In 1981, Nevada Gov. Robert List proposed that state government shift from principal reliance on property taxes to sales taxes for its revenue. The Nevada Legislature agreed.
Ever since, the state has been plagued by budget crises whenever the economy goes south. The Legislature will write its usual two-year budget when it is in session. Then legislators will go home, hard times will come, budget crises will develop, and the governor will have to start cutting programs at just the time when they’re needed most.
It happened in 1981-1982.
It happened in 1992.
It happened in 2001-2002.
And it’s happening now, which particularly troubles fiscal analysts, because it suggests that the revenue base is becoming less stable and budget crises are coming faster. Meanwhile, a generation has grown up thinking this is the normal way to govern.
What is particularly distressing about this is that the legislature has had opportunities to solve the problem, and didn’t. In 1987, lawmakers commissioned a major study of Nevada’s tax system by the Urban Institute and Price Waterhouse, which was delivered after the 1988 election in time to be acted on by the 1989 legislature. Instead, legislators ignored the study and did nothing.
It’s an easy problem for the legislators to ignore. They’re not the ones who have to deal with the problems created for the citizenry.
“What I’m seeing on main street is restaurant closings, auto shops closing, my athletic club cutting back hours,” says one state worker who lives in Carson City.
The same thing is being felt at communities around the state, and the consequence is people are being squeezed harder and there are higher demands on social service agencies at the same time that cutbacks are underway in agencies of all kinds.
In the Truckee Meadows, the Mendive branch library will close May 16, and Citifare routes are being reduced and eliminated. Children’s after school programs are threatened. Revenue for homeless services are deep in the hole.
Road projects of all kinds are being delayed.
A new state program providing dental and vision care for the poor, seen as very useful in keeping the working poor employed, has been eliminated.
A state prison in Jean will be shut down in July. (It’s the second budget crisis closure for the prison.)
Meanwhile, there is a lot of second guessing going on about budget decisions made by the 2007 legislature, and now by the governor. Why did the lawmakers approve the $373,100 purchase of the historical Liberty Belle Saloon slot machine collection for the state museum when $373,000 is the amount needed to fund two programs for deaf children and fetal testing that are now being cut? asked Las Vegas columnist Jon Ralston. (The slot collection was purchased last year, before the poor revenue picture was clear.) Columnist John Smith asked why one prison was being expanded while another was being closed.
And the problem could get worse than expected. A Nevada Supreme Court decision last week said that meals comped by casinos are not taxable, eliminating an unknown but possibly significant source of revenue.
Living with it
In the course of coping with these kinds of problems, legislators have made comments suggesting it’s now a way of life that they expect to continue rather than fix the system. Senate Finance Committee chair William Raggio, for instance, sounded blasé about it in a recent Las Vegas newspaper interview that characterized his thinking as “the downturn is not that unusual. … Raggio remembers [Gov. Robert] Miller cutting spending by more than 10 percent during a recession in 1991-92.”
Living with it
But Raggio is not that nonchalant about things. He is, in fact, planning to introduce legislation to commission a massive analysis of the state’s tax and revenue structure. “I don’t think it’s Einstein’s theory, it’s just common sense to take a good look at it,” Raggio said this week. And this time local governments will be scrutinized along with state government.
“Our budgets are much more complex than in the [Gov. Mike] O’Callaghan years [1971-1979]. We ran with great surpluses then. We used to do retroactive double digit pay raises.”
Those days are certainly over.
“The growth is phenomenal,” Raggio said. “Infrastructure is worn out. I’ve been saying we need a comprehensive study—I’m reluctant to use the word study, because that sounds like something that gets put on a shelf—but an analysis by an impartial firm like Price Waterhouse on whether our needs are being met, looking at existing revenues at all levels, state and local, whether they are adequate and whether they are being allocated appropriately, and finally whether there are additional revenues needed.”
While Raggio says growth is phenomenal, in fact it is not the growth Nevada has known in previous years. While growth continues, the rate of growth has slackened to 3.6 percent, according to State Demographer Jeff Hardcastle. A year ago Nevada fell out of the “fastest growing in the nation” niche for the first time in two decades, though it has since reclaimed the title.
Why would a new study be treated better than the 1988 Urban Institute/Price Waterhouse study was?
“That study basically said we didn’t need changes, that revenues were where they should be,” Raggio said in explaining why it resulted in no action. While that is true, it also said Nevada would need new revenue sources by the mid-1990s, only five or six years after the study was delivered, and that recommendation resulted in no action, either. Raggio says a lot of the reason a study gets action or not is whether legislators are willing to stand up and take politically risky positions without posturing. They can do that only if the firm commissioned to do the study is neither left nor right and is seen as fair.
“It’s whether people will stand up and be outspoken about it,” Raggio said. “I’m willing to. I don’t want that to be construed to mean that I am now calling for a tax increase. That’s the whole idea of whether you wait for the findings of the firm you select. You don’t pre-judge it.”
The Nevada tax system is often criticized for its soak-the-poor features. Would a new study look at tax fairness and equity as well as whether taxes are stable and predictable?
“I would think that’s inherent, sure,” Raggio said.