Businesses brace for legislative session

By Richard N. Velotta

Friday, Jan. 23, 2009 | 2 a.m.

The governor’s State of the State address and Assembly Speaker Barbara Buckley’s Democratic response made it clear that they’re on opposite sides over how to address Nevada’s economic crunch.

Gibbons, in his 55-minute State of the State message Jan. 15, presented an overview of the downturn and his often-repeated pledge he wouldn’t propose raising taxes to achieve the constitutionally mandated balanced budget.

In her response, Buckley took just 10 minutes to say the state could do better and the steep cuts proposed by Gibbons — especially in education — wouldn’t be acceptable.

The apparent impasse will have businesses scrambling to advocate positions that don’t harm their bottom line or head off new regulations that could increase costs.

How matters will be resolved is uncertain considering the numerous viewpoints, philosophies and proposals in play. It’s further complicated by the Democratic Party’s new control of the Senate by an 11-10 margin — a majority, but not a veto-proof majority. To overturn a veto, Democrats would have to persuade at least three Republican senators to take their side, a daunting task, but not impossible given Gibbons’ slide in support.

At the core of Gibbons’ budget plan is a 6 percent across-the-board salary cut for state employees, including teachers. He also is proposing eliminating a number of one-time expenditures and merging some departments to save money.

“Many of these decisions have been agonizingly difficult,” Gibbons said in his address. “We have spent hundreds of hours working on these numbers to create a fiscally responsible budget that sustains us through the next two years and positions the state to regain our economic footing when the national and international economy rebounds. We also worked to ensure that we gain the greatest possible efficiencies in government, prioritizing services and making certain that each available dollar is spent wisely.”

But Buckley countered it is unwise to gut the state’s educational system.

“The question for us all is this: Is this the direction we want to go as a state?” she said. “Does it really make sense to cut the salaries of our teachers, who dedicate themselves to educating our children, when we need the best and brightest in these jobs? Does it make sense to cut education further? Does it make sense to close the doors of opportunity for our children to attend our universities? Do we want to overcrowd our emergency rooms with the mentally ill again because we shut mental health clinics? Does it make sense to give up our legal fight against Yucca Mountain and store nuclear waste in our back yard?

“The answer is no.”

Buckley was scheduled to attend budget hearings beginning Jan. 22 and is compiling a report summarizing four months of town hall meetings conducted statewide detailing how best to address Nevada’s financial woes.

Team leaders who conducted Buckley’s town hall meetings found nearly universal opposition to further cuts to education, she said. Buckley also found support for creating a forced savings account for the state to tap during lean economic times and new revenue proposals that include streamlining agencies and the creation of a lottery.

Buckley detailed some of her findings and proposals in a round-table meeting with representatives of the North Las Vegas Chamber of Commerce last week. She said she hopes lawmakers would engage in more long-range planning to raise the state’s standing in education.

“We realize we’re not going to be first in a day, but we need to identify targets and plot a course and have accountability,” she said.

She also said she wants Nevada to maintain its image as a low-tax state, but “we don’t want it at the expense of quality of life.”

Other legislators also expressed skepticism that Gibbons’ proposal will have much support.

Asked if there would be enough votes to overturn a veto if the Legislature passed legislation that included new taxes, longtime state Sen. Randolph Townsend, R-Reno, said he thought there would be.

“If it were a legitimate, important issue such as revenue that fills the gap and there was legitimate accountability on the other side or cuts on the other side, I don’t have any doubt in my mind that they would be there,” Townsend said in an In Business Las Vegas Q&A interview that appears in this week’s edition.

Sen. Terry Care, D-Las Vegas, wasn’t quite ready to talk about overriding vetoes, but said there’s a lot of work ahead.

“We haven’t had a majority since 1991, so now that we have it, all eyes are on us,” Care said. “We don’t want to be portrayed as tax-and-spend Democrats, so I think the focus will be on what the governor proposed. He basically said, ‘Times are tough. Here are the cuts I’m offering. If you don’t agree with this plan, what is yours?’ ”

Care said before lawmakers look at taxes, they’ll carefully review recommendations from the governor’s Spending and Government Efficiency Commission and look at how they can adequately fund education which, by law, is the Legislature’s spending priority.

“It’s not a good idea to raise taxes in a very, very deep recession,” Care said. “I know the problems of gaming, I know the problems of small business. And, there are constitutional limitations to what we can do on mining. We don’t even know if the demand for precious metals is going to change in this environment.”

With seemingly any proposal on the table, business and industry groups are bolstering their positions on how to solve the state’s problems.

The North Las Vegas Chamber thinks that neither cutting budgets nor raising taxes alone will solve the state’s budget problems. The chamber thinks the government should pursue more public-private partnerships and any new taxes proposed should be broad-based and not industry specific.

The Las Vegas Chamber of Commerce advocates expenditure reform and one of its targets is revamping the state’s Public Employees’ Retirement System and Public Employees Benefits Program, which have a combined liability of more than $10 billion.

“While the chamber believes that public employees are a vital part of Nevada, we also believe taxpayers cannot afford to continue funding an overly generous system,” the organization says in one of its online policy statements. “The chamber believes that reforming the system would greatly relieve the further liability that is sure to incur and better fund programs in critical need.”

The Nevada Development Authority, whose mission is to diversify Southern Nevada’s economy by recruiting business and industry to the area, has taken a different approach, commissioning a report by the nonprofit Theodore Roosevelt Institute to educate lawmakers about the strengths and weaknesses of the state’s existing taxation system.

The 76-page report, “The Nevada Tax System: The Short-Run Dynamics and Long-Run Dynamics of Nevada Taxes,” was delivered in October and was written primarily by UNLV economics professor Alan Schlottmann.

One key point of the report is Nevada tax revenue is tied to the economy and fluctuations in the economy lead to volatility.

“Simply raising the rate of a specific tax or taxes does not necessarily reduce the volatility of revenue and to assume so is a major mistake inconsistent with the Nevada data,” the report’s executive summary says.

One tax that almost certainly will be increased in the upcoming legislative session is clearly tied to the state of the economy — the room tax. In the November election, a majority of Clark and Washoe voters approved an advisory question backing a room tax increase.

Even Buckley agrees a room tax increase won’t raise the amount of revenue forecast when the proposal was aired before the election. And, this week, Republican Assemblymen Ed Goedhart of Amargosa Valley and Don Gustavson of Sparks sent a letter to Buckley saying they’ll fight the room tax.

“We believe this tax would be detrimental to the overall fiscal health of our state,” the lawmakers said. “Just when Nevada should be doing everything possible to encourage tourism, this proposal would penalize the very people we need to get Nevada back on track.”

A Gibbons proposal that would affect tourism is also facing opposition. The governor’s effort to consolidate the Tourism Commission and the Economic Development Commission faces opposition from both commissions.

“I believe a merger between these two commissions would seriously harm Nevada’s vital tourism industry and would not effectively help our economic diversification efforts,” former Lt. Gov. Lorraine Hunt-Bono, a Republican, said in a letter to Gibbons.

“Today, more than ever, we must aggressively promote and support Nevada’s tourism industry both nationally and globally,” Hunt-Bono, a member of the Tourism Commission, said in the letter. “I believe a serious structural change to our state tourism office would weaken our industry’s marketing efforts and subject us to serious negative unintended consequences.”

In an interview, Hunt-Bono said she received assurances from Gibbons that he would not move to close Nevada’s licensed tourism office in Beijing, an office she helped established as lieutenant governor.

Other industries have shown similar concerns about how the state budget debate will play out.

The gaming industry, certainly a potential target for higher taxes, had a philosophical split that began in May.

When the Nevada Education Association advocated a 3-percentage-point increase in the state’s 6.75 percent gaming tax, representatives of three major casino companies — Wynn Resorts, Harrah’s Entertainment and Station Casinos — hammered out an agreement that they would advocate an increase in the room tax to 13 percent if the teachers’ group dropped its petition to increase the gaming tax to 9.75 percent.

Two other big companies, MGM Mirage and Boyd Gaming, opposed the plan, hoping instead for the implementation of a broad-based business tax that would focus on other industries as well as gaming.

Meanwhile, another tourism-related group, the rental-car industry, wants lawmakers to replace a recovery surcharge with a vehicle license fee that will enable companies to recoup vehicle registration and titling fees.

With four separate taxes in place, consumers pay a 19.75 percent tax on every car rental. A 4 percent registration and titling recovery surcharge tax that helped rental car companies pay for the high cost of licensing their fleets has dwindled over the years. In 2007 the Legislature peeled 1 percentage point away to fund transportation projects and in November’s special session, another 1 percentage point was redirected to the general fund.

In addition, in 2003, the industry was ordered to impose a 2 percent county tax which, in Clark County, funds construction of a performing arts center and in Washoe County, a baseball stadium.

Industry leaders believe a per-day vehicle license fee would enable rental companies to recoup their licensing costs and couldn’t be redirected to other state budget needs.

The mining industry also believes it has a target on its back.

Tim Crowley, president of the Nevada Mining Association, said calls for the mining industry to pay more are misguided because the public doesn’t realize how much the industry actually contributes to the state.

Crowley said that it has been publicly reported that the mining industry pays about $30 million in taxes a year, but that figure was the approximate amount of the industry’s net proceeds of mines tax paid to the state general fund in 2006.

The industry actually paid $199.5 million in 2007, which includes the net proceeds of mines tax to both the state and the county, sales and use taxes, property tax and business license and modified business taxes.

Crowley said the industry would support a broad-based business tax and not an industry-specific assessment on mining proceeds, especially since the price of minerals fluctuates with economic swings.

Richard N. Velotta covers tourism for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at 259-4061 or at [email protected].