The $787 billion American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law by President Obama in February of this year. The largest economic stimulus package ever, ARRA was created to jumpstart the slowing economy by creating and saving jobs, extending unemployment benefits to those people already involuntarily terminated during the recession, provide healthcare and keep the numbers of uninsured from rising higher as inevitable layoffs continue. Additionally the package is designed to upgrade the nation’s infrastructure, enhance our country’s energy independence, provide tax relief and “protect those in the greatest need.”
ARRA in Nevada
ARRA was designed to put the entire economy back on track, yet still manage to address individual needs of healthcare, food and unemployment insurance. But, employers already suffering from the economic downturn, may be facing new taxes and new budget hits as ARRA gears up.
Very basically, the economy is circular. Individuals spend. Spending fuels businesses. Businesses hire employees. Employees spend. When employees are laid off or can’t find work to begin with, they don’t spend. When they don’t spend, businesses downsize, lay off employees and, in some cases, close.
In which case, ARRA, by providing employees with educational and employment opportunities, with healthcare and continued unemployment insurance, is intended to help shore up the economy, providing business to existing companies and stopping further layoffs.
Nevada stands to receive $1.5 billion in direct aid and Medicaid assistance from the recovery act, as well as millions in competitive grants that can be used to stimulate new and existing businesses, and create and save jobs.
Stated goals for the enormous sums of ARRA money include modernizing our nation’s infrastructure, which includes creating Department of Transportation projects for roadways and transportation infrastructure (see story, page 42), and enhancing the country’s energy independence from foreign sources. Nationally, $3.1 billion has been set aside for state energy programs. Nevada is primed for the alternative energy market with an abundance of sunlight, geothermal activity and wind power, and under ARRA, the state is eligible to receive $34.2 million to set up an energy program if Nevada separates utility profits from electricity sales and implements energy efficient building codes.
Other ARRA goals include preserving and improving affordable healthcare, which has resulted in changes to the COBRA health insurance protection, and protecting those in need, which has resulted in changes to minimum wage and unemployment insurance.
Administrating ARRA
The Nevada Department of Employment, Training and Rehabilitation (DETR) is responsible for implementing portions of the plan. DETR changes under the Obama plan include:
Changes to unemployment insurance, including a $25/week bump in benefits and changes in determining eligibility;
Federal funds to extend State unemployment benefits through 2009;
An additional $5.5 million of Unemployment Insurance administration funding for improvements to the system that provide unemployment benefits.
Under ARRA, $500 million was set aside for adult employment training services, with $3.4 million allocated to Nevada in formula funding through U.S. Department of Labor with DETR the state administrator. DETR also oversees $14.3 million for employment training services for dislocated workers. Nationally, $200 million was included for Department of Labor National Emergency Grants, funds that will allow the Secretary of Labor to respond to plant closings, mass layoffs and other events that effect a large number of workers. Recent legislation added $25 a week to unemployment benefits.
Show Me The Money
In Nevada, ARRA funds are being allocated across the budgetary board, from the arts sector to services for families and children including childcare and emergency food and shelter assistance programs. Funds are going to education and energy programs which include both existing and new programs funded by grants including those which explore geothermal technologies, create advanced battery manufacturing and work with alternative fueled vehicle pilot programs.
Monies will also go the environmental infrastructure, meaning clean drinking water, diesel emission reduction programs, construction and maintenance grants, and health programs. More monies will go to housing, job training, unemployment insurance, public safety, small business programs and transportation, including highway improvement programs.
It’s too early to see how well the stimulus package will work to put our economy back on its feet. Most of the programs are only just being implemented and have a long way to go before they show results, positively or negatively.
Changes to Unemployment Insurance
According to the Department of Labor, the EUC Extension, the Emergency Unemployment Compensation Act of 2008 which would have expired Mar. 31 of this year, has been extended through Dec. 31, 2009. This is one area in which ARRA is already showing an effect on Nevada, both at the individual level and for businesses.
Assembly Bill No. 469 passed the Nevada legislature and was approved by Governor Gibbons in April. In order to continue providing unemployment benefits for those individuals who have been out of work long enough to pass the period of eligibility, the bill adopts an alternate base period for determining eligibility and increases the total extended benefit payable under certain circumstances, as well as requiring DETR to take the necessary steps to ensure the Unemployment Trust Fund remains funded.
“There’s stimulus money available to Nevada for Unemployment Insurance, however, in order to get it, Nevada has to make some changes to our existing laws,” said James Nelson, executive director, Nevada Association of Employers. “Namely, they have to legislate what’s called an alternative base period.”
The base period for unemployment benefits is the first four of the last five completed calendar quarters. For someone filing a claim in June 2009, the last five quarters would be first quarter 2009 and all of 2008. The base period year is used to determine monetary eligibility for the claimant and the weekly benefit amount, as well as determining the employer who will be paying. The alternative base period year comes into play if a claimant isn’t qualified for benefits using the first four of the last five quarters by adding the most recent quarter.
In a state where, in April, unemployment reached 10.4 percent, the changes to unemployment compensation come as a relief to a lot of people. But these changes may not come as a relief to Nevada businesses.
What that will do, according to Nelson, is provide unemployment benefits for an additional 4,000 Nevadans, which is, by and large, a good thing. “But what people don’t understand is that the money has to come from somewhere,” Nelson said. “If all these people are found eligible under the alternative base period, at some point in time employer tax rates are going to be increased to pay for that.”
To extrapolate, raising the unemployment tax may mean employers are slower to start hiring again even when the economy starts to shift upward, especially small businesses which will feel more bite with each employee brought onboard.
But expect it. “Unemployment taxes are going to go up anyway,” said Nelson. “Because the Unemployment Trust Fund has been dramatically depleted by the economy. And they’re going to have to recover somehow. And of course the way they do that is to raise taxes.”
COBRA
COBRA was created in 1986. The landmark Consolidated Omnibus Budget Reconciliation Act (COBRA) provided certain former employees, their spouses or former spouses and dependent children the right to continue health coverage at group rates after termination for a limited period of time.
The Recovery Act obligates employers to give individuals who are involuntarily terminated between September 2008 and January 2010 another chance at opting for COBRA coverage, even if they didn’t elect it when first terminated. And it goes a step further – under ARRA, the ex-employee’s responsibility for paying the premium is covered with a subsidy.
“So the employee, who normally on COBRA pays up to 102 percent of the premium, now receives a subsidy and only pays 35 percent,” said Molly Rezac, shareholder with the law firm of Jones Vargas. “And the biggest issue for employers is how that is done – the employer fronts the 65 percent of the employee’s premium and are reimbursed through a payroll tax cut.”
Only the definition for “the federal government will pay 65 percent of the premium for the worker” is “the employer, who let the employee go, will subsidize the 65 percent for the government and be reimbursed the following quarter with a payroll tax credit.”
But how long does that take? And how hard is it for a business that’s already made the decision to lay workers off?
“That’s what’s problematic,” said Nelson. “Employers have to front that amount. They have to pay the 65 percent and then get the money back through a payroll credit.”
Nelson said many employers are concerned about fronting the premium. They’re already in a situation where they’ve had to lay off employees because there’s not enough work or not enough revenue coming into the business, and now they’re required to subsidize a government loan.
“I’ve had discussions with some COBRA experts out of Detroit recently and they said one of the options is, if the employer is unable to front the money, to simply drop the plan,” said Nelson. “But that means current employees would be affected as well.”
While the current employees still have jobs, it still tumbles them into the growing ranks of uninsured, one of the issues the Obama administration is seeking to address. Nelson said he hasn’t seen any Nevada employers take this step yet, though a few have considered the option.
There are employers who, no longer having to make payroll for ex-employees, can afford the 65 percent COBRA premium, but still, “These employees are being laid off because in the down economy, employers can’t afford employing them. Employers are saying ‘Then we have to turn right around and front this money. The reason we had to let the employee go is that we have cash problems,’” said Nelson. “That’s the Catch-22.”
“There’s a potential to lose more employers this way,” said Rezac. “It’s very difficult for an employer who has to lay off people to have to fund the stimulus until they get it back through payroll tax credits. I wouldn’t go so far as to say it hurts employers, but it definitely is difficult in the logistics on how the stimulus package works, especially with respect to COBRA, because it reaches back to individuals who were laid off as far back as September 2008.”
Another snag for employers results when already-existent severance packages provide that a terminated employees’ COBRA will be paid by the ex-employer, in which case there’s no subsidy for the employee and no reimbursement for that employer. Employers might want to look at their severance packages before they become necessary. An employer who has agreed to pay one hundred percent of the employee’s COBRA won’t be reimbursed at all. An employer who agreed in the package to pay 40 percent needs to be aware the employee only has to pay 35 percent. The employer will only be reimbursed 65 percent of the employee’s 60 percent obligation (which the employee is only paying 35 percent of, anyway.) Or to put it another way, the employer is not getting a payroll tax credit for the 40 percent it had already agreed to pay in the severance package.
Changes to Minimum Wage
Another change to Nevada employment law is minimum wage, which changes annually in our state, and with federal guidelines this year.
On April 1 the Nevada Labor Commissioner announced the new state minimum wage, effective July 1, is $6.55 an hour if the employer provides healthcare benefits, and $7.55 an hour if there are no healthcare benefits. And then on July 24 the federal minimum wage will increase to $7.25 an hour, which will become Nevada’s with-benefits minimum wage.
One of the biggest issues for Nevada employers is the daily overtime law, according to Rezac. Nevada law states any employee who doesn’t make one and a half times minimum wage is entitled to overtime whenever he or she works over 8 hours in a 24 hour period. So a retailer whose employee closes the store at 10 p.m. and goes back to open the store at 8 a.m. has to pay two hours over time for the 8 to 10 a.m. hours which were in the same 24 hour period. “So with respect to minimum wage, on July 1 a retailer who provides health benefits to employees will need to pay at least $9.83 an hour to avoid daily overtime. Without benefits, they’ll need to pay them $11.33 an hour to avoid paying daily overtime,” said Rezac.
Through a Crystal Ball
“I think it’s really soon to be able to see what will happen with [ARRA],” said Rezac. “Obviously there have been lots of things going on at the legislature regarding the recovery act, with respect to ideas on how the Department of Transportation would utilize funds that may come to them. Obviously [highway projects] would put people to work if we have projects going forward and that’s the whole idea is to stimulate the economy, get people to work and spend money. With respect to employers at this point, it’s COBRA and the portion of the act concerning healthcare coverage that are effecting Nevada businesses.”
