Spreading the wealth

Kirsten Searer

Friday, Feb. 4, 2005 | 5:41 a.m.

WEEKEND EDITION

February 5 - 6, 2005

Two years after patching a budget shortfall with the largest and most disputed tax increase in state history, the state Legislature finds itself with a $1.7 billion cushion heading into next year's budget.

The $833 million tax increase split the Legislature in 2003, sending it into two special sessions.

The 2005 session, which opens Monday, will have its own slate of big issues, including the need to curb soaring property taxes, divvy up the large surplus and deal with ever-pressing issues such as rising health care costs and education needs.

Outside of the need to do something to cap property taxes, there is no consensus on where to begin.

The surplus presents a philosophical problem. In a state that historically bristles at talk of taxes, should Nevada refund much of the money to taxpayers, as Gov. Kenny Guinn and other lawmakers suggest?

Or do the extra funds, combined with a $370 million surplus from this biennium's budget, present lawmakers with a rare opportunity to pull Nevada from the bottom of state rankings on health care and education programs?

Interim Chancellor Jim Rogers, for one, said his higher education system could use "every nickel" of the surplus, and he's not the only one holding out his hat.

Guinn, who laid out his budget in late January, proposes a $300 million rebate of motor vehicle taxes and said taxpayers will revolt if they don't get some of the surplus back. His plan would give vehicle owners up to $300 per car back, but some legislators seem relatively cool to the idea.

"I'm concerned that the governor would take this position," said Sen. Steven Horsford, D-North Las Vegas. "I felt he has worked really hard over the past few years to build good fiscal policy and this just sounds like a Bush tax cut to me.

"Most of my constituents I've heard from don't think $300 will change their quality of life. But they would like to see better funding for schools, they'd like to see mental health addressed so they can have access to emergency rooms when they need it."

Sen. Bob Beers, R-Las Vegas, who supports -- and first proposed -- a motor vehicle tax rebate, said he worries that Nevada could expand its spending on ongoing programs, especially by hiring new employees, and have no way to pay for them in leaner years.

Beers objects when he hears lawmakers talk about investing in the state. Businesses make investments when they know the money will ultimately cut their costs, such as buying a building so they won't have to pay rent, Beers said.

"What my liberal colleagues are talking about is hiring people or expansions of existing programs or creating new programs," Beers said. "They've got the terminology wrong."

The political dynamics this year add another wrinkle.

Veteran political consultant Billy Vassiliadis estimates that 15 or more legislators are either thinking about their reelection or eyeing another office in the 2006 election.

That includes the two top Democratic leaders, who are both plotting a gubernatorial run in 2006: Assembly Speaker Richard Perkins, D-Henderson, and Senate Minority Leader Dina Titus, D-Las Vegas.

All six constitutional offices -- from governor down to controller -- will be open as none of the incumbents are running for reelection. Five of the six are out due to term limits. The sixth, Attorney General Brian Sandoval, is a nominee for a position on the federal court bench.

"You'll see folks trying to get some signature legislation passed and also, maybe more importantly, a lot of the decision-making will be viewed from the prism of a potential campaign," Vassiliadis said.

Property taxes

If there's any safe bet in Nevada these days, it's that lawmakers, nudged along by thousands of citizen complaints, will seek to curb property tax increases.

Home owners in Clark County can expect an average 35 percent increase in their taxes this year because of a strong housing market and rising assessments. Many have called for help.

Lawmakers know they have to do something -- Assemblywoman Sharron Angle, R-Reno, has made it clear she will continue her push for a Proposition 13-style constitutional amendment if property taxes continue to skyrocket.

But lawmakers will have to find a delicate balance between local governments fearful of losing their most stable revenue base and property owners worried about losing their homes.

Different proposals abound, from capping assessments at 6 percent each year to widening the hardship exemption outlined in the state Constitution. Legislators have submitted at least 14 bills targeting property taxes, and more are expected.

Nevada Taxpayers Association President Carole Vilardo said she thinks the state could extend the hardship exemption, which now is offered to seniors who can't afford their property taxes, to any homeowner who couldn't pay.

"A lot of people, including legislators, do not feel that if you were investing or speculating in land that you're entitled to this," she said. "The concern is keeping people in their homes, even people who have very expensive homes may not want to sell them."

The idea could face legal hurdles because the state constitution mandates that the state must tax all property owners the same, including businesses.

Another idea is the so-called "circuit breaker" method. The state would allow homeowners to deduct an amount -- maybe $50,000 or $100,000 -- from a home's assessment, lowering their property taxes.

Titus proposed a freeze on last year's assessments to give the Legislature time to determine a fair solution.

Guinn did not propose his own plan during his State of the State speech, saying he planned to work with all legislators to find the best solution.

Now the question seems to be whether legislators will enact a short-term plan -- such as a temporary freeze -- or whether they can unite to form a long-term solution.

"I think we have to come to some type of conclusion," said Senate Assistant Majority Leader Dennis Nolan, R-Las Vegas. "I'm hoping for a permanent fix, some type of formula that will roll back what have been some hyperinflated property valuations."

Others argue that property values are starting to stabilize in Clark County and other areas, meaning a short-term solution might be the best thing to attempt for now.

"I'm hopeful that we won't overreact," said Assemblywoman Sheila Leslie, D-Reno. "I do think we need to be careful and not craft a permanent solution to a temporary problem."

The surplus

Guinn proposed more than $1 billion in new spending over two years in his State of the State speech last month, including $500 million in new money for K-12 schools and $250 million in new funds.

Much of the education budget will be devoted to keeping up with growth -- the state's school districts will host at least 35,000 new students over the next two years alone.

A range of legislators have said they want to study Guinn's proposed rebate but they are also exploring other ways to use the surplus, including more funding for education.

"It would be nice to be able to give some back, but I think you've also got to look at fixing mental health, you've got to not shortchange education, you've got to decide if you have a commitment to the Millennium Scholarship (program) and invest rather than floating bonds," Titus said.

The Millennium Scholarship is a prime example of the coming debate in the Legislature. Guinn, using a proposal first worked out by Treasurer Brian Krolicki, wants a $100 million bond issue to sustain the program until 2015.

Titus and other Democrats argue they should just fortify the program now with part of the surplus, saving the state the costs of selling the bonds. The bond issue would cost taxpayers nearly $46 million in interest over 20 years.

Education

In all, Guinn's proposed budget includes almost $2 billion for schools over the next two years.

"Education isn't part of my agenda, it is my agenda," Guinn told legislators in his State of the State speech.

Education officials were initially hopeful about the proposal, saying they were glad to see Guinn's proposed 2 percent salary increase over the next two years for state employees, including teachers.

They had asked for 3 percent raises, but Guinn said a 2 percent raise a year for two years would cost $180 million over the biennium while a 3 percent raise per year would cost $360 million over two years.

Guinn envisions increasing the state's per-pupil contribution from $4,360 to $4,431 over the next two years. He wants extra money to go toward class size reduction, teacher training, textbooks and classroom supplies.

Troubled schools would be able to apply for grants for full-day kindergarten, staff development and other areas.

Guinn proposed full-day kindergarten in 2003 -- a move that drew criticism because of its high price tag -- but he suggested it only for troubled schools this year.

Democrats, for their part, hope to push all-day kindergarten for all children, and Assembly Majority Leader Barbara Buckley, D-Las Vegas, said she's concerned that middle-class children will be left out of the boosted kindergarten programs.

According to figures from state superintendents, it would cost about $72 million each biennium to fund full-day kindergarten.

Guinn also hopes to allow Clark and Washoe counties to have freedom in using their class size reduction funds, as rural counties have now. Nevada's class sizes are, on average, the sixth-largest in the nation.

The state is ranked 47th in per-pupil funding, 45th in pupil-teacher ratios and has the worst dropout rate in the nation. It is ranked 26th in teacher salaries.

The university system is also asking for more money. Rogers, the interim chancellor, wants the state to use the surplus to raise the system's budget, saying the system is currently funded to be "mediocre."

Lottery

Democrats hope to create a statewide lottery that would pump money directly into accounts for more textbooks, educational supplies and class size reduction.

Estimates show the state could net between $30 million and $50 million in its first year, and up to $70 million a year once it has been in place for a while.

While the gaming industry has typically opposed the idea, Buckley said that recent discussions she has had with casino executives indicate to her that now might be the right time.

"In politics everything is timing," she said. "Opinions change, legislators change. I just think the time is ripe now."

The state constitution bans a lottery, so it would take a constitutional amendment to create one. It would have to pass the Legislature and then win two consecutive votes in 2006 and 2008.

Right now 39 states and the District of Colombia have a lottery, and 24 of those states devote at least some of the revenue to education, according to research done by the Democratic Party.

Guinn is open to the idea, said spokesman Greg Bortolin. And some Republican leaders, including Hettrick, said they wouldn't oppose it.

Even gaming plans to stay out of the debate for now, said Vassiliadis, who lobbies on behalf of the industry. The industry is waiting to see more research on the proposed lottery.

Health care

With local emergency rooms filling up with mental health patients who take up beds, lawmakers have vowed to make this a priority, as well.

Guinn dedicated $100 million in new money to mental health in his proposed budget, and Democrats announced they'll push for more than $1 million to create triage centers that can assess mental health patients and determine if they can bypass the emergency room.

This is another issue that has drawn support from both Republicans and Democrats. Republicans up to Senate Majority Leader Bill Raggio, R-Reno, say they are concerned with backed-up emergency rooms.

Guinn gave a nod to Buckley in his State of the State speech when he announced $8 million to expand health care coverage for low-income families and pregnant women.

Buckley headed a committee this year that determined the state could insure about 8,000 small business employees and 2,500 low-income pregnant women by capitalizing on untapped federal funds. Under the governor's proposal, the state will be able to cover those people.

Nevada has one of the lowest percentages in the nation of people who have health insurance. The state also ranks last in the number of pregnant mothers who receive prenatal care. Only an estimated 75 percent of pregnant women in Nevada get such care, compared to the national average of 83 percent, according to statistics from the Centers for Disease Control and Prevention.

Guinn's budget includes a total of $1.6 billion in health care spending, including $275 million in new money.

But Democrats say the governor took a step back when he announced he would seek to cut retirement benefits for newly hired state employees. Current and former employees would not be affected.

Assembly Speaker Richard Perkins, D-Henderson, said he expects "bipartisan" opposition to the idea, though Hettrick said it was a bold move.

"It's clear this thing is a problem, and it's only going to get worse," Hettrick said. "It's not getting better. It's kind of like Social Security at a Nevada level. It's going to explode."

Ethics reform

Perkins has proposed a wide range of ethics reforms, from an idea to limit the time local officials can raise money to a "three strikes, you're out" policy for elected officials.

The time is ripe, he said, because of the fallout from Controller Kathy Augustine's impeachment and the recent indictments of Clark County commissioners.

There are also already at least nine bills that seek to change the way the initiative process works in the state. County clerks and some legislators say there needs to be widespread reform of election and initiative law in the state after a spate of lawsuits and complaints in the 2004 election.

Civil rights groups argue that limiting the scope of initiatives or curbing the rights of poll watchers could be detrimental.

Expect debate on how independent groups can register voters, the best way to count provisional ballots of voters who show up at the wrong precinct and changes to the way ballot language is written.

Tax increases, again

Some lawmakers are still licking their wounds from the contentious 2003 session, and Hettrick said he sees the surplus as a sign the state really didn't need the huge tax increases it passed in 2003.

"My first feeling is the 15 people who said the tax increase was too much were vindicated," said Hettrick, who led the Republican Assembly caucus dubbed "the Mean 15" for its opposition to the tax increase. "It's obvious that was more tax money than we need because it generated a $490 million surplus."

(Hettrick used $490 million as a number for the surplus because he includes $120 million that the governor wants to put in the rainy day fund. There's something of a consensus among lawmakers to restore the rainy day fund, which is a contingency fund, so most consider the surplus to be $370 million.)

Despite that sentiment, Hettrick and others said they see little appetite to repeal the taxes passed in 2003, even though Beers -- a former Assemblyman and outspoken tax critic -- has proposed the idea.

Sen. Warren Hardy, R-Las Vegas, has argued for repealing some of the newly passed taxes, but he said he wants many of the taxes to remain in place because they help diversify the economy.

Vilardo said she expects some tinkering with the tax package, which was passed in a hurry and created some unintended consequences.

For instance, some lounge performers were laid off because they inadvertently fell under the new entertainment tax, some individuals who hire personal caregivers were mistakenly included in the modified business tax and some small rural banks were hurt by the bank franchise tax, she said.

"You have a lot of subtle things like that," she said.

It's those sorts of mistakes -- caused by last-minute juggling -- that lawmakers hope to avoid this year, especially when dealing with a property tax solution.

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