to maintain adequate reserves in light of this growth would put the fund at a heightened risk of insolvency. In conclusion, the Nevada economy has performed above expectations, resulting in a faster than anticipated recovery and is on track to reach a pre-recession level sometime in the next year. In light of current trust fund balances and expectations for the future, the Department recommends keeping the average tax rate at 1.38%. At this level, the fund will continue to grow commiserate with employment and wages, without placing undue burdens on employers. At this rate, the fund should reach an average high cost multiple of 1.13% in 2007, which is consistent with the level obtained prior to the most recent recession. That is all I have and I’ll be happy to answer any questions that you may have.
Chair:Thank you, Jered. Any questions or comments? Hearing none, we will now have the tax schedule explanation by Joan Richards, Management Analyst for ESD and DETR.
Richards:Good morning Mr. Chairman and members of the Council. My name is Joan Richards and I am the Management Analyst for the Unemployment Insurance Program Contributions. The purpose of this meeting and workshop is to recommend the unemployment tax rate schedule for calendar year 2007. State law requires that the Administrator set the tax rates each year by adopting a regulation. Jered McDonald talked to you about economic conditions, the condition of the trust fund and the forecast for next year. I am now going to provide an overview of how the unemployment insurance tax system works and how the annual average tax rate is developed. In the rate booklets that were passed out to you, we have provided four tax schedules for the Council to consider and give us a recommendation. And, of course, to receive any comments from the public. A public hearing will also be held prior to the adoption of the regulation. That hearing has been scheduled for Thursday, November 16th at 10:00 a.m., to be held at the Employment Security Division Auditorium at 500 East Third Street in Carson City, Nevada. The hearing will also be video- conferenced to our Southern Nevada headquarters in Las Vegas at 2800 East St. Louis Street, in Conference Room C. Before we review the schedules contained in your booklets, I would first like to give you a brief review of how the unemployment compensation tax system works. The unemployment insurance program is a joint federal/state partnership. The way this partnership works is the Federal Unemployment Tax Act imposes a payroll tax on all employers at a rate of 6.2% of each employee’s wages up to $7,000. This equates to a payroll tax of $434 per employee per year. However, if the State maintains an unemployment insurance system approved by the Secretary of Labor, employers are allowed to offset 5.4% of the Federal Unemployment Tax Act, so they actually pay a rate of .8 of 1%, thereby reducing the cost of the federal tax to $56.00 per employee per year. The .8 of 1% employers pay to the federal government is passed back to the states to cover their administrative costs for the state unemployment insurance programs. The state unemployment tax that we are considering here today is deposited into a trust fund, which can only be used to pay benefits to unemployed workers. It cannot be used for any other purpose.