$3 billion short, lawmakers facing the last resort: Taxes

By David McGrath Schwartz

Tuesday, Aug. 3, 2010 | 2 a.m.

State Sen. Steven Horsford has broken the unofficial moratorium on frank talk about Nevada’s finances, acknowledging that additional “revenue” — read: taxes — along with spending cuts will be needed to balance the state budget in 2011.

“There has to be some combination of spending reductions and revenue to balance the budget,” he said. “It should be almost a dollar-for-dollar equation.”

With the state facing an estimated $3 billion shortfall, Horsford, D-Las Vegas, proposed in an interview with the Las Vegas Sun that the state should cut programs or shift them along with their costs to local governments.

These spending reductions would total about $1.5 billion.

An equal amount would be needed in taxes, he said. “We’ll need that much more in revenue.”

The state Senate majority leader’s remarks are the most blunt public talk yet on the state’s budget crisis. It’s also a departure from the 2009 session, when legislative leaders denied they planned to raise taxes until the session was almost over.

Horsford’s comments are also drastically different from what the major party candidates for governor have said.

Republican Brian Sandoval, a former federal judge, repeated last week that there is no circumstance under which he would consider raising taxes. Democrat Rory Reid, Clark County Commission Chairman, said: “Now is not the time to raise taxes.” He promised to find efficiencies and cut waste in government.

There have, however, been momentary glimpses of candor.

Assembly Minority Leader Pete Goicochea, R-Fernley, was quoted in the Las Vegas Review-Journal saying a tax increase is “probably coming” regardless of who is in power when the 2011 Legislature convenes in February.

The general lack of candor, though, has frustrated insiders of both parties. A tax package of some amount is inevitable, they say, because it will be impossible to cut $3 billion from the state’s two-year, $6.8 billion budget. The cuts at that level — tens of thousands of children dropped from health care programs, drug rationing for the elderly and mentally ill, deep cuts to schools and prisons — would both be politically unpalatable and expose the state to federal lawsuits for failing to provide services.

Horsford said, “None of us wants to raise taxes. We’re all taxpayers ourselves. We understand it’s never a good time to raise taxes.”

But the “best thing we can do is be honest and straightforward. We have to talk about alternatives if we cut services by $3 billion in the state of Nevada.”

He said some of the options for reducing spending include cutting the school year, eliminating programs such as health care for more than 20,000 children of the poor and dentures for seniors, and closing two state prisons.

Since the end of 2009, Horsford has talked about taking the Legislature in a bold direction in 2011.

The Legislature assembled a group of community members to develop a vision for improving quality-of-life indicators. That work is supposed to be done in the fall.

But his effort for reform took a blow last week when the state canceled a study of its tax system with an outside consulting firm. Horsford said the firm, Moody’s Analytics, failed to perform.

Sen. Bill Raggio, R-Reno, said the objective third-party study was crucial to selling any plan to voters.

Raggio called raising taxes a “last resort” after the Legislature looks at spending and how tax revenue in the state is split between the local and state governments. He also said it was premature to commit to some formula or to say that a tax increase is inevitable.

“I’m ready to make that kind of analysis,” he said.

Broadening the tax base is still a priority for Horsford so state government is less dependent on gaming and sales taxes. But he also said he does not support a corporate income tax, which he had advocated in the past, calling it more volatile than he had previously thought.

Business leaders and conservatives have warned that a corporate income tax would hurt Nevada’s reputation as a low-tax state. (Lobbyists for those business interests are also major campaign contributors. Democrats are hoping to pick up two seats in the state Senate to take a two-thirds majority, which is necessary to raise taxes and override a governor’s veto.)

Assemblywoman Sheila Leslie, D-Reno, who is running for state Senate, has been one of the few elected officials to acknowledge the possibility of tax increases. She suggested last week that the state would have to cut the popular Millennium Scholarship program, a signature accomplishment of former Gov. Kenny Guinn, who died last month.

Leslie called Horsford’s comments “an excellent starting point for the discussion” and criticized the level of discourse from candidates, though she declined to name names.

“This campaign season, most people have wanted to avoid the discussion,” she said. “It’s not fair to voters. We need to understand severe consequences a no-new-tax position holds for the state. It’s irresponsible to take revenue off the table prematurely. To say ‘now is not the time to raise taxes’ or pledge not raise a single tax is irresponsible.”

Carole Vilardo, president of the Nevada Taxpayers Association, warned that higher taxes would put additional pressure on already struggling businesses.

Still, she acknowledged, there are only tough options for state leaders.

“If it’s $3 billion, can you make those kind of cuts? I truthfully don’t know if you can cut that much at this point in time,” she said. “Do I think that you can impose more taxes? Not easily.”