As North Las Vegas scrambles to stay afloat financially, state officials are keeping a wary eye on the city.
They could wind up taking over North Las Vegas' finances if the cash-strapped city is unable to balance its fiscal 2012 budget soon and is forced to declare a severe financial emergency.
The city "is certainly on our radar," said Christopher Nielsen, interim executive director of the Nevada Department of Taxation. "We're looking at them."
City Council members have pledged to do all they can to keep the city solvent and avoid state intervention, but city staffers have lately admitted the scenario is a real possibility as they struggle to patch an $8.6 million hole in the budget.
The city, which has faced plummeting property tax and other revenues during the economic slump, is "in an extraordinarily precarious situation," Al Noyola, acting director of administrative services and finance for the city, said earlier this month.
"Every day we delay ... the deficit continues to grow," he said.
The details of exactly how a state takeover of the city's finances would work are still sketchy. No formal process has begun. The city can avoid such action by coming to concessions agreements with its employee unions or choosing from an unpalatable list of options, including laying off much of its remaining nonpublic safety staff or selling its new $300 million wastewater plant that is mired in a federal lawsuit. State officials have a lot of leeway, under the law, in how they handle the finances of entities they take over. And officials have no experience taking over the finances of a municipality the size of North Las Vegas. Indeed, the Department of Taxation might not have enough staffers to handle such a job.
"There's a possibility we would have to appoint a third party" to deal with it, Nielsen said. "I don't think we've ever gone down this road."
But, basically, if the city were to declare a financial emergency, the state would "take over (financial) management and help formulate a plan to get them back whole," he said. "It's a pretty formal process, and we haven't even begun that process."
The last time the state took over a municipality's finances was in 2005, when White Pine County had overspent its budget by $250,000 despite more than $1 million in cuts.
State officials took charge of all financial decision-making for the rural county on Nevada's eastern border, and the oversight lasted nearly four years.
The first thing state and county officials did was clamp down on expenses in White Pine. Then they levied temporary taxes on sales, hotel rooms and governmental services to quickly build a reserve fund.
Five years before that takeover, state taxation officials seized control of the White Pine County School District because of financial problems. The state had final say over the district's expenditures for five years.
In 2001, state officials disincorporated the tiny mining community of Gabbs because declining local tax revenues couldn't support the operation of the city's government.
Those entities' budgets were much smaller than North Las Vegas' budget.
In May, the City Council approved a 2012 operating budget of $125 million, and a total budget of $504.9 million. The budget included slashing 258 jobs across city departments, including those of roughly 35 firefighters and a dozen police officers, to bridge a $30.3 million shortfall.
That budget was thrown into disarray earlier this month when the police union won a court decision that prohibited the city from proceeding with layoffs of nearly 40 union members. The city's firefighters union also filed a lawsuit to halt the layoffs of 35 of its members.
Because the firefighters union contract, as amended earlier this year, contains language almost identical to that of the police officers union, the city expects to have to add those positions back to its budget too.
That means North Las Vegas has to look elsewhere for the $8.6 million it would have saved with those public cuts or face an unbalanced budget.
The city now has an ending fund balance of $7.2 million -- about 4.8 percent -- which is enough to make one payroll. A municipality whose ending fund balance falls below 4.1 percent is in violation of Nevada Administrative Code, Noyola said. That could trigger state action to take over the city's finances.
The City Council is to consider an amended budget including the $8.6 million in new cuts at its July 20 meeting. For every week cuts are delayed, the city falls another $165,000 into the hole.
A state takeover, "if it were to come to pass, would be unchartered territory for a jurisdiction this big," retired state archivist Guy Rocha said.
State officials also have been keeping an eye on the city of Reno, which also is facing dire financial troubles.
Noyola has said that the Department of Taxation's first step in taking over North Las Vegas' finances would be to raise taxes on residents "to the maximum extent" allowable under the law.
Residents there already pay the highest property taxes in the valley.
"They've had the highest taxes for years," said Assemblywoman Marilyn Kirkpatrick, D-North Las Vegas, who chairs the Assembly's Committee on Taxation. "If the state takes over, what services are the residents getting for having the highest taxes? I'm not sure what's going to happen. I'm worried for the residents. I'm frustrated and sad we're at this point."
If the state does step in, North Las Vegas will have to "be in good standing for three years before they can get their city back," Kirkpatrick said.
She agreed that residents likely would wind up footing the bill through higher taxes, she said.
"What happens is the residents, who are doing all the right things, wind up making up the difference no matter what," she said.
Mayor Shari Buck and Councilwoman Anita Wood repeated on Thursday their pledges to do what it takes to avoid a state takeover of the city's finances.
"We need to take care of our own problems," Buck said. "We don't need to ask the state to come do what we're not willing to take care of."
The two have disagreed on whether to cut public safety in the city to save money. Buck was the only council member to vote against the budget that included such cuts. But they agree that the city's best bet remains reaching agreements on contract concessions with its employee unions.
"That is what needs to happen," Wood said. "Otherwise the residents pay the price."
The city has gone through several rounds of budget cuts since late 2008 and eliminated or frozen about 1,000 positions.
In June, 188 workers were laid off. Another 44, all North Las Vegas Detention Center workers, were let go in October after the jail lost about a third of its inmates to a new lockup for federal inmates in Pahrump.
The city employs about 1,300 people, including some 850 public safety workers.
Contact reporter Lynnette Curtis at email@example.com or 702-383-0285.