Monday, October 13, 2003
Copyright © Las Vegas Review-Journal

Guinn says revenue shortfall possible in '05

Kenny Guinn Governor says state will be affected by loss of federal estate tax revenue

CARSON CITY -- Fewer than three months have passed since Gov. Kenny Guinn signed a record $836 million tax increase into law, but the governor already concedes the state might be short of revenue in 2005.

Should that occur, Guinn said he will balance the state budget without calling for new taxes. If taxes are raised, Guinn said, it would fall to the Legislature to lead that charge.

"I won't advocate new taxes," Guinn said in a recent interview.

What troubles Guinn is the state economy must produce at least another $187 million in tax revenue by 2005 to cover federal revenue that no longer will be available.

The state will receive about $120 million in federal estate tax revenue in the next two years. But Congress is phasing out the estate taxes, and the money will not be available for the next state budget in July 2005.

Estate revenues are earmarked for the University and Community College System and the public schools.

Also, Nevada received a one-time federal appropriation of $67 million this year that quickly was plugged into the $4.9 billion general budget for 2003-05. There is no guarantee a similar grant will be given at the next legislative session.

Consequently, Guinn hopes for a booming economy over the next two years so he won't be faced with making budget cuts.

"I always hope for a good economy," he said. "We need a growth in revenue. If we end up with a ton of new kids and Medicaid cases, then we could be short."

Assembly Minority Leader Lynn Hettrick has no doubt the tax revenue available in 2005 will be less than some legislators want to spend.

"It is going to be short," said Hettrick, R-Gardnerville. "We will have a hole. Unless the economy does very well we will have a problem."

But Hettrick puts the blame on Guinn and legislators who backed the record tax increase in July. He and some Assembly Republicans lobbied for a spending increase about $300 million less than was eventually approved.

If their spending plans had been accepted, Hettrick said, state government would not face the ongoing problem of revenues being short.

"We aren't going to raise taxes in 2005," he emphasized. "I can't imagine a legislator coming in now who would propose an increase in taxes."

His views are echoed by Assemblyman Bob Beers, R-Las Vegas.

"We just came through a session where we increased spending by 30 percent to 35 percent in nearly every area," he said. "Much of it was unjustified. It would be the height of folly to raise taxes."

Assemblywoman Chris Giunchigliani, D-Las Vegas, readily concedes new tax increases might be needed in 2005.

During speeches at the end of the legislative session, Giunchigliani warned legislators about losing the federal money.

"Absolutely I am concerned," she said recently. "It was not a budget with frills, it was one that barely treaded water. That is going to come home next session."

Giunchigliani added the federal government has forced state spending higher by the establishment of the federal No Child Left Behind Act and other programs.

"We have no idea how much No Child Left Behind will cost," she said of the legislation, which is measured by standards set by the state Department of Education and by legislators. "It is another unfunded mandate."

State Budget Director Perry Comeaux remains optimistic that with a healthy economy the state will receive enough tax revenue to avoid an increase in 2005.

A healthy economy for Nevada would be one that brings in about 5 percent in additional tax revenue each year, he said.

In latest monthly reports, sales taxes grew at a 10 percent clip, but gaming revenue received by casinos fell by 3 percent.

Comeaux expects that at least half of the potential $187 million shortfall will be covered by new taxes going into effect this month and in January. Since payroll, real estate and other new taxes did not go into effect July 1, the state will not receive revenue for a full fiscal year.

"In the next biennium we will have full-year revenue," Comeaux said. "That will make up about half of the problem (with lost federal funds)."

According to the budget director, state tax revenue must increase by more than $300 million every two years just to cover growth in the public school population.

"It is a huge number," he said. "We need a healthy economy."

Because sales and gaming tax revenue have fluctuated so much this fall, Comeaux said state agency leaders have been asked to develop plans to make cuts if necessary.

"All we can do is make cuts," Comeaux said. "We don't have a rainy-day fund anymore."

Legislators depleted the $135 million rainy-day fund last winter when revenue fell below expectations.