State tax revenue off mark

CARSON CITY -- State government's financial woes worsened Thursday, when the Department of Taxation released reports showing tax revenue falling further behind projections.

Revenues from four major taxes -- sales, business payroll, insurance and real property -- were below expected levels for July through September, the department announced Thursday.

As a result, Gov. Jim Gibbons might have to cut more than the anticipated $285 million from the state's $6.8 billion, two-year budget when he hacks state spending in January.

"It is certainly going to make the hole bigger," state Budget Director Andrew Clinger said.

Gibbons has refused to identify where he might cut.

Clinger denied that Gibbons has asked state agency directors to request employees voluntarily take two weeks off without pay to avoid layoffs. That option, however, might be gaining favor with department directors, he said.

"The departments are looking at anything they can to make the cuts," Clinger said.

The budget was built on projections made in May by the Economic Forum, a group of private business leaders, who foresaw tax revenue growing at an overall rate of 5 percent during the current fiscal year.

The state reported that sales tax revenue fell $24 million below projections for July through September, the first quarter of the state's fiscal year.

The Gibbons administration did not know until Thursday that revenue from the business payroll tax was off by $13 million for the same period. Insurance premium taxes fell $3 million short and real property taxes came in $6 million less than projections.

Last week, the Gaming Control Board reported gaming taxes were about $3 million less than projected. On top of that, state government must find $15 million to cover a shortfall in sales taxes for public schools.

Clinger said the administration might not announce the size of the shortfall until it makes cuts in January.

Despite the shortfall, most state revenue sources, except for sales and real estate taxes, are generating more money than last year.

Clinger attributes the revenue shortfall to the nearly 50 percent drop in home sales in Las Vegas during the past year and a growing unemployment rate. Nevada's unemployment rate is 5.2 percent.

And as he has pledged since he campaigned for governor in 2006, Gibbons vowed in a statement Thursday not to support any tax increase to reduce the shortfall.

Last month, Gibbons ordered most state agency directors to prepare lists showing how they would reduce their spending by 8 percent. He also ordered a state employee hiring freeze in October. The governor has exempted the prison system, children's programs, public safety agencies and public school education from budget cuts.

Critics fear the administration is looking at mental health and Medicaid spending for reductions. University and higher education programs also probably will take a hit since statewide enrollment is down.

Clinger would say only that the administration wants to reduce the hits on state agencies such as Health and Human Services and the Nevada System of Higher Education by postponing planned construction projects. That money would help offset projected cuts.

Gibbons was not available Thursday for questions from the media about the growing shortfall, his press secretary, Melissa Subbotin, said.

Republican legislative leaders have backed Gibbons' effort to balance the budget through spending reductions. They point out that even if Gibbons cuts $400 million from the budget, state government spending would be $600 million, or 10 percent, greater than under the previous budget.

"If you don't have the revenue, you have to make reductions," said Senate Majority Leader Bill Raggio, R-Reno. "We have to have a balanced budget (under the Nevada constitution). There isn't any other option."

However, Senate Minority Leader Dina Titus, D-Las Vegas, said Gibbons should consider tapping the state's $267 million rainy day fund.

"You just can't hack 8 percent out of mental health and disability spending," she said. "Otherwise, they are never going to catch up. They already have long waiting lists."

Titus said last week that Gibbons and legislators should agree in advance on a rainy day allocation and legislators could approve it during a one-day special session. Gibbons, however, has the sole power to call the Legislature into a special session and has ruled out using rainy days funds at this point, Clinger said.

He might consider such an appropriation when the Legislature next convenes in a regular session in February 2009.

Contact Review-Journal Capital Bureau chief Ed Vogel at evogel @reviewjournal.com or (775) 687-3901.