State earns extra money but no way to spend it now

Monday, March 27, 2006 | 7:24 a.m.

CARSON CITY - State government is awash in extra money, but that won't be spent any time soon.

Treasurer Brian Krolicki said Thursday that state investments in the last six months of 2005 earned $5 million more than expected.

That came from higher than anticipated interest rates and more money invested than expected, Krolicki told the state Board of Finance, which is headed by Gov. Kenny Guinn.

Taxes from Nevada's booming gaming industry have yielded $22 million more than forecast so far this fiscal year, while sales tax collections are $26 million ahead of predictions.

"We're accumulating a lot more money," said Guinn, referring to the higher than predicted tax collections.

But by law state agencies that become financially strapped can't tap into a surplus without approval of the state Legislature, which isn't scheduled to meet until next February.

In the meantime, the government agencies can approach the Legislative Interim Finance Committee to tap into a contingency fund that started at $12.1 million. The committee meets April 4. The fund could dip as low as $3 million by July 1 if all of the requests are granted.

This dilemma confronts the state because the contingency fund has not been increased but state government has grown. The Legislature, at the end of a regular session, replenishes the fund to meet emergencies that arise before the next session.

"The base (of government) has grown but the contingency fund has not," Guinn said. "We can't get by on $12 million," noting the rising prices in gasoline and energy are two examples that the state didn't plan for.

Increased demands on the reserve account include the extra money that may be needed by the state prison sometime this summer to meet the rising costs of drugs for inmates.

Guinn noted, however, that the state prison and Highway Patrol need an extra $3 million to pay rising energy costs and higher prices for gasoline.

Guinn said an unknown is whether there will be major forest or brush fires this summer that could wipe out the contingency fund. Although the federal government reimburses the state for much of its firefighting costs, that money doesn't reach the state until a year later, the governor said.

He said the state may be able to get through on its existing budget without exhausting the contingency fund, but he said some agencies may need to get permission to shuffle money between different programs to make it.

Guinn could also impose a hiring freeze to help conserve money.

The only way state government could tap into some of the extra money before next year is if Guinn calls a special session and the Legislature agrees.

Guinn is cool to that idea. He has already convened more special sessions than any other governor - six of the 22 specials in Nevada history. Govs. Charles Russell and Grant Sawyer each convened three in their eight years in office.

At the Finance Board meeting, Krolicki said because of the state's strong financial position, he was able to invest an additional $280 million to generate additional interest in the last six months of 2005. Total investments exceeded $1.6 billion.

The state earned 3.3 percent on its investments in the quarter ending Sept. 30 and 3.8 percent on the three-month period ending Dec. 31 last year.

Krolicki said his office has enough money to meet the current bills and invest an additional $100 million for 15 months, rather than the traditional three months, allowing the state to draw added interest.