Facing shortfall, a split personality

By David McGrath Schwartz (contact)

Sunday, Nov. 23, 2008 | 2 a.m.

Chris Morris

CARSON CITY — There are broad-brush similarities between the big Detroit automakers and the state of Nevada.

Some say their leadership has lacked foresight. They have focused narrowly on products — SUVs and high-end gaming — fewer seem to want right now. And, in these troubled times, they have gone hat in hand to the federal government, looking for a bailout.

Gov. Jim Gibbons surprised — and angered — some conservative allies last month when he sent a letter to the congressional delegation asking for federal money for unemployment benefits, Medicaid and infrastructure. Higher Education Chancellor Jim Rogers last week requested $3 billion from the federal government as part of a plan to get Nevada through its budget crisis.

Some observers say that if the state pursues federal assistance, it should expect outside scrutiny, and criticism, of a tax structure that has brought the massive budget shortfalls that have prompted state leaders to ask Washington for help.

Congress was consumed last week with what to do about General Motors, Chrysler and Ford. Though nothing was passed, Democrats ordered the companies to present a detailed plan by Dec. 2 on how they would use $25 billion in loans to turn around the companies.

A direct cash bailout for states and local governments has barely been broached in Washington. Rather the discussion has concerned a broad stimulus package that would provide states with extra money for public works and health care. But that seems unlikely until President-elect Barack Obama and Democrats’ beefed-up majorities in the House and Senate take office in the new year.

Still, some in Nevada said the state should expect tough questions similar to those the automakers have faced, and strings attached to any federal money the state gets.

“If somebody were to get outside help, it would not be unreasonable for the outside help to say, ‘These are the things you need to do to help yourself,’ ” Rogers said in an interview. “For too long, we haven’t taken care of ourselves, we haven’t done the planning, the investing in education, health care, etc.”

Launce Rake, spokesman for the Progressive Leadership Alliance of Nevada, said his group supports the state’s request for federal aid.

“If the federal government helps out Nevada, it’s completely legitimate for our neighbors in the United States to ask, ‘What is wrong with Nevada?’ Because something is wrong.”

The alliance has called for Nevada to stabilize its tax base through a broader business tax, and complained that the mining industry does not contribute its fair share to state coffers.

Gibbons’ support for federal aid reflects the depth of the state’s fiscal crisis. To make it until June 30, the state would need to cut another 11 percent from a slashed budget. For the next two years, the state would need to cut 33 percent to close a $1.5 billion deficit.

A consensus is emerging between Democrats and Republicans that more revenue — whether in the form of higher taxes or bonds against future revenue — will be necessary to see the state through the financial crisis. But insiders dismissed Rogers’ request for $3 billion as fanciful, and say the federal government is unlikely to cure the state’s budget woes.

“As the majority leader, (Sen. Harry) Reid can get more money for Nevada, but that doesn’t mean the governor should abdicate his responsibility to find long-term funding mechanisms to meet the state’s needs,” a person familiar with Nevada politics said.

Sen. John Ensign said last week the federal government would not give a blank check to Nevada. He also said Nevada’s request for federal assistance was far off the radar of much of Washington.

Since the 1950s, Nevada has fought efforts to impose a federal gaming tax. During that time, most efforts to raise the state’s gaming tax — one of the lowest in the nation at 6.75 percent — have failed, despite having broad public support.

To be sure, with Reid as the Senate majority leader and Ensign in a leadership position, no one thinks there would be a serious attack on gaming or even mining.

But the outside scrutiny could lead to some tough questions, as those from outside the state ask why Nevada isn’t looking in the mirror before asking for a handout.

“There has been a certain amount of sovereignty for a state to fulfill its fiscal needs through taxation,” said Guy Hobbs, a longtime fiscal consultant and former Clark County chief fiscal officer. “If 15 to 20 states ask for money, arguments would arise that tax burdens are different in states and they should not be treated exactly the same.”

Nevada, by one measure, taxes its own citizens the second least in the country, after Alaska. But Nevada climbs the Tax Foundation rankings when the amount we get from tourists is included.

“It would become an extraordinarily complex question,” Hobbs said. “There are a bunch of variables that would make a debate quite lively.”

Sun reporter Lisa Mascaro contributed to this story.