Use of fund eyed

CARSON CITY -- Is it raining yet?

With Nevada facing a $285 million budget shortfall, and $268 million gathering dust in the state's rainy day fund, some are calling on Gov. Jim Gibbons to tap the savings account and spare the ax.

"I don't think the purpose of the rainy day fund is to hold the money forever," Senate Minority Leader Dina Titus said Wednesday. "The purpose is to use it when you need it and put it back in when times are flush."

Though Gibbons hasn't ruled out using the fund, the governor has said he prefers to make budget cuts and wait until February 2009, when the next regular legislative session begins, before tapping rainy day funds.

Gibbons on Tuesday ordered state agency directors to detail even deeper budget cuts, asking them to outline spending reductions of 8 percent. On Oct. 15, he requested to know how the directors would achieve 5 percent cuts.

State Budget Director Andrew Clinger attributes the revenue decline to a 50 percent drop in home sales in Southern Nevada and decreases in furniture, home furnishings and motor vehicle purchases.

The Fund to Stabilize Operations of State Government, as the rainy day fund is officially known, was established in 1991, when the state was flush and Sen. Ray Rawson, R-Las Vegas, and members of the Senate Finance Committee decided that instead of spending every dime, they ought to put some money aside for the inevitable rainy day.

Forty-four other states had such funds, and legislators agreed it made sense for Nevada to put money aside for economic emergencies.

The governor's call for budget cuts in the face of the shortfall has highlighted disagreement over when the fund should be tapped.

Because the Legislature meets every other year, Gibbons cannot use rainy day funds before February 2009 unless he convenes a special session of the Legislature.

If the shortfall gets worse before then, Titus said, Gibbons should call legislators into a special session so lawmakers can approve using the fund. Assembly Speaker Barbara Buckley, D-Las Vegas, also has called for the fund to be used to offset the shortfall.

The governor and the Legislature would have to declare a fiscal emergency. The law says the revenue shortfall must equal at least 5 percent of expected general fund revenue.

"The governor has said he will look at using rainy day funds," Gibbons spokeswoman Melissa Subbotin said Wednesday. "But he does not feel we should solely rely on rainy day funds. We are too early in the budget cycle to dip into the rainy day fund now."

Gibbons compares the fund to an individual's saving account, Subbotin said.

"If you lose your job, you don't go out and spend everything in your saving account," she said. "First, you would look to where you could cut your expenses."

Gov. Kenny Guinn took a similar approach to cover most of a shortfall brought on by the recession after the Sept. 11, 2001, terrorist attacks. He cut state spending by $84 million, and when the Legislature convened in 2003 he won approval to use $135 million in rainy day funds to offset the remaining shortfall.

That appropriation, the only time state government has tapped the rainy day fund, left $1.3 million in the account.

Titus and Buckley have not said Gibbons should use only rainy day funds to cover the shortfall. They advocate delaying construction programs and other expenditures.

The rainy day fund is scheduled to grow by another $36 million on July 1. That money was set aside to offset potential losses in litigation.

"I wouldn't reduce the rainy day fund to zero, but we should use a share before we cut ongoing state programs," Titus added.

Buckley warned Tuesday that all Nevadans would be hurt by an 8 percent budget cut. Reducing mental health spending, for example, could lead to mentally ill people clogging hospital emergency rooms, delaying treatment for others.

Gibbons has exempted children programs, public schools, prisons and public safety agencies such as the Nevada Highway Patrol.

University system Chancellor Jim Rogers called the proposed cuts a "death warrant" for the Higher Education System of Nevada. He would have to reduce spending for colleges and universities by more than $100 million.

However, Gibbons and others have pointed out that the record $6.8 billion budget approved by the Legislature in June is $1 billion higher than the previous two-year budget. Even with the projected cuts, state spending still would be $700 million higher than during the previous budget period.

The shortfall could grow next week, when state government receives reports on revenue from sales taxes, real property, insurance, business payroll and other taxes.

State Sen. Bob Beers, R-Las Vegas, predicted Gibbons will follow what Guinn did in 2003 and wait until legislators meet in 2009 before draining money from the rainy day fund.

"If the downturn becomes severe enough, the governor will do just that and use the rainy day fund," Beers said. "There are lots of things that can be done to push it off until the Legislature meets. I don't think it is necessary to have a special session."

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