Did Nevada choose employers over workers by paying down UI debt?

Businesses in Nevada are being spared higher unemployment insurance taxes as a result of federal coronavirus aid flowing to the state, despite recommendations from the Employment Security Council to increase the state UI tax on employers from 1.65 percent to 2 percent.

Lawmakers will be able to hold state UI tax steady for 2022 by funneling federal pandemic relief money into unemployment insurance trust funds, which are funded by business taxes and pay out benefits to laid-off workers.

“I’ve done everything I can to support Nevada’s businesses, and this is one more step toward recovery from the ongoing effects of the pandemic. Since 2019, the Average Tax Rate has declined to its lowest level in more than a decade, and we intend to keep it low,” said Gov. Steve Sisolak in a statement heralding the move earlier this month.

Unemployment funds were drained by a surge in jobless claims during the pandemic, forcing Nevada to borrow from the federal government to continue unemployment benefits.

Officials in Nevada, however, tapped federal dollars from the American Rescue Plan to pay off what was owed just days before interest was set to begin accruing, sidestepping not only additional interest costs but greater costs on businesses. 

“Paying off the loan puts Nevada in a good position,” Heidi Saucedo, a spokeswoman with Nevada’s Employment Security Division, said in September. “We can begin to build up our trust fund to prepare for the future while keeping rates manageable for employers.

Employers will continue to pay about $622 per employee in 2022, instead of $750 with a 2 percent rate, according to DETR.

But some analysts and unemployment insurance experts say American Rescue Plan money would be better spent on direct assistance to workers and local governments rather than on preventing minor tax increases on businesses that won’t kick in until next year.

Nevada used about $335 million in ARP money to pay off federal loans and replenish UI trust funds, according to data from the Economic Policy Institute.

EPI analysts argue that state UI tax on employers has been kept “too low for too long and the result has been a dysfunctional UI system in many states.” 

“While many states are using ARP funds to support employment and expanded investments in areas like access to justice, arts and tourism, broadband, education, housing, workforce development, and more, other states have used ARP funds for less-useful purposes,” reads an EPI  policy brief titled “States are choosing employers over workers by using COVID relief funds to pay off unemployment insurance debt.”

Paying down debts using federal funds will avoid raising employer-side taxes. However, it does not support current employment or create a robust UI system that protects workers, which will be crucial for state recovery in the coming years, argues the EPI analysis. 

The Economic Policy Institute pointed to the Great Recession as an example of workers being hurt from the reluctance to increase UI taxes.

Between 2007 and 2012, 36 states borrowed federal dollars to pay unemployment benefits, including Nevada, which borrowed nearly $800 million from the federal government. Nevada paid back the loan in 2017, after nearly seven years, highlighting the fragility of the state’s UI system.

“State lawmakers’ unwillingness to place higher UI taxes on employers not only contributed to the ill-prepared state of UI before the Great Recession but also failed to adequately strengthen UI systems before the pandemic recession, all while making decisions that harmed workers and dragged down the recovery,” reads the brief.

The Economic Policy Institute recommended using ARP funds to “support public employment and strengthen public goods and services” rather than “giving an employer tax cut through paying off UI funds.”

Analysts also recommended using ARP funds to eliminate barriers to accessing UI and other social services, and increase direct cash transfers.

Regulations to hold the 1.65% average tax rate steady for 2022 will go before the state Employment Security Council on December 13.