Lawmakers now face tough job

The state Legislature has been meeting for 90 days, but the real work is just beginning.

With Friday's release of the final revenue projections that will govern the next biennial budget, legislators now must figure out how to patch a hole in the budget that appears to be close to $3 billion.

Speaking Saturday during the Legislature's first weekend session of the year, state Senate Majority Leader Steven Horsford said it would take more than three-quarters of a billion dollars the state doesn't have just to fund the budget proposed by Gov. Jim Gibbons in January -- a budget Horsford and others criticized as too stingy.

The priority is to protect the state's education system from being damaged beyond repair, said Horsford, D-Las Vegas.

The solution will have to include both cuts in all areas of state government and tax increases of potentially historic proportions.

"Today, I am asking hard-working Nevadans to make a sacrifice for their children's education and our state's future," Horsford said, according to his prepared remarks. "I am also asking corporations, casinos and other interests to share in the revenue solution."

The state Economic Forum, an independent panel of experts that forecasts tax collections, predicted Friday that $5.5 billion will come into Nevada's general fund in 2010 and 2011, amid continuing difficult economic conditions.

That's down from December's projections of about $5.8 billion, despite the injection of an extra $200 million from a hotel room tax increase proposed by Gibbons and enacted by the Legislature.

The state budget division says it would cost $8 billion to fund government services at the levels legislators approved in the budget they passed out of the 2007 legislative session.

In addition, the state is required to make up the difference when falling local revenues from property taxes reduce local governments' share of education funding. That shortfall has been estimated at $200 million to $400 million.

Fiscal analysts from the legislative and executive branches are working through the weekend to agree on a figure, but the gulf between the amount needed to maintain existing services and the amount the state will have will be at least $2.7 billion and possibly higher.

Federal dollars from the stimulus legislation, pegged as high as $700 million, will help but won't go all the way.

Legislative leaders don't yet know where the money might come from, Horsford said in his speech Saturday.

"I do not know what these revenue increases will look like yet, and there is no secret plan being concocted, despite what has been reported in the media and elsewhere," he said. "But no one group, especially taxpayers, will bear the full burden. I will ask CEOs and casinos to pay their fair share. I will ask my family, and your family, to pay a share as well. I will ask everyone in Nevada to share this burden in order to protect our schools."

Gibbons, a Republican, has said he will veto any budget that contains additional taxes. Sharply critical of legislators from the beginning, the governor has been taking his message to the public, with news conferences in Northern Nevada and Southern Nevada late last week in which he hammered on his theme.

Speaking in Henderson on Friday, Gibbons said government, in looking for a model, should consider businesses that have had to slash expenses when their incomes fall.

"I don't know of too many businesses around Nevada today who are looking at reduced revenues that cannot find some way to balance their budget," Gibbons said. "Sometimes it has been reducing salary levels, reducing benefits, retirements, eliminating 401(k)s. Across the board, these are tough choices."

Gibbons' January budget proposal spent about $6.2 billion and included a 6 percent cut in the salaries of state workers, including schoolteachers, and slashing more than a third from higher education funding.

To bring the governor's budget in under the new, lower revenue projections, Gibbons has said he will seek further salary cuts.

Horsford said in an interview Saturday that the state's superintendents have told him the cuts Gibbons wants would mean cutting instructional days from the school year, increasing class sizes and diminishing teacher quality.

Nobody wants to raise taxes in a bad economy that's left private industry struggling, but it would be irresponsible to sacrifice the futures of a generation of children just to avoid that, Horsford said.

Lawmakers have been criticized for not yet providing any alternative proposal to Gibbons' approach to the budget. The wait for the final revenue numbers gave them an excuse for ducking that discussion, but now there is nowhere to hide, said Eric Herzik, a political scientist at the University of Nevada, Reno.

"So far, the Legislature has looked at some ugly numbers and some ugly cuts and really not wanted to deal with it," he said. "Now they have to. They know what they are dealing with. They can't keep putting it off."

Herzik acknowledged that politically it may be a wise move not to put out a proposal to be criticized. During the state's last battle royal over taxes, in 2003, then-Gov. Kenny Guinn made his case for tax increases up front, which allowed special interests to strategize and form coalitions against it. Lawmakers did pass the largest tax increase in the state's history, some $833 million, but not in the form Guinn had sought.

"If a plan is going to emerge quickly and get passed quickly now, you give opponents less time to derail your effort, and that's good politics," Herzik said. "But in terms of policymaking, you're not getting a full hearing. Mistakes can be made that nobody catches."

Horsford is calling for a broadening of the state's narrow tax base to make revenue more stable in the future. Legislative Republicans who haven't ruled out new taxes altogether say they want any increase to be temporary and to draw on existing sources.

"I've made it very clear that if we do anything, it needs to be short-term," said Assembly Minority Leader Heidi Gansert, R-Reno. "We need to fill that hole in the short term and make sure that essential services are provided during this biennium. But I believe if there is any tax package, it needs to be sunsetted," that is, have a built-in expiration date.

Lawmakers are expected to increase the modified business tax, a levy on business payrolls that currently stands at 0.63 percent, and either expand or raise sales taxes while reducing tax deductions taken by the mining industry.

Before the session began in February, lawmakers, particularly Assembly Speaker Barbara Buckley, D-Las Vegas, frequently referred to the need for long-term reform of the state's tax structure.

If that talk has largely dissipated and the conversation now revolves around short-term fixes, it's because nobody anticipated that the crisis would deepen so precipitously, said Assemblywoman Sheila Leslie, D-Reno.

"We are going to need immediate solutions to deal with this crisis, most likely raising some of the existing taxes, because we have the collection mechanisms in place," Leslie said. "In the long term, my personal position is, and has been for quite some time, that we need to fundamentally change our tax structure. ... I doubt we are going to be as successful as I would like in fixing the tax structure this session, because I think we're running out of time; but I am encouraged that we will lay the groundwork."

The mood in Carson City is grim, according to lawmakers, staffers, lobbyists and other participants in the legislative process. Nerves are frayed and exhaustion is setting in even as the longest sprints still lie ahead.

But Horsford said Saturday that the will exists to rise to the bleak occasion.

"While the challenge continues to be great, there is still a sense of 'We can do this,' because we must do this," he said. "Across party lines, throughout the legislative building, among the private sector, people know there has to be an answer to our budget crisis so that we preserve the essential parts of our budget, starting with education."

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