Governor: Shortfall increased

CARSON CITY -- Gov. Jim Gibbons said Monday that the state's budget deficit has grown to about $910 million, but because of extra money discovered by the state treasurer he can avoid additional cuts by state agencies and layoffs of workers.

Gibbons said the shortfall -- estimated at $898 million a week ago -- has risen, but he will not have to ask state agencies to reduce their spending by a combined $52 million, or 3 percent, as suggested during a briefing last week.

That is because state Treasurer Kate Marshall and her staff have discovered $60 million in unclaimed property funds and bond sale savings.

"I think we have helped the state avoid layoffs," Marshall said. "My staff is putting in 12-hour days."

When the state budget was approved in June, the governor and legislators expected state tax revenue would reach $6.8 billion for the two-year budget period that ends June 30, 2009.

But tax receipts have fallen about $600 million, or 8.7 percent, short of expectations because of an economic downturn spawned by the collapse of the real estate market.

Gibbons will meet with legislative leaders again Wednesday and then try to finalize where the cuts will be made.

Some of the savings will come from delaying about $180 million in construction projects and using all $267 million in the state's rainy day fund.

The administration has declined to release its proposed cut list.

"One thing we are dedicated to and that is not digging further into the operational budgets (of state agencies)," the governor said.

It's essential that the state make the tough decisions about reducing spending," the governor said. "By reducing state spending during this tough economic time, we won't be balancing our budget on the backs of Nevada residents."

When he made initial cuts of $565 million in January, the governor reduced state agency spending by 4.5 percent, or $285 million.

Senate Majority Leader Bill Raggio, R-Reno, characterized the meetings he and other legislators have had with the governor as "unusually cooperative."

State Budget Director Andrew Clinger said the administration and legislators have agreed on "99 percent of the things on the (cut) list."

Raggio said legislative analysts differed slightly with Gibbons' projections on the amount of the deficit, but expect to resolve their differences by Wednesday.

"We have a little difference, about $10 million," said the senator who met with Gibbons at the Capitol.

Senate Minority Leader Dina Titus, D-Las Vegas, who sat in on the meeting via telephone, said she expects the budget shortfall to be addressed in the next few days without any need to cut operating budgets.

"It looks like we're going to cut just about everything that can be cut without taking more out of operating budgets for services," she said. "And I support that."

Titus said some of the cuts will be difficult to accept, such as the expected elimination of a new program to pay for dental and vision care for the poor.

"But it's a new program and right now we just don't have the money for it," she said.

Titus said the real concern once the latest round of budget cuts is accomplished is what happens if state tax revenues continue to lag.

"If we have to go in and cut again it will be bad," she said. "Three is nothing left to cut but operating budgets."

Gibbons said they hope to reduce the deficit slightly if they can secure additional federal funds to pay for some children's programs.

He said he also wants to avoid taking $1 million in funds set aside for homeless programs.

Under that program, Clark County homeless agencies would receive $600,000 and use the money to provide housing for about 375 homeless people.

Gibbons also hopes to secure $2.5 million in additional funds by renting the Southern Nevada Correctional Center in Jean to Clark County or federal law enforcement officials.

The 500-bed prison will be closed in July as part of the initial round of cuts Gibbons ordered in January.

By closing the prison and sending inmates to other prisons in Southern Nevada, officials hope to save $25 million.

Gibbons said the recent state Supreme Court ruling that free meals provided by casinos to customers are not subject to taxation has not been factored into the shortfall yet, although the effect of the ruling could be significant. Some analysts said it could cost the state tens of millions of dollars in revenue.

Gibbons said it is premature to calculate the effect of the ruling because a decision has not yet been made on how to respond.

"It is a risk," he said. "It's something we're trying to figure out what the final determination is going to be from a legal standpoint."

Josh Hicks, general counsel to Gibbons, said a couple of legal avenues are being explored.

There is also the potential of reaching some type of settlement with the casinos that have sought refunds for taxes paid on the meals given away to patrons and employees, he said.

Besides Raggio and Titus, lawmakers who have been meeting with Gibbons are Assembly Speaker Barbara Buckley, D-Las Vegas, Assembly Minority Leader Heidi Gansert, R-Reno, and Assemblyman Morse Arberry, D-Las Vegas.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901. Contact Capital Bureau reporter Sean Whaley at swhaley@reviewjournal.com or 775-687-3900.