Friday, May 7, 2004 | 5:53 a.m.
WEEKEND EDITION
May 8 - 9, 2004
Thanks to a recovering economy Nevada is beating expectations in the amount of money it is collecting from state taxes.
Nevada is doing so well that it raised about $55 million more in tax revenue than was projected for the first nine months of this fiscal year.
But the star performers have been the old tax sources -- sales and gaming -- not the new or increased taxes approved by the Nevada Legislature in July, when the current fiscal year began. The unforeseen revenue gain equals less than 1 percent of the $5.9 billion the state was expecting to spend through June 30.
"Nevada continues to be one of the highest-ranking states for growth, but along with that growth is the need to pay for roads and schools," Chuck Chinnock, executive director of the Nevada Taxation Department, said.
Supporters of the record $833.5 million in tax hikes that are to be collected through June 2005 still believe the increases were necessary to maintain current state programs such as education and senior services while keeping up with population growth.
One supporter is Assembly Speaker Richard Perkins, D-Henderson, who believes there is sufficient demand for government services to justify the new taxes.
"We're still $1,500 per student below the national average," Perkins said of public education. "There are things we have to do for our senior citizens. Given all the additional federal mandates we are seeing every day we will be in dire need of the additional revenue."
Tax hike foes still maintain that welfare and higher education could be slashed and that taxes should be rolled back. A leading opponent of the tax hikes, Assemblyman Bob Beers, R-Las Vegas, would limit revenue increases to the rate of population growth plus inflation. By adding the new taxes to the $327.6 million in increased revenue that the old taxes were expected to generate through June 2005, Beers said state revenues overall will increase at triple the rate he believes is necessary.
"On a philosophical level I don't believe we should have expanded our government like that," Beers said. "We're fortunate that California is so grotesquely screwed up that it drives people over the border to Nevada. As long as we don't mess up like California, we'll continue to have a booming economy."
Compared with projections made last year by the state's Economic Forum, whose representatives come from the private sector, Nevada was $30 million ahead in sales tax revenue through February and $17.5 million ahead in gaming tax revenue through March. Those two old tax sources make up the lion's share of the revenue gains Nevada has experienced so far.
The total amount of money coming into state coffers from new or increased taxes -- including gross payroll, live entertainment and real estate property transfers -- is keeping pace with the state's projections, said Perry Comeaux, who oversees the state budget as director of the Nevada Administration Department.
But while the combined total is roughly equal to the anticipated amount, various individual taxes are not meeting projections.
"We're really taking a bath on the live entertainment tax," Comeaux said. "That was a tax that was difficult to estimate. The modified business (payroll) tax and the property transfer tax have made up for that."
Through December the state had collected $52.1 million in payroll taxes and $24.5 million in real estate property transfer taxes, both of which are collected quarterly. So far, the property transfer tax is making up the bulk of the shortfall in the live entertainment tax revenues. The property transfer tax has brought in $7.35 million more than projected while the payroll tax was about $380,000 above projections.
The live entertainment tax, which became effective in January, had produced only $1.26 million through February, well below the estimated $9 million it was expected to bring in after the first two months of the year.
Among other new or increased taxes, a new quarterly branch bank tax effective in January has raised $658,000 so far, keeping pace with projections. Liquor taxes, which were increased in August, had yielded $22.4 million through February, slightly above expectations. Cigarette taxes, which were increased in July, had yielded $65.2 million through February, slightly below predictions.
And the state needs every penny of the money coming in from those new and increased taxes, on top of the growth-fueled revenue increases, Assembly Majority Leader Barbara Buckley, D-Las Vegas, said.
For one thing, the state is trying to cope with the growing number of unfunded federal mandates that states are now compelled to finance, such as the No Child Left Behind law that forces costly changes in public education, she said.
Buckley also said reductions in federal income taxes for wealthy people will strip $88 million from higher education in Nevada, an issue she said the Legislature will have to address next year.
"We were facing a budget deficit and the question before us was, 'What kind of state did we want to have?' " Buckley said of last year's legislative session. "We didn't have enough teachers in classrooms. We didn't have enough services for senior citizens. If we wanted to turn people away from mental hospitals and not provide any programs to allow seniors to stay at home, that's the kind of state we would have had if we had done nothing."
One of the best examples of the philosophical split between Beers and Buckley on taxes is the way they look at the budget for Temporary Assistance for Needy Families, a welfare program that was heavily used in Nevada because of resort industry layoffs following the Sept. 11, 2001, terrorist attacks.
When the budget with the new taxes was passed the money allocated for the welfare program was based on much larger caseload projections than the number of people currently being served. Beers cited this as an example of why the budget can be slashed and taxes can be reduced.
But Buckley said the reason for the cushion in the welfare budget is that if there is another spike in unemployment, the state is required under federal law to make cash payments and medical benefits available to families within 30 days of their eligibility.
The tax hike prompted Las Vegas resident George Harris and fellow anti-tax advocates to circulate petitions to place an initiative on the November general election ballot to repeal the new taxes. With a May 18 deadline looming, Harris, chairman of Nevadans for Sound Government, said he is still short of the 51,244 signatures from registered voters that he'll need to get on the ballot.
"The impact the taxes have had is the government just eating up taxpayer money," Harris said. "We do not have a revenue problem. We have a spending problem."
If there is excess tax revenue left over on June 30, the last day of the fiscal year, about 60 percent of the windfall will go into the state's general fund reserve, which was projected to have $133.4 million as of June 30. That fund supports programs such as education, welfare and prisons.
The remaining 40 percent would go into the state's emergency fund, which had more than $136 million last year but was drawn down by the Legislature to help the state get through last fiscal year without slipping into financial crisis. That fund is down to $1.3 million.
While sales and gaming tax revenues have beaten projections in the short run, economic analyst Guy Hobbs said the long-term picture is far more important. It is why Hobbs, president of Hobbs, Ong & Associates and Clark County's former finance director, was so adamant in his support of new broad-based taxes when he chaired a legislatively mandated committee in 2002 that made tax recommendations to Gov. Kenny Guinn.
Hobbs said he still believes the state did the right thing by broadening its tax base.
"The reliance on certain types of revenues is still bad if the economy is going well," Hobbs said. "The reliance on sales and gaming taxes exposes you to volatility in the long run. Over the years gaming revenues have been declining per capita when adjusted for inflation."
An opponent of the tax increases, Assembly Minority Leader Lynn Hettrick, R-Gardnerville, said he would have preferred more cuts in government spending and more tax breaks for businessmen.
But while Beers said he would vote for the proposed anti-tax initiative, Hettrick said he believes it is too late to eliminate the new taxes for this biennium because the ballot measure wouldn't stop the state from spending money.
"We have contracts out there and employees out there based on the budget and we would wind up short of money," Hettrick said. "That would open up a can of worms. As much as I dislike some of these taxes the reality is that to go back and eliminate the taxes without cutting spending will create more problems than it solves."
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