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Indy Explains: The changes DETR is trying to make to unemployment taxes

Michelle Rindels
Michelle Rindels
EconomyIndy ExplainersLegislature
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When officials from the Nevada Department of Employment, Training and Rehabilitation (DETR) presented the bill SB75 to lawmakers last week, one unemployment claimant who called in to offer public comment called it “mumbo jumbo.”

The bill did not mention the Pandemic Unemployment Assistance (PUA) program for the self employed or more easily understood fixes to a system that has been flooded with more claims in the last year than there are workers in Nevada (although many of those claims are thought to be fraudulent). 

And it didn’t have much to say about complaints voiced by callers that people answering phones at DETR don’t have the authority to rectify their claim, that an application is in limbo because the claimant didn’t initially have a Social Security card, and that some unpaid applications are in a purgatory of appeals.

So what exactly does DETR’s main policy bill this session do? Below are some highlights of the legislation, which proposes changes that are likely of more interest to employers who pay into the state system than the claimants who are — or in many cases, aren’t — receiving benefits.

“Overall, the goal is to make sure we are in a position to handle future economic disruptions more effectively,” said DETR Administrator Elisa Cafferata. “Although I don't think anyone could have ever predicted what we saw.”

Changes to calculating the tax rate

The unemployment system is essentially insurance, and functions as such — employers pay taxes into the system equivalent to a portion of their workers’ taxable wages, and earn lower tax rates as they become more established and if they don’t lay people off.

But if they have to let people go, an employer will face a higher tax rate in the future. It’s like car insurance — drivers who get in a crash and make a claim will subsequently see higher premiums.

The pandemic was something like a catastrophic crash for employers. Because they laid off or furloughed large numbers of employees and sent them to the unemployment lines, they would have faced a major tax increase had the state not stepped in (and held them harmless through a bill passed in the summer special session and in regulation).

“We're sort of saying to employers, no harm, no foul. You know, that has nothing to do with sort of the normal course of events,” Cafferata said.

SB75 codifies the state’s intent not to dock employers based on claims made in the second and third quarter of 2020, when the bulk of applications for benefits came in. The state is also keeping the average tax rates charged to employers flat from 2020 to 2021.

Still, the bill seeks to return tax rates to what they otherwise would be without that intervention, and to change the formula the state uses to determine how much it should tax employers to ensure that the trust fund can sustain benefit payouts in a future downturn.  

DETR wants to make its forecasts by looking at the economy’s behavior over the past 20 years, rather than the last 10. It would then use the three years within that two-decade period when the unemployment system was most heavily used to project how much money it should build up so the trust fund hits an adequate level — considered enough to pay out a year and a half of benefits at the high rate it was paying on average in those three worst years.

Economist David Schmidt said the change would better reflect the realities of modern economic cycles, such as the decade-long period of economic growth preceding the pandemic — the longest period of economic expansion in U.S. history. It would also average out the extraordinary downturn of the pandemic with more typical recessions like the one in 2009 and 2010, so the state would be prepared for a situation in between.

“When you have the months and months and years and years of sort of economic growth that we've had, aside from the pandemic, it really isn't sort of a very reflective of the experience that we might expect,” he said.

DETR also says its new calculation proposal would make tax rates rise and fall more gradually and be more predictable for employers. The rate would not increase or decrease more than 10 percent in any given year.

“It really provides a more stable and predictive tax rate-setting process. So instead of sort of an open ended calculation, it calculates an average contribution rate for employers based on the current adequacy of the trust fund,” Cafferata said. “And this is probably the most important point for employers is, it limits the magnitude of change in the tax rates from year to year.”

The Las Vegas Chamber of Commerce said it is still studying the impact of the bill, but the Retail Association of Nevada came out against the proposal. The group said that the unemployment trust fund was one of the bright spots of much-criticized DETR, and that the current formula was effective in preparing the state well for the downturn while keeping tax rates reasonable for businesses.

“There aren’t any good taxes, but the very worst ones are overly complicated to comply with and pay and they increase the cost of government to be able to administer such a complicated process,” said Bryan Wachter, a lobbyist for the retail association. “Twenty years is far too long, and a needless attempt to increase rates in a non century-defining economic condition.”

Alternate base period

The amount of regular unemployment benefits a person is eligible for is determined by how much they made in the “base period” — the five quarters immediately preceding the unemployment claim. DETR looks at the first four of those five quarters because there is a lag in how quickly employers report wages for the most recent quarter.

The law allows for an “alternate base period” (ABP) so that if people didn’t make enough money under the regular system, they can try qualifying based on the immediately preceding four quarters. 

“That actually creates quite a bit of administrative work for us, because you have to contact the employer and try and get your actual wages,” said Cafferata. “And some employers are very cooperative and some are not.”

DETR officials said the option is used by a small portion of claimants, but has contributed to the backlog because alternative base period claims take nearly an hour to process, on average — ten times longer than a normal claim. Out of the nearly 800,000 initial claims filed in 2020, only 11,604 ABP claims were processed and 8,113 people were paid.

“What that prevented us from doing was spending that time answering 116,000 calls,” said Jeffrey Frischmann, head of the Employment Security Division. “Where would you advise us to spend our time? Working ABP claims, or servicing 10 times more people?”

Cafferata said if claimants didn’t qualify because they could no longer use the alternative base period, they may have been eligible — and actually made more money — had they used the PUA program instead. PUA, however, may go away as early as March.

“That may be so unique to this COVID situation that it shouldn't be considered,” she said. “But just at the time we proposed the bill, we found that it really wasn't that helpful to folks, it really added to the backlog and those folks would have been better off in PUA.”

But legal aid providers, who serve clients who cannot otherwise afford an attorney, are fighting to keep the option available. Attorney Tyler Winkler told of a woman who was denied benefits because she did not have enough wages in her “base period” — but that’s because she was having pregnancy complications and was on maternity leave, and COVID shutdowns left her out of work shortly after she returned to the job.  

If the alternative base period was not available, claimants might have needed to wait six months before they became eligible, which would have created a hardship for the single mother he described.

“While reviewing a claimant's base period versus ABP requires some additional administrative costs, they are not substantial, and they are more than justified considering the long way ABP goes to provide immediate relief to workers who need to pay their bills,” he said.

As for using PUA as a backup, Winkler suggests eliminating the ABP option now for people who are otherwise eligible for PUA, but maintaining ABP for when PUA goes away. 

School support employees

Unions are supporting an amendment to the bill that would allow education support professionals who generally work from nine to 11 months a year be eligible for unemployment. That group — which includes bus drivers, teacher’s aides and cafeteria workers — is not currently eligible on the understanding that they can reasonably expect their jobs to be there for them after summer break.

Licensed educators, including teachers and administrators, are paid on a 12-month cycle, while many support staff find other summer jobs to cover the gap. That has been more difficult during the pandemic, with drastically reduced job opportunities.

“My understanding was that we didn't leave any citizens hurt by the pandemic,” one public commenter said. “You have low wage earners, unable to find work, unable to collect unemployment during the summer months, and left struggling and starving by themselves.” 

States have discretion on whether to allow employees who work for nine to 11 months into the unemployment benefits system. But such a change could be costly for school districts. 

School districts are considered “reimbursable employers,” meaning they pay the full cost of benefits that are paid out to people they employed. Under a more traditional “contributory” arrangement, employers pay a small percentage of total wages into the trust fund as insurance so they don’t have to pay the full benefit amount in the event their workers are laid off.

Clark County School District officials did not respond to requests for comment about their position on the bill or whether they have concerns about how much it would potentially cost.

But union officials say it’s only right that the districts pony up the money to extend protections to partial-year workers, especially after districts received significant amounts of COVID relief aid that could potentially be repurposed to cover the costs of insuring vulnerable employees.

“Every dollar that is in the district’s pocket is a dollar that is not being used to buy food or rent for our members,” said Alexander Marks, a lobbyist for the Nevada State Education Association. “The state’s districts got help. [Education support professionals] did not. And that is why we're offering this amendment.”

Criticism

Claimants who have struggled to secure benefits from the state shared frustration during the bill hearing that SB75 doesn’t speak to the issues they’re experiencing. 

One was Adam Francis, who said he uploaded more than 30 documents to try to confirm his identity but has been stuck because he didn’t initially have a Social Security card to submit. He’s told that his claim has been “escalated,” but otherwise has not heard back and doesn’t know what to do next.

“This entire presentation today has been difficult to listen to. Nothing short of putting lipstick on a pig,” said Adam Francis. “I applied in March. I still haven't received a dime.”

Michael Ross, who lost his gig as a keyboardist when the Rio casino shut down the show “Raiding the Rock Vault” because of health restrictions, said he has received both denial letters and approval letters and has been lingering in line for an appeal for months. He said he wouldn’t have made it this far without donations from people helping him subsist.

“Fill my fridge, give me my insulin, give me my benefit,” he said. “You guys will be relying on me when those doors open to bring that business back into town. I'm going to be up there shaking my ass.”

As of Tuesday, an opinion poll on the Legislature’s website logged 267 votes against the bill and 13 in favor; it was the measure with the second most opinions submitted so far this session.

Republican Sen. Keith Pickard (R-Las Vegas) said he was frustrated that the bill dealt with the regular unemployment system but didn’t mention the Pandemic Unemployment Assistance program.

“A third of the claimants are 1099, the gig workers, and we don't seem to have addressed the issues with them at all,” he said. “So I'm concerned that a third of our constituents ... we're not doing anything to help them.” 

DETR officials said they have implemented improvements in their processes such as ramped up staffing, but did not have other bills pending aside from ones implementing the budget. 

“The Pandemic Unemployment Assistance program is a brand new program that was implemented by Congress. And the rules and regulations are completely dependent on the government and the federal Department of Labor,” Cafferata said. “We certainly wish Congress would help us make this easier to implement, there is no doubt.”

Frischmann also said it would not make sense to change laws around a program that is set to expire in a month, even though a bill pending in Congress may extend that into August.

“We're expecting to see it extended again. However, we don't know. So to put together any statutes or anything for that,” he said. “This is a program that's fixing to end — it's a very short-term program.”

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