uncertain factors that we can’t control and … the 1.65 (rate) is not going to build it back fast enough,” he said. “Because it is adjusted every year, it is probably prudent to go forward a little bit on the high side rather than wish we had.”

If the rate remains at 1.65 percent, the state’s trust fund would grow to $561 million next year. At 1.85 percent, it would climb to $628.7 million and an estimated $675 million at 2 percent.

It should be noted that the 1.85 percent and 2 percent proposed rates are an average. DETR noted Friday that an average 1.85 percent rate means about two-third of Nevada’s employers would see a change compared with “most employers” seeing an increase at 2 percent.

An employer falls into one of 18 different UI tax rates, ranging from 0.25 percent to 5.4 percent, based on their “experience record.” New business pay 2.95 percent for the first three years, allowing an experience record to be established.

Janelle Cammenga, policy analyst at Tax Foundation, said the experience rating is based on how long a business has existed and how many layoffs it’s made. So an employer who makes few or no layoffs over its history has a favorable experience record, falling into a lower UI tax rate.

“It does make a big difference in terms of how much that business is paying in UI taxes because there’s a whole schedule of rates and your experience rating determines which of those rates you get to pay,” she said.

And Cammenga said Nevada’s businesses could have faced a huge financial setback if the thousands of layoffs they were forced to make last year were factored into their experience rating — meaning they’d be pushed into a significantly higher tax rate.

DETR said in an emailed statement employers’ experience rating was forgiven between the second quarter of 2020 to the end of the third quarter this year, “helping to mitigate the tax burden on the business community.”

‘Step in the wrong direction’

But businesses are still facing a laundry list of setbacks such as increased wholesale costs, supply chain nightmares, shipment delays coupled with higher shipment costs and a labor shortage.

Pollock said his business was completely shut down for more than a year, but he was able to bring back his 18 employees.

“We’re just getting started again,” he said. “Meetings business is picking up, things are looking better but it’s nowhere near where it was (pre-pandemic).”

Alexandria Dazlich, director of government affairs at the Nevada Restaurant Association, said any increase would “severely damage” the industry.

“The restaurant industry is suffering a staggering rate with closures exceeding 25 percent since the beginning of the pandemic,” said Dazlich. “This increase would create an undue burden to operators who are trying to keep their doors open and their lights on.”

Cammenga said its important for states to shore up their trust funds for future recessions but the timing is equally important.

“The No. 1 priority should be that businesses remain viable, and the best way to do that is by standing back and not getting in the way of their growth,” she said. “And how we see it is that increasing unemployment insurance tax right now is a step in the wrong direction.”

Nevada Franchised Auto Dealers Association Executive Director Andrew MacKay, whose dealer members are grappling with declining sales, largely from an inventory crunch caused by ongoing global chip shortages, echoed Cammenga’s statement.

“Our concern and opposition is strictly related to timing due to the uncertain economic recovery,” said MacKay. “We have serious concerns that this is premature and can adversely impact businesses.”

Contact Subrina Hudson at shudson@reviewjournal.com. Follow @SubrinaH on Twitter.

Don't miss the big stories. Like us on Facebook.
THE LATEST
Local Salvation Army hit by thieves

As Pahrump’s Salvation Army prepares to serve families in need during the holiday season, approximately $500 worth of new toys set aside for its annual Angel Tree program were recently stolen, along with Christmas decorations and items being stored for the Kiwanis Club and Pahrump’s Sleep In Heavenly Peace organization.

Pahrump community comes together for Thanksgiving

Thanksgiving is a time for appreciation and for hundreds of Pahrump area residents and visitors, there was plenty to be grateful for this year at the Pahrump Holiday Task Force’s annual Community Thanksgiving Dinner.

Pahrump Valley Academy virtual town hall set for Saturday

Throughout much of 2019 and into 2020, a group of local residents hoping to add a new educational option to the valley worked diligently toward establishing Pahrump Valley Academy, which would have been the valley’s very first public charter school, only to have the proposal nixed in early 2020.

Rotary Club encouraging students to read

The Pahrump Rotary Club has performed countless community service projects since its inception in 1987.

Bowling for Our Wounded Warriors – Fundraiser set for Dec. 5

Donning a U.S. armed forces uniform is something that comes with great risk and the men and women who step up to take on the challenge of protecting America through military service often come home with injuries, both the visible and the invisible kind.

Man calls 911 while speaking to deputies, report says

Nye County Sheriff’s Office deputies arrested a man who allegedly called 911 for a complaint about loud music at a residence along South Chippewa Street last week but ended up getting arrested himself.

Development of Pahrump’s Kellogg Park tracking right along

Development of Pahrump’s newest park, Kellogg Park on the southern end of the valley, continues to move along steadily, with a variety of milestones reached in recent months and officials with the town of Pahrump and Nye County now setting their sights on the next steps of the development process.

PLAC to decide on Rough Hat recommendations; meeting Nov. 30 in Pahrump

Throughout its many years, the Pahrump Public Lands Advisory Committee hasn’t seen a whole lot of community involvement, with the group historically hosting its monthly meetings amid almost empty audiences.

Together With Veterans hosting SWOT assessment meeting in Pahrump

The men and women who have served in the United States military have given of themselves, made sacrifices on a daily basis and put the safety of others before themselves in order to protect America but when service comes to an end and they return to civilian life, the transition can be jarring.

Beatty Advisory Board deals with trails, racing, blue light

There will be no informal election to choose appointees to the Beatty Town Advisory Board. Randy Reed and Erika Gerling, whose terms expire at the end of the year, were the only people to submit letters of interest, so the Board voted, at their Nov. 22 meeting, to forward their names to the Board of County Commissioners for reappointment.