Transcript Introduction

Unemployment Insurance
Financing
Overview of Unemployment
Insurance in Nevada
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
2
National Perspective:
Borrowing Across the Nation
 As of March 16, 2011, 35 states and
territories have borrowed Title XII funds
to pay benefits, of which 32 currently
have a loan outstanding.
 Outstanding loans for all states total
$45.1 billion.
 34 states were expected to experience
tax increases and/or benefit freezes in
2010.
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
3
Nevada’s Trust Fund:
Before the Recession
 Nevada was reasonably prepared
for the recession.
 In the quarter the recession
began, Nevada had:
 The 18th strongest Trust Fund
 An Average High Cost multiple of
1.02 (Department of Labor
recommends at least 1.0)
 A state solvency multiple of 1.47
(calculated per NRS 612.550)
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
4
Nevada’s Trust Fund:
A Surge in Regular UI Payments
Revenues
Trust Fund Cash Flow:
Calendar Years 1980 - 2010
Benefits
Balance
$1,200
Millions of dollars
$800
$400
$0
-$400
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
-$800
5
Nevada’s Trust Fund:
Differences in UI Programs
Weekly UI Claims by Program vs. Total Unemployment
240,000
210,000
180,000
150,000
120,000
90,000
60,000
30,000
Tier 3 A dded
Tier 4 A dded
Tier 1 Extended
Tier 2 A dded
0
Jan08
Apr08
Jul08
Regular UI
Oct- Jan08
09
EUC
Apr09
Jul09
Oct09
SEB
Tempo rary Expiratio n
o f UI Extensio ns
Jan- Apr10
10
Jul10
Oct10
Jan11
Total Unemployment
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
6
Nevada’s Trust Fund:
Tax Rates and Benefit Costs
Nevada Tax Rates v. Benefit Cost Rate
Avg. Tax Rate
Shaded areas indicate recessions
Benefit Cost Rate
5.00%
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
0.00%
7
Nevada’s Trust Fund:
What it Took to Borrow
Unemployment Rate When Borrowing Began
12
Total States
10
8
6
NV
4
2
-1
3.
9%
13
.0
-1
2.
9%
12
.0
-1
1.
9%
11
.0
-1
0.
9%
10
.0
-9
.9
%
9.
0
-8
.9
%
8.
0
-7
.9
%
7.
0
-6
.9
%
6.
0
-5
.9
%
5.
0
4.
0
-4
.9
%
0
Announced Unem ploym ent Rate (First m onth of borrow ing)
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
8
Costs of Borrowing:
FUTA Offset Credit Reduction
 If a state uses Title XII to pay benefits, and
has outstanding loans after 2 years, the
Federal government begins reducing the
Federal Unemployment Tax (FUTA) credit.
 All revenue generated by the increased
portion of the FUTA tax is applied to the
outstanding loan balance.
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
9
Costs of Borrowing:
FUTA Offset Credit Reduction
Year
2010
2011
2012
2013
2014
2015
2016
5-Year
Base
Benefit
Reduction Cost Rate
0.0%
0.3%
0.6%
0.9%
1.2%
3.3%
1.5%
2.7%
1.8%
2.0%
Nevada
Total FUTA
SUTA Tax BCR AddCredit
Cost Per Total Principal
Rate
On
Reduction Employee Reduction ($M)
1.3%
0%
0.0%
$0.00
$0.0
1.3%
0%
0.3%
$21.00
$20.0
1.3%
0%
0.6%
$42.00
$39.9
1.3%
0%
0.9%
$63.00
$59.9
1.3%
2.0%
3.2% $224.00
$212.8
1.3%
1.4%
2.9% $203.00
$192.9
1.3%
1.4%
3.2% $224.00
$212.8
Total
FUTA
Rate
0.8%
1.1%
1.4%
1.7%
4.0%
3.7%
4.0%

Baseline Reduction: An additional 0.3% each year

BCR Add-On: Nevada’s SUTA Tax Rate subtracted from either
2.7% or the 5-year Benefit Cost Rate, whichever is larger.
Begins in 5th year of borrowing.

Total Credit Reduction: Baseline Reduction plus BCR Add-On

Total FUTA Rate: 0.8% plus Total Credit Reduction
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
10
Costs of Borrowing:
Interest Expenses
 Interest on Title XII loans is due on
September 30.
 Failure to pay this interest results in
program decertification.
 Funds used to pay interest can not come
from state unemployment taxes.
 The most recent interest rate was
announced in February 2011: 4.0869%
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
11
Repayment Strategies:
Summary of Flat Rates
($ in Millions)
Maximum FUTA Increase
Year of Max Offset
Capped FUTA Years
Total FUTA Offsets
Year Loans are Repaid
Maximum Borrowing
Year of Max Borrowing
Total Interest Expense
2011 Interest Surcharge per BDR
2011 Interest Cost Per Employee
Year AHCM reaches 1.0
Loan Repayment from FUTA
1.33%
3.8%
2019
2019
$1,334.3
2020
$1,736.1
2015
$467.7
0.16%
$43.83
2022
77%
1.75%
3.1%
2017
None
$754.3
2018
$1,435.3
2014
$332.3
0.16%
$42.40
2020
53%
2.00%
2.5%
2017
2017
$518.6
2018
$1,273.6
2014
$272.6
0.16%
$41.54
2019
41%
2.25%
2.3%
2016
None
$474.7
2017
$1,154.4
2013
$223.4
0.15%
$40.68
2018
41%
2.50%
2.0%
2015
None
$307.0
2016
$1,048.9
2013
$185.6
0.15%
$39.82
2018
29%
 Average time from end of one recession
to start of the next during the last 50
years: 5.4 years
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
12
2011 Forecast:
Historical Solvency Review
Solvency Requirement
Covered Employment
Highest Risk Ratio
Highest Weeks Duration
Average Weekly Payment
REQUIREMENT (M $)
UI Trust Fund Level
Beginning Fund Balance (M $)
Intake to Fund
Taxes
UI Mod Incentive
Interest
Payout From Fund
Regular Benefits
Designated Reed Act Funds
Net Change in Fund
Ending Fund Balance (M $)
Solvency Level (M $)
Multiple
Average High Cost Multiple
Average Tax Rate
Actual
Actual
Actual
Preliminary
2007
2008
2009
2010
1,116,968
11.03%
15.76
$282.01
$547.6
1,114,746
11.03%
15.76
$289.25
$560.5
1,058,165
14.72%
16.26
$310.74
$787.0
956,818
18.98%
19.12
$321.29
$1,115.6
$706.9
400.6
364.5
0.0
36.1
304.4
304.4
0.0
96.2
$803.1
255.5
1.47
1.07
$803.1
379.1
349.3
0.0
29.8
478.8
478.3
0.5
(99.7)
$703.4
142.9
1.25
0.91
$703.4
411.0
305.4
76.9
28.7
1,053.8
1,025.2
28.6
(642.8)
$60.6
(726.4)
0.08
0.05
$60.6
265.8
264.9
0.0
0.9
852.4
852.4
0.0
(586.6)
($526.0)
(1,641.6)
-0.47
-0.76
1.38%
1.33%
1.33%
1.33%
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
13
2011 Forecast:
State Solvency Measure
Trust Fund as Percent of State Solvency Measure
2.00
1.24
1.17
1.13
1.06
1.00
1.41
1.26
1.25
1.161.13
0.97
0.80
1.00
0.86
0.65
0.50
0.08
0.00
-0.50
-0.47
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
-1.00
1980
Multiple
1.501.46
1.41
1.391.411.40
1.351.33
1.30
1.29
1.461.471.44
1.381.42
1.50
14
2011 Forecast:
AHCM Solvency Measure
Trust Fund Reserves: Average High Cost Multiple
2.0
1.50
1.5
1.23
0.96 1.07 1.09 1.09 1.10 1.10 1.00 0.92
0.90
Multiple
1.0
0.82 0.85
0.89 1.02
1.07 0.91
0.80 0.78
0.5
0.05
0.0
-0.5
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
2010 (est)
-0.76
-1.0
15
2011 Forecast:
Potential 2011 Tax Rates
Solvency Requirement (EST)
2011
2011
2011
2011
2011
Covered Employment
Highest Risk Ratio
Highest Weeks Duration
Average Weekly Payment
REQUIREMENT (M $)
927,966
18.98%
19.12
$325.00
$1,094.5
927,966
18.98%
19.12
$325.00
$1,094.5
927,966
18.98%
19.12
$325.00
$1,094.5
927,966
18.98%
19.12
$325.00
$1,094.5
927,966
18.98%
19.12
$325.00
$1,094.5
UI Trust Fund Level
Beginning Fund Balance (M $)
Intake to Fund
Taxes
Interest
Payout From Fund
Regular Benefits
Designated Reed Act Funds
Net Change in Fund
Ending Fund Balance (M $)
Solvency Level (M $)
($526.0)
273.6
273.6
0.0
704.5
704.5
0.0
(430.9)
($956.9)
(2,051.4)
($526.0)
359.4
359.4
0.0
704.5
704.5
0.0
(345.1)
($871.1)
(1,965.6)
($526.0)
410.0
410.0
0.0
704.5
704.5
0.0
(294.5)
($820.5)
(1,915.0)
($526.0)
461.1
461.1
0.0
704.5
704.5
0.0
(243.4)
($769.4)
(1,863.9)
($526.0)
512.6
512.6
0.0
704.5
704.5
0.0
(191.9)
($717.9)
(1,812.4)
Solvency Multiple
Average High Cost Multiple
Average Tax Rate
Average Cost Per Employee
-0.87
-1.31
1.33%
$353.78
-0.80
-1.19
1.75%
$465.50
-0.75
-1.12
2.00%
$532.00
-0.70
-1.05
2.25%
$598.50
-0.66
-0.98
2.50%
$665.00
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency
16
2011 Forecast:
Other Considerations
 How long will it take the economy to
recover?
 Average time from end of one recession to
beginning of new recession over the last 50
years: 5.4 years
 What sort of actions might the Federal
Government take?
 Relief to state Trust Funds or interest
obligations?
 Implementation of solvency requirements for
incentive funds?
 Changes to FUTA tax rates or wage base?
The Nevada Department of Employment, Training and Rehabilitation is a proactive workforce & rehabilitation agency