Friday, Jan. 17, 2003 | 6:02 a.m.
WEEKEND EDITION: Jan. 19, 2003
At his 2001 State of the State speech, Gov. Kenny Guinn proclaimed that Nevada was strong but facing "unique and unprecedented challenges."
Those challenges reared up this past year, forcing Guinn to confront an estimated $704 million deficit by calling for tax hikes.
He isn't alone. Governors in 42 other states are struggling with similar problems. Arizona Gov. Janet Napolitano pronounced the state of her state as "grim" and California Gov. Gray Davis faces a $35 billion deficit.
In Nevada, the $704 million is needed just to fund services at their existing level. Increasing anything -- teacher's pay, student funding, mental health services or welfare programs -- will push that number over $1 billion.
On Monday night Guinn will deliver a State of the State address unlike any he has given before.
"This is the most important speech I'll ever give in my life," Guinn said. "But more importantly, it's a message about how dramatically Nevada has changed and what we need to do to ensure a quality future for all residents."
That's not hyperbole from the state's chief executive, a budget wonk with a reputation as a sound financial manager with four decades of running banks, a utility, a school district, a university, and the state under his belt.
The budget mess had the moderate Republican, who easily beat his rival last November, calling for the thing that ended the first President Bush's career: new taxes.
When Nevada reads Guinn's lips, Guinn will have to persuade a state that revels in its anti-tax beliefs -- and codified them with a constitutional prohibition on a state income tax -- that the government needs upward of $1 billion in new and increased taxes.
"It is arguably as important as any speech he's ever given," said Eric Herzik, a political science professor and interim dean of the College of Arts and Sciences at the University of Nevada, Reno. "He has to solidify the case and the hardest sell he has is within his own party."
Herzik said Guinn has already begun to make the case for new revenue and to put lawmakers on notice.
"When he gives this address, yes it's to the public, but the people in the room are the legislators," Herzik said. "They have to make the decisions and what they do affects Nevada's future and our well-being."
In addition to 63 lawmakers, the audience will include the Nevada Supreme Court justices, the state's five other constitutional officers, lobbyists, business leaders and elected officials. Everybody else in the state will be able to watch the speech on TV.
It won't be an easy sell. Guinn has plenty of people to pacify and needs two-thirds of the Legislature to pass any new taxes.
Legislative leaders are hanging on his every word.
Senate Majority Leader Bill Raggio, R-Reno, said he is looking forward to Guinn's speech as a way to solidify the argument that some new money is needed.
Raggio, chairman of the Senate Finance Committee, said the state is already a lean operation and cannot withstand too many cuts without failing to provide basic services.
"It is a pretty skinny skeleton," Raggio said.
Assembly Speaker Richard Perkins, D-Henderson, is also looking to the governor for leadership Monday night.
"It is his chance to make the case for the state," Perkins said.
Guinn said he is confident that if he presents his arguments well enough, residents will understand the magnitude of the state's budget problem and will swallow the bitter pill of additional taxes.
"I believe that the people, if you present the issues that we're facing, will support the need," Guinn said.
Although the governor is mum on his message, he will likely reiterate what he has done to cut expenditures hoping to silence critics -- many in his own party -- who think Nevada can cut its way out of the hole.
"There are still efficiencies that can be found," Assembly Minority Leader Lynn Hettrick, R-Gardnerville, said. "We have to be responsible and have discussions about what we can cut."
During his inaugural State of the State address in 1999, Guinn called for cutting programs despite the fact that revenues were growing. He ordered a comprehensive review of state government and found ways to save tens of millions of dollars. He formed an audit division in the executive branch to identify potential problems in state government before they occur and cost money.
Guinn also privatized the state workers' compensation program, removing more than 1,000 positions from the state payroll and a $2.2 billion liability from the state's ledger.
"I think what he's got to do even more so than on the revenue side is convince the average person about what he's done on the expenditure side," said Marvin Leavitt, a veteran government finance lobbyist.
Guy Hobbs, an economist who chaired the Governor's Task Force on Tax Policy in Nevada, added: "He will have to make that case and increase the awareness of what he's done as a prerequisite to any means of solution."
The tax task force identified a deficit that will be $1.4 billion by the 2009-2010 biennium. The panel, appointed by the governor and legislative leaders, also identified ways to fill the shortfall between government revenue and expenditures.
The recommendations included increases in the taxes on cigarettes, liquor and property and increases for certain business fees. Two new taxes, one on amusements and another on the gross receipts of business, also were included in the task force's solution.
Hobbs said he hopes Guinn can bring clarity to a policy discussion that he said has already become mired in misinformation as the business community objected to the gross receipts tax.
The Las Vegas Chamber of Commerce opposes the one quarter of 1 percent tax on gross receipts over $350,000.
Guinn isn't talking about which taxes he intends to seek as part of the solution to the state's shortfall. But since the gross receipts tax is such a large part of the task force's solution -- accounting for $264 million in new revenue the first year it is implemented -- many believe it will be included in his message.
That doesn't sit well with the chamber or the Nevada Taxpayers Association.
"Hopefully whatever is put forth will recognize that there is an economic problem with business," said Carole Vilardo, president of the taxpayers group.
Vilardo argues that the current economy is too tough on business to implement a new tax, and she is hopeful Guinn considers that.
"Obviously business is going to be the first one that everybody looks to," Vilardo said. "But there needs to be an understanding that there are additional needs."
One way Guinn can gain support for a gross receipts tax is by raising the gross gaming tax. Casino executives have pledged to lobby for the business tax, in part, by arguing that the gaming industry cannot be singled out to dig Nevada out of its hole.
Terry Lanni, president and CEO of MGM MIRAGE, said it is critical for Nevada to spread the tax burden.
"We cannot continue to shoulder the burden for all of the state's growth," Lanni said. "Others who do business here should also take part in the funding of our needs."
Guinn has already signaled he will make some of the task force's recommendations part of his plan to fund his budget.
In fact, he will probably ask the Legislature to immediately improve increases in the cigarette and liquor taxes to allow him to balance the current biennium's budget.
Raggio and Perkins both said they agree with the governor that those taxes would be fairly easy to implement this year to see an immediate influx of money.
But obtaining approval from two-thirds of the Legislature for the more controversial proposals will be difficult because members of Guinn's own party oppose them.
Many Republicans concur with the business community's objections to the gross receipts tax. They also have asked for a re-examination of state spending.
Assemblyman Bob Beers, R-Las Vegas, argues that the task force on tax policy was actually a "task force to raise taxes."
He wants lawmakers to discuss the costs versus the benefits of programs implemented over the past six years.
Herzik said Guinn has already begun putting detractors on the spot.
"Part of his recent message about the budget was directed right at people like (Assembly Republicans) Sharron Angle and Don Gustavson who have said there is no reason for tax hikes," Herzik said. "He has to focus on making the case."
Henderson Mayor Jim Gibson, a conservative Democrat, agrees with Guinn that additional revenue is needed, and said he is shocked that some veteran lawmakers don't even agree with the $704 million shortfall estimate.
"Right now we hear that we're miles from consensus even on the fact of the deficit," said Gibson, who, like Perkins, plans to run for governor in 2006. "It is startling. And I would hope that the governor will make the case that he believes he must make," Gibson added. "It is extremely important that we get some very direct leadership."
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