Guinn says state needs $800 million

Tuesday, Dec. 3, 2002 | 11:24 a.m.

CARSON CITY -- The numbers are in and the state will need an additional $800 million over the next two years just to break even, Gov. Kenny Guinn said Monday.

Nevada's Economic Forum said Monday that under the current system the state will receive $3.8 billion in tax revenues over the next two years, far short of money needed to continue government services at the present level.

Guinn said he will ask the 2003 Legislature to increase the cigarette and liquor taxes early in the session to pay for some of the shortfall.

"We have to do something relatively quick," he said.

The forum, five financial experts from outside the legislative process, forecast tax collections through June 30, 2005. Guinn and the Legislature cannot exceed that amount without imposing new taxes or tax increases.

State Budget Director Perry Comeaux said the forecast by the forum "was not unrealistic" but it won't be nearly enough to cover the increased enrollment in public schools and in universities or Medicaid cost increases.

"We're going to end up hundreds of millions of dollars short," Comeaux said. State officials had seen the revenue shortfall coming and the governor formed a task force to review Nevada's tax structure and make recommend changes to help balance the budget. The centerpiece of the plan unveiled last month from the Governor's Task Force on Tax Policy was a gross receipts tax on businesses grossing more than $350,000 a year. That tax was projected to raise more more than 40 percent of the new revenue needed to ensure that government services could be maintained at the current level for the state's growing population.

The tax is opposed by many of the big businesses that it would affect, however.

Both the boards of directors of the Greater Las Vegas Chamber of Commerce and the Reno-Sparks Chamber of Commerce have voted to oppose the tax. Republicans in the Legislature have also voiced opposition to the tax.

Asked if he was backing off the proposed gross receipts tax for businesses, Guinn said Monday he was considering every possible tax increase. But, he said, the gross receipts tax was complex to implement and "is not a quick fix."

The gross revenue tax, according to the economic forum, would not be imposed until July 2004.

Meanwhile, Guinn's $800 million would not fund any new programs or enhancements of existing services.

It does not include pay raises for state workers or university professors, although schoolteachers would get a 2 percent raise next July as promised by the 2001 Legislature.

State agencies, in their preliminary requests for money, have asked for $4.7 billion over the next two fiscal years, compared with a 2001-03 budget of $3.8 billion, but Comeaux said those proposals will be trimmed.

Asked if he might ask for more taxes to fund new programs or increased services, Guinn said, "That is not on my radar screen." He added later, "How far I will go, I can't tell you."

He said he will need $272 million more just to cover the growth in public schools; $80 million for the university system and $200 million to meet the increased costs of Medicaid, the program that provides medical care for the needy.

Other states have been cutting Medicaid benefits to balance their budgets, but Nevada is already at the low end among the states in providing benefits, Guinn said.

At the meeting of the Economic Forum, James Diffley, managing director of the economic forecasting firm of Global Insight, said every state is facing the same financial problem. Nevada, he said, is rebounding faster than most states.

Diffley said Nevada leads the nation in job growth at 2.9 percent and personal income rose this year by 2.2 percent over last year, the highest in the nation. But he said housing starts dropped by 11 percent this year from last year, to about 30,000.

He predicted car and new home sales will continue trailing off but consumer spending will continue at a moderate place.

The forum, chaired by Carey Fisher of Las Vegas, calculated that tax collections will increase 3.5 percent to $1.813 billion this fiscal year, rise 4.6 percent to $1.896 billion in 2004 and then 5.1 percent to $1.992 billion in 2005.

Those estimates are $18.3 million higher than the predictions the forum made in October. Comeaux said he was "happy" that the forum pumped up the estimates but $18.3 million is not a lot in a $3.8 billion budget.

Economic experts also caution that Nevada's budget picture could be weakened by a war with Iraq and by Indian gaming operations in California.

Forum member Deborah Pierce of Las Vegas said the budget forecast doesn't take into account those two uncertainties. But she acknowledged that the Indian gambling in California could have a major impact on gaming casinos, particularly in Northern Nevada.

Bill Anderson, a state economist, and Russell Guindon, deputy fiscal analyst for the Legislature, said they both expect a war in Iraq to be a short one and if it causes a downturn in revenues, they expect the economy to bounce back.

Anderson is predicting that visitor numbers will grow 2 percent next fiscal year and 3 percent the following year. "Although there is growth, it leaves us no better off than two years ago," he said.

Anderson said the U.S. economy's "recovery should be well in place" by fiscal 2005.

While the forum predicted that most tax sources would rise modestly, it forecast a decline in the state's mining tax, falling 4.1 percent next year and 4.4 percent the following year to $9.4 million.

Sales tax collections are predicted to come in at $605.1 million this year then increase by 5.1 percent next fiscal year and 5.6 percent the following year. Gaming tax revenue should increase to $605.6 million this fiscal year and then rise 3.3 percent next year and 4.6 percent the following fiscal year, according to the economic forum.

If those predictions hold true, the casino taxes will provide 32.9 percent of all state general fund revenues in the 2003-2005 biennium, a decrease from the 33.5 percent now estimated in the current two-year period.

Sales tax collections are forecast to provide 38.3 percent of all general fund revenues during the 2003-05 biennium, an increase from the 37.7 percent now estimated for the current biennium.