Tuesday, December 03, 2002
Copyright © Las Vegas Review-Journal

Guinn wants $800 million more in taxes

CARSON CITY -- Gov. Kenny Guinn said Monday he will seek more than $800 million in tax increases over the next two years, despite findings by an independent panel that the state economy is showing a slow but steady recovery and tax revenues are growing.

"How far I will go, I can't answer yet," Guinn said about his coming tax increase proposals. "It is not a pleasant job."

Guinn said major tax increases are necessary, although the Economic Forum earlier in the day forecast $324 million in state revenue growth over the next two years due to an improving economy. Analysts told the forum that Nevada now leads the nation in job growth and personal income increases.

The panel of five independent business leaders projected a 4.6 percent increase in state tax revenues in the 2003-04 fiscal year followed by a 5.1 percent increase in the 2004-05 fiscal year.

The figures projected by the forum are important to state government because Guinn by law must use them in constructing his 2003-05 budget. Guinn will submit his budget to the Legislature during a Jan. 20 State of the State address.

But Guinn said more than $800 million in additional revenue is required on top of the Economic Forum projections because of factors related to growth.

Jotting down figures on an easel at a hastily called news conference, the governor said the state government needs $234 million to cover costs of increased public school enrollment, $225 million for the class-size reduction program, $200 million for Medicaid and $80 million for increased enrollment in the universities and community colleges.

Guinn said he also needs more taxes to cover rising utility and workers compensation costs, health care costs for teachers and to pay back the state's "rainy day" fund. He intends to take more than $100 million from the emergency fund to cover current deficits when the Legislature convenes.

As a former Clark County school superintendent, Guinn said he knows during his 38 years in public life that voters always have approved bond issues to build new schools. He said he does not feel those voters will desert him now and refuse to provide the money to hire more teachers to instruct the additional students.

Even with $800 million in tax increases, the governor maintained there will be no money for higher salaries for state employees or any other type of enhancement.

While he refused to reveal the details of his tax increase plan, Guinn said he will ask legislators -- once they arrive in Carson City on Feb. 3 -- to approve immediate increases in cigarette and alcohol taxes. He declined to say by how much he favors raising those taxes.

Guinn added it is not only his job, but the job of legislators to explain to voters why taxes must be increased so dramatically.

"This thing is so serious you have to look at every area and you need to do it relatively quickly," he said.

The Economic Forum made its projections on revenue growth based on testimony from analysts who see Nevada recovering more rapidly from the national recession than other states.

The forum sees the economy bringing state government $3.889 billion in taxes in the 2003-05 period, up $324 million from the $3.565 billion received in 2001-03.

Current two-year revenues are $156 million short of expectations, largely because of a drop in tourism and spending precipitated by the Sept. 11, 2001 terrorist attacks.

But forum members said the types of taxes used to finance state government are less stable than other taxes. Seventy one percent of state general fund revenue comes from gaming and sales taxes.

"Although the Nevada economy appears to have some momentum and the expectations for economic performance are positive, the outlook is expected to produce only modest state revenue increases overall," forum members said in a letter to Guinn.

Nonetheless, James Diffley, group managing director of Global Insight, said Nevada is better off than most states in recovering from the terrorist attacks. Diffley said most states are looking for major tax increases to balance their budgets.

"Virtually every state is in the same situation, typically worse than Nevada," said Diffley, whose economic consulting firm has been retained by the state to provide the Legislature with independent revenue projections.

Nevada has been leading the nation in job and income growth, he said. The number of jobs created in Nevada increased by 2.9 percent in the 12 months ending in October. The increase came at a time when the number of jobs nationally still is 1.6 million less than before the terrorist attacks.

Unemployment in Nevada dropped to 4.5 percent in October, the lowest percentage in nearly two years.

At the same time, Diffley said income earned by Nevada workers increased by a national high of 2.2 percent in the first quarter of 2002 and has climbed by 4.2 percent in the last year.

Economic Forum Chairman Cary Fisher said the recommendations for revenue increases were based on testimony the group received from Diffley, three state government financial analysts and opinions of individual members.

"We didn't accommodate any political standpoint," said Fisher, an executive with Fisher Pen in Boulder City. "We tried to come across with the best figures."

Economic Forum member Deborah Pierce added the panel did not consider the effects a war in Iraq or a new terrorist attack would have on the Nevada economy.

"It is too uncertain," the corporate vice president of Ameristar Casinos said about war and terrorism possibilities. "We don't have a crystal ball."

Diffley maintained a war would be brief, require federal spending of $30 billion and the deployment of 20,000 to 30,000 troops. Oil prices would jump to $40 a barrel for a few weeks and then drop to the mid $20s after a quick American victory.

Members did consider the growth of Indian gaming in California and the dire effects that is expected to have on the state, particularly on the Reno area.

Nonetheless, they project percentage gaming taxes will bring the state $1.210 billion, up from the $1.127 billion received in the current two-year budget period.

Sales taxes in 2003-05 are expected to bring the state $1.461 billion, up from the current $1.319 billion.

STATE REVENUE

The Economic Forum predicts state revenue growth over the next two fiscal years. Total revenue includes gaming, sales, insurance premium, cigarette, liquor, business license and all other state taxes and fees. Each fiscal year runs from July 1 to June 30.

Fiscal year	Gaming tax**	Sales tax	Total revenue	Growth
1998-99	$496.5 million	$566.1 million	$1.531 billion	8.4%
1999-00	$560.3 million	$598.5 million	$1.647 billion	7.6%
2000-01	$565.0 million	$633.6 million	$1.734 billion	5.3%
2001-02	$554.6 million	$642.7 million	$1.752 billion	1.0%
2002-03*	$572.6 million	$676.1 million	$1.813 billion	3.5%
2003-04*	$593.7 million	$710.6 million	$1.896 billion	4.6%
2004-05*	$617.4 million	$750.4 million	$1.993 billion	5.1%

*Economic Forum projections**
6.25 percent tax

Sources: Economic Forum, state budget office