Treasurer’s, teachers union’s attorneys says state revenue plans are legal

CARSON CITY — Lawyers for the governor and the Legislature weren’t talking today about whether a 3 percentage point increase in the room tax and borrowing up to $150 million could be used to deal with the state’s $286 million deficit.

But lawyers for the treasurer’s office and the Nevada State Education Association, which circulated petitions calling for the room tax increase, have determined the proposals can be legally adopted by the Legislature, even during a special session.

“It would be one way to alleviate some of the shortfall,” Lynn Warne, president of the education association, said after talking with her lawyer.

Deputy state Treasurer Steve George said today that his office’s lawyers have concluded the “line of credit plan” is a legal way for the state to acquire additional revenue to deal with the deficit.

Treasurer Kate Marshall proposed Thursday that state government secure a $150 million loan from the Local Government Investment Pool to cover some of the shortfall.

“We provided them a plan for additional funds,” George said.

After meeting Thursday with legislative leaders, Gov. Jim Gibbons said lawyers first must look at the proposals and other ideas to determine if they can be legally adopted.

Gibbons did not rule out calling the Legislature into a special session in December if lawyers decide legislative approval is needed for the proposals and other suggestions to reduce the deficit.

Josh Hicks, Gibbons’ chief of staff, said today that state lawyers will be looking at Marshall’s plan over the next few days.

Hicks said the room tax plan is a “last option.” There are other proposals more promising than the room tax, he said.

Hicks would not say what they are. He said Gibbons and legislative leaders have agreed to keep their plans secret at least until a meeting Tuesday.

Because of declining state revenue, state Budget Director Andrew Clinger said Thursday that state government needs to cut spending by another $286 million during the current fiscal year that ends June 30, or find additional sources of revenue.

Gibbons and legislators already have cut spending by $1.2 billion since January. State government operates under a two-year $6.8 billion budget.

Voters in Clark and Washoe counties expressed their support for the room tax increase proposal by backing an advisory ballot question on Nov. 4.

This tax would have brought in about $130 million a year before the recession, according to a legislative analysis.

However, room rental prices have dropped dramatically and the amount produced by the tax would be less. All but $1.6 million would come from lodging in Clark County, according to the legislative analysis.

George said the Local Government Investment Pool consists of about 85 local governments and school districts in Nevada whose funds are invested by the treasurer.

Marshall has invested about $750 million on behalf of the pool. She said the state would have to pay about a 2.5 percent interest rate to secure the $150 million loan.

Traditionally the state has not borrowed to cover ongoing general government costs. It has limited borrowing to the construction of public buildings, roads and other projects.

But Lorne Malkiewich, director of the Legislative Counsel Bureau, said the state constitution says only that sufficient taxes must be levied or other sources of revenue used to balance the budget.

Unlike the federal government which has $400 billion-plus annual deficits, Nevada is required to have a balanced budget by its constitution.

The constitution, enacted in 1864, says nothing about lines of credit, but it does say the state can incur debt, mounting to no more than 2 percent of state government’s assessed value, as long as there are taxes to pay off the debts within 20 years.

Warne’s organization collected 130,000 signatures on petitions this fall that call for the Legislature to adopt the room tax increase during the first 40 days of the legislative session in 2009. The advisory question was placed on the ballot to determine public support for the increase.

She maintained that as long as the petition language was adopted by the Legislature, it would be lawful to approve the tax increase during a special session and put the increase into effect immediately.

Under the petition, money from the room tax increase could be used during the first two years for any state government purpose. After that, funds must be used for educational programs and salaries of education personnel.

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