State budget crisis takes center stage

Let the reckoning begin.

The 75th session of the Nevada state Legislature is open in Carson City, and the tough task of curing the state's financial woes is under way. No one is happy nor immune to the coming financial realignment. Just ask 3,000 screaming University of Nevada, Las Vegas students, their professors and the system chancellor.

All the news is bad.

Businesses are facing potential new taxes and higher fees. The general public is facing cuts in health care, education and a host of potential new costs, such as a state income tax, or new sales taxes on previously untaxed services, such as fees charged by attorneys or accountants.

Richard Bryan, former U.S. senator-turned-lobbyist, said he has never seen anything like this in his political life. Pete Ernaut, another of the state's pre-eminent lobbyists, says Nevada's budget woes show a glaring difference between now and tough times of the past, when raising taxes, or cutting services alone, could save the state.

Not this time.

"Nevada's never been here before," he says. "It's going to take massive cuts coupled with massive tax increases to fix this. It's going to take both."

Just how it shakes out is anybody's guess. One thing for certain is that the state's $2.3 billion budget shortfall will be the center of attention for the next five months.

Richard "Tick" Segerblom, a Democratic assemblyman from Las Vegas, expects a heated battle over the best way to bridge the deficit between the money needed to operate the state government and its projected revenue over the next biennium.

"I would say it will be the highlight, the lowlight and anything in between," the legislator said.

The first order of business is to deconstruct Gov. Jim Gibbons' budget proposal. The final result will likely look nothing like it does today.

"He has taken himself out of the game. He wants to run for re-election and say he kept his promise that he didn't raise taxes, 'We (legislators) did.' "

The Democratic-controlled state Senate and Assembly won't let Gibbons' proposal to make 75 percent of those budget cuts in the higher education system itself, for instance, become a reality, Segerblom said.

"Gibbons knows there are 28 (Assembly) Democrats, and we can pass new taxes," he said. "We aren't going to raise new taxes willy-nilly, but we won't fire half the university staff."

Assembly Speaker Barbara Buckley has vowed to protect education and oppose Gibbons' 6 percent salary reduction for all state workers -- including teachers.

"From what I've heard about the governor's 6 percent salary cut for state employees, I would fight that. We need to help education," she said in an interview just days before Gibbons' Jan. 15 State of the State address. During that speech in Carson City he unveiled his controversial budget cuts.

"If you cut teachers' pay when they only make 93 percent of the national average, you will lose some good teachers, and good teachers make good students," Buckley said.

Josh Griffin, a lobbyist for some of the state's largest employers, including MGM Mirage, Barrick Gold Corp. and the Nevada System of Higher Education, says he doesn't see how the governor's budget can stand.

"I think the budget that will go forward in five months will be much different," he said.

Bryan says that historically state legislators have followed a governor's lead on the state budget. But he doesn't see that happening this time.

"I think there will be a fundamental restructuring of this budget," he said. "I've never seen anything like this in my lifetime. There won't just be some minor tweaks."

All businesses are likely to face increased expenditures in taxes and medical costs. Ernaut says he believes there will be a spirited debate over increasing the Modified Business Tax, or payroll tax. Nicole Willis-Grimes, a lobbyist with The Ferraro Group, says businesses will likely also be affected if the state further reduces its Medicaid reimbursements to hospitals. The reimbursement rate was already cut 5 percent and may be cut another 5 percent. The cuts mean more costly services and higher insurance premiums for businesses that offer coverage to employees.

Although higher taxes are likely for all businesses in some form, some tax initiatives are clearly opposed, including further increases in gaming and hotel taxes.

Some Democrats are finding common ground with the Las Vegas Chamber of Commerce. The local business lobbying organization has publicly come out in opposition to any tax increase imposed on the gaming industry and against implementing a gross receipts tax.

Rep. Shelley Berkley, D-Nev., lauded the chamber's stance as "extremely appropriate," and said she would not support a gross receipts tax, either.

Democrats and the chamber may also find common ground in coming to the defense of higher education in the state. Steven Hill, chairman of the Las Vegas Chamber of Commerce, said the business organization is not supporting the deep higher education cuts proposed in Gibbons' budget. A meeting with Nevada System of Higher Education Chancellor Jim Rogers is being arranged, Hill said.

"We want to look at his budget," Hill said at a Jan. 26 chamber press conference to unveil the organization's legislative agenda. Some "small changes" to the higher education budget may be proposed instead.

"A 36 percent to 50 percent cut in the higher education budget is very harsh," Hill said. "We realize that is too high."

The chamber also has gained some Democratic support in avoiding new taxes on casinos. Hill has maintained that casinos are already paying their fair share, and they are struggling because of the recession.

Bill Bible, the president of the Nevada Resort Association, said his industry should be credited for trying to help the state in its time of need. He pointed to the gaming-sponsored ballot question. The legislative advisory question tested the public's appetite for increasing the state's hotel room taxes. That rate now stands at 10 percent in Clark County, but voters overwhelmingly supported raising the tax to 13 percent locally as a way to pay for needed government services.

"At this point, we are the only economic sector that has responded to the state's problems and made some revenue available to meet those problems," Bible said.

The gaming industry has been hit hard by the worst recession in a generation, Bible said.

"Nevada has the largest reliance on casino revenues and we have seen layoffs and whole projects put on hold," he said.

Going to gaming for more tax dollars should be a last resort, Segerblom agreed. He listed establishing a corporate income tax, gross receipts tax, or increasing the payroll tax, as better alternatives. Segerblom is also among the Democrats supporting Buckley's position to first eliminate some existing tax loopholes and other incentive programs that may be abused.

Lobbyists and legislators also agree that developers will face more hurdles in the future as lawmakers look to curtail popular tax giveaways.

"People in the business community are concerned, and rightly so, about what's going to be done. There's a lot of talk about redevelopment," Bryan said.

The types of tax abatement programs that may be targeted include STAR Bonds, TIF Financing and other tax exemptions usually used to spur development.

•Tax increment financing, or TIF, is a common tool used to spur redevelopment by rebating roughly half of the property taxes back to the development over a period of years, based on the increased value of the parcel. The World Market Center is a major project currently receiving TIF.

•Sales Tax Anticipated Revenue, or STAR, allows a project to bond out for construction using its expected sales tax revenue rebates.

Segerblom has sponsored a bill that, if passed, would eliminate a 4-year-old tax break for golf courses that defines them as "open spaces." Under the proposed bill, the courses would be assessed at a standard property tax level.

"Right now, the (golf course) tax rate is about zero," he said. "With this change, it would bring in about $15 million in property taxes to Clark County, which has about 60 golf courses."

Local chamber of commerce officials are likely to rail against any efforts to curtail tax exemptions. Henderson, North Las Vegas and Las Vegas all have numerous projects that take advantage of these tax incentives and the effects of curtailing them could prove costly to the cities.

North Las Vegas Chamber President Sharon Powers recently spelled out her opposition to such measures in a policy statement issued in January.

"The NLVCC supports responsible redevelopment efforts in blighted areas throughout the valley," a chamber statement reads. "The Chamber believes that tax incentives and abatements are necessary to entice and induce viable reinvestment and economic opportunities into these areas, thus creating jobs, improved property values, future fees, sales and property taxes."

As state funds shrink, another hot-button issue will be what to do with the costly Public Employee Retirement System, or PERS, and Public Employees Benefits Program, or PEBP. The governor plans to introduce a bill that would deny access to the state's pension plan to employees hired after July 1 of this year. He also proposes a reduction in retired workers' health care subsidies and a termination of retirees' benefits at age 65.

The chamber continues to push for reforms of PERS, and PEBP, which combined make for a $10.3 billion unfunded liability, Hill said. However, his group differs from the governor's proposal to cut off health care benefits for existing public workers at age 65.

"We disagree with taking benefits away from workers who have already retired," he said. "And in the governor's budget, if they don't retire in the next couple years, they lose their benefits."

Some Democrats, including Speaker Buckley and Segerblom, said it isn't right for the state to renege on its promises to workers, especially if that leaves them with either more costly health care alternatives or none at all.

Sparks Assemblywoman Debbie Smith, the chairwoman of the Assembly Health and Human Services Committee and K-12 Education Budget Subcommittee, supports an effort to reform PEB "while still taking care of people." But she questioned the wisdom of adding more people to the rolls of the uninsured when Nevada already ranks among the highest in the nation in that category.

PERS is a system that benefits Nevada, not just state workers, Smith said.

"I think having a good retirement plan is a good thing," Smith said. "These are people who are taxpayers and they contribute greatly to the economy."

Every industry and business group in the state will see sacrifices in whatever budget legislators finally agree on.

Ernaut summed the situation up aptly: "When you run out of money, something has to give."

Contact Business Press Editor Matt Ward at mward@lvbusinesspress.com or 702-387-5298. Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.

Ernaut, another of the state's pre-eminent lobbyists, says Nevada's budget woes show a glaring difference between now and tough times of the past, when raising taxes, or cutting services alone, could save the state.

Not this time.

"Nevada's never been here before," he says. "It's going to take massive cuts coupled with massive tax increases to fix this. It's going to take both."

Just how it shakes out is anybody's guess. One thing for certain is that the state's $2.3 billion budget shortfall will be the center of attention for the next five months.

Richard "Tick" Segerblom, a Democratic assemblyman from Las Vegas, expects a heated battle over the best way to bridge the deficit between the money needed to operate the state government and its projected revenue over the next biennium.

"I would say it will be the highlight, the lowlight and anything in between," the legislator said.

The first order of business is to deconstruct Gov. Jim Gibbons' budget proposal. The final result will likely look nothing like it does today.

"He has taken himself out of the game. He wants to run for re-election and say he kept his promise that he didn't raise taxes, 'We (legislators) did.' "

The Democratic-controlled state Senate and Assembly won't let Gibbons' proposal to make 75 percent of those budget cuts in the higher education system itself, for instance, become a reality, Segerblom said.

"Gibbons knows there are 28 (Assembly) Democrats, and we can pass new taxes," he said. "We aren't going to raise new taxes willy-nilly, but we won't fire half the university staff."

Assembly Speaker Barbara Buckley has vowed to protect education and oppose Gibbons' 6 percent salary reduction for all state workers -- including teachers.

"From what I've heard about the governor's 6 percent salary cut for state employees, I would fight that. We need to help education," she said in an interview just days before Gibbons' Jan. 15 State of the State address. During that speech in Carson City he unveiled his controversial budget cuts.

"If you cut teachers' pay when they only make 93 percent of the national average, you will lose some good teachers, and good teachers make good students," Buckley said.

Josh Griffin, a lobbyist for some of the state's largest employers, including MGM Mirage, Barrick Gold Corp. and the Nevada System of Higher Education, says he doesn't see how the governor's budget can stand.

"I think the budget that will go forward in five months will be much different," he said.

Bryan says that historically state legislators have followed a governor's lead on the state budget. But he doesn't see that happening this time.

"I think there will be a fundamental restructuring of this budget," he said. "I've never seen anything like this in my lifetime. There won't just be some minor tweaks."

All businesses are likely to face increased expenditures in taxes and medical costs. Ernaut says he believes there will be a spirited debate over increasing the Modified Business Tax, or payroll tax. Nicole Willis-Grimes, a lobbyist with The Ferraro Group, says businesses will likely also be affected if the state further reduces its Medicaid reimbursements to hospitals. The reimbursement rate was already cut 5 percent and may be cut another 5 percent. The cuts mean more costly services and higher insurance premiums for businesses that offer coverage to employees.

Although higher taxes are likely for all businesses in some form, some tax initiatives are clearly opposed, including further increases in gaming and hotel taxes.

Some Democrats are finding common ground with the Las Vegas Chamber of Commerce. The local business lobbying organization has publicly come out in opposition to any tax increase imposed on the gaming industry and against implementing a gross receipts tax.

Rep. Shelley Berkley, D-Nev., lauded the chamber's stance as "extremely appropriate," and said she would not support a gross receipts tax, either.

Democrats and the chamber may also find common ground in coming to the defense of higher education in the state. Steven Hill, chairman of the Las Vegas Chamber of Commerce, said the business organization is not supporting the deep higher education cuts proposed in Gibbons' budget. A meeting with Nevada System of Higher Education Chancellor Jim Rogers is being arranged, Hill said.

"We want to look at his budget," Hill said at a Jan. 26 chamber press conference to unveil the organization's legislative agenda. Some "small changes" to the higher education budget may be proposed instead.

"A 36 percent to 50 percent cut in the higher education budget is very harsh," Hill said. "We realize that is too high."

The chamber also has gained some Democratic support in avoiding new taxes on casinos. Hill has maintained that casinos are already paying their fair share, and they are struggling because of the recession.

Bill Bible, the president of the Nevada Resort Association, said his industry should be credited for trying to help the state in its time of need. He pointed to the gaming-sponsored ballot question. The legislative advisory question tested the public's appetite for increasing the state's hotel room taxes. That rate now stands at 10 percent in Clark County, but voters overwhelmingly supported raising the tax to 13 percent locally as a way to pay for needed government services.

"At this point, we are the only economic sector that has responded to the state's problems and made some revenue available to meet those problems," Bible said.

The gaming industry has been hit hard by the worst recession in a generation, Bible said.

"Nevada has the largest reliance on casino revenues and we have seen layoffs and whole projects put on hold," he said.

Going to gaming for more tax dollars should be a last resort, Segerblom agreed. He listed establishing a corporate income tax, gross receipts tax, or increasing the payroll tax, as better alternatives. Segerblom is also among the Democrats supporting Buckley's position to first eliminate some existing tax loopholes and other incentive programs that may be abused.

Lobbyists and legislators also agree that developers will face more hurdles in the future as lawmakers look to curtail popular tax giveaways.

"People in the business community are concerned, and rightly so, about what's going to be done. There's a lot of talk about redevelopment," Bryan said.

The types of tax abatement programs that may be targeted include STAR Bonds, TIF Financing and other tax exemptions usually used to spur development.

•Tax increment financing, or TIF, is a common tool used to spur redevelopment by rebating roughly half of the property taxes back to the development over a period of years, based on the increased value of the parcel. The World Market Center is a major project currently receiving TIF.

•Sales Tax Anticipated Revenue, or STAR, allows a project to bond out for construction using its expected sales tax revenue rebates.

Segerblom has sponsored a bill that, if passed, would eliminate a 4-year-old tax break for golf courses that defines them as "open spaces." Under the proposed bill, the courses would be assessed at a standard property tax level.

"Right now, the (golf course) tax rate is about zero," he said. "With this change, it would bring in about $15 million in property taxes to Clark County, which has about 60 golf courses."

Local chamber of commerce officials are likely to rail against any efforts to curtail tax exemptions. Henderson, North Las Vegas and Las Vegas all have numerous projects that take advantage of these tax incentives and the effects of curtailing them could prove costly to the cities.

North Las Vegas Chamber President Sharon Powers recently spelled out her opposition to such measures in a policy statement issued in January.

"The NLVCC supports responsible redevelopment efforts in blighted areas throughout the valley," a chamber statement reads. "The Chamber believes that tax incentives and abatements are necessary to entice and induce viable reinvestment and economic opportunities into these areas, thus creating jobs, improved property values, future fees, sales and property taxes."

As state funds shrink, another hot-button issue will be what to do with the costly Public Employee Retirement System, or PERS, and Public Employees Benefits Program, or PEBP. The governor plans to introduce a bill that would deny access to the state's pension plan to employees hired after July 1 of this year. He also proposes a reduction in retired workers' health care subsidies and a termination of retirees' benefits at age 65.

The chamber continues to push for reforms of PERS, and PEBP, which combined make for a $10.3 billion unfunded liability, Hill said. However, his group differs from the governor's proposal to cut off health care benefits for existing public workers at age 65.

"We disagree with taking benefits away from workers who have already retired," he said. "And in the governor's budget, if they don't retire in the next couple years, they lose their benefits."

Some Democrats, including Speaker Buckley and Segerblom, said it isn't right for the state to renege on its promises to workers, especially if that leaves them with either more costly health care alternatives or none at all.

Sparks Assemblywoman Debbie Smith, the chairwoman of the Assembly Health and Human Services Committee and K-12 Education Budget Subcommittee, supports an effort to reform PEB "while still taking care of people." But she questioned the wisdom of adding more people to the rolls of the uninsured when Nevada already ranks among the highest in the nation in that category.

PERS is a system that benefits Nevada, not just state workers, Smith said.

"I think having a good retirement plan is a good thing," Smith said. "These are people who are taxpayers and they contribute greatly to the economy."

Every industry and business group in the state will see sacrifices in whatever budget legislators finally agree on.

Ernaut summed the situation up aptly: "When you run out of money, something has to give."

Contact Business Press Editor Matt Ward at mward@lvbusinesspress.com or 702-387-5298. Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.