Friday, Nov. 29, 2002 | 4:08 a.m.
WEEKEND EDITION: Dec. 1, 2002
Political observers and lobbyists agree that Gov. Kenny Guinn faces a tough selling job if he intends to convince the Nevada Legislature to raise taxes next year to resolve projected state budget deficits.
Unlike most bills that require mere arm twisting of key legislative leaders and a simple majority vote, tax legislation must get at least two-thirds approval in both the Senate and Assembly as required by the Nevada Constitution. As few as eight of the 21 senators or 15 of the 42 assemblymen can kill any tax plan.
That means that if Guinn believes tax increases are necessary, he will have to appease practically every lawmaker if he wishes to succeed.
"We gave control of the tax issue to a minority of the Legislature," insurance-industry lobbyist Jim Wadhams said. "Gov. Guinn has to convince more than a two-thirds majority to get at least two-thirds because of the tyranny of the minority."
Although the Legislature won't convene until Feb. 3, history suggests that Guinn needs to get going if he wants to get anything done.
The last time the Legislature engaged in a major state tax overhaul -- in 1991 -- Gov. Bob Miller pitched a 1 percent business payroll tax. He didn't do a good sales job on that proposal and it was defeated. It didn't help that Republican lawmakers charged at the time that the Democratic governor did a poor job of maintaining contact with legislators during the tax fight and engaged in divisive partisanship.
Although Miller achieved most of his legislative goals in 1991, his payroll tax proposal was replaced late in the session by a new business license tax based on the size of a company's labor force. Lawmakers had to revisit the business license tax in 1993 to iron out kinks that existed as a result of the hastily drawn legislation.
It was because of the disorganized way that the tax issue was handled that Rep. Jim Gibbons, R-Nev., then an assemblyman, led the successful effort to change the state's constitution to require the two-thirds votes on taxes. To that extent, Guinn faces a tougher task than Miller, who needed only a majority vote.
"Guinn has probably done a better job than we did of cutting government to the bone as best he can," lobbyist Scott Craigie, who was Miller's chief of staff, said. "He has probably taken a lesson from 1991, which is to cut the budget as far as you can so cutting the budget further is not an alternative to a tax plan.
"He can make the case that he has already done the budget cutting. As a conservative Republican governor, he went for the budget cuts first. Raising taxes wasn't his first move. That would be his last move."
Guinn said earlier this month that the state general-fund budget, which pays for services such as education, welfare and prisons, could have a $450 million to $500 million deficit by next fiscal year, which begins in July.
The eight-member Governor's Task Force on Tax Policy in Nevada, a panel of community leaders and special-interest representatives appointed by Guinn and legislative leaders, has recommended new or increased business, property, entertainment and "sin" taxes.
Nevada Taxpayers Association President Carole Vilardo is among those who believe Guinn is in for a tough battle, partly because of factors out of his control.
"It is going to be a tough sell if the economy does not dramatically improve," Vilardo said. "Businesses are not generating the tax revenue they did in the past, and consumers are not spending. It's difficult to tell people who are feeling those impacts that they'll have to do more."
The opposite conclusion was reached last week by the Commerce Department and by a private research group, both of which reported sharp increases in consumer confidence nationally. Consumer spending accounts for two-thirds of the economy. In October, that spending reached its highest level in three months, paced by purchases of motor vehicles, communications equipment and machinery. New-home sales in October also reached their third best month on record.
Guinn stated repeatedly that he would not make his views known on specific taxes while the task force was still working. Now that it has forwarded its 1,100-page report to the governor, the next critical stage occurs Monday, when the state's five-member Economic Forum reveals its tax revenue forecasts for the next biennium. Guinn then has until mid-January to present his budget proposal to the Legislature.
But political strategist Gary Gray, husband of Assemblywoman Chris Giunchigliani, D-Las Vegas, said that Guinn could have done more during his successful re-election campaign to heighten awareness of the need for more taxes.
"You can't accuse him of being mum about taxes, but he kept it on the back burner during his campaign," Gray said. "He missed an opportunity during the campaign because that's when voters pay attention. Guinn, with his war chest, could have made an argument for tax revenue and positioned himself as a real leader. Instead, he talked about how he balanced the budget his first four years."
After the Nov. 5 election, some GOP lawmakers repeated their anti-tax campaign themes. They were particularly critical of a task force proposal to create a new one-quarter of 1 percent business tax on revenue generated from the sales of goods and services for all companies that gross more than $350,000 annually.
Political science professor Eric Herzik of the University of Nevada, Reno said Guinn did a good job of stepping in after the election and convincing Republican lawmakers to at least have an open mind about new taxes.
"Some of that aggressiveness has been toned down a bit," Herzik said. "What Guinn is telling his troops, the Republican legislators, is that 'we're going to talk about this.' And he's saying to the Democrats that if they make it partisan, they'll pay a price.
"This is buying him some time to get his arguments in line."
Guinn has already said more money is needed in 2003 to educate 20,000 additional schoolchildren. He has also said that the state budget is bare-boned with no room to cut.
Former Republican Assemblyman Pete Ernaut, who was Guinn's first chief of staff and guided his re-election campaign, said "it's a misnomer that it's the governor's sole responsibility to sell the taxes."
"It's the responsibility of every lawmaker to recognize the fact that we're in the hole without even addressing growth," Ernaut said. "Many people don't recognize the severity of the problem but once they do they'll see that it is their responsibility to act.
"If you're going to ask what the hardest thing is, it's getting certain lawmakers to come to grips with how severe this problem is. There's denial and an equal dosage of political cowardice now. Unless you're going to close elementary schools and put a cap on enrollment at universities and close prisons and raise welfare requirements, there is no doubt you will have to raise taxes and in a large fashion."
Wants proof
Not everyone is convinced about the severity of the budget problems. Ray Bacon, Nevada Manufacturers Association executive director, said he would like to see proof that Nevada can achieve its own academic standards before committing additional funds to education.
And he said that if public schools were doing their job, there would be no reason to have the so-called "bonehead" courses that are offered at the university level to help students attain basic skills they should have learned by the time they graduated from high school. He used that as an example of a program that can be slashed from university budgets.
"If we do our job in the kindergarten through 12th grades, we shouldn't have a need for bonehead classes," Bacon said.
He also said Nevada ought to determine whether the state suffers from Medicaid fraud, citing national statistics that indicate that as much as 25 percent of the program that relies on matching state and federal funding is subject to unwarranted spending. Support of Medicaid is one of the key components of the state's general-fund budget.
"I don't know how we're doing here," Bacon said.
It is because of such questions that Guinn will be pressured to prove the need for additional taxes in a state that hasn't had significant tax increases in 11 years.
Herzik said Guinn has a chance for success if he highlights the need for more revenue to support kindergarten through 12th grade education.
"The task force report showed that we're below the national average in spending," Herzik said. "If you want to improve the quality of education, you'll have to pay for it. Class-size reduction is a hard case to argue against. Republicans will argue that class-size reduction doesn't work, but parents love it.
"I don't know that there's that big an appetite to cut more services in Nevada. We've cut the less politically powerful social programs, like mental health. There's not a whole lot left to cut there. So now you're looking at education and prisons. I don't think the public will say that we spend too much on kindergarten through 12th grade, and I don't think they want to let more prisoners out."
Guinn will get the best chance to make his case during the State of the State address on Jan. 20, Ernaut said.
"The governor has to articulate a sober and realistic picture of where we are," Ernaut said. "He has to explain thoroughly what our state will look like if we get no new revenue. And he must put forth a reasonable plan. The governor has to provide leadership but he can't get there without leaders of the Legislature joining arms and helping."
Gray cautioned, however, that Democrats aren't apt to support any Guinn tax plan if it looks as though Republicans will back off and use tax votes to bash Democrats in the 2004 election.
"Guinn is bullet-proof because he doesn't have to run again," Gray said, citing term limits. "The Republicans can point the finger at Democrats as tax-and-spend Democrats and make that the issue in the next campaign.
"If I were a Democratic legislator, I wouldn't vote for any of those taxes because the following election I'll have my teeth kicked in for doing what's right. I would say there would have to be a 100 percent vote for the taxes or I wouldn't vote for them."
More hurdles
Partisanship is just one hurdle Guinn must clear. Another has to do with a lawmaker's constituency. It stands to reason that a Clark County legislator whose campaign was financed with help from the gaming industry could be more prone to support the proposed gross-receipts business taxes favored by that industry than a rural lawmaker who doesn't have the same ties.
Guinn will also have to contend with warring special-interest groups. The proposed gross-receipts tax is characterized by gaming interests as a way to get all industries to pay their fair share. Conversely, that tax has been opposed by the Las Vegas Chamber of Commerce and other major business groups as unacceptable because of its potential adverse effect on low-margin industries.
"Gaming will be talking to 63 legislators, and the chamber will be talking to 63 legislators," Wadhams said. "Guinn can ignore the special interests, but the special interests won't ignore him."
There are also legislative procedural rules that will come into play. The Legislative Counsel Bureau will be recommending Monday to legislative leaders that all bills considered next year clear the first house by Day 78 and the other house by Day 110 since sessions can only last 120 days, its director, Lorne Malkiewich, said.
Exceptions would be for bills with fiscal impacts and legislation that has been granted additional time with the joint approval of Senate Majority Leader Bill Raggio, R-Reno, and Assembly Speaker Richard Perkins, D-Henderson.
Craigie said a potential problem with the deadlines could involve tax bills when the Republican-controlled Senate or Democratic-controlled Assembly do not want to be the first to act because the other chamber will have more than a month to tinker with the bill.
"Neither house is going to want to pass something for the other house to play with," Craigie said. "The resistance of one house to be the first to pass a tax bill is going to be enormous."
Then there are the proposed taxes themselves. There is growing consensus that the easiest taxes to pass would be the "sin" taxes involving cigarettes, beer, wine and hard liquor. The task force proposed increasing state cigarette taxes from 35 cents to 70 cents a pack and hiking liquor taxes by 88 percent.
There is even talk that a cigarette tax increase could be implemented by April 1 despite the fact that R.J. Reynolds Tobacco Co., the nation's second largest tobacco manufacturer, intends to lobby against it.
On the other end of the spectrum is the proposed gross-receipts tax, which is widely viewed as the option that will have the most difficulty being adopted by lawmakers.
"It's clear that a majority of businesses other than gaming don't want to support it," Wadhams said. "If the governor selects that form of broad-based business tax, he will have a difficult task persuading the business community and two-thirds of the Legislature that that's the fairest way to support the tax burden."
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