Editorial: No thought given to the future

Wednesday, July 23, 2003 | 8:44 a.m.

Thank heavens" was the natural first reaction to the Legislature's approval late Monday night, at long last, of a tax plan. Upon reflection, however, the reaction was more like, "Heaven help us."

The first reaction was largely in empathy with the state's school districts, whose critical duties of hiring teachers and planning programs for the fall were suspended indefinitely when the Legislature could not agree on a spending plan. By finally passing a tax plan, seven weeks late, the Legislature has enabled school districts to resume planning. The schools might now open on time, but it will take months for the districts to fully recover from the interruption.

Thinking about all that happened during the 2003 Legislature is what brought on the full reaction -- the one that takes into consideration more than the coming months. Exhausted legislators passed a spending plan that will allow the state to get by over the next two years. The task of fixing the state's revenue stream for the decade ahead was not accomplished. The 2005 Legislature will begin its session faced with the same problems that plagued the 2003 Legislature.

This was the first session since the state's economy plunged in the aftermath of Sept. 11. It was also the session at which legislators had promised to review the findings of the state's school superintendents, whose pleas in Carson City for a large increase in education funding had fallen on deaf ears two years ago. The 2001 Legislature told the officials to document their needs and come back with a plan for review by the 2003 Legislature. Their plan documented the urgent need for an additional $500 million a year in education funding -- just to achieve the national average in per-pupil spending.

It was also the session at which legislators had the benefit of a tax plan prepared by the Governor's Task Force on Tax Policy. The task force affirmed the need expressed by the school superintendents. It proposed a gross receipts tax on businesses as the chief manner of funding education and other services over the long term.

Many Republican legislators, particularly the 15 in the Assembly who formed a minority bloc, rejected this tax. The 15 Assembly Republicans -- many of whom were simply against any new or increased taxes -- were enough to prevent a two-thirds majority vote, required by the state constitution. The Legislature finally passed a spending plan by a two-thirds vote but only because Assemblyman John Marvel, R-Battle Mountain, finally relented. The other 14 Republican holdouts in the Assembly voted no, preferring instead to prolong the state's crisis.

While the spending plan that finally passed is estimated to raise $836 million over the next two years, close to what the state needs, the estimate is based on optimistic projections. Its centerpiece is a payroll tax, which depends on stable employment. One weakness is that as employment fluctuates, so will the tax. Another round of layoffs, as occurred after Sept. 11, and the tax will nowhere near meet its projected biennial revenue of $462 million. Additionally, as the tax is on gross wages, instead of gross receipts, it has a built-in disincentive to create new jobs and to provide raises for employees. Businesses with significant gross receipts and insignificant payrolls -- banks and large retail stores, for example -- will still not be paying their fair share under this tax.

Most of the rest of the tax package taps the usual suspects -- gaming (its gross revenue tax goes from 6.25 percent to 6.75 percent) and regular people who smoke, drink, sell their homes, partake in entertainment, such as shows and movies, or file papers with the secretary of state's office. Nowhere in these taxes are the guaranteed long-term revenue sources that would better insulate Nevada's economy if another recession were to occur.

The 2003 Legislature had a chance to give Nevada's schools and other services an optimistic outlook for at least the rest of this decade. Now they must worry over the next two years and actually fear the years beyond that.