Wednesday, January 22, 2003
Copyright © Las Vegas Review-Journal

STATE BUDGET: Tax turf battle brewing

Local officials wary of Guinn proposal to divert future revenues

Clark County Commission Chairwoman Mary Kincaid-Chauncey speaks at the start of Tuesday's State of the County address. County officials oppose shifting county revenue to solve the state's fiscal woes. Photo by Clint Karlsen.

Local officials had a chilly reaction Tuesday to Gov. Kenny Guinn's suggestion that property taxes generated by future growth in Southern Nevada be diverted to state coffers.

"We're not going to let anything happen that's going to affect our public safety," said Las Vegas Mayor Oscar Goodman, who promised to fight any such proposal if it comes before the Legislature. "Any stealing from Peter to pay Paul would do that, and we're going to fight it, and we're going to prevail."

In addition to calling for $1.1 billion in new taxes, Guinn asked legislators Monday to consider taking a share of future property taxes to help balance the state budget. The governor also suggested changing the state's constitution to allow commercial buildings to be assessed at a different rate than private homes. Several states already use such a system, but Nevada's constitution requires that all property be assessed using the same formula.

Because changing the constitution would take at least five years, the most likely short-term threat to local government revenues is the suggestion by Guinn and others that the state take a greater share of taxes generated by future growth in property values. Clark County officials have calculated that such a change could cost the county $150 million over the first two years and far more in future budget cycles.

County Manager Thom Reilly said Tuesday that such a shift would penalize local governments for being sound fiscal stewards.

"It's nonsensical to start talking about directing local revenues to solve the problems at the state," Reilly said. "It will be discussed, but I am confident our Southern Nevada lawmakers are not going to support it because they know the consequences."

Guinn countered that all revenue sources must be discussed if the state hopes to solve its budget deficit.

"All I said is, `Let's take a look at it, discuss it,' " Guinn said. "(Property taxes) are by far the most stable revenue source."

The governor added that the state's budget shortfall has created chronic turnover among employees who often leave for higher-paying jobs at the local government level.

"If you are a highway patrolman, they take 14 percent of your income for retirement," Guinn said. "If you are a Metro policeman, they don't take that 14 percent out. It is paid by them. Our state does not offer as lucrative benefits as Clark County and the city (of Las Vegas). ... They carry the same gun, wear the same badge essentially. That's why we have tremendous turnover."

During the 1990s, government salaries in Las Vegas and Clark County grew faster than those of state employees or private-sector workers, a trend that has continued during the economic downturn of the past two years. Local government workers are unionized, while state workers are not.

The governor did not offer specifics in Monday's State of the State speech, but the tax shift idea appears to hold promise for legislators who are faced with the unpalatable choice of raising taxes or cutting deeply into state programs.

"A tax shift, of all the unattractive options on the table, to me is a thought that we need to give serious consideration to," said Sen. Dennis Nolan, R-Las Vegas, who said he has received numerous e-mails from constituents complaining that they moved to Nevada to escape high taxes. Senate Majority Leader Bill Raggio, R-Reno, also has suggested a tax shift and argued that it wouldn't rob local governments of current revenue.

But Reilly and others argue that local governments are facing their own fiscal crises because of slowing revenues and unexpected costs, such as the $37 million Clark County recently paid to cover a deficit at the University Medical Center. They also point to recent hiring freezes as evidence of their austerity.

Las Vegas officials argue that the growth in property taxes over the past 20 years, which comprise about 20 percent of the city's general-fund revenues, has barely kept pace with inflation and population growth.

Las Vegas Finance Director Mark Vincent said allowing state government to benefit from growth in assessed values could benefit Northern Nevada at the expense of the south because most of the growth in Nevada is taking place in Clark County.

"It certainly sounds like a shot across the bow," Vincent said.

But Guinn's spokesman, Greg Bortolin, said that because the governor and the majority of legislators are from Southern Nevada, it's unlikely that the North would reap a disproportionate share of any tax shift.

"I think anyone who's making that assertion doesn't know this governor very well," Bortolin said.

Another possibility is changing the property tax formula by ending Nevada's system of depreciating the replacement cost of buildings by 1.5 percent a year for 50 years.

Bortolin said depreciation has created a situation where some people who live in older homes are paying little in property taxes even though their homes have high market values.

"Some of these people have been in their homes for 30 years," Bortolin said. "There's million-dollar homes that people are paying a pittance on because of the depreciation factor."

In cities and counties with little new construction, such as Sparks, the depreciation factor has led to declining tax collections.

Bortolin said Guinn hasn't firmly committed himself to changing the tax formula.

Clark County Assessor Mark Schofield said Nevada and Indiana are the only states that use depreciation as part of their property-tax formulas. But he warned that changing the formula could prove politically unpopular, as property taxes are often a hot-button issue with voters.

Vincent said one idea that's been discussed over the years is altering the depreciation formula so it would reset anytime a house was sold. But Schofield said that would create a fairness issue because people with identical homes would end up paying different tax rates depending on when they bought their property.

North Las Vegas Mayor Michael Montandon said he will have future budget problems if the state snaps up new property taxes. North Las Vegas property taxes are the highest in Clark County.

Guinn's proposal wouldn't have an immediate effect on North Las Vegas, but it eventually would effect services to proposed master-planned communities. "On the next budget cycle, it will fall squarely on our shoulders," Montandon said.

Because the city already has higher property taxes, and the state likely will raise them further, Montandon said it would be difficult to ask residents to approve a bond issue to help fund services.

Henderson Mayor James Gibson, who has discussed running for governor, said Tuesday there is no question the state deficit is a serious problem and the budget must be balanced. But he has yet to take a position on how that budget shortfall should be resolved.

Review-Journal Capital Bureau Chief Ed Vogel and staff writers Frank Geary and Adrienne Packer contributed to this report.