Numbers add up to confusion

There's a $3 billion hole in the Nevada budget. Or is it $2.2 billion?

As legislators pore over the state's balance sheet and try to come up with a budget for the next two years in unprecedented hard times, a lot of numbers are being thrown around. And if Nevadans are feeling baffled by all the talk of projected revenues and estimated shortfalls, it's no wonder.

The truth is, nobody really knows. It depends on how you try to predict the future.

"The way I look at it, the hole is really now $2.8 billion," state Budget Director Andrew Clinger said.

By his calculation, the state needs $8.1 billion to keep the government running at its present size, but it's only going to take in $5.3 billion, leaving a gap of $2.8 billion to be filled by either tax increases or service cuts.

Gov. Jim Gibbons put together a budget that combined cuts, notably a 6 percent reduction in state employee salaries and a 50 percent hit to state funding for the University of Nevada, Las Vegas, and new money, such as an increase in hotel room taxes and aid from the federal stimulus bill, to spend $6.2 billion in the next two years.

Gibbons started from a revenue projection of $5.8 billion, but that number keeps dropping as the taxes the state relies on continue to decline. Legislative and executive fiscal analysts' latest guess is down about $450 million, to $5.3 billion.

And yet legislators recently released a new estimate showing a $2.2 billion shortfall. Clinger said it doesn't make sense that the gap should get smaller rather than bigger in the face of declining revenue.

"When you do the math, you say, 'Wait a minute,'" he said. "We're $450 million more in the hole, and yet the hole is smaller? I don't get it."

The reason, he said, is that the legislators' calculation factors in the revenue increases recommended by the governor as if they already happened. In the case of the room tax increase, that's true: The Legislature passed it and Gibbons allowed it to become law without his signature, adding an estimated $233 million to the plus side of the ledger.

But another $200-million-plus that was built into Gibbons' budget won't be coming in without legislators' say-so. Some of it appears to be dead on arrival, such as $79 million in property tax money that currently goes to Clark and Washoe counties, an idea that legislators "hated out of the gate," Clinger notes. So did the counties.

And then there's $31 million Gibbons proposed scaring up by forcing casinos to pay taxes on gambling markers when they're issued rather than when they're repaid. In the face of strong resistance from the struggling gaming industry, Gibbons decided not to even submit the proposal to the Legislature.

By including those and other items as expected revenue, legislative analysts got a figure similar to the $6.2 billion Gibbons proposed spending. Then they subtracted $450 million for the newly pessimistic revenue picture and got $5.8 billion.

Clinger said the legislators' calculation "is only after you've already raised revenues $484 million ... a big chunk of which is very controversial."

Assembly Speaker Barbara Buckley, D-Las Vegas, said the legislative fiscal analysts were merely crunching the numbers the way they've always done it in the past. She denied that the numbers legislators put out were an attempt to play political games. It's been suggested that legislators want to make the hole look smaller so that if they end up raising taxes, it will look like a smaller hike.

The Legislature doesn't come up with its own budget from scratch, Buckley said. By statute, it uses the governor's budget as a framework, making adjustments to it to come up with the final plan. Buckley suggested it was odd that the governor's own budget director isn't basing his estimates on the governor's revenue recommendations.

"We're analyzing the governor's budget to determine the shortfall," she said. "We used the governor's revenue numbers; the governor's office did not."

Legislators also used a slightly different estimate for how much the state would have to spend in 2010-11 if no cuts were made. Unlike the governor's office, they didn't envision paying back $46 million in principal and interest on the $160 million line of credit the state took out to deal with last year's shortfall, for example, and they didn't build in $15 million to pay for the 2011 legislative session.

Thus, the legislative analysts came up with an $8 billion estimate of how much the state would have to spend to keep government at its current level. Subtracting from that the $5.8 billion in estimated revenue, they posited a shortfall of about $2.2 billion.

A reasonable compromise between the two estimates might be $2.6 billion: That's what you get if you factor in the room tax hike, since it has already happened, but not the other gubernatorial revenue enhancements, which probably won't go through.

But there are still plenty of unknowns.

Chief among them is the federal stimulus bill, formally known as the American Recovery and Reinvestment Act of 2009. It promised to send about $1.5 billion to Nevada, but little of that can go into patching the budget hole.

For example, the $270 million for transportation and infrastructure projects goes directly to agencies such as the state Department of Transportation, bypassing the general fund.

Then there's $324 million for education, money the state can only access if it puts as much money into higher and K-12 education as it did in 2006, or is granted a waiver from the U.S. Department of Education.

Buckley said legislative staff are working with department officials and are optimistic the waiver will come through.

Around $230 million is expected to come in for health and human services, chiefly Medicaid and welfare, Clinger said.

By offsetting the amount the state would have spent on those items, that money could help bridge the shortfall.

The governor's budget built in $108 million in stimulus money, a rough guess since the bill hadn't yet been written at the time the budget was drafted.

Clinger said state money gained or freed up by the stimulus will help balance the governor's proposed spending with the newly sour revenue estimate, though it's not yet clear if it will go all the way to doing so.

The final revenue estimate is set to be released May 1 by the state Economic Forum, the nonpartisan expert panel whose forecasts officially determine how much the Legislature can spend.

Contact reporter Molly Ball at mball @reviewjournal.com or 702-387-2919.