State should maintain large rainy day fund, LV Chamber of Commerce report says

CARSON CITY -- Legislators and the governor should increase the rainy day fund and other budget reserves in good economic times, which would limit the need for massive spending cuts during recessions, according to a Las Vegas Chamber of Commerce report.

In the report, the chamber questioned the wisdom of legislators and then-Gov. Kenny Guinn in 2005 when they gave $300 million in tax rebates to citizens.

That money could have been put in reserves or used to pay for construction projects that the state financed by loans on which interest must be paid for 20 years, the chamber said in the report.

Gov. Jim Gibbons on Tuesday lauded the chamber for its proposal and said he hopes it will be adopted by the Legislature. But because the state is in such a deep recession, Gibbons questioned how reserves could be increased now without making "major cuts" in state agency budgets.

Chamber of Commerce Chairman Steve Hill said Nevada went through four of its best years during the 2002-06 period and didn't take advantage of the opportunity to put more money in reserves.

"If we had, we wouldn't be out of the problem we have today, but there wouldn't be so many services at risk," he said.

State government set aside only $446 million in reserves, including $267 million in its rainy day fund, when the Legislature adjourned in June 2007, the chamber said in its sixth and latest report on state government spending.

That is less than half that legally could have been put in reserves, according to the chamber.

If reserves had been funded to maximum levels, that would have limited budget cuts made in 2008 by Gibbons and the Legislature during two special sessions.

Assembly Speaker Barbara Buckley, D-Las Vegas, said the chamber proposal to increase budget reserves is something she supports and has been discussing in town meetings for the past four months.

"In bad times, we destroy everything we just have built up," Buckley said.

Under her proposal, the state would be forced to put 1 percent to 2 percent of every additional dollar it receives in a "budget stabilization account."

She added she hopes to find a way to enact the proposal after the Legislature starts Feb. 2.

The Chamber of Commerce does not specify what steps the state should take to increase its reserves, but the chamber does suggest what will happen if the state doesn't.

The state "is faced with a clear choice -- continue on the same path and repeat the boom-bust funding cycle, or mandate the funding of reserve accounts" at much higher levels.

Gibbons is expected in his State of the State address on Thursday to recommend state spending of $5.7 billion over the next two-year period.

Gibbons's new budget request will be about 16 percent less than the one approved in June 2007.

Regarding the $300 million tax rebate, Buckley noted it was "very popular" with voters. The rebates came after the 2003 session when Guinn and legislators were criticized for approving a record $833 million tax increase.

"In retrospect, it would be nice to have that $300 million back," Buckley said.

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