War fears alter Nevada tax debate

Erin Neff

Tuesday, March 18, 2003 | 11:11 a.m.

CARSON CITY -- Many state lawmakers believe the pending war with Iraq will be disastrous for Nevada on several levels, and they are being forced to re-examine the state's budget and tax debate in that light.

The war will impact the lives of Nevada military personnel, hurt the still-reeling economy and make it harder to raise new revenue to fill the state's future $704 million deficit, lawmakers said.

"It is a fatal recipe," Assembly Assistant Minority Leader Josh Griffin, R-Henderson, said.

Assembly Minority Leader Lynn Hettrick, R-Gardnerville, said he thinks that while the war might raise the need for short-term taxes, it will also make it harder to do so.

"How can you add taxes when the economy is going to get worse?" Hettrick asked.

The Nevada Legislature has been in the same sort of holding pattern on taxes as the U.S. military had been on Iraq.

But now that war is imminent, some state leaders believe Nevada is closer to the brink of raising taxes.

"It means that we have to have an immediate focus on state needs and a short-term tax package will have to be discussed by Friday," State Sen. Randolph Townsend, R-Reno, said. "We would all like to not have to deal with that, but quite simply, we must.

Townsend is one of the few lawmakers who supports consideration of Gov. Kenny Guinn's request to impose emergency taxes from April 1 to June 30.

Guinn has argued that once the bombs begin dropping in Baghdad, lawmakers will understand the need for $77 million in "cushion" revenue that the emergency taxes would raise.

"I think it will bring the issue into the spotlight," Guinn said.

Beyond the short-term issue of emergency taxes, some argue the war's potential financial impact will make raising taxes for the long-term more difficult.

"It will help the sense of urgency and show people how close we are to the cliff, but it will not be a pretty picture for the overall economy," Guinn said.

Guinn wants the emergency taxes to make sure the state can balance its budget at the end of the fiscal year. The state needs to balance its budget and needs a 5 percent ending fund balance, of about $100 million, to close the books.

Since the state gets delayed reports of tax revenues, any impact on Nevada's tourist-based economy from a war starting in March would not be seen until June -- just weeks before the end of the fiscal year.

"By then it's too late to make any changes," Guinn said. "The only option I'll have is cuts."

Townsend said he is willing to re-examine the short-term tax proposal. However, no hearings have been scheduled in either the Senate or Assembly taxation committees on that proposal this week.

Many lawmakers believe it would be imprudent to raise emergency taxes especially in light of a war.

"I think there will be less enthusiasm for raising taxes and less enthusiasm for increasing services," Assemblyman Bob Beers, R-Las Vegas, said.

Guinn said that the first Gulf War 12 years ago caused a small decrease in state revenues. However, he cautioned if the war with Iraq involves any type of reactionary terrorist attack against the United States, the revenues could drop more steeply.

"After 9-11, we were flooded with requests for services," Guinn said.

Increases in the state's welfare and temporary assistance cases drew down all Medicaid reserves since the 9-11 attacks and the ensuing drop in visitors to the state.

Lawmakers have been hesitant to impose temporary taxes because the state appears to have enough money to make it through the end of the fiscal year.

Some argue the state has enough money to withstand the increase in costs from an influx in welfare cases or another drop in sales or gaming tax revenues.

Assemblyman David Goldwater, D-Las Vegas, said governors have historically spent down reserves in certain programs without managing the state's service needs.

Assemblywoman Chris Giunchigliani, D-Las Vegas, agreed, saying the proposed transfer of $100 million from the Fund to Stabilize the Operation of Government -- so-called the rainy day fund -- gives the state "some breathing room if (President) Bush still pushes the United States to go to war."

The Assembly approved the transfer Monday, sending the proposal to the Senate.