Gibbons’ budget squeeze

J. Patrick Coolican and Cy Ryan

Wednesday, Feb. 21, 2007 | 7:03 a.m.

If the governor is feeling the heat about his budget this time, he should be very wary in two years.

Nevada's budget might be even tighter then, despite the state's growth.

The reason for this dates to the late '70s, when Nevada's population was less than 1 million and "My Sharona" was at the top of the charts.

Then, the so-called tax revolt was sweeping the country, led by California's Proposition 13, which strictly limited property taxes.

Nevada had a similar constitutional amendment that would have sharply restricted the growth of Nevada's government. To head off the amendment, the Legislature prepared a package of tax cuts on food and property. It also capped state spending under a formula adjusted for inflation and population growth, with the base set at July 1, 1975.

The plan worked. The amendment failed on its required second ballot, and because inflation and population growth were robust, state government was allowed to grow at a healthy rate while remaining under the cap.

Gibbons is about to bang his head on the cap, however, just as the state faces a growing list of expensive priorities: a shortage of money for transportation, estimated by a government-appointed task force at $3.8 billion; rising health care costs for government workers and retirees; schools in need of reform and better, higher-paid teachers and a failing child welfare system.

In two years, Gibbons will propose his next budget before seeking reelection, and the choices are unattractive. He can propose real cuts to popular programs such as health care and education, or seek help from the Legislature in the form of a change in the law, or use some tricky accounting. Whichever he chooses, he'll face heat.

"There are no good options," said Eric Herzik, a UNR political scientist and Gibbons watcher.

Andrew Clinger, the governor's budget director, said future budgets will indeed bump against the spending cap.

"I do think it's going to get tighter and tighter as we get further out," he said. He also said he has discussed this issue with the governor, and they are planning accordingly.

Although Gibbons' proposed budget this year was under the cap, raises for teachers and state employees and other required spending could overwhelm the cap in 2009.

For instance, in the current budget, with employee raises and routine cost increases factored in, the state needs an additional $500 million just to maintain the current level of services.

In many areas, state spending must by necessity grow faster than inflation because government buys goods and services whose prices are increasing faster than inflation. Health care and drug costs are two examples.

The Legislature could put the governor in an even more difficult situation, Sen. Bob Beers, R-Las Vegas, said. Beers noted that the Legislature isn't bound by the law. The cap applies to the governor's proposed budgets, but not to the Legislature. So if the Legislature approves significant increases this year and the governor signs them into law, the next budget he proposes would have to call for cuts to bring spending back under the cap.

Senate Majority Leader Bill Raggio, R-Reno, said Gibbons will likely face significant constraints in his next budget: "That's going to have some serious limitations across the budget, for example, in health and human services, mental health and mental retardation, corrections."

Raggio offered a potential lifeline to Gibbons. He cited the rapid - and unforeseen - increases in health care as one of several factors that have made the cap worth reexamining. "It is probably something that should be reviewed. Three decades is time to look at it."

Any move to subvert the cap, either with a legislative fix or some smart accounting, would likely raise the ire of Beers and other conservatives. It could reinvigorate a movement to ask voters for even tighter spending limitations, as in last year's Tax and Spending Control Amendment, which was thrown out in court and never made the ballot.

If Gibbons tries to maneuver around the cap, Herzik said, "Then he's got a problem on his right. He already ran into that a little bit already with the fees," he said, referring to fee increases in the governor's budget he has since sworn off, in part because conservatives asserted they were akin to tax increases.