Leaky rainy day fund

Broken tax system requires its use for more than emergencies such as Fernley flood

Tuesday, Jan. 8, 2008 | 2 a.m.

No one could have predicted the flooding that struck the Northern Nevada town of Fernley early Saturday, which is one reason the state has money tucked away in a special rainy day fund.

With a current balance of about $300 million, the fund comes into play during emergencies.

Early Saturday a 31-mile earthen irrigation ditch branching off the Truckee River became swollen from a storm that drenched a wide area of Northern Nevada. It was Fernley’s bad luck to be situated right where about 50 feet of the ditch gave way. Nearly 300 homes in the town east of Reno were flooded and about 1,500 people were displaced.

Gov. Jim Gibbons declared an emergency and officials with the Federal Emergency Management Agency were assessing Monday whether a presidential emergency declaration was warranted.

In our view, flooding, forest fires, earthquakes and windstorms are the most appropriate types of unanticipated emergencies for which the rainy day fund was created. The people of Fernley, for example, are going to need state help in addition to whatever aid can be provided through FEMA.

The fund also has another purpose, which is to cover shortfalls in state revenue when the only alternative would be to cut critical services. Such cuts could themselves create emergencies.

Withdrawals for this purpose, though, would likely be relatively small if the state’s tax system were more stable. But because of Nevada’s reliance on unstable sales and gaming taxes, the state is facing a $440 million shortfall.

To help offset the deficit, Gibbons announced a plan last month that includes withdrawing as much as $200 million from the rainy day fund two-thirds of its balance. Without that source of funding, a planned 4.5 percent cut in most state services would be higher.

Given the current financial crisis, Gibbons has no choice but to tap the rainy day fund and hope that no more emergencies on the scale Fernley experienced occur anytime soon. In the long run, however, it would be better for the governor and the Legislature to fix the tax system.