CARSON CITY -- Legislators expect to get grim news this morning when the Nevada Economic Forum makes its final forecast for the 2009 legislative session.
The projection will be more than just a piece of paper. It will be the amount the governor and Legislature will be allowed to spend over the next two fiscal years.
And they already know they'll face even more budget cuts and hear more proposals to bring in additional revenue.
Some residents and officials already are talking about taxing a resource found aplenty in Nevada but protected from special tax increases. That resource is gold.
At public forums held by Assembly Speaker Barbara Buckley, D-Las Vegas, to develop ideas to solve the budget woes, more than a few participants called for new taxes on the gold mining industry, whose companies are based in other states and nations.
Chancellor Jim Rogers also has advocated taxing gold to avoid further cuts that he says could destroy higher education in Nevada.
But proponents of a new gold tax should prepare for a fight, because the mining industry already sees one coming, according to an economist aligned with the industry.
"There are a lot of mining lawyers ready to go to court the day after they pass a (gold) tax," said John Dobra, a professor of economics at the University of Nevada, Reno.
Dobra said companies could move their gold mining operations out of the country or to other states if the Legislature places a special tax on gold.
Rather than being dubbed the Silver State, Nevada should be called the Gold State since its mines produced 6,037,000 ounces of gold -- nearly 190 tons -- or 78 percent of the national total, valued at $4.2 billion last year.
Gold sold for an average of $695 an ounce last year, while production costs averaged $408 per ounce. That left the gold mining companies with more than $1.7 billion in earnings.
The price of gold topped $1,000 an ounce in March, then fell to below $700 this fall; but it has risen steadily to a current price of $813.
Nevada mines contribute about $20 million a year to the state under the net proceeds of minerals tax. Local governments in mining counties also receive about $20 million in net proceeds taxes. The Nevada Mining Association reported all types of mines, including gold mines, paid $192 million in state and local taxes in 2006.
Dobra said the mining industry has firm ground upon which to fight a tax targeted at gold. Under the state constitution, enacted in 1864, the state only can levy a net proceeds of minerals tax, not a per ounce tax on gold.
The 5 percent net proceeds tax is levied on the value of the extracted minerals, minus approved costs of production. It is similar to a property tax.
Mines have been allowed to deduct most of their production costs before calculating the taxes they owe the state and local governments.
Also, any kind of "net" proceeds constitutional provision could not be amended and a new tax enacted before 2013, too late to deal with the $330 million current budget deficit and the $1.5 billion shortfall expected in the 2009-11 fiscal years.
Carole Vilardo, president of the Nevada Taxpayers Association, agrees with Dobra that legislators cannot tax gold directly without first changing the constitution. But she said they could limit the deductions the mining companies take, and that would produce additional tax revenue for the state.
Extraction costs, marketing, equipment repair, royalties, processing, transportation costs, labor, supplies and materials are deductible. Lobbying expenses and federal income taxes are not.
Even if no mining deductions were allowed, Dobra said the additional money from the net proceeds of minerals tax would not be enough to solve the state's financial problems.
Nonetheless, Nevada gold mines in 2007 still had more than $1.5 billion in income left in 2007 after paying net proceeds and other state taxes.
By removing some of the deductions, the Legislature could take a larger share of those profits.
Alan Coyner, administrator of the Nevada Division of Minerals, said Gov. Jim Gibbons likely would consider moves to reduce deductions as a new tax on mining.
Although he has been saying "everything is on the table" to solve the state's economic woes, Gibbons also has reiterated his ironclad rule that he would veto any tax increase except those approved by the people, or backed by the affected industry.
Gibbons is a former mining geologist and mining industry lawyer. Even when gold sold for $1,000 an ounce, the governor expressed adamant opposition to a gold tax.
Republican and Democratic legislators so far have not advocated any tax increases to deal with the state's deficit.
State Senate Majority Leader Steven Horsford, D-Las Vegas, said state government first must review its spending and cut expenditures before looking at tax increases.
Once a review is completed and spending priorities are set, legislators then must explain the consequences of cutting spending by 25 percent or more, said Horsford, who worked two years in the mining industry in the 1990s.
Proponents of higher mining taxes point out that other states levy higher taxes on gold than Nevada does.
Alaska, the nation's No. 2 gold mining state, levies a 7 percent net profits tax and a 3 percent royalty tax on gold and other mining commodities. Its production of gold was only one-ninth of Nevada's in 2007.
Utah ranks No. 3 in gold production, but produces only 7 percent of the gold of Nevada. It levies a 2.7 percent severance tax on gold. It also assesses state income taxes on mining and other companies' profits.
Severance taxes are taxes based on the value of the resource severed or taken from the earth.
Luke Popovich, a spokesman for the National Mining Association, said it is hard to compare tax rates because states have different types of mines. Also, the cost of producing gold varies dramatically from other types of minerals.
"Rising production costs are affecting mines terrifically," Popovich said.
The 12,086 employees who worked in Nevada mines last year earned average annual pay of $75,170, the highest pay of any industry in the state.
Although the number of workers employed in mining is small, their earnings tend to have a big impact on the economies of rural counties. Eureka County receives no state support for public schools because its proceeds and other taxes are more than enough to cover that expense.
Taxing mining has always been controversial in Nevada. Voters in 1863 rejected a proposed constitutional amendment that included a gross tax on mining proceeds. That rejection held up statehood until the following year, when voters approved the net proceeds of minerals tax in a new constitution.
Congress also has considered a federal 8 percent tax on mining proceeds.
Unsuccessful legislative attempts have been made to tax gold directly, notably by the late Assemblyman Marvin Sedway, D-Las Vegas. He sought a $20 per ounce gold tax in 1989.
Sedway reasoned the tax was justified because foreign-based companies were carting away limited resources and leaving behind holes in the ground when the inevitable mining busts occurred.
Though Nevada produced more than 6 million ounces of gold last year, that was below the 8 million ounces produced each year from 1998 to 2001.
About 72 million ounces of known reserves of gold remain available for development in the state, according to the Division of Minerals.
Mining companies spent $167 million in the state last year looking for additional sources of gold and other commodities.
Contact Capital Bureau Chief Ed Vogel at email@example.com or 775-687-3901.