State revenue shortfall closes in on $1 billion

“We are in dire circumstances for the state of Nevada,” Gibbons said at a news conference after a private meeting with legislative leaders.

The governor and legislators already have approved $914 million in cuts to address a revenue shortfall for the two-year budget period that ends June 30, 2009. But that shortfall has grown by another $60 million largely because of a report Wednesday that gaming tax receipts in April declined by 3.5 percent compared with April 2007.

Gibbons said he is considering a special legislative session to address the state’s financial situation and will decide whether to call one “in the next several days.”

A special session would be necessary to cut employee work hours or take other steps to reduce spending.

But Senate Majority Leader Bill Raggio, R-Reno, did not support Gibbons’ suggestion that a special session might be needed.

Raggio said he was confident that most required cuts could be approved by the Legislature’s Interim Finance Committee, a group of 21 lawmakers that handles financial matters when the Legislature is not in session.

The 2009 Legislature meets in February.

Governors typically gain support from key lawmakers before calling special sessions.

Assembly Speaker Barbara Buckley, D-Las Vegas, who participated by phone in the meeting between the governor and lawmakers, said she was puzzled because the governor did not talk about specifics that would be considered at a special session. Instead, Buckley said, “he left many of the legislators wondering exactly what he was proposing.”

A special session and the approval of the Legislature would be necessary to repeal a 4 percent pay raise for state workers, teachers and university employees, Gibbons said. The governor did not indicate whether he favors repealing or deferring the raises, which take effect July 1 and will cost the state $130 million, $91 million of which will go to the teacher pay increases.

Raggio and Senate Minority Leader Steven Horsford, D-Las Vegas, said they oppose repealing the pay raises.

Such a move would hurt employees struggling with rising costs, including gasoline prices, Raggio said.

Budget Director Andrew Clinger said that the state expects to collect $3.095 billion in taxes by the end of the current fiscal year on June 30. That is $200 million less than the projections on which the state budget was built and $50 million less than what was collected in the past fiscal year.

Tax revenue for the fiscal year that starts July 1 is expected to increase only slightly, with the state receiving $3.133 billion, less than the $3.145 billion collected in fiscal 2007, Clinger said.

The budget director checked records going back 30 years and found this is the first year in which tax collections have dropped behind receipts for the previous year. It might be the first such decline in state history.

When the economy will recover is unknown, Gibbons said, and “everything is on the table” while looking at additional cuts.

Horsford said he opposes across-the-board cuts to state agencies. The state needs to protect “essential services,” such as health care programs, he said.

But Gibbons said the state might be forced to cut another $500 million a year from existing state agency budgets when the 2009 Legislature sets spending for the July 1, 2009-June 30, 2011, budget period.

Gibbons said the state should consider Lt. Gov. Brian Krolicki’s proposal to sell bonds.

Krolicki thinks the state could raise $600 million to $775 million and avoid extreme cuts by selling bonds on the $40 million a year Nevada receives from tobacco companies. The bonds would be paid off over 23 years.

The money from the tobacco industry settlement covers the Millennium Scholarship, SeniorRx and other health care program costs.

In the meeting between legislators and the governor, Krolicki plugged his plan via telephone from Hong Kong, where he was meeting with political leaders.

But Assemblywoman Sheila Leslie, D-Reno, said she has reservations about Krolicki’s plan. Nevada has avoided borrowing money to pay the costs of state government.

“There are so many red flags,” Leslie said. “It is not something that is realistic.”

But Gibbons said Nevada might have no choice but to adopt the plan if it wants to avoid layoffs and major cuts to state agencies.

The Associated Press contributed to this report. Contact Review-Journal Capital Bureau chief Ed Vogel at evogel@reviewjournal.com or 775- 687-3901.