Look Ahead: Nevada’s ‘taxing’ future

CARSON CITY— Look ahead from this legislative session to the next, and you see a gaping abyss.

The current Legislature managed to patch up a giant budget shortfall this year with relatively little drama, combining cuts to services with about $1 billion in new taxes.

But most of the tax increases are scheduled to expire in two years, and the federal stimulus dollars that helped bridge the gap won’t be there again.

Even if the state’s economy makes a complete rebound and especially if it doesn’t, the 2011 Legislature will again face a huge gulf between the money projected to come in from taxes and the amount needed to fund schools, prisons, Medicaid and other state services currently offered, analysts predict.

A measure passed by the Senate on Saturday could dictate the terms of the next big budget debate. Senate Concurrent Resolution 37 would lead to the commissioning of an independent study on the state’s tax structure by an objective outside expert. The study would assess the revenue sources of both state and local government, how they are distributed and whether they are adequate to the state’s needs.

The resolution also creates a commission on quality of life to look at how the state is preparing for its future five, 10 and 20 years down the road.

The resolution represents a compromise between measures sought by Senate Majority Leader Steven Horsford, D-Las Vegas, and Senate Minority Leader Bill Raggio, R-Reno.

Horsford, who believes strongly that the state must permanently broaden its tax base to put future budgets on a more stable footing, had proposed a commission that would be specifically directed to examine ways to implement a broad-based tax on Nevada businesses. Raggio wanted an open-ended study that wouldn’t automatically call for raising taxes.

Horsford had tried to push his commission through as part of the tax bill that became law over a gubernatorial veto Friday, but backed down and removed it when Raggio objected. The two continued to negotiate this week. As with most of Raggio’s compromises, the resulting resolution largely reflects his wishes.

“I have been advocating that we have a comprehensive analysis of the tax base in our state and local governments, that it be conducted by an independent consultant, that it be purely objective and that it not be pointed in any direction for or against taxes but a complete and serious analysis of where we stand,” Raggio said from the floor of the Senate on Saturday.

That, he said, was what the resolution would do. “We don’t have a perfect tax base,” but critics of the state’s tax structure should recognize the importance of Nevada’s friendly climate for business, he said.

“There are going to be critics who are going to say, 'OK, the Legislature is doing a tax study because it wants to raise taxes.’ I want to make it clear that is not my goal,” Raggio said.

Nevada has seen plenty of other tax studies conducted over the years. Some have seen partial implementation of their recommendations but none has resulted in a full-scale overhaul.

In 2002, a commission picked by Gov. Kenny Guinn was directed to examine ways to broaden the tax base to better reflect the state’s economy. In a battle royal in the 2003 legislative session, its central recommendation, a tax on businesses’ gross receipts, was passed over.

The last study Raggio said he considers credible was conducted by PriceWaterhouse and the Urban Institute in 1988, when Nevada’s population was just 1 million.

Its recommendations included expanding the sales tax base to services while reducing the sales tax rate, reversing the “tax shift” that directed property taxes to local governments, and considering a general business tax. The state doesn’t need yet another nobly abstract study that will gather dust on a shelf, said Sen. Bob Coffin, D-Las Vegas, who was on a legislative commission that produced a tax study in 1990.

“We know what we need,” he said. “We need to broaden the base. We’ve got to create something that doesn’t just nail one industry and tries to spread it (the tax burden) around.”

Coffin, who won’t be back in two years due to term limits, said the tax debate in 2011 is more likely to be dictated by the results of the 2010 election than by a report. He lamented that Republicans were able to control the scope of this year’s tax hikes because their votes in the Senate were needed to get to two-thirds.

The Assembly still must act on the resolution, which does not require gubernatorial approval and cannot be vetoed. Assembly Speaker Barbara Buckley, D-Las Vegas, said Sunday the Assembly plans to seek some changes to the language of the measure but she expects it to be approved before the session ends tonight .

Buckley said she’s optimistic that this study will succeed where others have failed.

“Too many times in the past, the state has commissioned studies that ended up being theoretical as opposed to specifically addressed to today’s Nevada,” she said. “We don’t just need another study done for study’s sake. This is a different twist to actually create proposals and structures and give them to the next Legislature. It makes a lot of sense to me.”

The study would be commissioned by the Legislature’s Interim Finance Committee based on a competitive bidding process. Raggio said he expected it to cost between $300,000 and $500,000.

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