Tax cut adds to Nevada budget worries

Tuesday, June 12, 2001 | 11:01 a.m.

CARSON CITY -- The federal tax cut is delighting many taxpayers, but it's doing little to relieve Nevada's financial headache.

"This compounds our problem," says state Budget Director Perry Comeaux, who figures he will have to find $53 million in the next biennium to replace revenue from the estate tax.

States get a share of the estate tax. In Nevada, the money is divided between public education and the University and Community College System of Nevada. But the bill signed last week by President Bush calls for the tax to be phased out by 2011.

States, however, will be hit quicker than the federal government. Starting in 2002, states will lose 25 percent of their revenues annually. By 2005 Nevada won't receive any revenue from the tax.

And this comes at a time when Nevada is facing a $1 billion deficit over the next eight years as tax collections are not keeping pace with growth and needs.

During the recent legislative session lawmakers struggled to find enough money to give teachers a 2 percent raise next year. To get the revenue, transaction fees had to be raised in the secretary of state's office. The state also had to take back a 4 percent sales tax that is now kept by auto rental companies.

Dan Miles, vice chancellor of finance for the university system, said the school has been averaging $13 million a year for the past decade from the state's share of the estate tax. In 2000 it received $37 million because of a "handful of big estates."

If that money disappears, the state may have to fill the void. In this coming biennium the university is to spend its share on equity in funding among campuses, technology, gender equity in athletics and helping finance a four-year college in Elko.

The Legislature authorized the university system to spend $75 million this biennium from the estate tax. Fiscal experts estimated the system would have $102 million, but Miles said the 25 percent cut a year in estate tax would probably bring that down.

The goal of the university was to build the fund to about $110 million and then live off the interest. But that target may be elusive with the phase-out of the estate tax.

The other half of the money goes to public schools to help finance reduction in class sizes.

Comeaux said the loss of estate tax money will have to be included in a proposed study to find solutions to the tax structure.

"We already know the tax structure is inadequate," he said. The issue is "how to fix it."

Last fiscal year, the state received $75 million, and it has collected $39 million so far this fiscal year.

"That's not chump change," Comeaux said. These are exceptional years, he said.

Nevada isn't the only state to be hit. The National Governor's Association reported that states will lose about $69 billion over the next 10 years.