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Budget, taxes top concerns

Chiropractor Joseph Nicola grew up in Las Vegas, but that doesn’t mean he’ll live the rest of his years here.

These days, Nicola said he spends way too much time dodging the rocky shoals of a broken economy, maneuvering between Scylla and Charybdis, falling revenue on one side and rising business fees on the other.

Nicola blamed lower insurance reimbursement rates for his practice’s revenue declines. Business is up, but it takes longer than ever to extract payment from insurers, who seem every day to find "more unique and creative ways to deny claims," he said.

That scarcer revenue has to cover higher business costs. Nicola’s license to own an X-ray machine? It’s jumped from about $150 annually a couple of years ago to $500 a year now. His chiropractor’s license? It costs more here than it would in neighboring California. His office furniture, his computers, his equipment? All taxed annually, even though he paid a sales tax when he bought the goods.

"That’s how they spell ‘tax’ in Nevada — ‘F-E-E,’" Nicola said. "There aren’t necessarily taxes, but they charge fees on everything, and some of those fees have doubled in the last two years."

Nicola echoes a common complaint among local businesspeople. The state’s budget and taxes took the top spot by far in a recent Review-Journal poll asking Southern Nevada professionals to list the most important issues the Nevada Legislature must address when its session begins Feb. 2. Nevada’s fiscal climate came in well ahead of previous surveys’ big issues, including education and infrastructure. Those two topics ranked a distant second and fourth in December’s poll, with the state’s high foreclosure rate placing third.

Other topics business managers and executives said they’d like to see the Legislature deal with include the Nevada Clean Air Act’s ban on smoking where food is served, and the effect that’s having on restaurants and taverns; homeowners’ association regulations; economic diversification; insurance reimbursement rates to doctors; and jobs and population growth.

But the state’s budget and taxes lead the way, simply because few other issues matter if Nevada can’t iron out funding for basic services, said Diane Fearon, president and chief executive officer of Bank of George and a survey respondent who, like Nicola, picked the state budget and taxes as her No. 1 legislative issue in 2009.

If they agree on the key concern confronting the Nevada Legislature, businesspeople agree less on how to approach Nevada’s fiscal woes. Asked to choose from cutting pay for state workers, paring program expenditures and increasing taxes, the largest number suggested a combination of some or all of those choices. Reducing pay and benefits for public-sector workers came in second, with program cuts following third. Increasing taxes proved the most unpopular solution.

Place Fearon in the combination camp.

She said she hasn’t yet studied the state’s budget in detail, so she didn’t want to identify specific potential spending cuts or tax increases. But she said it would be tough to close a gap between projected revenue and the Nevada budget without looking at all options.

"It is not responsible to increase budget outflows at the same time that inflows are decreased," she said. "However, the safety net of civilized society requires that basic needs must be met for our citizens."

Fearon said she’d also like legislators to consider the gap between bank taxes and levies on other businesses. Banks in Nevada pay a 2 percent payroll tax, while all other businesses pay 0.7 percent on gross payroll.

Survey respondent Allen Puliz also opted for a combination of measures to address the state’s finances. But his combination excludes tax increases. He’d rather see cuts in state workers’ compensation, as well as reductions in program expenditures. That’s because higher taxes could force him to lay off more employees beyond the 22 percent of workers he’s already let go at The Puliz Cos., a statewide moving and storage business.

"I wish the government could cut enough, but I don’t think they will," Puliz said. "Our government is incapable of cutting. They never have cut. Do a little graph on what government has spent for the last 10 years. It’s always been a straight-up line."

Interior designer Leslie Parraguirre said she has different priorities. Education rates as Parraguirre’s biggest concern, and tax increases could help the local school system’s funding crunch, she wrote. She doesn’t want to see further cuts in education.

"We have had a sweet ride in the area of taxes," she wrote in the survey. "Surely, we could pony up for the children of our state."

Asked in an interview to elaborate on her comments, Parraguirre said the quality of local schools helps determine whether new residents want to move to Las Vegas, so a struggling educational system carries long-term implications for the community’s vitality. Plus, as a business owner, she wants to draw her staffers from a broad pool of well-trained critical thinkers.

Parraguirre said she’s grown concerned enough about local schools that she recently pulled her 14-year-old daughter out of a public school in Summerlin and enrolled her in a private school for the first time. It’s not that Parraguirre — whose husband, state Supreme Court Justice Ron Parraguirre, volunteered to take a $30,000 pay cut because of the state’s fiscal situation — wants to pay higher taxes. It’s that she thinks education should come first.

"I wish people would stop focusing on new taxes being such a heavy hit and start thinking more about the longevity of our community," she said.

But Nicola said he and other associates in the small-business world can’t sustain any more expenses. They want cost-cutting first. In an economy where consumers scrounge for values and make discretionary purchases only when they think they’ve found a bargain, covering higher taxes by raising prices isn’t going to swing it for many smaller operators, he said. Nevada runs many viable and important programs, he acknowledged, but it’s time to gauge what services work and abandon the initiatives that fail.

"In hard economic times, you have to take a hard-line stance on what programs are really working. Evaluate them based on how much benefit they offer for the amount of money we’re spending on them," he said. "If statistics show a program isn’t helping people or changing their lives, then that program needs to go away."

The alternative, new taxes, could push Nicola and other entrepreneurs to relocate. A gross-receipts tax, for example, would collect money from businesses that didn’t even post profits. A company might turn $1 million in sales, experience a loss and need a line of credit to cover a gross-receipts tax, and that would "cripple" small operators, Nicola said. He said he knows several small-business owners who would leave Nevada if they faced such a levy.

"The frustration for a lot of business owners involves the fees we get walloped with here in Las Vegas and in Nevada in general," he said. "We don’t have an income tax, but every business fee is five to 10 times higher than it seems to be in every other state. All these different little fees add up, and it gets burdensome. Every other month, a new fee comes in, and you have to write another check."

If taxes and fees increase and legislators fail to reform insurance-reimbursement practices, Nicola said he’d consider moving to Texas, Arizona or Washington, none of which seem to have the reimbursement problems of Nevada.

To survey participant Frank Martin, embracing wage cuts at the state level would be almost heroic.

Martin, president and chief executive officer of Martin-Harris Construction, laid off 35 percent of his staff in late 2008. He’s frozen wages for 2009, and he and his senior managers volunteered to turn back their pay to levels they earned on Jan. 1, 2007. Those types of measures prevail among his peers in the local construction sector, he said.

Martin called Nevada Gov. Jim Gibbons’s suggestion for 6 percent pay cuts for state workers "courageous," and he noted that the alternative to smaller paychecks is none too pleasant.

"The next step, instead of a (pay) rollback, is to simply cut the number of employees," Martin said.

Nor does Martin think it’s wise to raise taxes on struggling businesses. Local casinos have seen their revenue slip by double digits in the last year, and they have the layoffs to match their dwindling sales.

"Why should government employees be isolated from everything that happens in the private sector? When things get good again, you can start allowing people to catch up, but during this period, all of us have to hurt," Martin said.

If the Legislature does decide to raise taxes, Puliz said he’d prefer an increase in the sales tax, perhaps expanding it to cover services. Such a tax would affect all purchasers equally. Plus, there’s an existing infrastructure to collect sales taxes, so governments would need less new bureaucracy to implement an altered sales-tax regime. By contrast, a gross-receipts tax would unfairly target unprofitable firms, and a hotel-room tax could turn off tourists in a newly price-conscious environment.

"I’d rather not see tax increases, but my gut’s telling me we will have some," Puliz said. "Hopefully, they’ll at least keep it reasonable. Usually, when people say we have to redo our whole tax system, that means they want to make government bigger."

Contact reporter Jennifer Robison at jrobison @reviewjournal.com or 702-380-4512.

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