Mesquite angered over new revenue formula

Wednesday, June 27, 2001 | 11:13 a.m.

Now that the politics are over, the real grunt work begins on a revised tax revenue-sharing formula that turned into a hot potato this year for the Nevada Legislature.

The fight in the Legislature pitted Henderson against Las Vegas and Clark County over distribution of consolidated local tax revenues that come from such items as cigarettes, liquor, property transfers and motor vehicle registration. But that's ancient history.

The loudest objection about the formula is now coming from Mesquite because of a dispute over the size of its population. Local government shares of this revenue pie are based in large part on their population. Census 2000 figures released earlier this year revealed that Mesquite's population was only 9,389, or 66 percent lower than state estimates.

"That's substantial as a percentage because we don't have a large population," Mesquite City Manager Bryan Montgomery said. "Because the formula is based in part on population, our revenue base could be a skewed figure."

That is why Montgomery said Mesquite is preparing to file a formal protest with the Nevada Department of Taxation, which is charged with interpreting the formula and distributing the tax revenues to local government. Mesquite naturally wants the higher population estimate to be counted.

Under state law, the taxation department normally would distribute the revenues based on the latest census, with revisions in subsequent years tied to projected growth and inflation. When a protest is filed, however, the taxation department will use the state's population estimate if it is higher than the census.

The extra revenue that generates for the protesting local government is temporarily placed into a separate fund, pending a ruling from the federal government. If the census figures are upheld, the protest is rejected and the extra funds are distributed throughout the county. If the protest is upheld, the extra money goes to that local government.

State Demographer Jeff Hardcastle, who calculated the state population estimates as of July 1, 2000, conceded that there are differences in the methodology he uses in his estimates when compared with the census. In Mesquite's case, he said the discrepancies may have been caused in part by how multi-family dwellings were tabulated around that community.

"The truth is somewhere in the middle but finding the middle is the hard part," Hardcastle said. "There are errors on both sides."

The consolidated revenue-sharing arrangement was first approved by the Legislature in 1997, but fast-growing communities such as Henderson complained that the original formula penalized them. Under the revised formula approved this session and signed by Gov. Kenny Guinn, Henderson reportedly stood to gain an additional $3.6 million for fiscal 2002, mostly at the expense of Clark County and Las Vegas.

But because uncertainties remain with how the taxation department will interpret the revised formula, Henderson Finance Director Steve Hanson said his city is not sure whether the estimated gain will hold up. He is so uncertain he declined to disclose updated estimates made by city staff on grounds that they may be "bad numbers."

Like Mesquite, Henderson was shorted by the census, which calculated the city's population at about 13 percent below state estimates.

"We're not quite sure what kind of assumptions the state is making in terms of the census," Hanson said. "We did agree that this will not get cleared up until August, when the Department of Taxation releases its financial data. Who knows what growth rate figure the state will use."

The taxation department may not release its calculations until early September based on the revised formula, which takes effect with tax receipts collected as of Sunday.

"Right now we're reading through the law and interpreting what the Legislature decided to do," said Anne Collins, the department's supervisor of statistics and distribution. "We don't have any hard figures yet."

Some local governments are not waiting on the state and have already budgeted their own estimates into their fiscal 2002 budgets.

Susan Laveway, the county's assistant finance director, said the county estimated it would have received about $330 million in fiscal 2002 had the formula remained unchanged. She said the county now believes it will receive only about $327.5 million, or $2.5 million less. Laveway said that estimate will be included in a revised budget that the Clark County Commission is scheduled to consider on Tuesday.

Whether that translates to cuts in services remains unknown. She said that loss might be covered by a proposed one-cent property tax increase per $1,000 of assessed valuation.

"At this point we will have to take a look and evaluate all our programs," Laveway said. "We will have to take a look at our ongoing operational needs long term."

Las Vegas expects to receive about $171 million next fiscal year but about $1.5 million less than it would have had the formula remained unchanged, city finance director Mark Vincent said. He said the city could lose an additional $9 million between fiscal 2003 and fiscal 2005 that it otherwise would have had under the old formula.

"To predict what will happen in fiscal 2003 or fiscal 2004, gosh, that's just a guessing exercise," Vincent said.

The projected revenue loss for next year alone will mean the city will not be able to fill as many new positions as it would like, he said.

"I'm worried about the condition of the overall economy and this source of revenue is our largest source of revenue," Vincent said. "This is a very elastic revenue source because it is very economy-dependent."

Through April 30, the consolidated revenues have added $482.5 million to local government coffers in Southern Nevada this fiscal year. The county's share was $168.1 million, followed by Las Vegas ($136 million), Henderson ($43.9 million), North Las Vegas ($23 million), Boulder City ($5.1 million) and Mesquite ($4.2 million).