Legislative fight brews over decline in revenue

CARSON CITY -- With tax revenues dropping by $1 billion and Gov.-elect Brian Sandoval vowing to cut spending to balance the next state budget, the leader of the Progressive Leadership Alliance of Nevada predicts a virtual war in the coming legislative session.

"If they do cuts without revenue enhancements, then holy hell will break out," said Bob Fulkerson, state director of PLAN, an advocacy organization that represents more than 40 liberal-leaning groups in Nevada. "There will be explosions all over the state, rhetorical explosions."

Fiscal analyst Geoffery Lawrence of the Nevada Policy Research Institute, a conservative Las Vegas think tank, agrees with Fulkerson that a war between liberals and conservatives is certain. But he wants Sandoval and conservative legislators to keep their vows to just say no to tax increases.

"Inevitably there will be a fight in the Legislature any time spending is cut below current funding and agencies have requested more funds," Lawrence said. "You are cutting back programs for which there are vested interests and constituents who benefit from those programs. They will fight to preserve their fiefdoms."

That there will be conflict when the Legislature convenes Feb. 7 became a certainty Wednesday when the Economic Forum, a group of five business leaders, projected that state tax revenues in the next, two-year budget period will be $5.33 billion, or about $1 billion less than current spending.

That number is also about $3 billion less than the $8.3 billion that state agencies are seeking in their 2011-13 budget requests. The forum's projections must be built into the next state budget.

Once the forum finished work, Sandoval quickly reiterated he would not raise taxes and intends to balance the budget through spending cuts.

Sandoval won't be releasing his proposed 2011-13 budget to the Legislature before Jan. 24, but both Fulkerson and Lawrence intend in the next few weeks to come out with their own budget plans.

Each also crafted balanced budget plans two years ago that largely were rejected by the Legislature.

Senate Majority Leader Steven Horsford, D-Las Vegas, in the summer talked about legislators making $1.5 billion in spending cuts and passing $1.5 billion in tax increases to balance the budget in 2011.

Now he talks about waiting to look at Sandoval's budget.

"It is the governor's responsibility to submit a detailed budget with specifics on how agencies will be funded and how services will be met. I am looking forward to that plan," Horsford said.

State Senate Minority Leader Mike McGinness, R-Fallon, uttered almost the same words Wednesday.

McGinness, however, has made no secret of the fact that Senate Republicans won't be inclined to raise taxes. He became party leader following the election when members of a more conservative Republican state Senate caucus purged longtime leader Bill Raggio for endorsing Democrat Harry Reid for U.S. Senate and for backing tax increases in 2009.

Horsford made it clear Thursday the next Legislature must focus on how to grow the economy and put people back to work.

The most important element in bringing economic growth is "having a quality education system," both in the public schools and in higher education, he said.

Based on comments by Lawrence and Fulkerson, what PLAN and NPRI will offer in their coming budget proposals isn't expected to be much different than what they sought before the 2009 Legislature.

The Progressive Leadership Alliance of Nevada then called for legislators to pass tax increases that would generate at least $1.3 billion a year in revenue. It wanted legislators to approve a business profits tax as large as 7 percent and tinker with how mining taxes were calculated to bring in $141 million more per year. It also advocated changing the state constitution to allow a state income tax.

Fulkerson cited a study by the Center on Work and Community Development that found the poor in Nevada pay 8.3 percent of their income in state taxes and fees, while the wealthy pay just 2 percent.

He still refers to that study.

"A single working mother sending two kids to school has a tax burden four times that of the gold mining industry that brought in $8 billion last year," Fulkerson said Thursday.

But the Nevada Mining Association repeatedly has challenged PLAN's moves to induce legislators to impose higher taxes on mineral production.

The association argues that PLAN only looks at the approximate $60 million annual net profits tax paid by mining companies, while ignoring the fact that these companies also pay sales, payroll, property and every other tax paid by other Nevada businesses.

Although the 2009 Legislature didn't go as far as Fulkerson wanted, it did increase taxes by $1 billion over a two-year period. Most of the increases expire on June 30, and Sandoval has said repeatedly he will veto any move to extend those taxes.

Lawrence urged legislators two years ago to pass a budget without tax increases. He even released his two-year $5.1 billion state budget plan that had no tax increases. His proposal would have rolled back spending to 2005 levels.

It received scant mention during the legislative session.

But times have changed.

Sandoval talked during the gubernatorial campaign about rolling back spending at least to 2007 levels.

His opponent, Democrat Rory Reid, ripped him for the idea, calling it a "Back to the Future" budget plan that would be impossible to implement.

Fulkerson contends rolling back spending would be a recipe for disaster.

"You would have to lay off thousands of schoolteachers, thousands of state workers. Restaurants would shut down. Auto mechanics would be laid off."

Fulkerson believes Nevada isn't going to attract new businesses unless it has an education system that provides the educated work force they require.

But Lawrence contends cutting spending is a tough-love decision legislators must make during this prolonged recession if Nevada is going to recover economically.

"There needs to be some kind of spending control," Lawrence said. "But it will come down to politics."

He is inclined to think Republicans will agree to some tax increases in exchange for getting their way on redistricting, another hot button issue for 2011.

"Horse-trading is part of the legislative process. I see them making some budget concessions," Lawrence said.

The easiest way for Sandoval to lop off $1 billion or more in state spending would be by adding furlough days, Lawrence said.

Most state employees now take one unpaid furlough day per month. Many California state workers take three "Friday furlough" days per month.

But rolling back spending won't be the disaster that critics envision, Lawrence said.

The Nevada Policy Research Institute has advocated limiting state spending increases to the combined rate of inflation and population growth. A $5.4 billion budget would be in line with inflation and population changes since 2003, he said.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.