Economic Forum weighs state revenue projections

CARSON CITY -- After 85 days of political posturing, the real battle to control state spending will begin today .

That's when Nevada's Economic Forum will update tax revenue projections that politicians must use to build the 2011-13 state budget.

The panel of economic experts will spend most of the day hearing projections of gambling, insurance and sales tax revenues.

Then it will announce its prediction, sparking fireworks between anti-tax Republican Gov. Brian Sandoval and legislative Democrats who want more money to spend on education and social services.

"Then you have a decision about reality; so far we have had more bickering than bargaining," said Sen. Joe Hardy, R-Boulder City. "The whole state is waiting to see which way to jump."

Expect Sandoval, who is scheduled to make a televised speech Tuesday evening, to attempt to seize the spotlight from Democrats who have spent four months attacking the executive budget by highlighting how college students, public school teachers and the sick and poor would suffer if Republicans don't agree to raise taxes.

So far the governor, who was elected by a landslide margin in November largely on a promise to oppose tax and fee increases, has stood silent amid the criticism.

Administration sources now say he is seeking to shift the debate from talk of which Republicans will buckle and join Democrats to raise taxes to pressing Democratic lawmakers to defect from their leaders and approve a version of the budget he supports.

Sandoval's team is betting they'll succeed based on extra revenue that will be added to their proposed $5.8 billion general fund budget to placate some opponents and the fact their plan requires just a simple majority to pass, as opposed to the two-thirds supermajority Democrats need to increase taxes and override a veto.

"It is easier to pass our budget than it is to pass a tax," said an administration source who wasn't authorized to talk on the record. "Once we have Economic Forum then the push is on."

Sandoval's current budget proposal represents a 6.4 percent decrease in general fund spending from 2009-11.

It includes major cuts in education spending, including a $238 million cut to K-12 education and $162 million less for the Nevada System of Higher Education.

Sandoval also seeks to push more responsibility on to county governments while diverting money from Washoe and Clark counties to the state.

The impact on Clark County government, according to county officials, totals $242 million, with $117 million coming from continuing a state property tax diversion that was set to expire this year and using that to help fund the University of Nevada, Las Vegas.

If the past is any indication, Sandoval will seek to quell unrest over the cuts by making budget amendments that direct extra Economic Forum revenue to offset the most controversial cuts.

Last week, when a committee that works beneath the Economic Forum announced an extra $72 million in proceeds, Sandoval said he would use it to restore funds to autism, mental health and substance abuse programs, among others. He also directed millions of dollars to programs in the districts of rural, Republican lawmakers he needs to stick with his plan to block tax increases.

"We wanted to mitigate some of the cuts," Sandoval Chief of Staff Heidi Gansert said. "We understand this is a very difficult fiscal time for Nevada."

DEMOCRATS WANT NEW TAXES

Democrats will counter the governor's effort with a final push of their own that began coming into focus last week after business leaders from the Nevada Resort Association, Nevada Mining Association and the Las Vegas Chamber of Commerce met with state Senate Majority Leader Steven Horsford and Assembly Speaker John Oceguera, both D-Las Vegas.

Democrats are looking to build business community support for a plan sources familiar with the meeting say could generate as much as $1.4 billion, with about half coming from delaying the expiration of taxes that are scheduled to expire and the rest from new taxes.

Proposals discussed included broadening the sales tax to include services at a rate of 1.5 percent to 2.5 percent and potentially lowering the existing rate on goods.

Also on the table is a franchise tax similar to one in Texas that could be coupled with a reduction or elimination of the modified business tax.

The revenue would not necessarily be piled on top of Sandoval's budget. Some of it could be used to replace unstable or one-shot measures in the executive budget that Democrats don't like, such as the governor's proposal to lower school district construction bond reserve requirements and use the freed-up money for classroom operations.

Democrats could use business support for tax increases to provide anti-tax Republicans political cover to switch positions.

The chamber has already said it might support tax increases if the Legislature approves dramatic collective bargaining and education reforms that would greatly reduce government spending.

The Nevada Resort and Mining associations have also indicated they could support tax proposals that spread the bulk of Nevada's tax burden beyond the gambling and mining industries.

"I have a concern about the level of cuts to education that are being proposed," said Keith Smith, president and CEO of Boyd Gaming and chairman of the Resort Association. "We are all concerned about the level of our education here in the state of Nevada, and we want to see it improved."

Chamber lobbyist Sam McMullen said he wants to learn how far Democrats planned to go with money-saving government reforms and gaining insight into how they planned to generate money to pay for programs above and beyond what Sandoval is willing to fund.

"They are building toward some kind of conclusion here, and I'd like to know exactly what they think the budget is," McMullen said. "It is not definite yet."

DISAGREEMENT AND TIMING

How far the industry leaders are willing to go in opposition to Sandoval's plan remains in doubt, however. Sandoval is a popular political figure with a national profile.

"That discussion has been brought up," said a source familiar with the dynamic. "How do we rationalize this with the governor."

The business community is also divided over the tax issue.

The Keystone Corp., an anti-tax business and political group in Las Vegas, is openly criticizing the chamber for its lobbying efforts.

"It is pretty clear the Las Vegas Chamber is out once again pushing for a tax increase that I'm sure most of their members would oppose," said Keystone Group lobbyist Robert Uithoven, referring to chamber support for previous tax increases in 2003 and 2009. "Most of the business community and most of the job providers in the state support the governor's budget."

If Democrats have any hope of flipping enough votes to pass tax increases, they don't have much time to overcome indecision and settle on a plan.

"Everybody is feeling like something is about to start happening," said Billy Vassiliadis, president of the lobbying and public relations firm R&R Partners and one of Nevada's most influential political advisers. "The calendar says it has to."

For months Republicans have steadfastly refused to budge from Sandoval's position and Democrats, while repeatedly saying the proposed budget doesn't have enough spending, have refused to publicly discuss an alternative budget plan.

And the reforms to collective bargaining, education and construction defect liability law that Democrats have proposed are tepid compared to what Assembly Republicans and the chamber sought.

Republicans "asked for political capital to be spent, and there was no political capital spent," Hardy said of the Democrats' efforts.

Democrats' plan to politically browbeat Republicans by holding rare "Committee of the Whole" meetings in the Assembly and the state Senate and forcing nonbinding votes on the most controversial budget cuts haven't worked either.

The discussions deteriorated into Democrats accusing Sandoval of being uncaring toward schoolchildren, public employees and the poor, and Republicans alleging Democrats are putting preservation of government and education bureaucracies ahead of struggling taxpayers.

"It seems like it has been an exercise in futility," state Senate Minority Leader Mike McGinness, R-Fallon, said during one of the meetings.

"We can't hold public employees harmless while the rest of the state comes up short," he said later.

DENOUEMENT DOUBTFUL

If Republicans can hold the line and block a Democratic alternative until June 6, the scheduled end date of the session, Sandoval gains the upper hand. That's because it would take a special session to conclude the budget, and in Nevada the governor controls the timing and the topics of such a session.

The next real deadline facing law­makers and the governor after June 6 comes on June 30, the last day of the fiscal year.

Without a budget state agencies wouldn't have the money appropriated to stay open. No procedure is in place to deal with such a contingency.

And so far, neither Sandoval nor Democratic legislators have identified a foolproof path to a conclusion. Nor do there seem to be many compromises on the horizon.

Said Hardy: "Everybody pretty much agrees this is not a happy place."

Contact reporter Benjamin Spillman at
bspillman@reviewjournal.com or 702-477-3861.