Tax debate shows signs of progress

Cy Ryan and Launce Rake

Thursday, June 26, 2003 | 11:15 a.m.

CARSON CITY -- State lawmakers continued taking small steps away from a possible government shutdown and constitutional crisis Wednesday and this morning, as both the Assembly and Senate considered a hotly debated tax increase and school budget.

The deadlock over taxes was broken, at least temporarily, as the Senate voted to boost revenue by $866 million over the next two years. The Assembly debated but took no action on a separate package that would increase taxes by about $860 million next year.

"This is considerable progress," said Senate Majority Leader Bill Raggio, R-Reno, after the Senate voted 16-4 Wednesday as the "committee of the whole" on a bill that includes payroll, bank franchise fee, cigarettes, liquor, real estate transfer and gaming taxes. The Senate is scheduled to consider the bill again today.

The Assembly, on the first day of the second special session Wednesday, debated a tax plan for more than five hours. Assembly Speaker Richard Perkins said the Assembly is within a handful of votes to approve a similar plan.

"There may be some tweaking," he said, following a sometimes raucous full day of Assembly meetings. But the essentials are in place, Perkins said.

The Senate today, in a second vote, approved the tax package that will raise $873.1 million over the next two years. The vote was 15-5-1 and set up a final vote on the measure later today.

Raggio, who is battling anti-tax crusaders of his own party in both houses, was cautious. He noted that in the prior special session, a tax bill gained approval 16-5 in the committee of the whole but then fell short by two votes when it came before the Senate for final action.

Fourteen votes, or two-thirds of the Senate, is needed for a tax increase.

Those voting against the plan Wednesday were Republicans Barbara Cegavske, Las Vegas; Sandra Tiffany, Henderson; and Maurice Washington, Sparks. Maggie Carlton, D-Las Vegas, also voted against the tax plan. Sen. Ann O'Connell, R-Las Vegas, abstained since she has ties to a bank.

One concession to tax skeptics was that the Senate bill was given strict limits on future state budget increases. The proposal says that a budget cannot be increased by more than the growth in population and inflation from the previous two years.

Not everyone was happy with the compromise. Sen. Ray Rawson, R-Las Vegas, complained this would mean programs would remain status quo. He said Nevada is too often ranked last in the nation in social programs and could never improve with the restrictions.

But Sen. Joe Neal, D-North Las Vegas, said future Legislatures could change the law.

The Senate plan would require employers to pay 1 percent on the first $21,500 in workers' wages. A 3 percent franchise tax, or net profits tax, would have to be paid by banks and other financial institutions. The Assembly's proposal has a similar provision.

The payroll tax would generate $128 million next fiscal year, which begins Tuesday, and an estimated $199 million in 2005. The franchise tax on financial institutions could produce $13.5 million when first collected in March 2005, officials said.

The Senate plan initially called for a franchise tax on all business, but Senate analysts said they were not certain how much revenue that would generate.

Fiscal analyst Gary Ghiggeri said if the revenue from that tax came in below expectations, there would be a "significant problem" with the state budget, so the senators dropped the franchise fee for all business.

Included in the Senate plan was a 55-cent increase on a pack of cigarettes to bring in an extra $74.4 million starting in fiscal 2005; an 89 percent increase on liquor to generate $18 million a year; and a 10 percent tax on live entertainment. The entertainment tax is expected to yield $78.7 million in a full year of operation. The Assembly plan includes similar provisions.

Sen. Dennis Nolan, R-Las Vegas, sought to provide exemptions for those who have already contracted for an entertainment event. But Senate Minority Leader Dina Titus, D-Las Vegas, said this would give unfair advantage to some operators, and the idea was dropped.

The plan calls for the business license tax to be repealed as of January. Employers now pay $100 per year per worker. The real estate transfer tax would be increased by $1.30 per $500 of value effective in July and could produce nearly $50 million a year.

In the Assembly debate, Republicans rebelling against the tax increases that are backed by legislative leaders and Gov. Kenny Guinn stuck to their position that the budget had to be cut before they would vote for taxes. Guinn has refused to reopen the budget that was passed in the regular session

The holdouts, including Assemblymen Bob Beers, R-Las Vegas, and Ron Knecht, R-Carson City, said the Democratic leadership is holding critical school funding hostage.

But the Democrats and moderate Republicans are counting on tying school aid to the tax package to pressure the votes. In the Senate the strategy appears to be working: Senators early Wednesday passed the $1.6 billion school aid budget 21-0.

In an unusual move, Attorney General Brian Sandoval addressed the Assembly, echoing an earlier opinion from Legislative Counsel Brenda Erdoes that the Legislature must pass a tax package before July 1 to balance the budget. He said the legislators also have a constitutional responsiblity to fund the public schools, kindergarten through 12th grades.

Erdoes said the Legislature can pass the school aid bill first but the tax package must be approved by June 30.

Sandoval said that since 1867, the Legislature has never failed to provide the state government with a constitutionally mandated balanced budget.

"You must balance the budget by July 1, 2003," Sandoval, a Republican, said. "How you get there is your business."

Democrats control the Assembly 23-19 but need 28 votes, or two-thirds, to pass a tax plan.