Legislators vow tax overhaul

CARSON CITY -- They'll be back, Nevada's lawmakers. And next time, taxes will be on the table.

Talking tax overhaul is the top goal Democratic legislative leaders and key Republicans set when they wrapped up the 26th Special Session of the Nevada Legislature on Day 7 at, officially, 2:16 a.m. Monday.

Lawmakers sent Gov. Jim Gibbons a stopgap balanced-budget plan that he negotiated and agreed to sign, filling an $887 million hole in the $6.9 billion general fund budget through June 30, 2011.

But it doesn't solve Nevada's long-term fiscal problems, caused in part by the state's reliance on industry-specific mining and gaming taxes to support more than half of the general fund budget.

So lawmakers have vowed to move seriously to retool the state's tax system to make it more broad-based, perhaps imposing a corporate tax on all businesses. Some are talking about reversing the 1981 shift from a reliance on property taxes to sales taxes.

"We have been talking about having a broader, more fair tax system in this state," Senate Majority Leader Steven Horsford, D-Las Vegas, said as he stood outside the Legislative Building with Gibbons and other Senate and Assembly leaders to announce the budget patch deal. "And that's what I plan on focusing my time on during the next legislative session."

Senate Minority Leader Bill Raggio, R-Reno, who would be key to passing any tax overhaul out of the Legislature in 2011, was singing from the same songbook as Horsford. "Hopefully, this will be an impetus for us to take a long, hard look at how we fund state government," he said about the spending cuts and fee increases that came out of the special session.

Past attempts to broaden the tax base have failed, including during the 2003 legislative session when Republicans objected to the idea, saying they believe in smaller government and oppose new taxes.

It was clear from the final vote on the special session budget bill that conservative GOP opposition to new taxes and fees is strong.

At 12:37 a.m., the Assembly voted 34-8 for the bill, with opposition coming from Republicans who opposed some fee hikes.

Assemblyman Ty Cobb, R-Reno, who voted no and is running for the Senate seat held by Randolph Townsend, who is termed out, said a broad-based tax will "happen over my dead body."

Cobb said Monday that even discussing such plans will drive away business, especially if it's a gross receipts tax. "It does not take into account whether you even make a profit," he said. "That is just a job killer right there."

On the Senate side, bleary-eyed senators struggled to keep awake before passing the budget bill by a 20-1 vote at 1:45 a.m. Monday, with all nine Republicans joining 11 of 12 Democrats in the Senate.

The lone "no" vote came from Sen. Bob Coffin, D-Las Vegas, who complained that a small group of leaders worked in private on the bill and did not want to discuss the need for new taxes now.

"It is our duty to have a balanced budget," said Coffin, who spoke for 24 minutes as the clock ticked away and other senators looked on incredulously. "It would have taken a tax increase. It is obvious we didn't tax enough last session. We put the future of Nevada in jeopardy for lack of nerve."

The special session cut most state agency budgets by 10 percent and imposed a four-day, 10-hour workweek on government employees, which will close most state offices on Fridays. State support for K-12 and higher education was cut by 6.9 percent.

The special session imposed a range of fees to raise more than $50 million in new revenue, including on the mining and banking industries and on applicants for water rights and gaming licensees.

The Republican Gibbons, who has a no-new-taxes policy and has opposed fees unless industries agree, said he accepted the new levies because the banking and mining industries got on board, but he acknowledged he compromised to reach a deal with Democrats.

Assembly Majority Leader John Oceguera, D-Las Vegas, who is expected to become the Assembly speaker next session, said lawmakers are intent on tackling the state's out-of-whack tax base to avoid having to tap the same revenue wells.

"We're all hoping we are going to be doing a lot better in 2011, but chances are we are not," Oceguera said. "The revenue structure is broken, and we really need to fix it. Soon. Like in the 2011 session."

Jim Wadhams, a mining lobbyist, said there is mining industry support to raise revenue for the state from sources beyond mining, gaming and sales taxes, the state's biggest cash producers.

"I think it is absolutely necessary for the state to revise how it raises revenue," he said. "In that regard, Senator Horsford was exactly right."

During the special session, the gaming industry refused to go along with a Democratic proposal to raise $32 million in new revenue by making casinos pay for Gaming Control Board regulation. Gibbons said he would veto any tax or fee that the gaming or any industry didn't agree to, and most Republican lawmakers agreed that casinos weren't in a good financial position to help given losses last year and more than 30,000 layoffs.

In the end, lawmakers approved $4.2 million in new gaming revenues, collected from an investigation fee for new gaming licensees.

Bill Bible, president of the Nevada Resort Association, said Monday that instituting a broad-based tax system in the state is long overdue. Bible was the Nevada budget director in the late 1980s when there was talk of such a plan, but it never went anywhere.

"It's not a good tax policy to put all your eggs in one basket," Bible said. "I hate to say 'tax study,' but everybody in these tax studies have said it is not sound public policy if you pin the system on one industry."

A Price Waterhouse/Urban Institute study commissioned in 1988 after the 1981 tax shift in Nevada warned of dire fiscal problems to come and recommended the state go to a broad-based tax system. Lawmakers ignored it, and voters in 1990 overwhelmingly supported an initiative to constitutionally prohibit a state income tax although the study had cautioned that "the option to enact a personal income tax should not be foreclosed by constitutional prohibitions."

A similar study by Moody's is in the works now and will be completed by July and considered by the next regular session of the Legislature, which starts in February 2011.

Also, lawmakers have appointed a 20-member citizens organization called the Nevada Vision Stakeholder Group, which is meeting regularly to come up with five-, 10- and 20-year plans for the future of Nevada, including a review of the state's tax structure.

In the next two-year budget cycle beginning July 1, 2011, Horsford said the state's projected expenses could outstrip expected revenue by $3.4 billion. That means lawmakers would need to engage in another round of slashing budgets for education and other programs or find new revenue sources from business taxes and fees to support vital services.

Guy Rocha, a Nevada historian and former state archivist, said the special session was the first time he had seen "a real push back against these industries" like gaming, mining, banking by lawmakers who count on such big business for campaign contributions.

"This is setting the tone of the 2011 regular session as the most critical legislative session in Nevada history," he said.

"Tourism and gaming has been the growth engine for Nevada for 80 years, but the state can't rely on that any longer," Rocha said. "If they kick the can down the road again, Nevada is going to have a protracted economic crisis."

Contact Laura Myers at lmyers@reviewjournal.com or 702-387-2919.